The Rigidity Trap
The Soviet Union collapsed because its institutions could not adapt. The data on government spending, capital deployment, and infrastructure delivery over the last 20 years suggests the United States is developing the same condition — while China, for all its flaws, is not.
The most seductive claim the Cold War frame makes is also the most dangerous. It says: the Soviet system was illegitimate, the American system was legitimate, legitimacy won. Therefore the United States needs no institutional reform. The Chinese system will collapse under its own contradictions. The US can wait.
This is not an argument. It is a bet. And the data on institutional adaptability — the ability to reallocate resources, to build new things, to cut where necessary — suggests the bet is mispriced.
The Soviet Union's collapse was not primarily a failure of ideology. It was a failure of adaptability. Mancur Olson, in The Rise and Decline of Nations (1982), argued that stable societies accumulate distributional coalitions — interest groups that capture resources and block reallocation. The longer a society is stable, the denser the sclerosis. The Soviet Union was stable for 70 years. Its economy was locked into heavy industry, military production, and resource extraction. The political system could not reallocate capital from the military-industrial complex to consumer goods. The planning system could not respond to the microprocessor revolution. The ideology could not acknowledge the failure of its own model, so it could not reform it.
The mechanism was not communism. It was rigidity. Olson's framework applies to any stable society. The United States has been stable for 250 years.
Government spending: the 20-year trajectory.
The US federal budget tells a story of a state that is steadily losing its ability to invest in its own future. The data from the Congressional Budget Office's historical tables makes the arc clear.
In 2000, mandatory spending — Social Security, Medicare, Medicaid, and other entitlements — consumed 9.8% of GDP. By 2024, it consumed 14.9%. The increase is structural, driven by an ageing population and rising healthcare costs. It is not cyclical. It will not reverse without reform.
Defence spending fluctuated: 3.0% of GDP in 2000, 4.7% at the Iraq/Afghanistan peak in 2010, and back to roughly 3.0% in 2024. The military burden is not rising as a share of GDP. It is persistent.
Net interest on the federal debt consumed 2.3% of GDP in 2000. It fell to 1.3% in 2015 as low rates suppressed the cost of borrowing. It rose to 3.2% in 2024, surpassing the defence budget in absolute terms, as rates normalised and the debt stock grew. The CBO projects it will reach 4.1% of GDP by 2034.
Non-defence discretionary spending — the part of the budget that funds infrastructure, R&D, education, and workforce development — fell from 3.3% of GDP in 2000 to roughly 3.1% in 2024. The share of the federal budget available for productive investment is shrinking at the expense of consumption and debt service.
The pattern is the same one that hollowed out the Soviet state: a government whose obligations consume an increasing share of its revenue, leaving less for renewal. The US is not at the Soviet endpoint. The trajectory is the same.
China's government spending trajectory is the mirror image. The most striking data point is R&D intensity. China's R&D expenditure as a share of GDP rose from 0.56% in 1996 to 0.89% in 2000 to 1.68% in 2010 to 2.02% in 2015 to 2.68% in 2024. The US rose from 2.45% in 1996 to 2.62% in 2000 to 2.71% in 2010 to 2.77% in 2015 to 3.55% in 2024. The US still spends more as a share of GDP. But the trajectory is the one that matters. China's R&D intensity grew at roughly 4.5% annually. The US grew at roughly 1.2%. The gap has narrowed from 1.89 percentage points in 1996 to 0.87 in 2024. At current trajectories, the lines cross within a decade.
The ability to cut is as important as the ability to invest. The decisive exhibit is China's property sector. In August 2020, the government imposed the "three red lines" — caps on developer debt-to-assets, debt-to-equity, and cash-to-short-term-borrowing ratios. The policy was designed to deflate a property bubble that had been building for two decades. It worked. Property investment, which had accounted for roughly 25% of GDP at its peak, contracted sharply. Major developers — Evergrande, Country Garden — defaulted. The policy was blunt, destructive, and deliberate. The state accepted a severe economic cost to reallocate capital from property to advanced manufacturing.
The reallocation is visible in the data. Manufacturing fixed asset investment grew at roughly 9% annually in 2022–2024, while property investment contracted. Credit flowed into electric vehicles, batteries, solar photovoltaics, and semiconductors. China's manufacturing value added rose from $3.2 trillion in 2015 to $4.64 trillion in 2024. The state overbuilt, crashed, consolidated, and redirected. The mechanism is not laissez-faire. It is not centrally planned. It is competitively coordinated. It is wasteful. It is also adaptive.
Capital markets: the missing public complement.
