Charter Cities Podcast Episode 25: China’s Development Evolution with Yuen Yuen Ang
China’s rapid rise may seem unprecedented, but its journey is oddly familiar. The question is, where have we seen this type of development before, and what does the future have in store? Joining us today to answer this is Yuen Yuen Ang, Associate Professor of Political Science at the University of Michigan. Her research lies at the intersection of governance, bureaucracy, business, and innovation and she explores which institutions best enable adaptation. A major focal point of Yuen Yuen’s research is China’s rise since 1978. We open our conversation with Yuen Yuen by asking her about how her cultural nomadism has put her in a good position to understand China’s impressive 43-year development. After hearing how her experiences in China, Singapore, and the United States have helped her gain a useful perspective on her studies, we dive into the concept of complex development and talk about why its needs are greater than ever. Following this, we talk to Yuen Yuen about her two books, namely China’s Gilded Age and How China Escaped the Poverty Trap. To help listeners understand China’s meteoric rise in development, Yuen Yuen compares the state to Mcdonald’s and the concept of franchising. She touches on their powerful nature of being centralized, yet having versatility through local variation. China’s “franchised” development is also linked to the way they have used corruption to bolster their development. That isn’t to say that corruption is good though, as Yuen Yuen rather points out how corruption changes in tandem with development. To hear more on China’s current state, their trajectory, and much much more, join us in this deeply insightful and thought-provoking episode.
Mark: Hello and welcome to the Charter Cities Podcast. I’m your host, Mark Lutter, the Founder and Executive Director of the Charter Cities Institute. On the Charter Cities Podcast, we illuminate the various aspects of building a charter city, from governance to urban planning, politics to finance, we hope listeners to the Charter Cities Podcast will come away with a deep understanding of charter cities, as well as the steps necessary to build them.
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Kurtis: Hi! I’m Kurtis Lockhart, head of research at the Charter Cities Institute. Today on the podcast I speak with Yuen Yuen Ang. Yuen is an associate professor of political science at the University of Michigan. Her research lies at the intersection of governance, bureaucracy, business and innovation and asks which institutions best enable adaptation over time. Her main focus is on China and its rise since 1978. Yuen is the author of many award-winning academic articles as well as two books, How China Escaped the Poverty Trap, and more recently China's Gilded Age. On top of this, Yuen has written for several media outlets including Foreign Affairs, Project Syndicate and the South China Morning Post.
Welcome to the show, Yuen. Thanks so much for coming on.
Yuen: Thank you very much for having me. I’m very excited to chat with you today.
Kurtis: Yeah, great. So with that, let's jump in then. So you grew up in Singapore. You did your undergraduate and graduate degrees in the U.S. Your academic work, it focuses mostly on China. And you then travel and speak around the world. So in preparation for this chat I read a few blogs and pieces of yours and one of them was a blog by Duncan Green. He's a professor at the London School of Economics. And you messaged him about being a “cultural nomad” was the word you used and how this has sort of impacted your work and allowed you to see things that non-nomads may take for granted. So I’ll ask you, what has this cultural nomadism allowed you to see about the development process that non-nomads are more prone to miss?
Yuen: I guess I would call myself a nomad in the sense that over and above being just a visitor I have lived in the United States for longer than I have lived in my home country in Singapore. And yes it goes deeper in the sense that I don't just live here, I was educated here. I built up my scholarly career from scratch here. What that means is that you really have to adapt to the culture. You really need to get to know and appreciate the American way in order to survive and then in order to excel in your personal and professional life. So that takes a lot more effort than a tourist or a visitor who's in a foreign place for a short period of time.
And then I’ve also had to do the same for my work in China, because as a researcher, if your appreciation of a place is superficial, then you're not likely to walk away with deep enough insights to explain the history and the dynamics of this country. So in the sense in both of these big, powerful superpowers, I’ve really had to do my very best to adapt to them.
Kurtis: Yeah. I mean, I was going to say too, because you mentioned having to like deeply enmesh yourself in both countries. And it's very evident in both of your books, How China Escaped the Poverty Trap and China's Gilded Age when you compare. In both books you have comparisons between China's developmental trajectory and Americas and the level of depth is great in both cases. So it's pretty evident. The amount of effort and familiarization you've had to undertake with both countries, yeah.
Yuen: Right. Right. I think that is a great point. If I had not been a cultural nomad, I don't think that I would have so instinctively drawn a comparison between contemporary China and 19th century America, because you know most people think of these two countries as two polar opposites. And the popular way to frame it is what do you call that a clash of civilizations, right? But I don't see it this way because I’ve had to adapt to both societies and cultures. And because of that experience I think it helps me realize that at the end of the day people around the world regardless of nationality really are fundamentally the same.
