Assessing China’s prospects has often proved a merry chase. When Peter Drucker was sizing the place up in 1980, he wrote (in Managing in Turbulent Times) that it was “quite unlikely . . . that mainland China will become a major market, a major industrial producer and exporter, in the next 25 years—except perhaps of petroleum.”
About 17 gazillion windup dinosaurs, sneakers and iPods later, that prediction has proven incorrect. But, to be fair, Drucker changed his mind and by the mid-1990s was forecasting that China’s coastal areas “with 300 million to 400 million competent and ambitious people, should be one of the world’s great economic powers by the year 2000.”
That China is king, or getting there fast, is a consensus view now. This weekend, though, New York Times columnist Thomas Friedman drew our attention to a new book called Why Nations Fail, co-authored by MIT economist Daron Acemoglu and Harvard political scientist James A. Robinson. They argue that China may not be as dynamic as we think because “innovation cannot be decoupled from creative destruction, which replaces the old with the new in the economic realm and also destabilizes established power relations in politics.” Therefore, unless “China makes the transition to an economy based on creative destruction, its growth will not last.”
This is an unusual take, and it gets right to a conflict that Drucker saw in balancing continuity and change. “Society, community and family are all conserving institutions,” Drucker wrote in Post-Capitalist Society. “They try to maintain stability and to prevent, or at least to slow down, change.” But the modern organization, he added, “is a destabilizer. It must be organized for innovation; and innovation, as the Austro-American economist Joseph Schumpeter said, is ‘creative destruction.’ It must be organized for the systematic abandonment of the established, the customary, the familiar, the comfortable.”
Certainly, China has suffered through plenty of instability over the past 100 years, leaving its rulers reluctant to abandon anything that is comfortable for them, like Communist Party rule. On the other hand, systematic abandonment of what is established has been the persistent trend in Chinese life for several decades now. It’s enough to confound anyone’s predictions.
What do you think: Is a lack of “creative destruction” a serious obstacle to China’s long-term growth?