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As my long-time readers know, I am an advocate of “The Five Keys to Progress” theory that explains why a nation suddenly transformed from centuries of grinding poverty into rapid economic growth in a relatively short period of time. I think that the theory has generally been well received, but the key that gets the most push-back is my claim that a society needs “decentralized political, economic, religious, and ideological power.” Some readers are a bit unclear what I mean. It is not about decentralized government, although that helps. It is not about democracy or elections, although that helps as well.
Decentralized power is more that no one individual or group dominates a society. It is of particular importance that elites are forced into transparent, non-violent competition that undermines their ability to forcibly extract wealth from the masses. This also allows citizens to freely choose among individuals and institutions based upon how much they have to offer to each individual and society in general.
Not surprisingly, given the rise of China, some readers have pointed out that China, Singapore, or South Korea looks like they violate the general rule. I must admit that I have struggled somewhat to give a good answer. After having thought about it for a few years, I now think that I can better explain why centralized powers can under specific conditions experience sudden economic growth. So I still believe that decentralized power makes sudden economic growth more likely, sometimes nations can overcome this disadvantage with wise economic leadership.
If you enjoy this article, you should read my From Poverty to Progress book series.
To remind my readers, the Five Keys to Progress states that:
To transition from poverty to progress, a society needs to acquire the following preconditions:
A highly efficient food production and distribution system. This enables societies to overcome geographical constraints to food production so that large numbers of people can focus on solving problems other than getting enough food to eat.
Trade-based cities packed with a large number of free citizens possessing a wide variety of skills. These people innovate new technologies, skills, and social organizations and copy the innovations made by others.
Decentralized political, economic, religious, and ideological power. It is of particular importance that elites are forced into transparent, non-violent competition that undermines their ability to forcibly extract wealth from the masses. This also allows citizens to freely choose among institutions based upon how much they have to offer to each individual and society in general.
At least one high-value-added industry that exports to the rest of the world. This injects wealth into the city or region, accelerates economic growth and creates markets for smaller local industries and services.
Widespread use of fossil fuels. The incredible energy density of fossil fuels injects vast amounts of useful energy into society enabling it to solve a wide variety of problems. Without this energy, life would return to the daily struggle for survival that dominated most of human history.
Click the links above to go into more detail on each of the keys.
Each of these keys is necessary but not sufficient on its own. Once a society acquires all five, it becomes a vast decentralized problem-solving network. Innovation, learning, cooperation, competition, and energy use combine to produce progress. But if even one key is missing, progress is usually blocked. Of these, the third key — decentralization of power — is particularly difficult to achieve, because elites rarely give up their ability to monopolize wealth and decision-making. The centralization of power has therefore been one of the greatest barriers to human progress.
The Disadvantage of the Centralization of Power
To understand why centralization of power is such a potential threat to material progress, I will start with a few observations:
Material progress for the masses comes from society, not the government. While the government can play a role, far more often it implements policies that undermine material progress. The Five Keys to Progress and How Progress Works explains those factors within society that create material progress for the masses.
While centralization increases the chance of a wise central leader implementing really good policies, centralization increases the chances of a central leader who thinks he is wise (or just does not care about material progress) implementing really bad policies across the entire society. Bad government policies have far more potential to stifle material progress than good government policies can buttress material progress. So decentralization is about lowering the risk of bad policies being implemented across the entire society.
Decentralization of power radically increases the chances that someone will get it right. This usually involved the innovation of new technologies, skills, and organizations. Others within the society are forced to copy those innovations or disappear as viable organizations. This creates turnovers within elites that potential disempower the current ruling elites. That is why centralized institutions tend to stifle material progress for the masses.
The Third Key to Progress
The Third Key to Progress — decentralized power — is crucial because it prevents elites from monopolizing resources and blocking innovation. Where power is widely contested, elites must compete to attract citizens, workers, merchants, and investors. This competition creates transparency, rewards good decisions, and punishes bad ones. It fosters a culture in which individuals and organizations can experiment, fail, and try again, producing a steady flow of improvement. Without decentralization of power, this feedback loop stalls.
The centralization of power typically creates the opposite conditions. When political, economic, and ideological authority is concentrated in the hands of a small elite, there is little incentive to allow new ideas that could disrupt their dominance. Rulers and officials often suppress innovation, fearing it will empower rivals or undermine their control. They focus instead on extracting wealth from peasants, merchants, or colonies.
Leaders at the top also attract circles of followers who angle for influence and access to patronage. These followers frequently engage in corruption, distort information, and withhold bad news in order to protect themselves and gain favor. As a result, decision-makers are insulated from reality and encouraged to pursue policies that look strong on paper but fail in practice. The result is stagnation.
Agrarian empires across history illustrate this pattern. Ming China centralized power in the imperial court and tightly controlled commerce, stifling technological innovation. The Mughal Empire in India generated immense wealth through land taxes, but much of it flowed to the court rather than into productive investment. Bourbon Spain used its empire’s silver wealth to finance wars and court life instead of fostering industry.
This is why the puzzle of successful centralized industrialization is so striking. The historical record overwhelmingly shows that the centralization of power holds societies back. For the handful of cases where this was not true, we must look for additional mechanisms that temporarily compensated for the absence of decentralization.