Kurtis: And I guess while talking about your background and your sort of upbringing, I want to ask one more question about Singapore before we move on to your research and your work. So Lee Kuan Yew and Singapore's economic development board, the EDB, they're often cited as the main factors for Singapore's spectacular growth since independence in the 60s. And we talk about both of these factors here at CCI a lot. But I guess beyond these two factors, what would you say as a native Singaporean are underrated factors in the Singapore case that people in development don't really talk about enough?
Yuen: As far as I know, I think there are a few important things to keep in mind, which is Mr. Lee Kuan Yew worked with a team of extremely competent and also committed lieutenants. He had a team of pioneering bureaucrats who worked with him. One of them is Goh Keng Swee. And people outside of Singapore tend to hear of him less, but whenever I hear stories about him, he was actually very instrumental at the level of implementation. So if Mr. Lee was thinking about the grand strategy, foreign policy, Mr. Goh Keng Swee did a lot of the more ground level implementation work. So if you talk to older bureaucrats in Singapore, they still remember him with a great deal of respect. And so while I don't know you know too much of the details, what I always take away from this story is that it takes one really great leader like Mr. Lee and then it also takes a team.
Kurtis: Okay. So zooming out a bit, one thing that you bring into your work is complexity studies, which isn't all that common in the study of development, right? I come from that world of international development. Complexity studies is not often in these papers I’m reading. So when did you stumble upon this field and think it might make a lot of sense to apply these concepts in the realm of international development? Was it particular insight or experience? A grad school professor or something like that that nudged you to combine these two fields?
Yuen: Yeah. So I borrowed from complex adaptive systems. This is an interdisciplinary subfield that originated I would say mostly in the natural sciences. So I’ve been to a complexity conference organized by Princeton. If you look at the attendees list, they're mostly from natural science. So physics, chemistry, biology, computer science and so forth.
Kurtis: This is a different kind of cultural nomadism.
Yuen: Oh! It's different. That's right. I’m so glad you pointed that out. Yeah, it's so funny because I was at that conference and range. Oh my God! The topics range from like bugs in computers, to like how fishes swim together. And here I am, I study like institutions and markets. And so it was intellectual nomadism. I think that’s – Yeah, you’re so right. You’re so right.
Kurtis: Yeah. So can I ask on the complexity studies thing, for folks who would be interested, because I found that bit fascinating. Again, like you, I come from political science and in social sciences. From a more quantitative bent, you're taught about linear cause and effect, X leads to Y sort of thing, and complexity doesn't factor in a lot. So for folks who want to learn a little more, what are some good sources that you'd recommend they check out?
Yuen: Definitely I think the best book that helped me is by Bob Axelrod and Michael Cohen, and it's called Harnessing Complexity. And in that book, which is readable and short, the important takeaway is if they explain that adaptation is not something that just happens automatically. That there are certain actions or measures that you can take to foster adaptive processes. And so that's a great book to start with because it's really readable.
One of the things that I hope to do in advancing our understanding of complexity in the study of development is there is on the other hand a lot of dubious writing out there unfortunately, because the feel is it’s marginalized, it's new and it’s – To be honest, mainstream social scientists would not want to touch it. And so there is just no community at least in the political economy of development to take that paradigm seriously. But on the other hand there's a lot of a demand on the practitioner side because they can experience the limits of linear thinking.
And so I think we are at this kind of awkward stage where the demand is so big but the supply is close to non-existent. And so I think oftentimes when I read things in complexity and development, I’m reading and I go, “No. That's not correct.” Or like, “No. That's just hand waving. It's not social science. It's not asking a question. It's not process tracing and not collecting data.” So I would urge caution on that front, but I can confidently say that Axelrod and Cohen among the pioneering leaders on this front, and if you read the book you're going to walk away with some very solid and wise insights into complexity.
Kurtis: Okay. This is a great point to kind of transition to focusing on your first book, How China Escaped the Poverty Trap, right? You published it a few years ago now in 2016. And after talking about this book then we'll chat about your more recent book, China's Gilded Age. So this first one, before diving into specific questions, do you want to just give listeners like a high-level overview, just broad strokes argument of the book?
Yuen: Sure I’ll be happy to do that. So this book is using the case of China's great transformation since 1978 to really tell a bigger story about how does “development” happen. And when I say development, I mean, economic, institutional, social and political change, right? The whole process of modernization in short. And traditionally, in political economy, we would have multiple arguments focusing on specific variables, right? So you’ll have good governance first is one common school. The other one is a stimulate growth first. So invest, do foreign aid. And then the third school is path dependency. It's about what history you have and what kind of legacies you receive from history.
In this book, it's over and above explaining China, which is a very important case. It is saying that we need to understand development as a complex process. Meaning in instead of trying to take the reality of this complex process and reducing it into something mechanical, which then misleads us, we need to accept the way that it is complex. But how can we make sense of this complexity so that we distill the process into a few insights that generalizable and important? And I have two, in this book.