The United States has the deepest and most liquid capital markets in the world. The mobilisation of private capital is genuinely a strength. The US attracted $297 billion in FDI in 2024. US venture capital deployed roughly $170 billion in the same year. The question is not whether the US can mobilise capital. It is whether the capital is being deployed into a system that can absorb it productively.
The last five years have seen a surge in private investment in data centres and AI infrastructure. Microsoft, Amazon, Google, and Meta alone committed more than $200 billion to data centre buildouts in 2024–2025. The private capital is there. The public infrastructure is not. The US electricity grid is constrained by permitting delays, interconnection queues, and local opposition. The average environmental review for a major infrastructure project takes 4.5 years. The US has two nuclear reactors under construction. China has 26. The private sector is building the compute. The public sector is not building the grid.
The buyback data sharpens the point. S&P 500 companies spent roughly $1 trillion annually on share buybacks and dividends in recent years. The incentives reward returning capital to shareholders over reinvesting it. The US IPO market has contracted: roughly 150 IPOs in 2024, down from more than 400 in 2021 and below the 200–300 average of the 2010s. The public equity market is shrinking. The private equity market is growing. The net effect is that capital is being deployed into asset-light, fast-scaling business models — software, digital services, fintech — rather than the capital-intensive, long-horizon projects that build industrial capacity.
The share of US venture capital going to hard technology — semiconductors, advanced manufacturing, energy, materials — is roughly 15–20%. The share going to software and digital services is the remainder. The question is whether this reflects abundant, high-return opportunities in software, or a missing institutional enablement layer for hard tech. Both are likely true. Software scales faster, requires less capital, and faces fewer regulatory barriers. Hard tech requires permits, grid connections, supply chains, and a workforce that the US educational system is not producing at scale. The market is responding rationally to the environment it faces. The environment is the problem.
China's capital allocation is different. The state directs credit through policy banks and state-owned enterprises toward strategic sectors. Government guidance funds — state-backed venture capital vehicles — deployed roughly $200 billion into semiconductors, AI, biotech, and clean energy over the past decade. The mechanism is not more efficient. It produces overcapacity and misallocation. But it produces infrastructure. It produces supply chains. It produces the enablement layer that the US is not building.
The contrast is visible in physical infrastructure. China's container port throughput grew from 136 million TEU in 2010 to roughly 300 million TEU in 2024 — a 2.2-fold increase in 14 years. The US handled roughly 60 million TEU in 2024, up from 40 million in 2010 — a 1.5-fold increase. The growth rate is the difference between a state that can build and a state that cannot.
People: the 20-year mobility decline.
The final dimension of adaptability is the hardest to quantify but the most consequential. The Soviet Union restricted internal migration through the propiska system — an internal passport that tied citizens to their place of residence. The system produced geographic rigidity that compounded economic rigidity.
The United States does not have a propiska system. But its internal migration rate has been declining for four decades. In 1985, roughly 20% of Americans changed residence in a given year. By 2024, the rate had fallen to roughly 12%. The decline is structural. It reflects rising housing costs in productive cities, occupational licensing barriers, and a decline in labour market dynamism. The US population growth rate has fallen to 0.5% annually. The country is becoming less mobile, not more.
China's hukou system is the closest analogue to the Soviet propiska. It restricts access to education, healthcare, and housing based on place of birth. The system is deeply unjust. But it is also being reformed. China's floating population — migrants living outside their place of registration — reached 376 million in the 2020 census, roughly 27% of the population. The government has been unwinding hukou restrictions in smaller cities and granting more residency rights to migrants. The reform is slow and incomplete. The direction of travel is toward greater mobility, not less. The US is moving in the opposite direction.
The Cold War frame says the Chinese system will collapse under its own contradictions. The frame is a bet. The bet is that the Chinese system is rigid and the American system is adaptive. The data suggests the opposite. The Chinese state is reallocating capital toward R&D and infrastructure. The US federal budget is being consumed by entitlements and interest payments. The Chinese financial system is directing capital toward hard technology. The US financial system is directing capital toward buybacks and software — rationally, given the environment it faces. The Chinese infrastructure buildout is the fastest in human history. The US cannot build a high-speed rail line.
The Soviet Union collapsed because it was rigid. The United States is not collapsing. But it is becoming rigid. The Cold War frame prevents the US from seeing the problem because it assumes the problem is on the other side.
Sources: World Bank WDI (R&D expenditure, port throughput, manufacturing value added); CBO Historical Budget Data (federal spending by category as % GDP); PitchBook/NVCA (VC investment, IPO counts); S&P Global (buyback volumes); IFR (China robot data); China National Bureau of Statistics (manufacturing investment, floating population); US Census Bureau (internal migration rates); Mancur Olson, The Rise and Decline of Nations (1982).
