What happens when Chinese resolve meets American rent-seeking?

Reading "Abundance" and "Breakneck" side by side suggests that learning from one another is not enough.

Abundance: How We Build a Better Future, by Ezra Klein and Derek Thompson

Breakneck: China’s Quest to Engineer the Future, by Dan Wang

One of the most important challenges of the social sciences is to be able to answer one important question which we ought to be regularly asking ourselves as a society. That question is something like, “Have our decision-making systems become pathological?”

Or perhaps even more pointedly, “Have our decision-making systems become pathological yet?” We know from the past that there is a constantly repeating cycle of institutions being built to solve a particular set of problems, persisting as the world around them develops and changes, then gradually becoming obstacles to progress themselves and needing to be reformed or overturned. It’s just that it’s quite difficult to see this happening without the benefit of hindsight. Denial and sclerosis can be surprisingly comfortable to sink into, particularly when every single year always brings up a new crop of idiots demanding revolution whether it’s needed or not.

Abundance and Breakneck ask whether pathological rot has indeed beset the fleet of institutions we might call the “privatized regulatory state:” the equilibrium that was reached in the USA (and the other Western democracies, although there isn’t much about them in the books) around the end of the 1970s. Broadly speaking, the post-Reagan settlement was that the size and capacity of the government would be reduced as a proportion of society, and it would operate by setting rules that could be enforced by mostly private parties using litigation or a similar judicial process. As the state shrank, the importance of being able to afford a good lawyer grew.

The two sides of the trade go together – assessing compliance with rules on a “yes/no” basis is a less complex task than planning and designing things for yourself. As the public sector developed from producing and constructing things itself to regulating them or drawing up outsourcing contracts, its task became less complicated and the administrative state was able to shrink (in principle; in practice, states kept growing as they were asked to do new things). You can see this as the cognitive basis of the New Public Management approach, of “steering rather than rowing”.

Did it work?

It’s useful to look at a book from 2017, which I think has to be seen as an important precursor of both Abundance and Breakneck. That book was The Captured Economy, by Brink Lindsey (whose earlier book The Age of Abundance discussed the emergence of the compromise we’re talking about) and Steven Teles (who is thanked in the acknowledgements by both Dan Wang and Klein/Thompson). The Captured Economy is an interesting book not least because it represents one of the most rare and surprising things in modern life: public intellectuals who are prepared to consider the possibility that they might previously have gotten it wrong.

The theme of the book is summarized pretty well in the title, as it is all about the ways in which the libertarian, deregulatory, and pro-business agenda from the 1980s onward had ended up creating a society of rent-extractors of various kinds, in which much more energy was expended on protecting those rents than doing anything productive. The subtitle, “How the powerful enrich themselves, slow down growth and increase inequality,” sounds like it could have come from a socialist tract.

In fact, it’s even more interesting than that – it’s a clear-eyed examination of how the underlying model of the post-Reagan years broke down, and particularly how the assumption that market outcomes and property rights would lead to optimal outcomes failed in the real world. It isn’t by any means a total repudiation of “Cato Institute libertarianism,” containing chapters about the perils of occupational licensing and land use regulation alongside those on intellectual property and finance. But the reason it ought to be seen as a precursor to Abundance and Breakneck is that it was an early attempt to take seriously this question that I think is at the heart of Abundance politics: “Have our social and political institutions ceased to deliver?”

Lindsey and Teles were trying to tell some home truths to the Right in 2017: that in the absence of state capacity, the private sector had stopped being the engine of the abundant society and turned into a rent-extraction machine. Klein and Thompson, at least in part, appear to be trying to gently tell similar home truths to the modern Left – that many of them, and many of the institutions they value, are part of that same rent-extraction machine.

“The Captured Economy” told the Right that the private sector had stopped being the engine of the abundant society and turned into a rent-extraction machine. “Abundance” tells the Left that many of its institutions are a part of that machine.

The early chapters of Abundance, dealing with housing and urbanism, are the ones which seem to have generated most Discourse, but in many ways the most interesting and serious part of the book comes later on, when Klein and Thompson look at the administration of scientific research in the USA. This is an area where the pathologies of the system can be seen in their clearest form. The business of applying for grants, jumping through procedural hoops, and satisfying requirements of very questionable relevance seems to be one that satisfies nobody, makes nobody happy, and doesn’t deliver results. But of course, it provides a decent living for quite a lot of administrators, all of whom might think of themselves as hard-working public servants, and who would presumably get very angry at being told that what they were doing was extracting rents.

And as with science research grant administration, so with quite a lot of the modern regulatory state. It is a hard thing to accept that you might be part of a system that impedes overall prosperity, or that your primary income stream may come from acting as a type of bridge troll representing some legally privileged party that must be paid off to get out of people’s way. Rent extraction is, of course, what the other guy does; even hereditary landlords prefer to construct a story about themselves as custodians of the shared patrimony. But in the nicest and mildest possible terms, Klein and Thompson are trying to deliver the same message in 2025 as Teles and Lindsay were in 2017: The system isn’t working as intended. There are too few people rowing and too many pretending to steer.

So if a regulatory system with no state capacity turns into a rent-extraction machine, what happens when you have a system that’s all capacity and no regulation? That’s the main subject of Breakneck, in which Dan Wang combines broad admiration of China’s progress since the 1980s with a forthright accounting of the costs.

On the one hand, the “engineering state” has been able to drive rapid industrialization, and Wang makes a strong case that China is either close to or already at a position of technological superiority for any practical purpose. The de-industrialization of the West and the decision to outsource manufacturing industry has meant that all the “process knowledge” of the last few decades has accrued to Chinese companies and industries. Meanwhile, American manufacturing has spent the period “not learning by not doing.” Process improvements and technological gains seem to have a compounding effect, and reshoring production of many advanced products might literally be impossible. If this was all that was happening, a century of Chinese dominance would be a relatively conservative forecast.