Exceptions to the rule
And yet history presents us with cases that seem to violate this rule. Nineteenth-century Germany industrialized rapidly despite Prussia’s highly centralized political traditions. Meiji Japan transformed itself into an industrial power while retaining strong central control. The Soviet Union, under Stalin, forced industrialization at a breathtaking pace.
In the twentieth century, South Korea, Taiwan, Singapore, and post-1978 China all achieved extraordinary growth while under regimes that concentrated political and economic power. At first glance, these examples appear to challenge the Five Keys framework: how could societies missing decentralization of power still achieve progress?
The answer is that these cases represent temporary exceptions rather than permanent violations. By examining them closely, we can see that the centralization of power can sometimes be offset by other forces, particularly the presence of external threats and the ability to copy more advanced nations. These conditions allowed some centralized regimes to substitute for decentralization, at least long enough to industrialize. But their experiences also show the limits of this path, because once the frontier of copying was reached, continued progress required a return to decentralization.
A Typology of the Centralization of Power
The key to understanding these exceptions to the rule of decentralized power causing long-term economic is to recognize that not all regimes with the centralization of power are alike. The context in which elites operate determines whether they pursue stagnation or modernization.
A useful typology divides these regimes into three broad categories.
External threats with opportunities to copy
The first category is a centralized political regime under an external security threat from an industrialized military power and with opportunities to copy foreign models. When a regime believes its very survival is at risk, particularly from military invasion, its elites may be forced to act in the interest of national strength rather than personal gain. If they can observe and imitate the technologies and institutions of more advanced nations, they can channel resources into industrialization. This combination of fear and imitation allows the centralization of power to substitute temporarily for decentralization.
Nineteenth-century Germany, Meiji Japan, the Soviet Union, South Korea, Taiwan, Singapore, and post-1978 China all fit this pattern.
Internal threats to elite rule
The second category is a centralized political regime facing mainly internal threats. In these societies, the ruling elite worries less about foreign rivals than about domestic factions. To preserve its position, elites spend resources on patronage and repression rather than on modernization. Innovation is dangerous because it could empower local rivals or destabilize delicate bargains. Such regimes remain stagnant even if they possess the other keys. This has been the dominant pattern throughout history.
Isolated regimes
The third category is the centralization of power combined with isolation from foreign models. Often elites deliberately cut themselves off from the outside world in order to maintain their controls.
When a society closes itself off or is cut off by geography and geopolitics, its leaders cannot easily copy advanced industries or institutions. In such conditions, the absence of decentralized competition is fatal. Errors accumulate, technology lags, and eventually collapse or deep stagnation sets in. Maoist China before 1978 and North Korea are the clearest examples.
This typology does not overturn the Five Keys to Progress. Long-term material progress still requires all five, and none can be permanently substituted. But it does explain why some regimes with the centralization of power experienced rapid growth for a time while others remained stagnant or collapsed. External threat and copying provided a temporary pathway to industrialization that helped some centralized states break free of agrarian poverty — though never without limits.
Britain creates an industrialized military
When the Industrial Revolution first took hold in Britain, it was not obvious that the nations of continental Europe could catch up. Britain’s geography and institutions gave it advantages that other European states seemed to lack. It had abundant coal near navigable waterways, a political system that was more decentralized than its continental rivals, and a commercial tradition rooted in centuries of trade and innovation.
By the early nineteenth century, Britain had developed an industrial base in textiles, coal mining, iron production, and later railroads that gave it a commanding lead over its neighbors. For a time it appeared that this gap might become permanent and that continental Europe would remain trapped in older agrarian patterns while Britain forged ahead.
How the Industrial Revolution upset the military balance of power
Most of my book series and this Substack column is about how geography, economics, and technological innovation came together to create human material progress. This created a long-term increase in the material standard of living for the masses.
The Industrial Revolution also transformed the balance of military power in Europe. Britain’s coal and iron industries, along with its machine production and shipbuilding capacity, gave it the ability to field a navy of unprecedented size and power. Steamships, rifled cannon, and mass-produced small arms made the British military far more formidable than in earlier centuries. This industrial strength underpinned the Royal Navy’s dominance of the seas and gave Britain leverage over continental affairs.
For other European powers, the rise of an industrial Britain posed a new kind of strategic challenge. It disrupted the traditional balance of military power that had allowed France, Austria, and Prussia to compete on relatively equal terms. Now, without rapid modernization of their own, they risked falling permanently behind.
19th Century Germany
Yet within a generation, Germany, France, and Belgium had begun to industrialize, with Germany in particular emerging as the leading industrial power on the continent by the late nineteenth century. This catch-up is important because it shows how a polity organized around the centralization of power could overcome its disadvantages by combining external threat with deliberate copying of British models.
Unlike Britain, which had evolved institutions of decentralized power over centuries, Prussia and the later German Empire remained highly centralized states with powerful bureaucracies and military traditions. In theory, this should have hindered progress, because the centralization of power normally blocked the third key to progress: decentralized political, economic, and ideological competition. But under the pressure of military rivalry with Britain and France, German leaders pushed a program of state-driven modernization that succeeded in building competitive industries.
