World's next technology leader will be US, not China – if America can shape up
Innovation drives income growth and determines global military and diplomatic leadership. China lacks the kind of inclusive political institutions like those in the US that promote innovation. But inequality and money's influence on political power threaten American innovation.
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But this potential will come to an end as well unless China radically transforms its institutions. This requires not only obvious steps such as introducing an independent judiciary, independent media, and more secure property rights for businesses, but truly inclusive political institutions. This necessitates a fundamental political opening so that political power is more equally distributed and can underpin economic institutions. This, in turn, will create a level playing field and encourage and fully reward all sorts of innovation – especially the disruptive kind.Skip to next paragraph
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The threat for the US is exactly the flip side of the opportunity for China. US inclusive institutions are in decline, and the danger that the US could follow other societies in history – such as the Venetian Republic in the 13th century – that have seen their inclusive institutions dismantled and their economic success undermined is a real one.
US society has been undergoing profound changes over the last four decades. The huge rise in economic inequality, brought to the headlines partly by the Occupy Wall Street movement, is both an important aspect of these changes and also a warning sign. The problem is that economic inequality often comes bundled with political inequality. Those with great wealth and easy access to the politicians will inevitably try to increase their political power at the expense of the rest of society. This sort of hijacking of politics is a surefire way of undermining inclusive political institutions, and is already under way in the US.
There is also a vicious circle here: Economic inequality is increasing political inequality, and those increasing their political power will use this to tilt the playing field further and gain a greater economic advantage. This will not only take the form of getting more tax breaks and government subsidies for their businesses, but also by blocking more innovative rivals and, directly or indirectly, undermining the opportunities that the rest of society has for acquiring skills, taking risks, and innovating.
Ultimately, however, the reason to believe that it will be the US, not China, leading the world in innovation and technology for many, many more decades is the resilience of US inclusive institutions. We have been here before, and we have rebounded. Things were much worse during the Gilded Age both in terms of economic inequality and in terms of how totally and unscrupulously the wealthy elite, the so-called robber barons, had come to dominate politics.
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Yet the robber barons did not prevail. The US political system was also able to tackle the problem of Southern segregation and black disenfranchisement, which, if anything, looked even more insurmountable. All of this was made possible because Americans stood up and fought for political equality, and the US political system was open enough to allow them to do so. We are optimistic that this time it will not be different.
Daron Acemoglu and James A. Robinson are the co-authors of “Why Nations Fail: The Origins of Power, Prosperity, and Poverty.”