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'Why Nations Fail': Will this be China's century?

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“There is certainly some more growth that China can easily score based on catch-up, but at some point, it’s clear that this sort of growth cannot continue, most of it can’t continue, unless China starts innovating its own technologies in order to do things more efficiently and also start innovating new products to appeal to consumers both at home and abroad,” Dr. Acemoglu says.

What limits China’s horizon is much like what limited the Soviets in the mid-20th century. Both are what Acemoglu calls “extractive” economies run by a narrow political elite largely for their own benefit. Such economies don’t innovate because innovation means letting new winners emerge in the economy as they outcompete existing power players, some of whom get bumped. China’s economy is dominated by large state enterprises, often run by family members of senior party officials.

Acemoglu does not believe that China can become an innovative economy without opening up its politics to real competition as well. “I think the Communist Party leadership is worried about this, but is probably more sanguine [than worried] that they can do it.” Public pressure could always force political reform, but it’s not clear that discontent is very widespread. And on the other hand, the elite might become “even more rapacious” in how they squeeze the economy. If Bo Xilai had continued his rise in the party, he might have taken China down that road, suggests Acemoglu.

“I think the country has huge potential, and it has achieved so much in thirty years," he said. "It was the country that had the largest number of people under the poverty line and it has become a country that is largely dominated by a middle class.

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