The end of the China shock could produce an American capitalism almost opposite to the one we have known since 1980

For most of the last forty years, American capitalism has seemed to move in one direction.

More competition.

More financial discipline.

More layoffs.

More outsourcing.

More venture capital.

More winner-take-all technology markets.

More pressure on every employee, company and city to justify its existence economically.

A company announces that artificial intelligence will allow it to eliminate 20% of its workforce and Wall Street celebrates.

A startup destroys an incumbent and Silicon Valley celebrates.

A forty-year-old employee whose productivity no longer justifies his compensation gets fired.

A company sitting on excess labor or capital is told to return it to shareholders.

For roughly forty years, the underlying rule has been remarkably consistent:

Slack is failure.

Capital should constantly move toward its highest return.

Labor should constantly move toward its highest productivity.

Companies should constantly face the possibility of replacement.

And if technology can eliminate a million jobs, the assumption is that the economy will eventually produce something better for those workers to do.

I increasingly wonder whether this regime has a historical endpoint.

Not because capitalism disappears.

Not because AI fails.

And certainly not because American finance becomes weaker.

Quite the opposite.

The system may eventually change because it succeeds.

My previous essay argued that the China shock could force the United States to turn the advanced allied world into something much closer to a single American-centered strategic system. If that succeeds, the next question becomes stranger:

What happens to American capitalism after the external competitor that justified forty years of disruption no longer looks capable of replacing it?

I suspect the answer could be an American economy that remains technologically extraordinary and financially dominant, but becomes more concentrated, more politically managed, more protective of employment and significantly less tolerant of creative destruction.

The transition might look surprisingly Japanese.

But at American scale.

The Moment of Victory Probably Comes in the 2030s

China does not have to collapse.

That is the wrong threshold.

The relevant moment comes when corporations, financial markets and governments stop organizing themselves around the expectation that China will eventually replace the American-centered system.

That could happen substantially before China becomes weak in absolute terms.

And there are already reasons to think the early-to-mid 2030s could be the critical window.

China's official population fell by 3.39 million people in 2025.

Births fell to 7.92 million against 11.31 million deaths.

Twenty-three percent of the population is already 60 or older. (National Bureau of Statistics of China)

The IMF is not forecasting a sudden Japanese-style crash.

It is forecasting something more useful for this argument: gradual structural convergence toward much slower growth.

Its February 2026 baseline has Chinese real GDP growth falling from 5.0% in 2025 to:

YearIMF China real-GDP growth projection20264.5%20274.0%20283.9%20293.7%20303.4%

The IMF attributes that deceleration to a shrinking labor force, decreasing returns to investment and slower productivity growth. (IMF)

There is another number in the same report that receives less attention.

The IMF's broad measure of China's augmented government debt—including local-government financing vehicles and related off-budget liabilities—rises from an estimated 126.6% of GDP in 2025 to 153.7% by 2030 under its baseline. (IMF eLibrary)

That does not mean China is about to become insolvent.

It means the old combination of:

labor-force expansion + property + infrastructure + debt-financed investment + export-led convergence

gets progressively harder to repeat.

So I would think about the next fifteen years roughly like this:

PeriodPossible political-economic phase2026–2030Maximum China shock: AI, defense, energy, manufacturing and capital mobilization2030–2035Tipping period: structural Chinese slowdown becomes harder to dismiss2035–2045If the American bloc holds together, the expectation of Chinese replacement could break2040s onwardPost-competition political economy begins to emerge

The exact date is unknowable.

But I would put 2035 near the center of the range where the narrative could change.

Not:

China is finished.

Rather:

China is still enormously powerful, but it probably isn't going to become the operating system of the advanced world.

That psychological transition is sufficient.

The China Competition May Make America More Disruptive First

Nothing in this thesis implies a sleepy America over the next ten years.

The opposite seems more likely.

As long as policymakers genuinely believe technological leadership is existential, creative destruction remains strategically valuable.

