How Progress Ends

 

“How Progress Ends

 

By Carl Benedikt Frey

 

Princeton, 552 pages, $35

 

Politicians in Washington insist that China will stop at nothing to achieve global supremacy. Solons in Beijing see the U.S. struggling to maintain its dominance in the face of their country's rise. Carl Benedikt Frey, an economist at the University of Oxford, offers a warning to both sides: "While it has become popular to pitch China and the United States as locked in an economic and technological race, the truth is that both are trending toward stagnation."

 

In "How Progress Ends," Mr. Frey investigates the historical relationship between social structure and economic growth. His sweep is wide, stretching from the Western Zhou dynasty in China three millennia ago to the European Union today. Both free marketeers and die-hard central planners may find that his conclusions challenge their view of the world. "Sustained progress," he writes, "depends on balancing these forces, shifting between decentralization for exploration and centralization for exploitation."

 

Mr. Frey builds on the work of the economist Mancur Olson, whose 1982 book, "The Rise and Decline of Nations," posited that as countries grow wealthier, they become dominated by groups that undermine economic growth by protecting their members' narrow interests. Olson argued for policies that prevented such rent-seeking.

 

As Olson put it, "the best macroeconomic policy is a good microeconomic policy."

 

Mr. Frey asserts that the best way to foster growth can depend on current conditions and the state of technological advance. Decentralized institutions, he argues, are preferable when it comes to stimulating innovation because they leave more ways to circumvent roadblocks and introduce new technologies. If one business or government agency dislikes an idea, another might favor it, opening a way for an innovator to challenge the status quo. But when a country's circumstances require it to build on existing technology, a strong central authority can be more effective. The remarkable economic recoveries of Western Europe and East Asia in the years after World War II relied on mandates to adopt state-of-the-art industrial technologies from the U.S. "While discovery thrives in decentralized systems," he asserts, "scaling and production benefit from centralized control."

 

This theory, Mr. Frey continues, could explain why the 18th-century industrial revolution began in England. While some historians have credited its supply of skilled workers or firm embrace of property rights, those characteristics weren't unique. "What made the difference," the author maintains, "was that English institutions after 1688 no longer let powerful groups stand in the way of technological change." Unhindered by the guild rules that had to be observed all over Europe, British workers could easily move from one town to another, taking their skills with them. Laws encouraged private investors to build canals, turnpikes and railroads, expanding markets for goods such as steel rails and creating demand for new technologies such as steam engines.

 

During the same period, Mr. Frey contends, the more centralized political and social systems in China, Japan and much of Europe were hostile to new ideas that promised to disturb the established order. They often maintained barriers to both domestic and international trade to keep innovations out. Some of those countries caught up in the second half of the 19th century, as strong government bureaucracies guided education, finance and labor policies to position their economies to adopt existing technologies and methods developed by the British. Germany, for example, lagged far behind in building railroads and inventing railroad technology, but over time created a larger, more efficient rail system than Britain's. "Catch-up growth depends on bureaucratic capacity," Mr. Frey concludes.

 

Trouble is, once central planning is in place, it can be hard to get rid of. "A fundamental barrier to technological change is institutional inertia," the author writes. "The traits and institutions that once supported command and control activities, like mass production, can hinder the kind of radical innovation that promises to spawn new industries." This difference in mindset, he indicates, is why American companies, not European or Asian ones, led the way to the computer age and then to the era of the internet.

 

The author's historical analysis has more than a little relevance to today.

 

China, Mr. Frey writes, flourished for several decades as reforms created competition among cities and provinces. This left space for new ideas, and state-owned enterprises lost ground to privately owned companies. Now, he says, China is confronting the "dictator's dilemma" as the Communist Party insists on tighter control of civil society. A greater Party presence in private businesses, heavier surveillance of private individuals, increased limits on provincial autonomy and closer monitoring of scientists and engineers all will tend to discourage innovation. Chinese researchers, he contends, respond to government guidance by focusing on quantity of articles and patents rather than developing high-quality innovations. (That practice will sound familiar to anyone who has studied the Iron Curtain economies of half a century ago.)

 

In the U.S., meanwhile, he sees different but likewise malign policies being implemented, including raising barriers to trade and foreign workers. Granted: Deterring foreign students from coming to the U.S. and expanding "Buy America" rules that protect U.S. companies from foreign competition will be counterproductive. But are the U.S. and China truly "trending toward stagnation," as Mr. Frey contends? Factors he neglects, such as the rapidly rising median age in both countries, are likely holding down economic growth rates. But considering Chinese firms' recent achievements in batteries and robotics and American companies' advances in semiconductors and artificial intelligence, it isn't so evident that progress has ended.

 

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Mr. Levinson's books include "An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy."” [1]

 

1. States and Circumstances. Levinson, Marc.  Wall Street Journal, Eastern edition; New York, N.Y.. 29 Sep 2025: A17.