Why Nations Fail: The Origins of Power, Prosperity, and Poverty

only armaments or heavy industry, and Chinese entrepreneurs are showing a lot of ingenuity. All the same, this growth will run out of steam unless extractive political institutions make way for inclusive institutions. As long as political institutions remain extractive, growth will be inherently limited, as it has been in all other similar cases.
    The Chinese experience does raise several interesting questions about the future of Chinese growth and, more important, the desirability and viability of authoritarian growth. Such growth has become a popular alternative to the “Washington consensus,” which emphasizes the importance of market and trade liberalization and certain forms of institutional reform for kick-starting economic growth in many less developed parts of the world. While part of the appeal of authoritarian growth comes as a reaction to the Washington consensus, perhaps its greater charm—certainly to the rulers presiding over extractive institutions—is that it gives them free rein in maintaining and even strengthening their hold on power and legitimizes their extraction.
    As our theory highlights, particularly in societies that have undergone some degree of state centralization, this type of growth under extractive institutions is possible and may even be the most likely scenario for many nations, ranging from Cambodia and Vietnam to Burundi, Ethiopia, and Rwanda. But it also implies that like all examples of growth under extractive political institutions, it will not be sustained.
    In the case of China, the growth process based on catch-up, import of foreign technology, and export of low-end manufacturing products is likely to continue for a while. Nevertheless, Chinese growth is also likely to come to an end, particularly once China reaches the standards of living level of a middle-income country. The most likely scenario may be for the Chinese Communist Party and the increasingly powerful Chinese economic elite to manage to maintain their very tight grip on power in the next several decades. In this case, history and our theory suggest that growth with creative destruction and true innovation will not arrive, and the spectacular growth rates in China will slowly evaporate. But this outcome is far from preordained; it can be avoided if China transitions to inclusive political institutions before its growth under extractive institutions reaches its limit. Nevertheless, as we will see next, there is little reason to expect that a transition in China toward more inclusive political institutions is likely or that it will take place automatically and painlessly.
    Even some voices within the Chinese Communist Party are recognizing the dangers on the road ahead and are throwing around the idea that political reform—that is, a transition to more inclusive political institutions, to use our terminology—is necessary. The powerful premier Wen Jiabao has recently warned of the danger that economic growth will be hampered unless political reform gets under way. We think Wen’s analysis is prescient, even if some people doubt his sincerity. But many in the West do not agree with Wen’s pronouncements. To them, China reveals an alternative path to sustained economic growth, one under authoritarianism rather than inclusive economic and political institutions. But they are wrong. We have already seen the important salient roots of Chinese success: a radical change in economic institutions away from rigidly communist ones and toward institutions that provide incentives to increase productivity and to trade. Looked at from this perspective, there is nothing fundamentally different about China’s experience relative to that of countries that have managed to take steps away from extractive and toward inclusive economic institutions, even when this takes place under extractive political institutions, as in the Chinese case. Chinahas thus achieved economic growth not thanks to its extractive political institutions, but despite them: its successful growth experience over the last three decades is due to a radical shift away from extractive economic institutions and toward significantly more inclusive economic institutions, which was made more difficult, not easier, by the presence of highly authoritarian, extractive political institutions.
    A DIFFERENT TYPE of endorsement of authoritarian growth recognizes its unattractive nature but claims that authoritarianism is just a passing stage. This idea goes back to one