Carnegie India Reviews Yuen Yuen Ang’s “Adaptive Political Economy”

August 4, 2025

What if complexity is not a reality that social scientists should ignore or erase, but rather illuminate? Yuen Yuen Ang (JHU Agora Faculty) introduces Adaptive Political Economy as a new paradigm for studying political economies as living systems that adapt, coevolve, and self-organize, not as machines to control. Suyash Rai responds to Ang’s application of APE in How China Escaped the Poverty Trap and China’s Gilded Age.

Highlights

  • Development as coevolutionary, not linear
    Ang challenges the dominant view of development as a mechanical process with linear causality. Instead, she proposes that institutions and markets coevolve—mutually reshaping each other over time. Rai notes this lens “helps explain how development occurs” without “oversimplifying or ignoring their complexity entirely.”
  • Grassroots innovation, not foreign aid
    Responding to Ang’s How China Escaped the Poverty Trap, Rai underscores her emphasis on “innovation from the grassroots,” which challenges the “conventional focus on foreign aid and top-down interventions.”
  • Meta-institutions, not master plans
    Rai situates Ang’s work in the tradition of scholars like Douglass North and Lant Pritchett who attempt to “understand complexity rather than deny or avoid it, but notes that “her focus on meta-institutions help us see the big picture of how a political economy can become adaptive.”

“A New Approach to Studying the Political Economy of Development”

Any strategy for economic development is grounded in a theory of change, which in turn is underpinned by an understanding of how political economies operate. Building an accurate image of the political economy, at least getting the basics right, is essential for choosing the right strategy. But this is easier said than done. Political economies are quite complex—they encompass numerous interacting agents, each pursuing a variety of goals in ways that may be opaque to outsiders but logical to those involved. The interconnectedness of these elements can be overwhelming and may trigger responses that either oversimplify or ignore their complexity entirely.

In the social sciences, one response to navigating this complexity is to focus on narrow questions that can be isolated and answered in their specific context. A related response is to commit to methodological purity by only pursuing questions that can be answered with “scientific” methods, like randomized controlled trials. Another approach is to oversimplify reality by using simple and linear models. In the world of advocacy for development, avoidance of this complexity can lead to an exclusive focus on policy reforms, overlooking the complex interactions between the institutional landscape and political economy settlement that shape policies, which in turn might have feedback loops. Typically, these reforms draw from the “best practices” of developed countries without considering the constraints of the specific context.

It is no surprise that policymakers have not found research and advocacy on economic development useful when addressing big questions of growth and development. They have to address such questions while working with what they have, keeping in mind the various pulls and pressures they face. We need to keep trying to find ways to understand political economy on its own terms—a complex and adaptive system with various agents interacting in the pursuit of their respective goals.

In her research, Yuen Yuen Ang, a professor of political economy at Johns Hopkins University, has tried to describe the inherent complexity of political economy in a manner that also helps explain how development occurs. Her work shows that in the study of political economy, the complexity need not lead to theoretical dead-ends. It can be analyzed, and useful theories on how a political economy works can be built. Ideas about meta-institutions can also be derived, which can help harness this complexity for economic development. But this first requires a shift in the paradigm in which political economy is studied.

In a recent paper on the political economy of development, Ang summarizes this paradigm shift. Her approach runs counter to those underpinned by an image of the economy as complicated but mechanical, which can be simplified using reductionist methods and controlled from the top. Instead, she suggests a new paradigm called “adaptive political economy.”

Ang draws a parallel with how the work on fractals, discovered by Benoit Mandelbrot, revolutionized the understanding of natural patterns. Traditionally, mathematics focused on regular, simple shapes, and failed to capture the “rough” complexity present in nature. Similarly, she suggests that social scientists move beyond the linear, mechanical models of political economy to embrace the inherent complexity and adaptiveness of social systems.

She shows how the traditional schools of political economy—modernization theory, institutional economics, and historical institutionalism, rely on linear causality and static models. The modernization theory posits that economic growth precedes institutional development, while institutional economics argues that good institutions are necessary for growth. Historical institutionalism, meanwhile, emphasizes the role of historical legacies. These approaches impose mechanical properties on complex systems, leading to inadequate solutions and persistent problems.

Traditional approaches to studying political economy, Ang argues, often conflate the complex with the complicated. Complicated systems, like machines, consist of discrete parts with linear relationships, allowing for control and predictability. In contrast, complex systems are adaptive and interdependent. Social systems are inherently complex and more closely resemble living organisms than mechanical devices.

Ang’s approach views institutions and economies as adaptive and interdependent parts of a political economy. They interact dynamically and adapt while finding ways to fit the environment. They may coevolve, leading to significant improvements in both institutions and the economy, which in turn feed into each other, resulting in development over time. Instead of choosing between institutional development and economic development as cause or effect, one could see how both are causes and effects for each other.

Ang suggests that this approach has many implications, as it requires a fundamental shift in understanding causality, indeterminacy, human agency, and institutional design. In complex systems, causality is bidirectional and interdependent rather than linear. Unlike risks in complicated systems, uncertainties in complex systems generate unpredictable outcomes, both positive and negative. To be effective, institutions must facilitate adaptation and foster learning, not just exert control.

