China has the benefit of the late adopter. Rather than laying fibre-optic cable into individual homes, China will provide free public wi-fi in every city and half its rural areas by 2020. The internet is becoming a free public good. China has showrooms rather than shopping centres: young people window-shop while ordering products on their smartphones. 

By 2017 China will have a national electronic system to track every citizen's credit history, allowing internet finance to compute credit scores and grant retail credit in real time. The marginal cost of acquiring bank deposits will fall to zero. Jack Ma hailed internet banking as a disruptive innovation in the financial system. The Chinese authorities will slow but not stop the financial transformation — the existing state banks are an important source of employment — but the authorities support these changes. That is one way that China can move up the value-added spectrum and avoid stagnation.

Strewn around the periphery of the industrial city of Shenzhen is the detritus of the last wave of China's growth, the remains of factories where migrant workers toiled 12 hours a day to fill Walmart's shelves with cheap goods. In its centre, though, stands a science park that looks like Silicon Valley on steroids, full of new firms built by returning graduates of doctoral programmes at Western universities, intent on producing world-beating innovations. It's impossible to gauge the macroeconomic impact of these challengers. But Chinese universities now turn out twice as many science and engineering PhDs as the US, not counting the tens of thousands trained abroad. The probability is that some of them will strike pay dirt. 

Nothing like China's transformation has ever occurred in economic history, so there are no precedents from which to venture forecasts. But the grand sweep of social transformation now under way in China creates the preconditions for the kind of mass flourishing that Phelps describes. One example stands out: by 2025 China will have moved 600 million people from the countryside to cities, the equivalent of the whole population of Europe from the Urals to the Atlantic. It will build the equivalent of all of Europe's cities to house them — another Seville, Dortmund, Kiev, Liverpool, Florence, Helsinki and so forth in little more than a generation.

It is a great migration of people hungry for wealth and eager to work for it unlike anything the world has seen. It has torn out the roots of traditional China and given hundreds of millions of people the impulse to innovate. We in the West chronically underestimate Asian competitors, as the Russians did at Port Arthur in 1904 and the British at Singapore in 1942. China may collapse of its own internal problems, as some Western analysts believe. Or it might become the prime case study in a future edition of Phelps's book. The West should prepare for the latter eventuality rather than the former, and look towards reviving its own wellsprings of innovation.