Andrew Sheng and Xiao Geng write: Nobel laureate economist Douglass North applied economic theory to history to gain insight into institutional and social change.  His theoretical framework could prove invaluable to China’s leaders as they navigate the next phase of institutional change.

North identified three lessons that policymakers should draw from his research.

First, what determines economic performance is the mix of “formal rules, informal norms, and enforcement characteristics.” Second, polities have a major impact on economic performance, because they “define and enforce the economic rules.” And, finally, adaptive efficiency (how the rules are changed), not allocative efficiency (the most effective rules right now), is the key to long-term growth.  China’s Institutional Change