America needs:

• frontier AI;
• autonomous weapons;
• robotics;
• nuclear power;
• biotechnology;
• semiconductor capacity;
• space systems;
• new materials.

Government therefore has a reason to tolerate extreme experimentation.

If an unknown company can create something that Boeing, Lockheed, Pfizer or Microsoft failed to create, Washington wants that company to exist.

If an AI company needs tens of billions of dollars immediately, capital gets mobilized.

If automation eliminates a category of work but increases national technological capacity, government has reason to tolerate the disruption.

During the competition phase, the answer to almost every objection is:

China.

Why tolerate extreme founder wealth?

China.

Why subsidize semiconductor companies?

China.

Why allow AI companies to accumulate extraordinary power?

China.

Why rebuild defense production?

China.

Why accept large amounts of creative destruction?

Because losing the technological race is perceived as worse.

This is mobilization capitalism.

But Today's Venture Boom Is Already Becoming Something Different

The venture-capital numbers are particularly interesting because they show that:

more innovation capital does not necessarily mean broader entrepreneurial dynamism.

U.S. venture investment reached $320 billion in 2025, the second-highest annual total ever.

That sounds like an extraordinary startup boom.

Look underneath it.

Just 487 mega-deals of $100 million or more accounted for 67% of all venture dollars.

Those deals were only 3.2% of deal count.

Remove them and the remaining roughly 14,865 deals received about $105 billion—much closer to a normal late-2010s venture market.

The five largest companies alone—OpenAI, CoreWeave, xAI, Anthropic and Databricks—raised nearly $60 billion. (NVCA)

AI accounted for 65.4% of U.S. venture deal value.

And the concentration also exists one layer above the startups.

Only 101 first-time venture funds formed in 2025, down almost 78% from 457 in 2021.

Meanwhile the ten largest funds captured 32.9% of all VC fundraising, compared with 13% four years earlier. (NVCA)

That is a very peculiar form of dynamism.

Capital deployment is enormous.

Technological ambition is enormous.

Yet progressively larger fractions of the money are being allocated by fewer institutions into fewer organizations.

The system is becoming:

more technologically aggressive and more financially concentrated at the same time.

That may be exactly the bridge toward the next regime.

America Was Already Becoming Less Entrepreneurial Before AI

The popular image of the United States is still:

startups continually replace old companies.

The long-run data are less romantic.

Census Bureau research finds that approximately 90% of U.S. workers were employed by mature firms by 2019.

The share of workers employed by firms with at least 100 employees increased from about 41% in 1978 to 48% in 2019.

The Census Bureau's conclusion is straightforward: employment has become progressively concentrated in older firms. (Census.gov)

High-growth firms have also become less common.

The share of U.S. firms classified as high-growth fell from just under 20% in 1978 to below 13% in 2020.

Among continuing firms, the share classified as high-growth fell from 4.8% to 2%. (Census.gov)

And by 2023, an NBER analysis found that America had only about half as many publicly listed firms per capita as other developed economies. (National Bureau of Economic Research)

In other words:

the post-1980 era celebrated creative destruction culturally while gradually producing a more incumbent-heavy corporate structure economically.

The next regime would not need to create concentration from nothing.

It would be accelerating something already underway.

The Question Is What Happens Once Concentration Becomes Strategically Useful

Today we usually interpret concentration as a failure of competition.

But consider the strategic logic from Washington's perspective.

Imagine a future American AI company:

• employs 300,000 people;
• spends $70 billion annually on R&D;
• supplies U.S. defense systems;
• operates critical NATO infrastructure;
• generates enormous profits from foreign markets;
• supports thousands of domestic suppliers;
• maintains data centers in twenty states.

Now imagine a startup appears with technology capable of destroying that company.

The America of 1998 might say:

Excellent.

The America of 2045 may ask a different question:

Do we actually want this institution destroyed?

Once an incumbent becomes:

• an employer;
• a research laboratory;
• a national-security contractor;
• a tax base;
• a foreign-rent collector;

its survival acquires political value independently of shareholder returns.

That is where the logic of creative destruction begins reversing.