The Zollverein customs union was a decisive step. In the early nineteenth century, German states were fragmented, with dozens of internal tariffs and regulations. The Prussian-led Zollverein abolished these barriers, creating a unified internal market long before political unification in 1871.
This centralizing policy provided the foundation for industrial expansion, because it allowed goods, capital, and ideas to circulate more freely across central Europe. At the same time, the Prussian bureaucracy built an extensive railroad network, which both supported economic growth and enhanced military mobility. Railroads were copied directly from the British model, but implemented in a distinctly German fashion: centrally planned, coordinated with the military, and tied to the state’s broader developmental strategy.
Industry soon followed. German entrepreneurs and engineers copied British textile machinery, iron production techniques, and coal mining methods, but adapted them with local improvements. The Ruhr Valley became the center of coal and steel production, while Saxony developed textile industries.
By the late nineteenth century, Germany had moved beyond simple imitation and was leading the world in new fields such as chemicals, engineering, and electrical equipment. High-value-added industries were deliberately encouraged because they not only generated wealth but also created the advanced machine tools, chemical processes, and organizational capacities essential for modern warfare. Leaders understood that without a strong manufacturing base, the economy would be vulnerable to foreign domination and the military would lack the weapons and supplies needed to compete.
Equally important was the cooperation among elites under the pressure of national security. Political elites in Berlin worked hand-in-hand with economic elites, such as Ruhr industrialists, to expand steel, coal, and chemical production. Military leaders encouraged this cooperation because they recognized that modern armies required a modern industrial base.
Instead of competing destructively for rents, these groups aligned their interests around the shared goal of strengthening the state. The centralization of power created the structure within which this cooperation could occur and ensured that resources were mobilized effectively for modernization.
The result was one of the most rapid industrial transformations in history. Between 1850 and 1914, Germany’s coal output increased nearly tenfold, its steel production outpaced Britain’s by 1900, and its chemical and engineering firms dominated world markets. High-value-added exports, such as dyes, pharmaceuticals, and machine tools, poured into global markets while simultaneously serving as the foundation of Germany’s growing military power. Cities such as Berlin, Essen, and Munich became centers of industrial strength, filled with skilled workers, scientists, and engineers.
By the eve of World War I, Germany had become the largest economy in Europe, despite having begun the century far behind Britain.
The German case thus illustrates how the centralization of power can be overcome under the right conditions. The state’s centralizing power provided the tools for rapid mobilization, but it was the external threat and the deliberate copying of Britain’s industries — reinforced by cooperation among political, economic, and military elites, and by the deliberate cultivation of high-value-added manufacturing — that gave direction to this effort. Without Britain to imitate and France to fear, Prussia might have remained a traditional agrarian state. With those conditions, it became an industrial giant and remains today one of the wealthiest societies in the world.
Meiji Japan
When Japan confronted the Perry Expedition in the mid-nineteenth century, it quickly realized how far it lagged behind. The steamships, modern weapons, and industrial products of Britain, France, and the United States revealed the immense gap created by the Industrial Revolution. Japan’s leaders concluded that the only way to survive was to copy the achievements of the West in every sphere — technology, skills, organization, and even elements of culture. This recognition shaped the Meiji Restoration of 1868, when the new regime abolished feudal institutions and concentrated authority in the hands of a central government devoted to modernization.
The centralization of power, normally a barrier to progress, now became a critical asset. Because authority was concentrated, the government could impose sweeping reforms across the country with unusual speed and coordination.
Western technologies were imported directly: railroads, telegraphs, steamships, and firearms were purchased, studied, and reproduced. The state recruited foreign engineers, teachers, and military officers to train Japanese students and workers. Skills were systematically acquired through technical schools, scholarships, and missions abroad. The famous Iwakura Mission (shown above) sent leading statesmen and students across Europe and the United States to study everything from shipbuilding and steelmaking to banking, parliaments, and schools.
The state also copied Western organizational forms. It created ministries modeled on European governments, established a modern conscript army on the Prussian pattern, and built shipyards and arsenals inspired by British and French examples. A new banking system was introduced to mobilize capital, and large state-supported firms laid the foundations for future industrial conglomerates. Even cultural practices were studied and selectively adopted: Western dress, architecture, and educational curricula symbolized Japan’s determination to master the tools of modern civilization. This broad imitation required a level of national coordination that only a centralized government could enforce.
Equally important was the unusual cooperation among Japan’s elites. The external threat of Western imperialism made it clear that survival depended on unity. Political leaders in Tokyo worked closely with economic elites, including wealthy merchants and emerging industrialists, to channel investment into strategic sectors. Military elites, drawn from former samurai, accepted the need for Western-style conscription and modern training. Instead of guarding their privileges and blocking reform, these groups cooperated under the guidance of the central government, subordinating their interests to the national project of modernization. The centralization of power created a structure in which these alliances could be forged and enforced, ensuring that resources were mobilized effectively.
Central to this strategy was the development of high-value-added manufacturing. Japan’s leaders recognized that it was not enough to export raw silk or agricultural goods. To avoid economic domination by foreigners, they needed shipbuilding, steel, textiles, and machine industries that could generate capital and provide the technologies and skills for a modern military. High-value-added sectors thus became the link between economic survival and military strength, with factories producing goods for export also producing the expertise and equipment needed for defense.