So the first is my first insight is about the causal process of how states and markets co-evolve with each other over the process of development. And my main argument is that it's neither good governance first or economic growth first. Instead I argue that the first step of any big process of change is called using what you have. Meaning that local actors and local communities, they take whatever they have right now, whatever norms, practices, resources, assets even if it's in defiance of first-world western norms. They take what they have and they repurpose it into something that helps them to stimulate business activity. So they kick-start entrepreneurship.
And I further argue that this development process you can, at the most abstract level, reduce it to three steps rather than just two, which means that you use what you have to stimulate new markets. And then when markets take off, it produces a feedback process where the economic growth itself changes the resources and preferences of actors so that institutions change. And then finally you have institutional change that is aligned with a more mature market economy.
So the first takeaway is using what you have. The second punch line is the difference between market building and market preserving institutions. And so what I mean by that is we often argue. Everyone agrees good institutions matter, but those good institutions that are popularly proffered are actually first woe institutional forms. And those institutions are important for preserving markets that have already been created. But actually if you look at early processes of development even in Western Europe and even in America, market building institutions are very different from market preserving ones. So we need to make a distinction between these two stages.
And the third punchline of the book is summarizing two words, directed improvisation. And what that means is that all societies need to have a political and governing foundation that enables creativity and adaptation. And that speaks to what the role of government should be, right? And the fundamental change that happened in China after market opening is a change in the role of government from being a top-down dictator to being an enabler of bottom-up adaptation. So that's why it's called directed improvisation. And the term improvisation is meant to capture a particular form of adaptation where you use what you have. And so these are the three main takeaways from that first book.
Kurtis: I took the underlying message as kind of crowding in investment by almost any means possible. And I guess making it easier for entrepreneurs to do business is you can say the essential first step to kickstart growth. Now, if that's kind of the first step, so says your book, why do you think a lot of people in international development are in some sense uncomfortable with that message?
Yuen: The first level of discomfort is that people cling on to the normative belief that there is a uniform set of good institutions, which are the institutional forms found in western rich democracies, right? And we don't like to admit that. So we never call them western institutional forms. Instead we call it good governance, good institutions. But when you look at the global rankings, like it's always the same 10 people at the top, right? And it tells you like, “Okay. This thing that's called global, it's really just the same group of people, same group of countries rotating over and over again.”
So I think the discomfort is when I come along and say, “Western institutional forms, they're not universal. They are important advanced stages of economic development.” But if you look at the real history of the west, even the west did not start out with these institutions. And so of course when you look at a big country like China, they wouldn't start out with these institutions either. And that I think just blows up several conventional wisdoms and normative standards that makes some people uncomfortable.
Kurtis: And I like the way you put it, I forget where in your book, but you put it something like at the startup stage of development the overriding drive is to just eat, right? Just satisfy basic needs. And then when we're no longer starving, we can become a little more picky about exactly what we want to eat. And so right from a more quantitative or extensive margin, focus on just more, to then more of a focus later on once we reach a certain threshold on the qualitative or intensive margin. Is that a good summary?
Yuen: Oh, it's an excellent summary. You brought this a really good point. And one of my frustrations with why a lot of our regressions about growth and institutions don't work is that they assume that development is like one stage. So they average out all of the qualitatively different institutions that you need at different stages. And so in the summary that you just provided, one of the points that is being highlighted is that priorities are different at different stages of development. And so the institutions that fit are qualitatively different when people have different priorities.
Kurtis: How is the Chinese bureaucracy like McDonald's?
Yuen: I still like McDonald's it's like McDonald's because I use the term a franchising model. So when I was in graduate school I read this book about McDonald's, which is now made into a movie by the way.
Kurtis: Oh! Is this the Michael Keaton one? The founder?
Yuen: Yeah. Yeah. Yeah. Yeah. As usual, the book is better. So read the book. But when I read the book I was like, “Gosh! This really sounds like China's bureaucracy.” And the reason for this – So let me sort of run you through how a franchising model works is it's that franchises are so powerful because they are centralized in a certain way. So wherever you go in McDonald's, it always looks the same. It has a certain brand. It has standardized operations, common advertising, but it has regional variations. So if you go to Singapore, McDonald's in Singapore, you can have like a curry burger. And then you go to Japan and somewhere else, they're these local regional variations, right? And so that's actually exactly what you find in the Chinese political system where the central government's job is like the headquarters of the franchise and it says, “There are certain things that have to be uniform about us as an organization. We have the same brand. So we are called the CCP. And then we have certain directions and goals and KPIs that we have to hit. We have to look a certain way on certain things. Speak a certain language and jargon.”
But regardless of policy realm, whether it's technology, innovation, investment, social policies, there are always these regional models in China. So there is a combination of uniformity and regional adaptation in China that I think is very central to running what is otherwise a humongous and tremendously heterogeneous country.
Kurtis: Yeah. And I guess part of the – So this is a segue from the regional variation point, because one of the things I learned from the book is that President Xi’s father was not only party secretary in Guangdong province in the south, but he was also one of the reformers that helped carve out some of China's early special economic zones there in the south. I mean, it's pretty clear how SEZs fit into your framework of directed improvisation, right? They generated variation and policy experimentation in this delimited, bounded geographic area.