But Wang also argues that the massive blunders the Chinese leadership committed in the same period – the one-child policy, the response to the pandemic, the incipient real estate and financial crises – cannot really be seen as anomalies or misfortunes. They are also part of the system. The Chinese government is bad at listening to people, and for this reason its mistakes often have to get really big before they are corrected. An “engineering state” is good at solving the problem presented to it, but information which was not included in the initial problem specification has a very tough time being taken into account at any later date.

And, as the New Zealand road safety slogan used to put it, “the faster you go, the bigger the mess.” It is possible that the Chinese system will end up running out of vitality, as increasing numbers of creative and educated young people decide to leave, or that the overhang of the one-child policy will slow its growth. But these are the optimistic projections. The fear for everyone ought to be that sooner or later, the genius engineers will miss something really important and create a disaster that they cannot contain with a sudden reversal of policy. As anyone who remembers the golden years of finance in the early 2000s might tell you, an unregulated system often looks really fantastic right up until the moment of the crash.

These two books, while similar in message, are very different in style. Dan Wang is racy and outspoken, regularly throwing out sentences like “Engineers can’t take a joke,” or “Europe is a mausoleum,” which make you do the Anthony Bourdain chuckle and mutter, “Really? Wow. Ok, we’re doing this.” It makes for a fun read, and for an interesting contrast with Klein and Thompson’s measured and gentle way of making similar points.

I think this reflects different audiences and objectives. Breakneck is partly a bid to explain China to the outside world and partly a rather touching family and personal memoir of an unrepeatable historical moment. Abundance, although it wears its social science research lightly and carries its argument well, is more consciously structured as a contribution to the national debate, and occasionally makes you a little uncomfortable to be reminded how important it all is. The extent to which Klein and Thompson’s book nevertheless turned into what Mike Konczal called a “discourse generating machine,” despite the authors’ obvious determination to try to persuade rather than enrage, shows how difficult a problem it is to get people to take this thing seriously as a problem to be solved rather than an opportunity for self-expression.

Righting the balance between what Jen Pahlka calls “stop energy” and “go energy” is also a problem in which the solution isn’t necessarily as obvious as the authors of these books might hope. Making China’s engineering state a bit more lawyerly is a tough enough ask, but could we really make America’s regulatory society work more like China? Would we want to if we could? The solution to a crisis isn’t always to reverse the actions that caused the problem; you can’t mend someone’s leg by reversing the truck that broke it.

Importantly, “process knowledge” exists in services industries as well as manufacturing ones. America’s society of lawyers has some really good lawyers. Likewise, its bureaucrats, administrators, and bankers are not only good at extracting rents, they are good at defending the system of rent extraction. Many of them seem to have jumped on the new technology of right-wing populism and turned it to their own interests, for example, and those who haven’t should not necessarily be counted out when it comes to developing strategies of self-protection.

The Abundance movement itself is not entirely free of currents whose sincerity could reasonably be doubted, after all. And the syncretic variety of abundance arguments make it potentially a little bit more vulnerable to distortion than some other political tendencies. Rent extraction is, once more, always what the other guy does. It is, I think, very easy to convince yourself that regulation of the things you want more of is an affront to human progress, regulation of things you don’t care about is one more burden on the economy, and regulation of things that affect your life is simply a necessary protection against a runaway engineering state. There are, for example, quite a lot of people whose only Abundance view is the belief that natural habitats are a luxury we can no longer afford, which sounds more like scarcity.

And so I think there is quite good reason to fear the possibility of a state that combines Chinese myopia with American levels of rent extraction. Both nations might be on the way there already, from different directions. To achieve the happy medium rather than the monstrous combination, it’s not enough for the engineering state and the lawyerly society to learn from each other. Both sides would have to be less of themselves.

It is hard to persuade a rent extractor to leave rents on the table, even if they know that doing so is a necessary condition for the survival of the remaining streams of rent, let alone the creation of new ones. And it is often hard to persuade an engineer that all the constraints on a job matter, even when some of them don’t look like the problems studied in engineering school. Unfortunately, necessary changes to social institutions tend to only come when their failures have become absolutely manifest, not when clever authors spot that there is a problem.

If Lindsey and Teles’ book was an obvious precursor to the Abundance agenda, there’s also a less obvious forerunner we might consider. It’s a book that’s concerned not with abundance at all but rather its opposite, bankruptcy. Greece’s Odious Debt, by Jason Manolopoulos, was a polemic published in May 2011, in the very earliest days of the Greek debt crisis. While all three books discussed here so far are attempting to address the question of how we can stop our once-productive social and political institutions from becoming pathological, Manolopolous was forced to ask the same question shortly after the bill became due.

Greece’s Odious Debt contains a thoroughly unsentimental but nonetheless moving history of how the Hellenic Republic got to where it was, and importantly how the combination of financialization, political myopia and the economics of European Monetary Union caused it to spend a decade in a world of false abundance. For a few years, Greek citizens lived well beyond their means, importing Mercedes cars and enjoying a real estate boom. When the crisis happened, they were brought face to face, as few peacetime societies ever are, with two facts: Their system of governance was rotten, and their prosperity was fake.

The economy of Greece has still not recovered; GDP is about 20 percent below its 2008 peak. And its politics have by no means been transformed. So there is no solution here, but there is a lesson. Environmental debts will come due, just like financial ones. So will political and social problems that have been put off to the future because they didn’t appear to have engineering or lawyerly solutions. If we don’t start to address the questions raised by Abundance, we may find that the future contains something that’s capable of breaking our necks.