The Meiji experience demonstrates why Japan became the first non-Western nation to industrialize. By harnessing the centralization of power for the explicit purpose of copying the West — and by forging cooperation among political, economic, and military elites under the pressure of national security threats, with high-value-added industries at the core — the state overcame the usual barriers that concentrated authority creates. Without this degree of centralized direction, Japan might have modernized only partially, leaving it vulnerable to colonization. With it, the country transformed itself into an industrial society in the space of a single generation and today remains one of the wealthiest nations in the world.
South Korea and Taiwan
In the aftermath of World War II, both South Korea and Taiwan were poor, largely agrarian societies devastated by conflict. At mid-century, neither seemed a likely candidate for rapid industrialization.
Yet within a few decades, both had transformed into advanced industrial economies. Their success is striking because they achieved it under regimes marked by the centralization of power.
South Korea was ruled by a series of authoritarian leaders, beginning with Syngman Rhee and followed by Park Chung-hee, while Taiwan was governed by Chiang Kai-shek’s Kuomintang regime under martial law. In most circumstances, such concentration of authority would have stifled innovation and locked both societies in poverty. But here, the centralization of power became the instrument of progress because it was channeled into a project of copying foreign models under the pressure of national security threats.
The threats were real and existential. South Korea faced invasion and subversion from the North, backed by China and the Soviet Union. Taiwan confronted the constant danger of attack from mainland China, which vowed to retake the island. In both cases, leaders understood that survival depended on economic modernization and military strength.
This sense of vulnerability compelled political elites, economic elites, and military elites to cooperate rather than compete for rents. Political leaders provided direction, industrialists and entrepreneurs mobilized capital, and the military supported modernization because it saw advanced industries as essential for national defense. The centralization of power created the framework in which this elite cooperation could be enforced, ensuring that resources were concentrated on development rather than squandered on patronage.
A key advantage for both South Korea and Taiwan was the ability to copy Japan. Unlike European or American models, which were distant both geographically and culturally, Japan was close at hand. Its technologies, institutions, and industries had already been adapted to an East Asian context. Korea and Taiwan had both been under Japanese colonial rule before 1945, which left behind railroads, schools, bureaucracies, and even industrial plants. What had once been instruments of exploitation now provided a foundation for modernization. Copying Japan’s model was easier than trying to replicate Europe’s because Japanese practices were more familiar, more accessible, and more relevant to local conditions. This gave both countries a head start.
The centralization of power was used to drive industrial policy with unusual intensity. In South Korea, the state under Park Chung-hee directed banks, subsidies, and tariffs to support export-oriented firms, particularly in steel, shipbuilding, and electronics. Chaebols — large family-controlled conglomerates such as Hyundai, Samsung, and LG — were given privileged access to state support in return for meeting strict export targets. In Taiwan, the government used state-owned enterprises and later private firms to develop textiles, machinery, and electronics, all under close bureaucratic oversight. In both cases, the state chose winners, provided financing, and protected domestic firms until they could compete abroad. This kind of industrial policy was possible because the centralization of power allowed the government to override entrenched interests and enforce long-term strategies.
High-value-added manufacturing was at the heart of this strategy. Leaders recognized that survival required more than exporting rice, sugar, or other raw goods. Without advanced industries, their economies would be dominated by foreign firms and vulnerable to external pressure. By building industries such as steel, automobiles, petrochemicals, and electronics, both countries generated the capital, technologies, skills, and organizations needed to sustain economic independence. These industries also laid the foundations for military strength, providing the materials, expertise, and organizational capacity for modern armed forces. In short, industrial exports were not just an economic choice but a national security imperative.
By the 1970s and 1980s, both South Korea and Taiwan had become showcases of rapid industrialization. Their exports surged into global markets, their urban populations expanded, and their living standards rose dramatically. Both transitioned from aid-dependent economies to competitive exporters in the span of a single generation. This achievement was possible because the centralization of power, instead of being used for repression and rent-seeking alone, was directed toward copying Japan’s model, mobilizing elites for national survival, and deliberately cultivating high-value-added industries that provided the basis for both prosperity and security.
The cases of South Korea and Taiwan thus reinforce the larger argument. Normally, the centralization of power blocks progress. But under the pressure of external threats, with the opportunity to copy a nearby and culturally familiar model, and with elites willing to cooperate around the shared goal of national survival, the centralization of power became a tool for rapid industrial catch-up.
Post-1978 China
When Mao Zedong died in 1976, China was poor, isolated, and stagnating. The centralization of power under Mao had produced catastrophic policies like the Great Leap Forward and the Cultural Revolution, which left the country weakened and technologically backward. Yet only a few years later, under Deng Xiaoping’s leadership, China launched one of the fastest and most sustained periods of economic growth in world history. This transformation illustrates how the centralization of power, normally a barrier to progress, can be turned into an asset when external threat and the opportunity to copy advanced models align.
The external threat was undeniable. China faced tense relations with both the Soviet Union and the United States in the late 1970s. The brief but sharp border war with Vietnam in 1979 underscored its military weakness. At the same time, the leadership recognized that China lagged far behind Japan, South Korea, and Taiwan — societies it regarded as rivals but also as models. Without modernization, China risked remaining vulnerable to foreign domination and incapable of defending its sovereignty.