But zooming forward to today, right? That was kind of early 1980s. Zooming forward to today, now that SEZs are so ubiquitous in China, right? Today some estimates suggest something like 90% of Chinese municipalities have some sort of SEZ in them. So given that do you think their benefits have decreased since they were originally introduced? Or I guess in China's current drive from quantity to quality development, do you think that SEZs still play an essential role?
Yuen: I probably wouldn't say that it's about decrease or increase, but I would say that no doubt SEZs played a very critical role in China's early takeoff. It basically carved out this special space for autonomy and experimentation. And I think I would say that the indirect contribution of SEZs, which is less notice, is that I think it then has spillover effects on building a culture of experimentation within the bureaucracy. So even in instances where you do not actually carve out an SEZ, even today, despite a much more repressive climate in China, there's still a lot of policy experimentation taking place in the bureaucracy. Because I think over the past 40 years those kind of practices have become built into the DNA of the bureaucracy, this trial and error attitude. Always try something out before you scale it up. Collect feedback and so forth. So I would say that it had, in addition to the SEZs themselves, had indirect spillover in encouraging an adaptive bureaucratic culture.
Kurtis: And I guess speaking of bureaucratic culture and so forth, we are having Erin McDonnell on the podcast in a few weeks. For our listeners, she's a sociologist from the University of Notre Dame. So I’ve been reading some of her work on pockets of effectiveness in developing countries specifically, or her more recent book, Patchwork Leviathan, looks at Ghana and discusses how certain bureaucracies. I think the one – She talks about a few, but one includes the Central Bank of Ghana. How certain bureaucracies in Ghana are able to establish a bureaucratic culture and competencies that allow them to perform a lot better than other bureaucracies in Ghana.
And looking at your cases, you could tell a similar story about the EDB in Singapore or the MIDI in Japan, KOTRA in South Korea. But your book doesn't seem to focus on specific bureaucratic entities or pockets of effectiveness. So I guess how was China different in this regard?
Yuen: Well, first of all, congrats to Erin seeing presentations of her work earlier on, and I think her research is fascinating. My story is very different from the conventional developmental state, including Erin’s work, which has a common assumption. And that assumption is there is one standard for evaluating what is a good bureaucracy, right? And that standard is the Weberian legal rational standard. And this is like so fundamental. I would say it's like the gospel truth in sociology in organizational studies. Like, of course, Weberian bureaucracies are like the best the human species has ever invented. And because of that assumption you see that people, when they study bureaucracies, they would ask questions about where do you find this island of excellence with these Weberian bureaucracies? And if you look at the Asia developmental state literature, the argument is, “Oh, because they had Weberian bureaucracy. So they were able to succeed.”
And so my story is not that. My story is that there is actually no single universal standard for what makes a bureaucracy effective. There are multiple standards depending on what the priorities and needs are at particular stages of development and whether the bureaucratic forms fit that need. That's the key lesson you can get out of the case of China. And the story that I tell instead is that the Chinese bureaucracy in the early stages of takeoff definitely was not Weberian. It was not legal rational. It had plenty of corruption. It was not well-trained, not highly educated.
And I noticed because when I did my early field work in China, I went down to the counties, and I come from Singapore so I know what a Weberian bureaucracy looks like. And so as soon as I encounter these county bureaucracies I realized, “Gee! This is definitely not a Weberian bureaucracy.” But it's not dysfunctional. It doesn't mean that something's wrong with it, right? So usually we have binary thinking. If it's not Weberian, it has to be something wrong.
Kurtis: Yeah. Sorry. Because you said you went to China and you're like this is definitely not a Weberian bureaucracy. The part in your book where I like I think I actually laughed out loud, which I guess you wouldn't expect from reading your book on the face of it, but there was one page where you listed all of the agencies within a particular city that had investment promotion targets assigned to them. And one of the agencies was literally the Communist Youth League. So I’m picturing like boy scouts, communist boys being assigned investment promotion targets. The money they have to bring into the locality. And I found that just like hilarious.
Yuen: I’m so happy to hear that. I think people should laugh out loud when they read – I think that's the highest achievement of any book, particularly an academic book.
Kurtis: Yeah. So I guess this is a good place as any to I think transition to your more recent book, China's Gilded Age. Again, I guess before diving into specific questions on the book, do you want to give an overview, just the high-level motivation and argument of the book? And I guess maybe on this one I think this book especially helps a lot from concrete examples. So do you want to maybe outline its arguments in – Because you give two really good ones, there was Mayor Bulldozer, I believe; and then there was one other guy. So whichever one you want to use as your example to outline the argument of the book, that'd be great.