High R&D Does Not Require Startups

This is perhaps the most important economic fact underlying the entire argument.

The United States already conducts most of its research inside corporations.

In 2024, businesses performed $769 billion of U.S. R&D, representing 77% of all American R&D performance.

Businesses also funded 75% of total U.S. R&D. (NCSES)

That means a future decline in startup dynamism does not mechanically imply technological stagnation.

An economy can have:

fewer new corporate institutions

while simultaneously having:

enormous research expenditure.

Microsoft can research.

Nvidia can research.

Aerospace giants can research.

Pharmaceutical companies can research.

Defense firms can research.

The question is not whether innovation disappears.

The question is what kind of innovation remains.

Japan Shows That High R&D and Low Dynamism Can Coexist

Japan is useful here for a different reason than in my previous essay.

The interesting post-1990 fact is not that Japan stopped doing research.

It did not.

The OECD's 2024 assessment still describes Japanese business dynamism as weak, with relatively few startups and insufficient exit of low-productivity firms. (OECD)

Historically, Japan's annual firm-entry rate sat around only 4–5%, far below rates elsewhere in the advanced world. Firms more than ten years old accounted for roughly three-quarters of its small enterprises. (OECD ONE)

Yet Japan remains one of the world's most research-intensive economies.

That is the distinction.

A system can continue producing:

• better batteries;
• better automobile components;
• better robotics;
• better materials;
• better manufacturing processes;

without continually producing:

the next Toyota that destroys Toyota.

The technological frontier can continue moving while the institutional hierarchy barely moves.

That may be the strange destination of American capitalism.

The Startup Becomes a Supplier Rather Than a Successor

Imagine Silicon Valley in 2050.

Startups still exist.

A founder discovers:

• a new AI architecture;
• a robotic-control system;
• a cancer treatment;
• a military sensor;
• a new semiconductor material.

But instead of becoming the next Microsoft, the likely successful exit is:

Microsoft buys it.

Lockheed buys it.

Pfizer buys it.

Nvidia buys it.

The startup becomes an external laboratory for the national champion.

Venture capital increasingly functions as:

outsourced corporate R&D.

The founder can still become extremely rich.

Experimentation can remain intense.

But corporate turnover falls.

That produces:

high technological progress

without:

high institutional disruption.

The distinction is critical.

AI Makes the Employment Question Immediate

This isn't merely a 2045 thought experiment.

We can already see hints of the employment tension.

Stanford researchers using payroll data covering millions of American workers found no evidence as of mid-2026 of economy-wide AI job destruction.

But they found something narrower and potentially important.

Among workers aged 22–25 in highly AI-exposed occupations, employment was approximately 19% below where it would have been if it had kept pace with young workers in less-exposed occupations.

The researchers found that the adjustment was occurring primarily through reduced hiring, rather than mass firing of existing experienced workers. (Stanford Digital Economy Lab)

That is almost a miniature version of the political choice the country could eventually confront.

AI does not have to fire the existing employee.

The company simply stops hiring the next one.

From the shareholder's perspective, that can be excellent.

From the perspective of the state, it creates a different problem.

AI Can Also Make Ordinary Workers More Productive

The employment outcome is not technologically predetermined.

One of the most influential early workplace studies looked at 5,179 customer-support agents.

AI assistance increased productivity by about 14% overall.

But novice and lower-skilled workers improved by 34%.

Highly experienced workers received relatively little benefit. (National Bureau of Economic Research)

That's important because AI can support two very different economic models.

Model One: substitution

100 workers become 60.

The company produces the same output.

Margins rise.

Model Two: augmentation

100 workers remain.

They produce substantially more output.

Or they use part of the productivity gain for:

• better service;
• shorter hours;
• additional customers;
• more experimentation;
• more human oversight.

The technology does not determine which equilibrium society chooses.

Institutions do.

Washington May Eventually Prefer Augmentation

The government's incentives could change sharply as the fiscal pressure gets worse.

CBO's 2026 baseline projects federal debt held by the public rising from 101% of GDP in 2026 to 120% in 2036.