The centralization of power under the Communist Party allowed reforms to be introduced rapidly and enforced nationwide. Deng and his allies did not decentralize authority in the political sense; instead, they used the party’s centralized apparatus to impose a new economic direction. Local resistance to reform was overridden by central decrees. Rural collectives were dismantled, special economic zones were created to attract foreign capital, and markets were reopened under careful supervision. This strategy worked because the same mechanisms that once enforced Maoist orthodoxy were now used to enforce modernization.
Crucial to China’s success was its ability to copy. Unlike Maoist autarky, Deng’s China welcomed foreign investment, joint ventures, and technology transfers. The government sent thousands of students abroad, just as Japan had done a century earlier. Factories were built with imported machinery, often under agreements that required foreign firms to share designs and train Chinese engineers. Skills and organizational practices from Japan, South Korea, Taiwan, and the West were studied, absorbed, and adapted. Copying became the engine of growth, and the centralization of power ensured that these lessons were spread quickly across the country.
Elite cooperation was essential. Political leaders prioritized economic growth to restore legitimacy after the disasters of the Mao era. Military leaders supported modernization because they understood that a modern army required a modern industrial base. Economic elites, especially in the coastal provinces, were given space to grow in return for supporting national goals. Instead of blocking reform to protect privileges, these groups cooperated under the shared recognition that national survival depended on industrialization. The centralization of power created the framework for this alignment, keeping elites disciplined and focused on the same objectives.
Another crucial factor was the CCP’s absolute control over investment capital. Unlike in capitalist economies where private banks and markets allocate credit, in China the state-owned banks channeled funds according to government directives. The party could decide which industries and firms received financing and which did not. This gave planners extraordinary power to direct the course of industrialization. Much of the capital came not from accumulated domestic savings but from debt, as the banking system expanded credit on command. In effect, the CCP substituted political authority for market allocation, using debt-financed investment to build infrastructure, factories, and export industries at unprecedented speed.
Understanding the Chinese economic miracle
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High-value-added manufacturing was the heart of the strategy. Deng and his successors knew that China could not remain a supplier of cheap raw materials or low-tech goods if it wished to be independent. The early focus on textiles and simple exports was deliberately transitional. The real goal was to move steadily into steel, machinery, shipbuilding, and eventually electronics and advanced engineering. These industries generated capital and foreign exchange, provided the skills and technologies that could spill into other sectors, and created the organizational experience needed for modern military production. By the 1990s and 2000s, China was producing not only consumer goods but also satellites, missiles, and advanced ships, demonstrating how high-value-added exports underpinned both prosperity and military power.
By the early twenty-first century, China had become the world’s manufacturing hub, with growth rates sustained for decades. Its rise was not simply the result of markets but of deliberate strategy: using the centralization of power to mobilize elites, enforce copying, command the flow of capital through state-owned banks, and prioritize high-value-added industries under the shadow of external threats. The case of China shows how the same authoritarian apparatus that once stifled innovation could, under different incentives, accelerate modernization.
Can the Chinese industrialization strategy be duplicated?
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Is China an exception?
China after 1978 represents a more complicated case than Germany, Japan, Taiwan, or Korea. Those earlier examples faced immediate and undeniable external dangers — colonization, invasion, or military rivals on their borders.
China certainly confronted some external pressures. The Soviet Union massed troops along the northern frontier, and the 1979 war with Vietnam exposed the weakness of the People’s Liberation Army. Beijing also knew it could not match either the United States or the Soviet Union without modernization. These dangers mattered, but they were not as existential as the threats that had driven Japan or Korea.
The deeper crisis was internal. After the disasters of the Great Leap Forward and the Cultural Revolution, the legitimacy of the Communist Party had collapsed. Mao’s policies had left the economy stagnant, industry outdated, and living standards near subsistence levels. Deng Xiaoping and his allies recognized that unless the economy was revived, the regime itself might not survive.
Growth was no longer just a matter of prestige or military strength; it was the only way to preserve Communist Party rule. In this sense, the CCP’s internal legitimacy crisis functioned much like an external threat, forcing elites to cooperate on a program of modernization.
What gave China a way forward was the ability to copy. Japan, South Korea, Taiwan, and the West had already shown how state-directed industrialization could succeed. Deng’s reforms opened the door to foreign investment, technology transfer, and overseas education on a massive scale. The centralization of power ensured that these lessons were enforced across the country, even when they disrupted entrenched interests.
China’s experience thus shows a variation on the general pattern. Most successful cases of centralized industrialization relied on the combination of external threat and copying. In China, the formula was survival crisis and copying — a mix of external pressures and internal legitimacy needs that together compelled elites to use the centralization of power for growth. This makes China less of a violation than it first appears. The logic remains the same: only when elites felt their survival was at stake, and when models to copy were available, did the centralization of power become a tool for industrialization instead of a barrier.