Yuen: So in my first book I had this section where I was grappling with what is the relationship between corruption and capitalism over the course of co-evolution. Like how do they change? And if you think about conventional wisdom, what they tell us is as capitalism advances, corruption fades away or disappears, right? So the corrupt bureaucracy becomes replaced by a Weberian legal rational bureaucracy. And so today when you look at rich countries like the U.S. or Western Europe, there's virtually no corruption or very little corruption if you look at the global indices. And that we believe is the story of modernization.
And when I look at the evidence, I’m like, “I don't think that's true.” And I noticed that what really happened is that corruption did not disappear, rather it changed in structure and form as capitalism advances. And we have not paid enough attention to the changes in structure and form. So that's what you get in China's Gilded Age. China’s Gilded Age starts with this puzzle that people have been wondering about for many years. If China is corrupt, then how come it has had an economic boom? And my short answer is, “Why not?” Because that's exactly what happened in the west, except we've been sold an idealized narrative that stripped out all the ugly parts including about corruption.
But more specifically, on the theoretical level, I unbundled corruption into different types to help us really pay attention to qualitative changes in corruption over time. And I show in the book that the pattern in China is that the structure of corruption changed. Beginning in the 80s, 90s, China like any other developing country had plenty of petty bribery, embezzlement, extortion. It was like a messy country, right? And then by the time you enter into the 2000s and today, those type of corruption was put under control by the central government as it transitioned into a new stage of economic development. But what I call access money, which is high-level transactional corruption, exploded from the 2000s onwards.
So today when you look at China, it's called a corrupt country. It's known as a corrupt country specifically because of the prevalence of excess money corruption. And if you compare China to other predatory developing countries like Nigeria, the structure of corruption is very, very different. So very basic fact, but important to established. That's one of the key arguments.
And then you got to the part about the stories. The stories are important because the deeper question that arises once you understand the structure of corruption in China is, “Well, why did the structure of corruption evolve in this way? Why not in Nigeria? Why not in India?” And so half of the book explains the political economy underlying this evolutionary process. And so I looked at the nature of the political game that is played in China, and I call it profit sharing. So from the beginning, from market reform, Deng Xiaoping, who is the paramount leader of reforms made the decision that we're going to stay united as one political party. But without putting it in words, we are going to make sure that communist officials get to share in the spoils of capitalist growth.
So when you look at the career profiles and the individual stories of corrupt officials in China, what you find is that they literally have a profit sharing structure where their personal gains, their reputation, their power, everything is actually derived from their ability to aggressively promote the economy, right? So they have a personal stake in economic success, but of course the deal is they would also cream-off the spoils from this process. And so the example I give is this mayor, the Mayor Buldozer. He's the mayor of Nanjing and that was his nickname. He literally set up this private company with his pals as a construction company. And the construction company would funnel a percentage of shares to the mayor.
So as the whole city was booming, construction of course was doing a great business. So they got to monopolize construction. And then through the company, the mayor got a percentage of profits from the company. And it was so profitable that I believe in his six years of tenure their profits grew 15 fold and they became the first construction company to become listed on China's stock market. So this is one example in which you have a very literal arrangement of profit sharing. That does not however mean that corruption is good. This book does not make that argument. It's a nuanced argument. It means the story of, yes, you have rapid growth on the one hand, but on the other hand you have inequality, policy distortions and financial risk. So this whole package has been understood as one. And that's why I call the book China's Gilded Age rather than golden age. It is a gilded age. And you find very similar dynamics in America's gilded age.
Kurtis: Yeah. And I was going to bring up that point, right? Because you said I am not saying corruption is good. And I read this and I was like, “I guarantee that, Yuen, she's presented this probably at some conferences and a bunch of folks raised their hand and said, “How dare you? You're saying corruption is a good thing.” Yeah, you very explicitly – If one reads the book, you are not saying that. You have a whole subpart of the book about the indirect harms of corruption and access money. So I wanted to chat about these, right? And one potential downside that occurred to me while reading China's Gilded Age is can't the prevalence of access money prevent the kind of co-evolution and adaptive learning that you describe in your first book? And I’ll tease out what I mean. Can't even access money corruption, which you kind of say is not that there's a better form, but it is the better form of corruption prevent this evolution from happening, right? If I’m a bloated monopolist that can afford big access money payments for this lucrative concession from the government, sure, I’ll win the government contract. But I then have little incentive to learn or adapt because I’ve set myself up in this cushy business position where I have no competitors directly because of this ability to pay that access money. And then I also won't really put effort into learning or adapting because that takes resources, and instead I’ll put resources into this more easily done unproductive rent seeking activities like figuring out who else I should pay access money to. So I guess the thought that occurred is, is this a bit of a tension or a trade-off between the two books?
Yuen: On one hand, one could say that corruption played an important role in China's rapid growth and very aggressive growth promotion in that it personally and richly rewarded politicians.
Kurtis: This franchising model, profit sharing, yeah.