The government is expected to borrow another $26 trillion between the end of 2025 and the end of 2036.

Net interest costs rise from roughly $1 trillion in 2026 to $2.1 trillion in 2036.

By the end of CBO's 30-year projection, debt reaches 175% of GDP. (Congressional Budget Office)

That is a government with powerful reasons to care about employment.

A world in which AI generates gigantic corporate profits while eliminating taxable middle-class income produces an awkward fiscal bargain.

The state receives somewhat greater corporate taxation.

But it also receives:

• fewer payroll taxes;
• less labor income tax;
• greater demand for transfers;
• larger healthcare obligations;
• greater political instability.

At the same time, interest payments are absorbing an ever-larger fraction of government revenue.

The government may therefore prefer:

slightly lower corporate efficiency + broader employment

to:

maximum profit per employee + permanent redistribution to the unemployed.

That would be an enormous break from the economic philosophy of the last forty years.

The Deal Could Become Monopoly in Exchange for Employment

The foundations of this arrangement are already visible.

Consider the CHIPS program.

The federal government did not simply say:

Here is money. Maximize shareholder returns.

Its award to Micron included up to $6.165 billion in direct federal funding supporting a long-term domestic investment plan.

The projects are expected to create roughly 20,000 jobs.

Micron's New York and Idaho projects use project labor agreements and registered apprenticeships.

The earlier agreement also included at least $40 million specifically for workforce development. (U.S. Department of Commerce)

TSMC's Arizona agreement similarly combines up to $6.6 billion in federal funding with more than $65 billion in planned private investment and more than 20,000 expected jobs. (U.S. Department of Commerce)

And the government's semiconductor R&D institution, the National Semiconductor Technology Center, received a $6.3 billion, ten-year federal award explicitly covering both R&D and workforce development. (U.S. Department of Commerce)

These programs are not proof that America is already becoming corporatist.

But notice the logic.

Government gives:

• capital;
• loans;
• protection;
• demand;
• infrastructure.

Corporations promise:

• domestic production;
• strategic capability;
• jobs;
• training;
• investment.

That is already a different political relationship from:

the market decides.

Imagine That Bargain After America Wins

Now move forward fifteen years.

An American technology company earns enormous rents from:

• AI exports;
• cloud;
• intellectual property;
• finance;
• defense technology;
• pharmaceuticals.

It operates within a foreign market protected by the American military and trade system.

Government can say:

Your profitability is not purely private achievement.

The national system created part of your franchise.

And therefore:

you owe something to the national system.

Not necessarily through nationalization.

The company remains private.

Its shareholders remain wealthy.

Its executives remain powerful.

But privileges become conditional.

Want access to government procurement?

Maintain domestic employment.

Want access to export-controlled technologies?

Keep strategic R&D in America.

Want subsidies?

Train workers.

Want protected access to allied markets?

Maintain domestic production capacity.

Want favorable regulatory treatment?

Do not eliminate 100,000 employees simply to raise margins another four points.

The firm remains capitalist.

But shareholder value is no longer the sole political objective.

That is what I mean by corporate nationalism.

Slack Becomes a Feature

This would be the clearest discontinuity from post-1980 America.

Imagine a national champion employs 300,000 Americans.

Its next-generation AI systems make it possible to produce the same output with 180,000.

The existing ideology says:

Fire 120,000.

The mature hegemonic system might respond:

Why?

Suppose the company already earns a 30% operating margin.

Suppose it enjoys protected access to an enormous allied market.

Suppose the state values employment.

Then some productivity gains can become:

• shorter hours;
• internal training;
• additional research;
• greater redundancy;
• better human service;
• regional offices;
• longer-term experimentation;
• more generous staffing.

The economist calls it organizational slack.

The politician calls it stable employment.

The employee calls it a career.

And the corporation can afford it because its monopoly rents are being generated partially abroad.

America Becomes a High-Tech Rentier Economy

The export sector does not need to employ everyone directly.

