Will China Overtake the US? Does the Diffusion of Knowledge and Technological Advances Require Democracy?

One thousand years ago, China was wealthier and more advanced than Europe. Yet, it is in Europe that the Industrial Revolution and the progressive democratization of institutions took place, marking the end of a process that began in the late Middle Ages.

This year's Nobel Prize in Economics was awarded to three scholars (Joel Mokyr, Philippe Aghion, and Peter Howitt). Mokyr, in particular, addressed this issue precisely, attempting to identify the conditions that made Europe's success possible. This is interesting not only as historical speculation or an intellectual curiosity. A new wave of innovation is occurring right now, and for the first time in centuries, the dominance of this innovation might not be in Europe or its close ally, the United States. China has transformed itself from a rural country into a manufacturing powerhouse and is now competing for the lead in technological fields such as artificial intelligence and pharmaceuticals. 

At the same time, the economic growth of emerging economies like Brazil or India is reducing the prominence of Western countries (and the US dollar) in the global economy. 

Mokyr's argument is firmly grounded in historical research and then tested against data to disprove it, moving beyond a mainly quantitative approach, which is more common in today's economics.

Mokyr observed that during and after the Song dynasty (960 AD – 1279 AD) in China, local cooperation was mainly organized through multi-purpose, kin-based clans. These clans grew alongside the influence of Neo-Confucianism, which stressed loyalty to family and collective responsibility. Ancestor worship gained increasing importance as clans reinforced their identity. Clans established written rules to reinforce members' obligations to cooperate and to uphold the authority of elders. This system benefited the imperial state, which depended on clans to manage local governance, enforce order, and collect taxes.

In contrast, Western Europe experienced a different kind of social development. While extended families remained important, around 1000 AD, cooperation increasingly took place through corporations—groups formed around shared functions rather than blood relations. These included guilds that supported economic collaboration, monasteries and universities providing religious and educational services, and self-governing towns organizing civic life. Like Chinese clans, these European corporations supplied many public goods, including mutual aid and conflict resolution, but they differed in structure and cultural foundation. They were ultimately not based on family or clan ties, allowed individuals to belong to multiple groups, operated through formal governance, and gave members the option to leave.

This divergence was reinforced culturally. In Europe, the Church (still united before the Protestant Reformation) supported the rise of corporations and benefited from its connections to monasteries and autonomous towns. In China, Neo-Confucian ideology and ancestor worship strengthened the clan system. By around 1500, Europe was characterized by nuclear families and corporate cooperation, while China relied on clans that increasingly took on administrative roles.

China and Europe developed contrasting legal systems due to differences in state strength and social organization. In China, where the state was initially strong, laws were imposed from the top down to maintain order and regulate relations between the government and its subjects. Civil and commercial disputes were typically handled informally within kin-based clans, with officials becoming involved only when clan arbitration failed. In Europe, however, the early state was weak, and legal principles emerged from the bottom up. Merchant communities and corporate groups developed private contract-based rules during the Commercial Revolution, which scholars later codified into formal law. This emphasis on civil law clarified the legal standing of corporations, strengthened them politically, and influenced European state formation. The early role of courts supported the rule of law and equality before the law, while assemblies expanded, laying the foundations for representative and participatory government, even if full democracy was reached many centuries later.

The corporate governance structure in Europe also served as a foundation for constitutional development, providing states with relevant blueprints. 

Mokyr's ideas are relevant to today's technological rivalry between the United States and China. The global spread of knowledge—accelerated by the internet and America's openness to foreign students and skilled migrants—enabled countries like China and India to rapidly absorb Western technology and practices in fields such as manufacturing, medicine, and management. As these countries advanced, segments of the American right grew concerned that immigration and free trade were eroding US economic and middle-class interests. This has contributed to a shift toward protectionism and national security–driven policies. As a result, global supply chains, finance, and even science and technology are increasingly being separated and treated as strategic assets.

Japan, South Korea, China, India, and Turkey have demonstrated that if you can internalize Western science and technology, adapt it within your own culture, whether autocratic or not, you can catch up with the West fairly quickly.

The question is whether this may also allow China to overtake the West with a different social model than the one that allowed Europe to flourish. The partial reversal of social divergence in the 20th century was not due to Mao successfully eliminating Confucian and clan traditions. Although his campaigns weakened traditional structures, kinship values survived and resurfaced after his death

In fact, one of the main drivers of China's economic revival under Deng Xiaoping was its ability to repurpose traditional social structures for a modern economy. Without strong property rights or well-developed legal institutions, kinship networks played a central role in enabling trust, facilitating transactions, and sustaining market activity. These informal, community-based forms of cooperation effectively substituted for the legal and financial systems that supported development in the West. Unlike the post-Song emperors, China's contemporary leaders have actively promoted growth, enabling rapid economic expansion since the 1980s. However, it remains uncertain whether these institutions can continue to support long-term growth under an authoritarian system that tightly restricts personal freedoms and information.