It’s common today for people to look at the amazing economic progress of China and think that they’ve got something figured out that the rest of the world hasn’t. And what’s more, they’ve done it without liberalizing politically such as many assumed would quickly follow their opening up their markets.

China’s rulers believe they’ve discovered a better way to run a society than pluralistic-liberalization, that they can have a rapidly growing economy without the political freedoms of the West. They want to preserve their power, privilege, and wealth at the expense of the Chinese masses. They laugh at Western democracy and believe their system of basically economic fascism, centrally controlled economies with limited and contingent property ownership, will outshine the West. Obama, they’ve said, wouldn’t even make it to a mid-level manager position in the Chinese communist party.

China’s been riding high on 7.5%+ growth rates. Well, until this last quarter when that figure began slipping.

There’s an obvious historical parallel to this economic situation, in fact several of them, as noted in “Why Nations Fail”–the most notable being Khrushchev’s Russia and his famous statement, “We will bury you!” Economically, he meant. Russia was in the midst of massive economic growth that made them believe they’d overtake the West economically using a chained-economy.

They even convinced Lincoln Steffens that the Russian system was working, he said, “I have seen the future and it works!” after a tour of the USSR.

Russia grew rapidly even under the oppression of centralized dictatorship in part because there was so very much catching up to do just in mechanizing a formerly agricultural nation. But once diminishing returns set in, the lack of a free market prevented the kind of creative destruction that a free economy always experiences, the freedom of businesses to succeed or fail on a level playing field, for low-cost competitors to replace high cost ones, etc. Instead, state-connected businesses used state-granted privileges and protections to continue operating at the expense of the economy generally.

China is deep in this kind of privilege granting. You can’t do anything at the highest levels in Chinese business without explicit party consent. Every large company in China has a red phone, which it a direct line to the communist party, which may call at any time and issue orders to the company as to what to make and how much, whom to hire and fire, etc. And China, too, has a lot of catching up to do economically.

Argentina experienced much the same thing in the late 19th century, 50 years of growth in the midst of political oppression, where standards of living in 1900 were on par or even superior to Londoners. But Argentina maxed out and has been failing economically ever since.

Today the grand illusion of “it works” has appeared again in the form of China, but there’s no real reason to think that merely catching up economically with the rest of the world is going be either sustainable or to lead to liberal political change in China of the sort that breaks the control of the communist party. The Tienanmen Square protests quickly became relabeled the Tienanmen Square massacre as tanks were rolled out to squash protests.

Russia fell apart only when the elite realized utterly that communism had failed. China’s elite rulers will have to first discover the same is true of their current means of ruling before China will be open to significant liberal revolution.

Afghanistan used to be quite Western and liberal, and look at it now.

For that matter, it could easily be argued that the USA itself has transformed its political and economic institutions into extractive ones that have significantly curtailed the ability of the market to engage in creative destruction and innovation compared to perhaps other places in the world.

The US used to be a place where you could try new things. Today all new things are contingent. 50 years ago we would’ve started drone companies without asking for permission. Today the FAA preemptively shuts drone companies down and hands out permits only to the politically connected.

I expect both the USA and China to eventually max out and stagnate, and neither to significantly liberalize any time soon.

If we want out, we’re going to have to build a new place ourselves.