Singapore
When Singapore became independent in 1965, its prospects looked bleak. It was a small island without natural resources, surrounded by larger and sometimes hostile neighbors, and dependent on trade routes it did not control. Communal tensions and unemployment threatened stability at home, while Indonesia and Malaysia loomed as potential rivals or even enemies. In such a vulnerable position, Singapore’s leaders concluded that survival depended on rapid industrialization, military strength, and the building of high-value-added industries that would anchor economic independence.
The centralization of power was decisive. Under the People’s Action Party (PAP) led by Lee Kuan Yew, political authority was concentrated in a disciplined ruling elite that combined civilian administrators, economic planners, and military leaders. Opposition was tightly controlled, and policy was coordinated with unusual efficiency.
In most contexts, the centralization of power might have bred corruption and stagnation. In Singapore, however, the existential threat of insecurity and the lack of resources meant that elites understood their own survival depended on national success. Political leaders, economic technocrats, and the newly built Singapore Armed Forces worked together in a way that minimized factionalism and maximized collective effort.
Copying was central to the strategy. Lacking resources or a long industrial tradition, Singapore set out to learn directly from advanced economies. It invited multinational corporations, particularly from the United States and Japan, to build factories on the island. These firms were offered tax incentives, infrastructure, and a stable labor environment in return for training Singaporean workers and managers.
Local institutions — from courts to universities to state-owned enterprises — were modeled on successful foreign examples, but adapted to Singapore’s small size and strategic location. Skills were deliberately acquired through scholarships, technical education, and partnerships with foreign firms. Instead of resisting foreign influence, Singapore turned itself into a laboratory of copying, ensuring that each investment brought not only jobs but also knowledge and organizational capacity.
Elite cooperation reinforced this process. Political leaders used the centralization of power to ensure that economic elites and military leaders aligned with national goals. Business groups were encouraged to invest in industries prioritized by the state, while the military supported industrial development because it needed a strong manufacturing and logistical base. The state’s tight grip on unions ensured industrial peace, preventing disruptive labor conflicts. In this way, the centralization of power provided the structure within which elites could cooperate, focusing their energies on survival through modernization rather than on extracting rents.
High-value-added manufacturing was the foundation of the strategy. From the beginning, Singapore’s leaders knew that exporting raw materials or low-tech goods was impossible for a resource-poor island. Instead, they focused on attracting industries like electronics, petrochemicals, and precision engineering. These sectors provided capital, advanced technologies, and skills, while also serving as the backbone for national defense. The electronics industry, for example, not only supplied exports but also trained a workforce capable of supporting modern communications and weapons systems. By linking economic development with military needs, Singapore ensured that industrial growth strengthened its security as well as its prosperity.
By the 1980s and 1990s, Singapore had become one of the “Asian Tigers,” with a per-capita income higher than many European countries. Its transformation was not the result of decentralization but of a carefully managed centralization of power, combined with external threat, deliberate copying, elite cooperation, and the cultivation of high-value-added industries. The very factors that in most societies would have blocked progress instead became the instruments of survival.
Soviet Union
The Soviet Union provides one of the starkest examples of how the centralization of power can drive rapid industrialization under external threat. To be clear, the Soviet Union did not have free-floating prices on consumer goods, so it is very difficult to determine how much its industrialization materially benefitted its citizens. Despite the regime’s supposed compassion for the Proletariat, Soviet industrialization focused mainly on military, space, and oil/gas sectors.
By my definition of progress as “sustained improvement in the material standard of living of a large group of people over a long period of time”, the Soviet Union does not qualify as a true example of progress for the following reasons:
The USSR did not have free-floating prices so it is very difficult to calculate any generic economic statistics like per capita GDP. The data that does exist is mainly for capital goods (steel, coal, concrete, etc) or military goods (tanks, planes, naval ships, etc). It is very difficult to know how much the economic data actually was translated into “sustained improvement in the material standard of living of a large group of people over a long period of time”.
The Russian society and economy were devastated by World War I and the civil war after the October coup.
The forced industrialization by Stalin was mainly directed towards heavy industry and military buildup, which was actually far faster than the more famous Nazi military buildup. Forced collectivization and purges obviously caused great hardships for all but a small group of Communist party members (who were fortunate enough to avoid a quick bullet to the head). Whatever material improvements for regular people was to at least some extent a catchup to pre-1914.
The early Stalin period went directly into the World War II period, which was even more devastating than the earlier World War I/civil war period.
The late 1940s to early 1970s clearly showed some important economic growth that affected the material standard of living of the masses, but it clearly stalled out in the 1970s and was kept going by oil/gas exports to the West and other factors.
By the mid-1980s, the entire system was clearly in crisis, and Gorbachev’s reforms probably made the situation worse.
The end of the Soviet system brought one of the largest economic collapses in modern history. My guess is that it was significantly worse than the Great Depression. Nor was it a random event from the outside: it was an “internal contradiction within the Communist mode of production” (to paraphrase Karl Marx).
So clearly, the Soviet model is not a path to “sustained improvement in the material standard of living of a large group of people over a long period of time.”
It is an interesting case nonetheless.
In the late 1920s and 1930s, Joseph Stalin used the Communist Party’s centralized apparatus to mobilize resources on a massive scale. Facing the perceived danger of capitalist encirclement, Soviet leaders concluded that survival required transforming a largely agrarian economy into an industrial one capable of producing steel, tanks, and aircraft. Political elites, economic planners, and military leaders cooperated under the state’s command, directing investment into heavy industry at the expense of consumer goods and agriculture.