Yuen: Exactly. You can think of these mayors as the franchisees, right? I’ve taken the brand of CCP. I now run my local branch and I collect my dues, right? And so the profit sharing is how I collect my dues, right? And as you can see that on the one hand as being an essential reward mechanism, and as I told in the story of that Mayor Buldozer, that reward mechanism along with competition, so there's constantly competition in China, and that's actually a very important factor, made him actually an adaptive leader. So he's not just some dumb guy who just like builds ghost cities. He is economically competent. And when he was in Yangzhou, he was very strategic. He knew that he could not replicate the industrial path in Kunshan because of the different conditions. So he branded Yangzhou as a tourist side. So he had a different development strategy.
So I think on the one hand you could say that these rewards that were given to the elites provided that incentive not only for economic growth, but for them to be competent and adaptive leaders. But I would say that at later stages of development, which is the problems that you're now beginning to see in China and way down in China is exactly the one that you've described, which is once you are past this sort of hustling stage, right? And it's kind of like the gilded age is a hustling age, right? So if you have the guts and the competence and the nerves, you just go out and become a self-made man. And I think China is now going past that age and it's entering into a more mature phase. And this more mature phase, the danger of it is that you now begin to have consolidation of players. Where else it used to be a Wild West? You could almost say democratic. Anyone can go grab what they want for themselves. China is now entering into this more consolidated phase where you have fewer big players. And then the problem that you point out sets in, which is now, “I’m a big player. I’m politically connected and I have a lot of money. So why do I need to innovate? I’ll just sit on my laurels and then just benefit from what I’ve earned.”
And so you can actually see a similar history in the America’s gilded age, which is why I think it was very important at that time in history that America responded with progressive era style reforms, right? Breaking up monopolies, opening up society even further, having more democratization in order to check the excesses of a gilded age. So I would say that we need to look at the stage of the story. And right now China I think is at the end stage of the gilded age. And it depends on whether it will continue to do more crony capitalism or it will enter into an American style or a different style of progressive era.
Kurtis: Yeah, and this is great, because this is the next question, right? Your book comes out eight or nine years after President Xi started his crackdown on corruption in 2012. You kind of say the crackdown peaked around 2014, 2015, but it's kind of still anomaly persists. I guess in your model of corruption, what is the equilibrium of this crackdown, right? Is there this coming progressive era for China as you've suggested. There may be coming just like America's gilded age. And what are the implications of Xi’s crackdown for China's future growth?
Yuen: One thing that we can take away from occurrences in the past years is that China is not taking the American style progressive era. So what America did at the end of its gilded age was our society is so messed up, we're so unequal, we're so corrupt, and so we're going to solve these problems by having more democracy. So you had electoral reforms, mark-breaking journalists, independent prosecutors. So America used more democracy to deal with the problems of the gilded age. China is the opposite.
So under Xi, he actually stamped out earlier kind of bottom-up reforms that try to improve governance like transparency initiatives and public participation, and he chooses to use the strong arm of the party apparatus. So he has launched I would say the world's biggest anti-corruption campaign in scale. By 2018, 1.5 million officials were disciplined. This is a staggering figure. So the approach in China is a top-down approach, very different from the American one. Will it succeed? I think it remains to be seen. But in the book I raised some doubts that you can really stamp-out access money just by arresting lots of people because it works. A campaign, a crackdown works for a short period of time in scaring officials and putting them on guard. When you keep doing this for years and years, it has the backlash effect of paralyzing the bureaucracy. And we see signs of that. In the book I talked about how the state council had to publicly warn officials against being lazy and not taking action, which has never before happened in Chinese bureaucracy in the 40 years of history. Chinese bureaucrats –
Kurtis: Was this like formalism? They were getting disciplined for too much bureaucratism or formalism or something –
Yuen: It's called lazy governance. The term is lazy governance. Right. So that was the new problem created by this crackdown that officials realized, “Well, if you end profit sharing, then what am I supposed to do in my franchise? I’ll shut it down. Why would I take the risk of being so adaptive and taking all these risks and initiative and the only thing will happen to me is I get arrested.” So it's called lazy governance, and that is one of the backlash of the crackdown.
Kurtis: Okay. So there may well indeed be if we're shutting down local officials’ franchises, there may be growth implications for sure. So I guess looking beyond the two books we've discussed to some of your other work, you wrote a good piece in Foreign Affairs in 2019 trying to demystify China's belt and road initiative. For a lay audience, there's so much written on BRI right now. I guess what is your general message in that piece and just your general thinking on BRI? And does that piece hold up two years later today?
Yuen: I had the great privilege of working with colleagues at the UN on BRI-related projects where we were trying to understand the BRI and look at how developing countries can leverage the BRI to advance their development goals. So that was how I was introduced to the topic and had a chance to visit Cambodia where China is the country's largest foreign investor. BRI is a big deal in town, the chance to visit and look at some BRI-related investments and projects. And from that whole experience the one big question that jumped out at me is, “What exactly is the BRI?” And I was like screaming this this question and discussing it with my colleagues as well and I realized that there's just mass confusion. Nobody really knows.
