Arvind Subramanian (“Which Nations Failed?,” The American Interest, October 30, 2012) famously critiqued Daron Acemoglu and James A. Robinson’s best-selling Why Nations Fail: The Origins of Power, Prosperity, and Poverty (2012) with a single picture. The graph, a scatter plot with Economic Development (GDP per capital in Purchasing Power Parity) on the vertical axis and democracy (Polity IV) on the horizontal axis, showed exactly the positive slope one would expect from the book’s thesis. Subramanian then inserted two dots, representing the critical outliers in the relationship. India with a democracy score of eight sat well below the fitted line. China, on the other hand, with a democracy score of zero was far above the line, having generated much greater wealth for its citizens than could be explained by its political institutions. The graph elegantly depicted what students of political economy often refer to as the China Puzzle—the striking increase in economic activity without corresponding political institutional development (Stromseth et al. 2017).
The China Puzzle is doubly important theoretically because it appears to offer evidence that countries can escape their legacies. In recent years, a fascinating turn in developmental economics has studied the historical (often colonial) origins of the property rights protections and security of contracts underpinning economic growth. The literature has been persuasive because the historical shocks have opened up the endogenous relationship, allowing scholars to pinpoint when institutions were created and which ones appear to be doing the work. One negative symptom of this literature, however, is that it offers little comfort to policymakers in countries bequeathed with low-quality institutions. How do they overcome their legacy of despair to generate growth? China’s success appears to offer a way forward for many developing country leaders.
In two new books, Yuen Yuen Ang and Nara Dillon tackle the China Puzzle from two very different angles. Ang is in search of an alternative framework for understanding China’s staggering rise. Dillon explores the historical development of China’s welfare state policy. Both employ broadly qualitative research designs and offer thick descriptions of events and key choices that provide depth and color, yet their methodological approaches are quite different. Ang bolsters her argument with rigorous case selection and extensive qualitative interviews, mapping economic development in three Chinese counties. Dillon relies primarily on a treasure trove of newly released archival sources and a historian’s nose for detail that allow her to trace the sources of power and policy positions of the key actors in her narratives.
Ang’s How China Escaped the Poverty Trap is the more ambitious of the two books. As if explaining modern Chinese economic development was not enough of a challenge, Ang has two even loftier goals. The first is methodological. She expresses a frustration with political science’s causality obsession and modeling approaches that deliver isolated snapshots of complex processes (p. 10). Instead, she follows John Miller, Scott Page, and other theorists of complex adaptive systems to propose a research design that embraces the coevolution of independent and dependent variables.
Ang’s second ambition is to apply this coevolutionary schema to how we understand economic development generally. Her argument is that the China Puzzle is a mirage and that there is no “poor economics and weak institutions” trap (p. 8). Rather, countries can leverage their existing weak institutions to jump-start economic development. This generates investment and business activity, which grow to the point that they require further adaptation of institutions to meet their changing needs. Innovative local leaders respond to these new needs with improvised institutional reforms that spur further economic development. Thus, institutions and economic development progress together in an escalating feedback loop of institutional strengthening and enhanced economic performance. If there is any Chinese secret in Ang’s story, it is the ability to generate a set of incentives for the bureaucracy that encourages improvisation in the face of economic pressure.
In her cases, Ang maps this coevolution of institutional change and economic development. The story of Forest Hills in Fujian province, chronicled in Chapter 5 (pp. 140–83) is emblematic of her approach. Here, she lays out the framework for the way in which nascent property-rights protection through personal relationships generated a spurt of development and new investors, which in turn required more formalized protections. Ang then applies her framework to well-endowed and poorly endowed countries in prosperous Zhejiang province and the poor central province of Hubei, respectively. She uses the paired comparisons to show the similar coevolutionary trajectories of these two locations with widely different starting points. At the same time, she illustrates how the two pathways are connected as investors departed Zhejiang for the inland in a “flying geese” model of spreading development.
The linchpin of Ang’s coevolution model is the incentive for adaptability and experimentation. What has China done to develop a bureaucracy that has the ambition to launch radical reforms, the capacity to diagnose emerging constraints and prescribe solutions, and the confidence to continuously reflect and reorient their approaches? Here, she builds on a dense literature on how China’s decentralization, combined with meritocratic promotion, has encouraged innovative policy solutions. While previous work has been quite shallow in its description of the system and in testing its implications, the best chapter of How China Escaped, Chapter 4 (pp. 103–41), explores the structure of the bureaucracy in depth, illustrating how promotion criteria have expanded over time to address new socioeconomic forces (pp. 172–77). Ang articulates a franchise model of local governance, whereby local officials operate within clear parameters set by elite authorities, yet are given enough space and incentives for local tailoring (p. 103). Most previous work on meritocratic promotion in China stops at elite-level local politicians (party secretaries and state heads). Ang, by contrast, shows that they represent less than 1% of local officials and, in additional, explores how China motivates the “street level bureaucrats” through direct bonus and informal compensation (pp. 108–9).