That is one of the more counterintuitive implications of AI.

Imagine that a relatively small number of American workers and machines generate enormous revenues from:

• AI;
• cloud software;
• finance;
• aerospace;
• pharmaceuticals;
• intellectual property;
• defense.

Those revenues become American national income.

They appear as:

• wages;
• profits;
• taxes;
• dividends;
• investment;
• construction;
• domestic purchasing power.

Most Americans can then continue working in completely ordinary sectors:

• healthcare;
• restaurants;
• hospitality;
• home construction;
• logistics;
• education;
• entertainment;
• personal services.

The waiter does not need to build the AI model.

His customers just need enough purchasing power to buy dinner.

That purchasing power can ultimately trace back to American technology rents earned overseas.

In one respect, it resembles an oil economy.

A relatively narrow export sector finances a much larger domestic service economy.

Except America exports:

intelligence, technology, finance and security rather than petroleum.

Wall Street Could Become Bigger While Capitalism Becomes Less Dynamic

This sounds contradictory only if we equate finance with entrepreneurship.

They are not the same.

Wall Street could become substantially more powerful in the post-competition economy.

But finance changes jobs.

The last forty years idealized finance as:

identify opportunity → finance disruptor → replace incumbent.

The mature system increasingly uses finance to:

manage assets → finance national champions → refinance infrastructure → acquire competitors → distribute rents.

Asset management becomes more important.

Private credit becomes more important.

Infrastructure finance becomes more important.

Pensions become more important.

Insurance becomes more important.

M&A becomes more important.

Venture capital survives, but increasingly as part of a concentrated institutional financial system.

This is why today's venture concentration matters.

It may be showing an early transition from:

entrepreneurship financed by capital

toward:

capital allocating gigantic sums among strategically important institutions.

The Meritocratic Tournament Could Soften

Another consequence would be social.

American professional life since the 1980s increasingly became a tournament.

Get into the strongest school.

Join the strongest company.

Move to the strongest city.

Work harder.

Switch employers.

Accumulate equity.

Keep moving.

If you stop improving, somebody younger, cheaper or more talented replaces you.

This system maximizes competitive intensity.

It also produces extraordinary insecurity.

A national-champion economy has less reason to organize labor that way.

Internal labor markets can return.

Companies train employees rather than constantly recruiting externally.

A competent middle-aged engineer becomes an asset rather than excess payroll.

The corporation once again functions partly as a social institution.

The strange endpoint could be:

1955 employment norms running on 2050 technology.

Not literally lifetime employment.

But much less expectation that healthy corporations should continually prove their efficiency through layoffs.

The Middle Class Could Return Through Institutional Rents

This does not require recreating Detroit in 1965.

The important feature of the old industrial middle class was not that every factory worker possessed exceptional individual productivity.

It was that millions of ordinary workers were embedded in extraordinarily productive institutions.

A worker's wage was partly a claim on:

the rent generated by the corporation.

Something similar could happen again.

The corporation earns huge AI or financial rents.

Workers receive part through:

• high wages;
• stable employment;
• benefits;
• training;
• pensions;
• shorter working time.

The institution becomes productive enough to carry a broad middle.

That would directly reverse one of the major assumptions of the post-1980 labor market:

every employee must individually justify their compensation through continuously measurable marginal productivity.

Inequality May Peak During the Competition

I would not expect the transition to begin egalitarian.

The China shock could actually create another decade of spectacular inequality.

The winning assets are likely to be concentrated:

• AI equity;
• semiconductor ownership;
• defense technology;
• energy;
• venture funds;
• intellectual property.

The state tolerates enormous fortunes because technological mobilization matters more than distribution.

But after the external threat recedes, the political justification gets much weaker.

The government can ask:

Why exactly does this protected national champion require another tax cut?

Or:

Why should a company earning enormous foreign rents eliminate 80,000 taxpayers merely to raise its operating margin?

Housing could matter enormously too.

We have spent decades treating rising house prices as household wealth creation.

A mature rentier America may eventually prefer twenty years in which:

wages rise faster than land.

