Chapters (Layout Features)

Creating the Institutional Foundations for a Market Economy

Stiglitz, Joseph E.

This chapter (and more broadly, this book) focuses on one aspect of China’s transition—the creation of the institutions that underlie a market economy. It focuses more narrowly on one set of institutions, the legal frameworks, which provide the rules of the game. How those rules are set will have an enormous impact on how China will evolve in coming decades. If it sets the wrong rules, creates the wrong legal frameworks, establishes “flawed” institutional arrangements, it may be able, at least for a while, to maintain growth; but it could also see a more divided society, marked with greater inequality. It is even possible that growth—correctly measured—will not be sustained. Much depends on the decisions that China makes in the next few years. As we argued in the Introduction, there is a battle of ideas concerning alternative frameworks. This chapter sets the stage by looking at some of the key challenges facing China at this point in its transition to a market economy. This chapter is divided into nine sections. First, we discuss the objectives that China should be pursuing in the context of the multiple transitions in which it is engaged. Next, we look at one of the critical institutions, “the plan,” which has served to guide China’s development over the past fifty-five years. In the following sections, I discuss the critical “transitions”—from export-led growth to domestic- led growth, to an innovative economy, toward an environmentally sustainable economy, to an urban society with livable cities. Finally, we discuss some of the broader institutional innovations that will be required.

Geographic Areas


  • thumnail for 2013_Creating_Institutional_Foundations.pdf 2013_Creating_Institutional_Foundations.pdf application/pdf 250 KB Download File

Also Published In

Law and Development with Chinese Characteristics: Institutions for Promoting Development in the Twenty-First Century
Oxford University Press

More About This Work

Academic Units
Published Here
April 15, 2019