China's industrial revolution: A new perspective

In “The Industrial Structure of Production: An Outline of a Research Program,” Ronald Coase and Ning Wang (2001) made a plea for a new economic research program that can go beyond the Arrow-Debreu framework and explain China's miraculous rise. They point out that the greatest trouble with the Arrow-Debreu framework lies in its inability to explain production. In this article I will push this insight further to shed new light on why and how production, or mass production in particular, emerged and mushroomed in the 18th–19th century England, the 19th–20th century United States, and 20th-21st century China but not in other parts of the world with similar geo-developmental conditions such as the Netherlands, Mexico, or India. My central thesis is that production or firms emerge in response to market demand, yet the so-called “market” is itself a fundamental public good that must be created by a development state instead of the “invisible hand.” Therefore, the lack of industrialization in any nation seems on the surface due to the lack of mass supply, but is in fact due to the lack of a mass market, which in turn is due to the lack of powerful and strong-willed market creators.