Housing prices do not need to collapse.

They can simply stop outperforming income.

That alone would transfer enormous relative economic power toward younger workers.

So the post-victory society could still contain billionaires and enormous corporations while becoming less unequal because the middle begins catching up.

The State Becomes Stronger Without Becoming an Administrative Monster

This is why I would not expect the endpoint simply to be European-style bureaucracy.

AI itself can automate administration.

The more plausible American mechanism is governance through conditional corporate privileges.

Washington does not have to employ another million civil servants.

It can tell companies:

Want the contract? Maintain domestic production.

Want the subsidy? Train workers.

Want export privileges? Keep strategic research here.

Want protection from foreign competitors? Carry domestic capacity.

The state determines outcomes.

Private institutions implement them.

That's a stronger state without necessarily being a larger clerical state.

The CEO Changes Too

The heroic executive of the 2010s says:

We move fast.

We disrupt ourselves.

We cut unnecessary labor.

Nobody has a right to a job.

The prestigious CEO of 2050 could sound completely different:

We employ 350,000 Americans.

We invest tens of billions in research.

We operate facilities in twenty states.

We train thousands of engineers and technicians.

We provide infrastructure critical to the alliance.

We are an American institution.

The corporation becomes proud of permanence.

Scale becomes legitimacy.

Employment becomes legitimacy.

R&D becomes legitimacy.

National usefulness becomes legitimacy.

That is far closer to the self-image of the old Bell System or General Electric than to the self-image of a 2015 SaaS startup.

The Darker Side Is Obvious

There is a reason America historically celebrated creative destruction.

Protected incumbents become complacent.

Government contracts become political favors.

Corporate executives and regulators become indistinguishable.

Startups get bought before they can become competitors.

Lobbying replaces invention at the margin.

The system develops enormous capacity to improve existing technology but less ability to imagine entirely new institutional forms.

This is where the comparison with post-1990 Japan becomes uncomfortable.

The future America could still produce extraordinary:

• AI;
• pharmaceuticals;
• aircraft;
• robots;
• materials;
• weapons.

But the companies producing them might be largely the same companies decade after decade.

The technological frontier keeps moving.

The ownership hierarchy barely does.

The Historical Discontinuity

The last forty years have roughly said:

1980–2035

• competition;
• globalization;
• financial discipline;
• outsourcing;
• immigration;
• labor mobility;
• startups;
• venture capital;
• layoffs;
• shareholder value;
• creative destruction.

The next equilibrium could increasingly say:

2035–2060

• national champions;
• protected allied markets;
• high corporate R&D;
• stable employment;
• strategic production;
• corporate obligations;
• AI augmentation;
• patient finance;
• mergers instead of replacement;
• state-business coordination;
• rent distribution;
• managed dominance.

The first system asks:

What deserves to survive?

The second asks:

What must be preserved?

The China Shock Could Create the System That Ends the China Shock

There is an irony here.

China may force America into one final extraordinary period of disruptive capitalism.

The threat produces:

• AI laboratories;
• defense startups;
• semiconductor factories;
• nuclear companies;
• robotics;
• biotech;
• giant venture rounds;
• enormous fortunes.

The new companies help America win the competition.

And then the political argument for continuing to destroy institutions begins disappearing.

The startups become national champions.

The founders become establishment figures.

The venture funds become giant financial institutions.

Temporary subsidies become permanent industrial architecture.

Emergency supply chains become permanent supply chains.

The American system gradually shifts from:

How do we move faster?

toward:

How do we preserve what we have built?

That could be the real end of the China shock.

Not China's collapse.

Not capitalism's collapse.

And not a return to 1955.

Something stranger:

a technologically advanced,

financially dominant,

highly automated,

corporately concentrated America

that still spends enormous amounts on R&D,

but increasingly values stable employment and institutional continuity over the constant destruction of yesterday's winners.

The most disruptive phase of modern American capitalism may end not because disruption stopped working.

It may end because there is finally nobody left America urgently needs to outrun.