Several years ago, the Dallas Fed’s annual report featured an essay entitled “The Churn.” The churn is our term for what economist Joseph Schumpeter called “creative destruction.”

A dynamic economy like ours can grow and make room for the new only if we allow parts of the economy to shrink. Unprofitable firms and industries must be allowed to fail and go out of business so their workers and other resources can move into firms and industries whose products are more favored or needed by consumers. This is, as the essay’s subtitle says, the paradox of progress.

As the most populous country on the planet, China has been experiencing the mother of all churns. Although still a communist country, its market reforms over the past two decades have produced tremendous growth and change. Using conventional measures, at present growth rates China will soon replace Japan as the world’s second largest economy. China’s churn—already huge—will only grow as the country becomes part of the world trading system. The pain will be great, but so will the rewards.

The Dallas Fed is proud to make available this publication, written by our economist Meredith Walker. It is an up-lose-and-personal account based on her recent tour of China. Alas, shortly after her trip, the churn got Meredith. She may now be reached at the New York Fed. We miss her.

Bob McTeer
President, Federal Reserve Bank of Dallas

Download Full Book: China's Churn

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