Why Nations Fail Whether a nation succeeds or fails is based on their institutions, extractive and inclusive. Inclusive institutions have unlimited growth with a free market so the people can choose their education, any job, and the chance to own property or businesses. Extractive institutions are ruled by elites, the whole market is under strict control and whatever happens within that economy it only benefits the highest in power. Extractive institutions have poor education and it stops the economy from flourishing and monopolies make it hard for people to own property or businesses. Why Nation’s Fail talks about why certain countries are able to succeed while others fall. Many people debate on how China will end up in the coming years. China’s economy is one of the quickest growing economies in the world because in the past twenty years, China has been growing at an extremely fast rate. It does not seem likely that it will change anytime soon either. Economists’ have been plotting trying to figure out if China’s economy will decline at all for a couple of years now. If they switch to an inclusive economy, it will most likely die off. By having an extractive economy, it will eventually slow down and level out. For example, most of Western Europe, the United States, Canada, Australia, and parts of Asia have all had a fast growing economy, but all ended up leveling off. Rapid growth can also mean rapid crash, just like what happened to the Soviet Union. In the beginning, China’s economy seemed to start out how the Soviet Union did, but now follows in the footsteps of the successful Western Europe and the United States. Mao Zedong started the communist party in China. He used the same concept of the Soviet Union on China. He set extractive policies to help China grow. Industries were growing, but other sectors paid for it to help the overall economy. Agriculture was the main sector that did not really thrive. There was no motivation for agricultural production. Therefore, production declined, there were food shortages and scarcity was common around most of the country. When Mao was in control, China did actually have rapid growth, but it was not able to last very long because of his extractive policies. Until his death in 1976, Mao and his appointees completely controlled the Communist party and the government. Mao’s death was a critical juncture for China. The new leader was Deng Xiaoping and he set up an inclusive economy. China got rid of subsidies and added inclusive economic institutions, but while still under the control of exclusive political institutions. Even though they had a mixture of an extractive and inclusive economy, it was a huge move away from one of the most extractive economic institutions in the world. By doing this, he began new economic growth. Finally, there were incentives in industry and agriculture, and technology and foreign investment started to thrive. This was a huge step forward for the development and growth of China. About ten years ago, the ruling party decided to switch their ideas from progressing and reforming policies to development and it lead to mass building and production. It helped increase the size of their economy, but they did not have a strong foundation.
There is a theory on how the way China settled could explain their remarkable growth. China and South Asia were more successful than New Zealand and Australia. This theory is proven wrong because Why Nation’s Fail says, “South Korea and Japan were emerging as the richest nations in Asia while New Zealand and Australia were surpassing almost all of Asia in terms of privacy” (page 50). Some thought the culture of the Chinese didn’t help the growth of China because their values were elsewhere. Nonetheless, it has changed in China because now they, “value work ethic as the engine of growth” (page 57). It explains why certain nations have the ability to be rich because of what it is that they value compared to other nations. This holds to be true because in a typical social society, it cannot flourish with everyone working all the time, they also need to network with numerous people that would be able to help them out in the future and they need to trust one another so they can work together smoothly.
China has come up with great technological improvements in the past couple of decades. One person could not have done this by their self. China worked together to come up with new advancements to help their society prosper. In order for this to work, there has to be incentives, either from the government or other successful societies. For example, in Africa, their government did not provide incentives which would explain why they have a poor society. Many Africans were sold as slaves because they knew their government did not value them as people and were just money hungry. With the government treating them like that, they had no motivation to create ideas or invent new technology to help their society because they did not trust anybody, which had a huge negative effect on their ability to grow and prosper. The rulers are the reason why their society in unable to flourish the right way. Also, if the king or leader forces their people have to pay in order to keep living in their society and follow strict laws and regulations, their people will be too scared to do anything for their society. Why Nation’s Fail also says that the influence of European culture against Non-European culture could also explain why North America and China have been growing so rapidly. Their European influence could show through their work ethic and outlook on life. The book also states that a long time ago, culture actually could have been a reason why China grew but the authors say that it is not the same case for today. “China, despite many imperfections in its economic and political system, has been the most rapidly growing nation of the past three decades” (page 62). This quote explains to the reader that China is still growing just as rapidly without anyone or anything getting in its way.
Another theory that can have an impact on the economic growth in China is that the large generation that helped to produce fast growth in China is getting older. Within the next ten years, there is an expected decrease in the population, partially because of their one child per family policy. In a couple of decades, majority of the population will be sixty-five or older. This issue has not occurred yet, but if no one does anything about it, it will create a lot of problems for the Chinese. Eventually, the working people will have to pay for the elderly’s health care and pensions and it will create a problem because there won’t be enough people working to support them nor will there be enough people to fill all of the job positions. Therefore, this could negatively impact the elderly and the workers. This could possibly cause workers to give up even more of their income in order to support the elderly, which will create issues with income. People will want more money because they have to give up more to the government and higher labor costs could make them less competitive. Because of the increasing aging population, it has lost the times when China could hire people for less money. Also, if production and exports decrease causing less revenue, it would only add to their expenses. This problem could cause public protesting. In order to stop it, the government should spend more of public welfare, which would resolve the issue and also benefit economic growth.
