Opinion | China’s secret of success: the country is more committed to inclusivity than you’d think
- China’s inclusive institutions motivate the ordinary individual to strive. But it must undertake housing and tax reform, and continue to learn from better practices in other economies, which include accelerating the reallocation of resources to the technology frontier
According to Daron Acemoglu and James Robinson, the authors of Why Nations Fail, countries need inclusive institutions so people have incentives and opportunities to study, work, invest and innovate.
The most essential inclusive institutions are generally understood to include property rights; intellectual property; free market and competition law; equal access to education and health care; equal political rights; rule of law; and public supervision.
Accordingly, if a country has high education investments, a high savings rate, a high labour participation rate and a low unemployment rate, high asset prices (including stocks, real estate and the exchange rate), many patent applications, and many start-ups, then it is safe to infer that residents of the country have no fear that their legal assets will be stolen or taken, and that they are exerting themselves to study, work, invest and innovate. Most likely, this country has inclusive institutions.
Today, most Chinese people believe that they can have a good life and move up the social ladder if they study and work hard. They also believe successful investments and innovations are even more “useful” in creating wealth and changing social status.
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In the US, it is for the rich and the talented that the American system is extremely motivating. US institutions, including capital markets, an entrepreneurial ecosystem and a flexible labour market, encourage American elites to try their best to study, work, invest and innovate. The American dream that is built on these institutions attracts talent from every corner of the globe.
Next, China will need to conduct reforms to establish and improve institutional mechanisms, including the entrepreneurial ecosystem, affordable housing, flexible labour market, that can constantly drive the resource reallocation from the laid-backed firms and sectors to the firms and sectors at the technology frontier.