This approach sees development as a coevolutionary process where economic and institutional changes mutually reinforce each other. Ang explored this perspective in her pathbreaking book, How China Escaped the Poverty Trap (2016) on China’s economic transformation. It revealed that early development may rely on repurposing “normatively weak” institutions that already exist. These institutions may be considered “weak” because they do not adhere to the “best practices” of developed countries, but they have the potential to be repurposed to enable growth. Once growth accelerates, the emerging markets may then stimulate the creation of stronger, more formal institutions. Eventually, these institutions sustain mature markets.

Ang’s approach emphasizes innovation from the grassroots and challenges the conventional focus on foreign aid and top-down interventions. Adaptive political economy is a paradigm that recognizes the complexity and adaptiveness of social systems. Ang writes that this paradigm incorporates a moral dimension, addressing power asymmetries and normative biases that shape traditional economic thinking. This approach, she claims, can provide more relevant solutions to contemporary challenges by acknowledging the limitations of existing paradigms rooted in the industrial-colonial era.

Ang demonstrates the usefulness of this approach in the two books she has written on China, both of which reflect an effort to understand its political economy on its own terms. As discussed above, the first book offers an interpretation of China’s growth experience by adapting and applying a framework from the complexity theory. Ang lays out how China’s political economy became more adaptive by allowing local governments to generate varied strategies, albeit within certain boundaries, rewarding those that were successful, and encouraging exchanges between regions with significant disparities. This allowed each region to benefit from its unique position within the larger political economy. This interpretation of the China story was novel and also made an important methodological contribution to the study of political economy. The recent paper draws from that work and builds on it.

Her second book, China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption (2020), presents a nuanced understanding of corruption as a complex, context-specific phenomenon that cannot be comprehended by simply borrowing categories from developed countries. She puts forth a typology of corruption, distinguishing between “access money” (elite public servants giving special deals and lucrative rights to businesses in exchange for bribes), “speed money” (frontline functionaries taking bribes in exchange for quicker approvals), “grand theft” (large theft by elite public servants, with nothing in exchange), and “petty theft” (small time theft by frontline bureaucracy, with nothing in exchange).

Ang argues that corruption involving theft alone, which does not solve a problem in return, is uniformly growth-damaging. However, the consequences of access money and speed money are more ambiguous. Access money can stimulate growth but also cause distortions, systemic risks, and inequality. Speed money, meanwhile, can solve immediate problems, but at a cost to businesses. She further posits that the perception of developing countries as more corrupt than developed countries is on account of the fact that most cases of corruption in the latter take the form of access money. This may not illegal but still involve large-scale deals and lucrative opportunities for businesses that indulge in such forms of corruption.

Ang’s is a useful approach to studying political economy. Other scholars have also tried to grapple with the complexity of political economy on its own terms. Douglass North’s idea of “adaptive efficiency” and his theorization, along with other co-authors, of how developing countries may go from closed-access orders to limited-access orders, and eventually to open-access orders, involves a coevolutionary logic. One could argue that limited-access orders help create markets, which may later lead to demands for open-access orders. Brian Levy and Francis Fukuyama’s work on development strategies also implies a dynamic model, wherein a particular development strategy may lead to changes in other systems, which will, in turn, enable other development strategies. Similarly, Albert Hirschman’s critique of the balanced-growth approach recommended by some economists, in which he argued that development is about changing what exists rather than superimposing something completely different, can be seen as an adaptive idea of political economy. More recently, Lant Pritchett, Kunal Sen, and Eric Werker have theorized about the adaptive interactions between political settlement, the “rents space,” the “deals space,” economic growth and structural transformation, and transnational factors. In their work as well, causality runs in both directions. Among other things, they see deals, which are deviations from rules, as adaptive responses to problems of low state capacity and unrealistic regulatory laws.

Such studies of the political economy of development share this spirit of trying to understand its complexity rather than deny or avoid it. They address broad questions of growth and development, rather than limiting their scope to simpler but narrower questions. In this tradition, Ang’s work introduces a new paradigm that can push the field of political economy in a more insightful and useful direction. Her focus on meta-institutions that help us see the big picture of how a political economy can become adaptive is a major contribution. While this paradigm has been applied fruitfully in other domains, following works of scholars like Robert Axelrod, Ang has shown how it can be adapted to the study of political economy.

A crucial missing element in these approaches, including Ang’s, remains the liminal space—when an order moves qualitatively from market-creating to market-preserving, or from limited-access to open-access. Currently, we lack robust theories explaining how and why these transitions happen. Perhaps we will never develop a comprehensive theory for this phenomenon, as such moments of transition may depend on context-specific contingencies. Nevertheless, it is remarkable how far we have come in the scholarship on political economy. It is incumbent upon the practitioners of development to imbibe these perspectives in their thinking on development strategies.

—By Suyash Rai

 

To learn more:

This review originally appeared in “Ideas and Institutions,” a monthly newsletter by the Carnegie India Political Economy Team, and is reprinted with permission from the author.