China’s economic growth could possibly fall because they are not a resource rich country like the United States. China is the world’s largest importer of coal and many metals that are used for manufacturing. The United States does not rely on coal as much because they have larger reserves. China is the second largest oil importer and make up over half of global iron ore trade. They are the world’s largest soybean importer and are catching up to the United States on corn imports. More than twenty-five percent of China’s land is a desert and about half suffers from erosion making it not available for agriculture. The urban areas are growing causing less land availability for food production. Agriculture productivity was better in the earlier years because a reform, but they are lacking natural resources to help them grow. The United States has more land to work with and less than twenty-five percent of the population needs to be supported. China has a lack of water in certain areas that is needed for farming. Also, water pollution from non-regulated manufacturers is likely to affect growth. Additionally, when the reform was starting, property rights for farmer’s increased and agricultural productivity and income increased dramatically. Recently, state control of agriculture has increased causing production to decrease.
At the end of Why Nation’s Fail, it states that the large economic growth of China will not last forever. Reason being is, China went from an extractive economy to an inclusive economy, but their political party is still extractive. The fact that China grew under an extractive economy will stop and/or limit China’s growth. The growth of China will most likely end when the standards of living reach the middle income class. The growth rates of China will start to decrease. It can be avoided, but only if China can completely switch over into an inclusive political institution before the growth under extractive institutions reaches its limits.
!Growth can also be slowed down by an increase unemployment. While urban unemployment in China is low, rural unemployment is very high. It creates increased costs of caring for people and causes people to leave rural areas meaning there is a decreased production of food, causing an increase in food costs and leads to more imports of food and restricting growth. China is more dependent on international commerce than most other countries. Any trade issues or not partaking in global demand will hurt them more than other countries.
Today, a lot of economists are expecting that China will crash. Some economists think that it will not be an easy fall and others think that it will happen slowly but surely over time. The target annual growth rate for China is set at 7.5% for the year 2013. This year and last year were the only times when China has set their benchmark lower than 8% (Wharton). Inflation is a major issue for China right now. They’ve tried to fix it by limiting how much money the banks lend and increased interest rates and bank reserve requirements. The government has always said that their growth will slow down, but didn’t expect it to happen this quickly. Wei Yao is an economist in Hong Kong that thinks China’s economy will start to slow down but at a slow pace and will not make a huge impact until 2014 considering what the government decides to do. Yao thinks that if China can avoid a “hard landing” they will not have a very bad fall. There is supposed to be a new generation of Communist officials, but China’s leaders have put off reforms which were very important. Patrick Chovance is a professor that said, “The worst thing China can do is to unleash another flood of stimulus to counter weaknesses in exports and investment” (Wharton). Therefore, the longer that China waits to fix the problems they have, the harder it will be to fix in the long run. There are still a lot of poor people in China. Japan does not have as many but they are still considered middle class. If China does not keep up with Japans middle class they will possibly not be able to stay above ground when their growth actually starts decreasing. Insufficient social services could get cut short if the Communist party does not figure out any solutions to their problems. If China does not start the most important reforms, social conflict will arise which could start another Cultural Revolution like the one Mao Zedong started because he thought it would help their economy, which did not work at all and many smart people were murdered and put into buildings where they were out of sight and out of mind. If the Chinese leaders do not do something soon, they will drown and will lose any progress they have made over the past thirty years. China wants to be able to rely on their government to fix everything but they have not done a thing about it. It is also making their GDP growth go down because they cannot make figure out how to reverse it. Economists today are trying to figure out what is happening to China by looking at what they are spending their money on besides government spending. It seems as if they are only spending their money on construction equipment, electricity and they have been demanding cement. China has improved over the years, but no one knows for sure if they will fall again or not. Andy Xie thinks that the facts are not true that say China will have a “hard fall.” He thinks it will be much worse but he cannot be too sure because he does not care about the GDP growth and thinks they are wrong (Wharton). There is another problem going on inside of China as well. They keep borrowing from property developers whose projects that most likely will not pay the original returns because prices have dropped. One economist thinks that if they stop worrying about their GDP growth, they can fix their problem because increasing it with investment might not exactly fix it the way they want it to and it should not be a long term issue with China. China just needs to realize that if they do not try to increase their expansion so fast it will help them grow in the long run.
The election of new government officials were a critical juncture in China. Their ideas could possibly be too much and could actually worsen their recession. Like they say, all good things must come to an end, meaning even though China was doing so well, it was not going to last forever. Surprisingly, I do agree with what some of the authors have to say in China’s Gravity-defying Economy: How Hard Will It Fall. I do not think that their economy will just suddenly stop like Why Nation’s Fail says it will. I believe that their economy will slowly stop. Before reading this book and article I suspected nothing wrong with China’s growth because the United States is always getting imports from them every single day. Since they were flourishing so quickly inflation was going to occur sooner or later. It may not seem like it but having too much money can cause a lot of problems.
The Communist party is only thinking about ways to increase their wealth. The people of China know how an inclusive economy works so they could possibly protest. But the communist party may not listen and will just keep their procedures of the extractive political institution, which will stunt their economic growth. Since the Communist party decided to stick with inclusive and economic institutions, their economy will start to fall and the United States will continue to be one of the top successful economies.

Bibliography
Acemoglu, D., & Robinson, J. A. (2012). Why nations fail: the origins of power, prosperity, and poverty. New York: Crown Publishers.
Wharton. (2012, March 28). China's Gravity-defying Economy: How Hard Will It Fall? - Knowledge@Wharton. Knowledge@Wharton. Retrieved December 5, 2013, from http://knowledge.wharton.upenn.edu/article.cfm?articleid=2962