Copying played a significant role. The Soviets imported foreign engineers, machines, and designs, especially from the United States and Germany, during the first Five-Year Plans. Skills and organizational practices were adapted under strict state supervision. High-value-added industries such as steel, chemicals, and armaments were deliberately prioritized because they provided the technologies, capital, and organizations needed for military power and economic independence. The centralization of power ensured that resources were forced into these sectors, regardless of the cost to other parts of society.
The results were dramatic.
By the time of World War II, the Soviet Union had built a vast industrial base that enabled it to resist and eventually defeat Nazi Germany. After the war, it became a superpower with nuclear weapons, satellites, and heavy industry. Yet it is unclear how much this industrialization benefited citizens. Living standards remained low, consumer goods were scarce, and political repression was severe. Industrial power served the state’s military and geopolitical ambitions more than it improved everyday life.
The Soviet case demonstrates both the potential and the limits of the centralization of power. External threats and copying allowed the regime to industrialize quickly, but without decentralization or incentives for efficiency, growth became wasteful and unsustainable. The USSR shows that the centralization of power can build a military-industrial complex, but it cannot by itself create broad material progress. By my definition of progress as sustained improvement in the material standard of living, the Soviet Union does not qualify as a true example of progress.
Centralized Regimes That Failed to Industrialize
To offer a contrast to the above, let’s take a look at a few modern examples of centralized regimes that failed to industrialize.
Argentina
At the dawn of the twentieth century, Argentina was one of the richest countries in the world. Its fertile pampas produced vast quantities of wheat and beef, making its agricultural system highly efficient. Buenos Aires was a thriving trade-based city connected to global markets, filled with merchants, skilled workers, and a cosmopolitan elite. Railroads, ports, and telegraphs linked the country together. Fossil fuels were available, and Argentina had the potential to develop high-value-added industries. By around 1910, it seemed poised to join the ranks of the industrialized nations.
But Argentina failed to make the leap. The reason was the centralization of power in the hands of political and economic elites who focused on distributing rents rather than building industries. Governments relied on agricultural exports to finance patronage networks and to buy loyalty from unions and regional factions. Instead of encouraging industrial exports, the state used tariffs and subsidies to protect inefficient domestic producers. Political instability and authoritarian regimes reinforced this pattern, with elites more concerned about suppressing rivals than about investing in long-term modernization.
High-value-added manufacturing remained underdeveloped. Argentina exported meat, wheat, and hides, but it never built globally competitive steel, machinery, or engineering industries. Without these, it could not generate the capital, technologies, skills, and organizational capabilities necessary for sustained growth or military power.
The external threats Argentina faced were minor compared to those confronting Germany, Japan, or Korea, so elites had little incentive to cooperate on modernization. As a result, Argentina stagnated in the middle-income trap, an example of how the centralization of power can waste favorable conditions.
Middle Eastern Oil Producers
The oil-rich monarchies and republics of the Middle East present a different but related case. Countries such as Saudi Arabia, Iraq, Iran (before the 1979 revolution), and later the Gulf states possessed vast fossil fuel resources, giving them the fifth key to progress in abundance. Their cities grew quickly, filled with imported skills, and they accumulated immense wealth from exports. In principle, this wealth could have financed high-value-added industries, modern militaries, and broad-based development.
Instead, the centralization of power distorted outcomes. Oil rents flowed to ruling families, party elites, and patronage networks. Because states could distribute wealth directly, elites faced little pressure to diversify their economies or encourage innovation. Foreign firms often dominated the oil sector itself, leaving domestic elites dependent on royalties rather than on building competitive industries. The centralization of power encouraged corruption and waste, while suppressing political, economic, and ideological competition that might have spurred modernization.
The absence of high-value-added manufacturing was decisive. Oil producers exported crude or refined petroleum but did not develop globally competitive industries in steel, machinery, electronics, or engineering. This left their economies vulnerable to fluctuations in oil prices and dependent on foreign suppliers for military hardware and industrial technology.
The wealth from fossil fuels masked these weaknesses for decades, but it did not create the skills, organizations, or technological base needed for long-term progress. External threats were often present — as in the Arab-Israeli wars or the Iran-Iraq War — but the abundance of oil rents allowed elites to focus on survival through repression and patronage rather than on modernization.
Together, Argentina and the Middle Eastern oil producers show why the centralization of power usually blocks material progress for the masses, even when other keys are present. Both had efficient food systems or vast fossil fuels, both had growing cities, and both were connected to global markets. But without decentralized competition and without the discipline of external threats that compelled elite cooperation, they failed to build the high-value-added industries necessary for sustained progress.
Their stagnation highlights why the successful cases — Germany, Japan, South Korea, Taiwan, China, and to some extent Singapore — are exceptions rather than the rule.
