Blog: Can China Make the Phase Transition to Complexity?

The Chinese economy is facing a crisis. Slowing growth, deflation, and financial instability are converging at once. The reaction by the Chinese government, as it has been in the past, is to impose more control as discussed in this Wall Street Journal article. This has worked before but the situation now seems similar in many ways to the challenges Japan faced in 1990 after it briefly became the world's second largest economy. In Patterns in the Dark (1999) I expressed skepticism that China's emerging hybrid approach, making an economy which was both free-market and state-driven, could work. I was wrong, but the issues I brought up over 20 years ago seem to becoming relevant now.

My skepticism was tied to the belief, combining the Austrian School of Economics with Complexity Theory, that neither fully competitive laissez faire nor structured socialism was the optimal model for the economy. Instead a resilient, growing economy needed to balance the extremes of competition and cooperation at what is called "the edge of chaos" where complexity develops. In light of what's happening in China and it's implications for the global economy, I thought it might be a good time to discuss those ideas.