It seemed like a typical story of Chinese corruption. Stuffing suitcases full of company shares, the businessman lavished bribes on influential officials in exchange for cheap loans to subsidize his railroad projects. The target of his largess, those in charge of public infrastructure and budgets, were his friends and business associates. Their family members ran firms in the steel industry, which stood to benefit from the construction of new track. Over time, as the ties between the officials and the businessman grew closer, the officials doubled their financial support for his ventures, indulging his inflated costs and ignoring the risk of losses. Slowly but surely, however, a financial crisis brewed.

Stories like this are endemic to China: business leaders colluding with officials to exploit development projects for personal enrichment, graft infecting all levels of government, and politicians encouraging capitalists to take on outsize risks. No wonder some observers have insisted since the 1990s that the Chinese economy will soon collapse under the weight of its own excesses, and bring down the regime with it. But here’s the twist: the businessman is not Chinese but American, and the tale took place in the United States, not China. It describes Leland Stanford, a nineteenth-century railroad tycoon who helped catapult the United States’ modernization but whose path to immense fortune was paved with corrupt deals.

The Gilded Age, which began in the 1870s, was an era of crony capitalism as well as extraordinary growth and transformation. Following the devastation of the Civil War, the United States rebuilt and boomed. Millions of farmers moved from fields to factories, infrastructure opened up long-distance commerce, new technology spawned new industries, and unregulated capital flowed freely. In the process, swashbuckling entrepreneurs who seized on the right opportunities at the right time—Stanford, J. P. Morgan, John D. Rockefeller—amassed titanic levels of wealth, while a new working class earned only a pittance in wages. Politicians colluded with tycoons, and speculators manipulated markets. Yet instead of leading to disintegration, the corruption of the Gilded Age ushered in a wave of economic, social, and political reforms—the Progressive era. This, along with imperial acquisitions, paved the way for the United States to rise and become the superpower of the twentieth century.

China is now in the midst of its own Gilded Age. Private entrepreneurs are growing fabulously wealthy from special access to government privileges, as are the officials who illicitly grant them. Recognizing the dangers of crony capitalism, Chinese President Xi Jinping is attempting to summon China’s own Progressive era—an age of less corruption and more equality—through brute force. The problem, however, is that this is not the way to ensure that real reform takes hold. Xi is suppressing the bottom-up energy that holds the key to solving China’s current woes—and in so doing, he may end up making them even worse.

CATEGORY ERROR

For students of corruption, China poses a baffling puzzle. Normally, corrupt countries are poor and stay that way. Study after study has shown a strong statistical relationship between corruption and poverty. But China has managed to sustain four decades of economic growth despite levels of corruption that even Xi has described as “grave” and “shocking.” Why does it seem to have bucked the trend?