Market-Building vs. Market-Preserving

ABOUT THE SERIES

How China Escaped the Poverty Trap is an award-winning book published by Yuen Yuen Ang, Alfred Chandler Chair Professor of Political Economy, in 2016. The book received the Peter Katzenstein Prize in Political Economy and the Viviana Zelizer Prize in Economic Sociology, and was recommended by The Economist and Foreign Affairs. It has appeared in multiple translations and continues to be read and commented on by readers worldwide. 

To mark the tenth anniversary of its publication—and its forthcoming appearance in open access format—this series revisits the generative system of concepts, theories, and methods introduced in the book. Together, these ideas form an intellectual forest that Ang now formalizes as AIM (Adaptive, Inclusive, Moral) Political Economy. 

This post revisits one of the book’s core theories: Market-Building vs. Market-Preserving

DEFINITION

“ Market-building vs. market-preserving is a stage-variant concept coined by Yuen Yuen Ang in 2016 to distinguish institutions or approaches that create new markets from those that preserve established markets. ”
Headshot for Yuen Yuen Ang Alfred Chandler Chair Professor of Political Economy

In a previous post, we revisited Ang’s theory of Coevolutionary Development: development unfolds as a non-linear, mutually adaptive process. Mapping coevolution requires moving from “snapshots to moving pictures,” tracing how states and markets change together over time:  

When these snapshots are strung in sequence, a causal logic emerges that departs sharply from conventional theories. Compressing the zigzag chain, she arrives at a three-step formula:

Local actors harness normatively weak institutions to build markets → emerging markets stimulate strong institutions → strong institutions preserve markets 

The third step (“strong institutions preserve markets”) is well established in political economy. The second step (“markets stimulate strong institutions”) is the domain of modernization theory. 

But, as Ang writes, we know “woefully little” about the first step: build markets with weak institutions. It is here that Market-Building vs. Market-Preserving becomes indispensable.

FROM BUILDING TO PRESERVING MARKETS

How China Escaped the Poverty Trap (2016), particularly Chapter 5, introduced and demonstrated the concept of Market-Building vs. Market-Preserving:   

I distinguish between the tasks of building markets and preserving markets. Dominant theories in political economy are theories about good or strong institutions (such as professional bureaucracies, rule of law, private property rights protection) that are necessary to preserve markets that have already been built. But where markets barely exist… building markets demands drastically different institutions and strategies.  

Why is that? Because the goals, constraints, and resources of development differ across stages, thus the solutions that fit could not be the same in function and in form.  

Even more counterintuitive, Ang reveals that the practices that defy norms of good governance—normally viewed as “weak” institutions—can be raw materials for building markets.  

This is not a rejection of strong (modern) institutions. It is a clarification of sequence. 

Without distinguishing market-building from market-preserving, development debates are trapped in a chicken-and-egg fallacy: growth or good institutions first. Once we map coevolutionary sequences carefully, it becomes clear that market-promoting institutions vary not only across countries, but across stages of development—even within one country.  

EXAMPLES BEYOND CHINA

The distinction between market-building and market-preserving is not limited to China. In Chapter 7 of How China Escaped the Poverty Trap, Ang details examples across cases.  

Late Medieval Europe 

  • Market-Building: Contract enforcement through communal responsibility and reputation mechanisms. 
  • Market-Preserving: Individual responsibility and third-party enforcement via centralized states. 

Antebellum United States  

  • Market-Building: “Taxless finance”—use of charters and state borrowing without taxation to finance infrastructure. [See Adaptive Fiscal Capacity]  
  • Market-Preserving: State borrowing laws and restrictions backed by formal taxation.

Nigeria’s Nollywood   

  • Market-Building: Rampant piracy as informal distribution channels that spread films rapidly. 
  • Market-Preserving: Digitized formal dissemination and Demand for intellectual property rights protection 

TEN YEARS LATER

Ten years after its introduction, Market-Building vs. Market-Preserving speaks to an even more turbulent world of polycrisis, marked by trade protectionism, climate shocks, and technological disruption. If simply replicating a checklist of Western-style institutions couldn’t resolve yesterday’s development challenges, it certainly cannot be the answer today.  

Ang’s idea of Market-Building vs. Market-Preserving carries a decolonizing message. It challenges the one-size-fits-all package of “market-preserving” institutions. Echoing Ha-Joon Chang’s Kicking Away the Ladder, she went further to show that when Western societies were developing, they did not start with the good institutions they prescribed to developing countries:

Parallel to my findings in contemporary China, medieval Western Europe and nineteenth-century America sparked growth through particular market-building institutions (some of which were uncannily similar to those seen in post-1978 China), which subsequently evolved into market-preserving institutions. 

These earlier insights informed the Inclusive (I) and Moral (M) pillars of Ang’s AIM—Adaptive, Inclusive, Moral—Political Economy, which she formalized in 2025.  

Extending her 2016 work in a 2025 article on the non-democratic origins of Western fiscal capacity—titled “Fairy Tales of Western Development”—Ang concludes:  

Why has it been so difficult for developing countries to replicate Europe’s supposed path of ‘democracy → social contract → fiscal capacity’? The short answer: that was not the path Europe actually took… Partial fairy tales about former empires cannot produce meaningful policy lessons for postcolonial nations. 

Instead of interpreting fiscal capacity as only tax collection, Ang coined the concept of Adaptive Fiscal Capacity, meaning a government’s ability to manage its portfolio of both tax and taxless revenue. This concept is consistent with actual Western and Chinese experiences.  

That is an example of how one idea in How China Escaped the Poverty Trap grew into more concepts and applications, centered on the redefined assumptions of AIM.  

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