Limits of the Centralization of Power
The case studies of Germany, Japan, South Korea, Taiwan, China, Singapore, and the Soviet Union demonstrate that the centralization of power can, under specific conditions, drive rapid industrialization. But the following conditions are required:
External military threats from stronger powers loom,
There are advanced industrialized societies to copy (preferably one or more that are close both geographically and culturally),
Political, economic, and military elites recognize that their survival depends upon modernization, and
Those elites swallow their pride enough to copy technology, skills, and organizations from other nations.
Under those conditions, centralized power allows states to mobilize resources quickly, enforce national strategies, and compel cooperation among political, economic, and military elites. High-value-added industries can then be built at speed, providing both economic independence and the material foundation for modern military power.
But these successes reveal their own limits.
The centralization of power can substitute for decentralization only temporarily. Once the stage of virulent copying to overcome the national security threat has been exhausted, progress requires genuine innovation, experimentation, and competition — precisely the processes that the centralization of power tends to suppress. Without decentralization, new technologies diffuse more slowly, mistakes are hidden, and elites revert to protecting their privileges rather than pursuing modernization. Even in the successful cases, this tension eventually became visible.
Germany and Japan avoided collapse because they eventually liberalized and embraced more decentralized competition while retaining their industrial foundations. South Korea, Taiwan, and Singapore followed a similar trajectory once prosperity had been established.
China today faces the same challenge: whether it can transition from debt-driven, state-directed copying to a more open system that fosters innovation. The Soviet Union is the clearest warning of what happens when such a transition never occurs.
The failure cases underscore the point. Argentina and the Middle Eastern oil producers had the other keys to progress but lacked the external threats and elite discipline that turned centralization into an instrument of modernization. Without those pressures, the centralization of power led to patronage, corruption, and stagnation. Their experiences confirm that centralization normally blocks progress, and that the successful cases were rare exceptions created by unusual historical conditions.
Comparative Lessons
Looking across the successes and failures, several clear lessons emerge about the relationship between the centralization of power and industrialization.
First, external miltary threat is the indispensable catalyst. In Germany, the rise of industrial Britain and the rivalry with France made modernization a matter of survival. In Japan, the danger of colonization by Western powers forced elites to cooperate on copying foreign models. In South Korea and Taiwan, the threat from North Korea and mainland China ensured that political, economic, and military elites subordinated their private interests to the national project of industrialization. In Singapore, insecurity in a hostile neighborhood drove the same alignment. By contrast, Argentina and the oil states of the Middle East faced little existential danger, and so elites fell into rent-seeking and patronage rather than modernization.
Second, copying of more advanced nations is essential. None of the successful centralized regimes invented industrialization from scratch. Germany copied Britain’s railways, machinery, and institutions before surpassing them. Japan copied Western technology, organizations, and even cultural practices to compress centuries of change into decades. South Korea and Taiwan built directly on the Japanese model, which was geographically and culturally closer than Europe, while also borrowing from the United States. China imported foreign machinery, joint ventures, and expertise on a massive scale after 1978. Even the Soviet Union relied heavily on foreign engineers and designs during its initial push. The centralization of power worked not because it generated innovation, but because it imposed copying quickly and broadly.
Third, a joint decision by political, military, and economic elites to copy more advanced nations to counter the external military threat. Centralization of power usually creates corruption, factionalism, and suppression of dissent. But under the pressure of external military threat, elites often recognize that their own survival depends on modernization. Political leaders, economic actors, and the military cooperate in channeling resources toward industrialization.
In Germany, Prussian bureaucrats, Ruhr industrialists, and generals worked together. In Japan, political leaders, merchants, and samurai-turned-soldiers aligned around the Meiji reforms. In South Korea and Taiwan, political leaders disciplined business groups and unions into supporting state-led industrial policy. In China, the Communist Party, military, and coastal entrepreneurs struck an implicit bargain to prioritize growth. Where this alignment did not occur, as in Argentina or the Middle East, industrialization faltered.
Fourth, high-value-added export manufacturing is essential. It was the common thread linking all the success stories. Industrial exports provided the capital, skills, technologies, and organizational capacities that made modernization self-sustaining. They also provided the material base for military strength.
As for the future, only time will tell. Germany, Japan, South Korea, and Taiwan all evolved into liberal, democratic, and capitalist societies with high levels of transparent non-violent competition between elites. China and Singapore still maintain highly centralized regimes supervising non-violent competition between economic elites. The centralized political regimes have implemented solid economic policies that have led to phenomenal levels of long-term economic growth while maintaining low levels of political freedom.
While the Singapore model seems stable, very poor decision-making during and since the Covid pandemic has displayed clear weaknesses with the Chinese economic model. Only time will tell if China’s long run of wise economic policy making from a centralized political elite will continue.
If you enjoyed this article, you should read my From Poverty to Progress book series.
Fantastic answer to the question. Impressive!
I think that industry thrives when government gets the hell out of the way. There are some activities where I support a government monopoly, law & order for example. Government can decide where to build roads, railways, water electricity and waste-water lines, because it possesses eminent domain. For just about everything else, government has a monopoly on funding infrastructure through taxes, but it should be a partnership with private enterprise that actually builds the infrastructure: health, education, energy, steelmaking, ports, telecoms.
However, this brings us into the murky area of state capture. Big projects get handed out to the politically-connected, in a feudal patronage system. This happens even in advanced nations with supposedly strong rules on governance.