While this book makes for fascinating reading, it can at times feel too pat. Ang’s interlocutors often refer to mistakes they made and economic reform roads not taken, but the coevolutionary maps and corresponding analyses downplay these less fruitful approaches. It is remarkable how local leaders and bureaucrats so often stumbled into the right set of choices, and readers will wonder whether such fortunate decision making will travel beyond the Chinese context. More effort to describe the trial-and-error process that China watchers often see on the ground would have been useful. The author also tends to be stronger on China’s early stages of economic development when she can focus on how China overcame domestic barriers to the private sector. She does not apply her lens as thoroughly to China’s international economic exposure.
Finally, Ang only touches on the negative side effects of rapid economic development. Left out entirely in her discussion is the impact of development on economic inequality and policy approaches to redistribution. After all, as Yu Xie and Xiang Zhou have shown (“Income Inequality in Today's China,” Proceedings of the National Academy of Sciences 111 [no. 19, 2014]: 6928–33), China’s Gini coefficient has grown from .30 to a staggering .55 over the reform era.
The historical roots of this inequality is where Dillon picks up the story. Her starting puzzle in Radical Inequalities is how the welfare policies derived from a communist revolution committed to egalitarianism ended up establishing one of the most regressive welfare states in the world. Mao’s labor insurance program of pensions, health insurance and disability support, and maternity leave was only extended to a narrow “in-group.” The welfare state never managed to fully cover urban residents outside of the state factory enclaves, and rural peasants were excluded entirely (pp. 35–36).
Dillon’s core argument resembles Joel Hellman’s (“Winners Take All: The Politics of Partial Reform in Postcommunist Transitions,” World Politics 50 [no. 2, 1998]: 203–34) partial reform conundrum, wherein winners from early reforms use their newfound economic and political power to block future reform efforts. In Dillon’s case, the early winner was “labor,” by which she means permanent employees of the large factories (p. 118). This group was given voice through labor federations and other forms of communist corporatism. Political incorporation was beneficial in designing welfare state policies, yet proved problematic when, in times of constrained resources, labor was reluctant to extend those benefits. Thus, even while spending on welfare increased, the expansion of coverage stagnated. Comparatively, she shows that China’s narrow coverage (less than 75% of the workforce) makes it an outlier among communist regimes (pp. 19–21).
Dillon begins by situating China comparatively. China was relatively open to international influence and ideas, as expropriation of the capitalist class had eliminated potential opponents, and economic growth was substantial enough to allow for some redistribution. As these three variables have been identified by scholars as drivers of welfare expansion, she argues that China should be considered a “critical case” for studying the constraints for welfare expansion in the developing world (p. 36).
After the comparative brush clearing, Dillon’s main research approach is a within-country comparison of China over time. Intriguingly, she begins with efforts under China’s nationalist government (1945–49) before studying different iterations of expansion attempts under the Maoist regime. Within each period, she looks at how different welfare state approaches created groups with access and those without. Throughout the book, she uses Shanghai as a window into the microdynamics of the implications of a welfare state. As the industrial heart of the country, Shanghai was critical to the implementation of the policy and therefore the best place to observe its dynamics.
While the main thrust of the theoretical argument is the political role of labor, Dillon's historical approach and rich archival material allow her to pursue several other fascinating threads. The two most prominent are international diffusion and economic capacity. On diffusion, Dillon documents how Chinese leaders were exposed to welfare state concepts and tools through international policy networks like the International Labor Organization. On capacity, she highlights how slow economic development led to resource constraints that made Chinese factory employees reluctant to risk expansion to other groups.
Despite its rigor, Radical Inequalities leaves many questions unanswered. Theoretically, the role of communist corporatism is essential for understanding why this subset of labor had such an important seat at the table, but Dillon explores the mechanism through examples rather than abstracting to a theoretical framework against which these examples can be compared. The emphasis on Shanghai is also limiting. It would have been fascinating to see the mirror image of welfare politics in rural China.
Most importantly, the historical analysis ends abruptly in 1962. Despite hints at the legacy of these debates for China’s current inequality (p. 3), Dillon does not really devote effort to building the necessary analytical bridges. The question of the way the earlier welfare state may have parameterized the current political system is tantalizing and brings us back to the question of historical legacy, the China Puzzle, and Ang’s work. How did the communist corporatism that Dillon explores give way to the adaptable, decentralized system that so excites Ang? And in studying that institutional transition, can we better understand why a system capable of producing unprecedented economic growth has not excelled at sharing it?