So the term that I use in the essay is it's the most talked about but least defined buzzword of the century, right? Everyone is talking about the BRI. But how do you tell if a project is part of BRI? Like how do you actually tell? You can't, right? How do you tell that this participant is really part of BRI? You can't, right? None of this is properly defined. So if you look at the writing on BRI, it's like it's like different things with different people. Sometimes it's a grand strategy. Sometimes it's a bridge. Sometimes a highway. Sometimes a school. Great confusion.
So what does all of that confusion mean? I had a couple of arguments. I think that because it is the first time that China as an emerging power is going out in the world, the bureaucratic dynamics and issues in China are also being exported to the world. But the world doesn't understand these dynamics and China doesn't know how to explain them either. So the BRI is confusing for two reasons. The first is that the BRI is a campaign, and the campaign is this style of policy implementation where the leader just kind of waves a flag and a slogan saying, “Here's the BRI. Now go.” And then you have this extremely decentralized and uncoordinated implementation. And so that is why on the ground is complete mess. Like you don't know exactly who's part of BRI.
Kurtis: I was going to say, as you were as you were explaining that how this pronounced policy from the center and then all these decentralized bureaucrats go scramble and figure out what the hell to make of that central mandate. It's like BRI is their foreign policy. They've spent the previous 40 years on the domestic policy and actually used that same strategy to figure out their domestic affairs. Like central mandates and then domestic bureaucrats figuring it out. So maybe they're applying the same strategy to their foreign policy and they're going out.
Yuen: Exactly. Actually, that is exactly what I mean. That's exactly what I mean. I mean, if you look at my first book where I described the beehive campaign. Like this campaign to recruit investors is exactly the same logic being applied to BRI except on a global scale. And so it's bizarre for the world because we are used to the Weberian technocratic style of policy implementation where everything is clearly explained and defined and it's not so decentralized. But the Chinese style is different. It's like it's a campaign and I wave the flag. You guys go. And then because it's so fast and decentralized you're going to run into lots of problems, which happens in China as well. And then the Chinese government will intervene and clean up and say, “Oh! Sorry. In the past five years we did it, we experimented real quickly, lots of trial and error, we had lots of problems. So now we're going to course correct and we're going to improve.” And so that used to be done within Chinese borders on domestic issues, but this is exactly the dynamic you see on BRI. But now it's global and everyone has to participate in it. So people are confused because they've never encountered this style of policy behavior from a country that just does not behave like the west.
In your question you asked whether the findings still holds. Yes. Yes. If you look at the trajectory of BRI. So about a year after I wrote the piece, President Xi came out and said, “Guys, in the past years we've done BRI, but it was too uncoordinated. It was too coarse. And we now need to refine it.” So he uses an analogy from Chinese painting. He says we used to use the big brush. Now we're going to use the small brush. I think it was interrupted by the pandemic, but going forward I believe that's where the Chinese government wants to head. It wants to have a more refined quality of BRI rather than the one they had before, which was a beehive campaign for the world. But I think the world didn't know they were participating in the beehive campaign.
Kurtis: Yeah. Yeah. And just so just so listeners – Just so the listeners know what the behave campaign is, do you want to just quickly let them know?
Yuen: Oh, of course, of course. So the beehive campaign is the term coined at the local levels to describe the investment campaigns carried out in the early parts of China's opening where the entire bureaucracy, regardless of agency or function, is mobilized to go out and look for investors.
Kurtis: Like the Communist Youth League, right?
Yuen: Right. Right. And even the Handicapped Association, the labor unions. It's kind of ridiculous, right? The beehive campaign has strengths and weaknesses. So the strength is mobilization, right? Everyone gets involved. You get outcomes in scale. The weakness is inefficiency. So you're going to have a lot of hits and misses, a lot of terrible projects, but out of them you could have a few good ones, right? And so at the subsequent cleanup stage the government would then try to clean up. Like, “Oh, the bad projects that we had, we're going to ask them to go away and we'll try to refine. Focus on quality development.” And this is where China is by the way at the level of national development the 14th 5-year plan is like, “Now we're all about quality development.”
Kurtis: Because I wanted to ask about the new five-year plan. They just sent the fifth plenum communiqué from 2020. And unlike past communiqués, it does not set GDP targets, which is very interesting. So I mean this must be part of that transition from quantity to quality. But I guess what does that mean? Is there more significance to that? What should we take from not setting GDP targets in this new plan?
Yuen: That is a great question. The big takeaway is that at the national level, China now wants to move away from a focus on quantity of development to quality of development. And if you read my book, no surprise, because in wealthier parts of China they have already taken this path. So the significance now is that this agenda of quality development has been taken from wealthy parts of China and elevate it to a national agenda.
And what this means is that once the priorities change, the institutions that match these priorities have to change as well. So remember, earlier on I argue that, no, there's no such thing as one single standard for good institutions. It all depends on fit. And so the institutions that China has had in the past 40 years is no longer a good fit, right? So when you are so obsessed with GDP targets, it's actually not a good fit for quality development, because officials would put their attention on quantity of growth. They would even do things that undermines quality of growth in order to get quantity.
And so that is why the Chinese national government is at this sort of dilemma where they know that they have to transition away many features of the past, but they cannot do that immediately because people are not used to it. It will be a real shock to the bureaucracy to all of a sudden have something different. And so I think they're taking an incremental approach. And so you can see that's why this year they still announced the GDP target for 2021, but they did not announce GDP targets for the next five years.
Kurtis: And I guess in addition to not setting GDP targets in the next five-year plan, what else more broadly did you take from the fifth plenum communiqué and the upcoming five-year plan? I mean, technology was mentioned a lot, right? And you focus on innovation. You went to Stanford. Is there going to be a Chinese rival to Silicon Valley that arises in the near term?
Yuen: Short answer to your question. Will it become a technological leader? Well, first of all, it depends on what type of technological leader. One of the key takeaways is that china's competitive advantage in innovation is very different from the United States. China excels in applying existing technologies to improve business models and manufacturing processes. So you can think of e-commerce as the best example. It's not teleporting or anything super science fiction, but it's important. It created a whole digital economy, whereas if you look at the U.S. and the advanced economies, advantage is in the so-called cutting-edge technologies like semiconductor chips.
And the second thing to take away from the fifth plenum, I gave a testimony to the U.S.-China security commission, which you can find online. The second takeaway is that the Chinese government has shifted in its technological priorities very rapidly within just the last few years around the 2013, ’14. They were actually really open-minded and encouraged all kinds of technology and innovation under the banner of mass entrepreneurship. So it's kind of like a campaign for anyone of any age who wants to do anything related to innovation, all of that is encouraged. But today however in response to the trade war and the U.S.-China technological competition, the focus is now squarely on what is called [inaudible 00:54:44] technologies in China, things like semiconductor chips where those critical advanced technologies dominated by advanced countries like the U.S.
Kurtis: Yeah. I mean, this is the last question, and that's a fantastic segue related to technology and innovation. You're working on a new book not yet published called, or should I say tentatively called The Age of Disruption. Do you want to tell us about your thinking behind this book and when we can expect to see it?
Yuen: Absolutely. I’m excited to write this book. It is tentatively called The Age of Disruption Toward an Adaptive Political Economy. It will be, again, a sequel to my first book. What I will do is that it will talk about very similar issues I raised in my first book but in a generic context without China in the title and on the cover. And I think I felt compelled to do that, because even though in my first book I talked about really big issues of complexity thinking, co-evolution, changing the paradigm in development. Because of the China title and cover, there's this very strong assumption that all of that is unique to china. And so I find a lot of people are not willing to see that, “No. These are generic issues at the theoretical and paradigm level.”
Plus, I felt that over the past few years I’ve learned a great deal from intellectual nomadism. Traveling really across multiple communities, policy, business, complexity, academic. So I wanted to put all of that together into this book about the age of disruption with the key argument being that we need to change the paradigm in development studies. Like the old paradigm that we have is a traditional mechanical paradigm where we believe that we can make reality legible by reducing it, right? We imagine that reality works like a machine. It can be reduced into separate parts with linear relationships. And to use the words of Esther Duflo, we go around solving problems through plumbing, right? So we apply great precision to tweak one small part of a machine and we just like tweak our way out of the problems that we have.
And what I’m arguing is that we actually need a whole paradigm shift, and this is not just about changing one theory or one concept or one benchmark, but really fundamentally challenging the core assumptions that we have subscribed in this mechanical view of the social world. And I argue that we need to accept the fact that the social world is complex. And complex is not a bad word. It just means that the nature of things are interdependent, connected, they co-evolve, and it raises a whole different set of questions that we can study rigorously as social scientists without hand waving. So that's what I wanted to do in this book to provide that theoretical and conceptual foundation. And then I’m going to do several kind of fun demonstrations and applications across a number of big problems in development, such as is it economic growth or good institutions that come first? Or such as how should a leader communicate when he doesn't know the solution to the problem? So how do we apply adaptive political economy as a new paradigm to both answer important questions as well as to raise new questions?
Kurtis: Yeah. And having hearing you say that, the Charter Cities Institute can definitely get behind pushing for a paradigm shift in development towards more adaptive, emergent, bottom-up type reforms rather than this more linear thinking. But with that, Yuen Ang, this was fantastic. I very much enjoyed the conversation. That's all the questions I had. And just thanks again so much for coming on the podcast and for the discussion. We appreciate it.
Mark: Thank you for listening to The Charter Cities Podcast. For more information about this episode and our guest, to subscribe to the show, or to connect with the Charter Cities Institute, please visit chartercitiesinstitute.org. Follow us on social media, @cci.city on Twitter and Charter Cities Institute on Facebook. I’m your host, Mark Lutter and thank you for listening to The Charter Cities Podcast.
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