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Corruption Is Fun. If You’re On The Right Side Of It

November 13, 2009

Why Is Corruption So Widespread In China? The Reasons Are Many Martin McCauley writes: As the Chinese joke goes, corruption is fun, if you’re on the right side of it.

But seriously, why is corruption so widespread in China? There are several reasons for that: the partially reformed economy, the reluctance to enforce legislation and the Communist Party of China’s refusal to conduct political reform.

Countries in which the state is heavily involved in the economy have high levels of corruption. In China today the state still controls the commanding heights in the economy (heavy industries such as iron ore, steel, shipbuilding, etc.), with the private sector concentrating on consumer goods, especially for export. The state dominates banking, finance, power generation and natural resources. Many prices are state regulated as is the rate of interest and money supply. This mixed economy permits officials many opportunities to extract bribes from businessmen in return for favours and approval of business deals.

Occasionally some of the people involved are punished severely, like it happened recently with one top official who was involved in regulating the drugs industry. He was found guilty of accepting over $1 million in bribes to licence dubious drugs, including several which were lethal, and will spend most of his remaining life in jail. Nevertheless, the vast majority of the 150,000-200,000 Party members disciplined annually are let off simply with a warning. A smack on the wrists and advised to watch their behaviour in the future. This is not a message to strike fear into those being tempted. Half of those found guilty of corruption receive suspended jail sentences. It appears that the odds of a corrupt official going to jail are about three in a hundred. The obvious conclusion one draws from this is that corruption is a high reward low risk activity.

Beijing’s way of dealing with increasing corruption is simply to pass more laws. At present there are over a thousand on the statute book. Are they enforced? Very few are. Growing public anger has led Beijing to rotate provincial anti-corruption chiefs, seconding top central officials to provincial bureaux and dispatching inspectors to report on provincial Party bosses.

Obvious ways of combating corruption would be to reduce state involvement in the economy, give judges and lawyers more independence and mobilise the media and public opinion against the miscreants. The problem for the Party is that it fears if it goes down this path it will gradually lose control of the country. However, international practice shows that these measures are effective in cutting back corruption. At present the Party is caught between the devil and the deep blue sea. If it becomes more transparent, it risks diminishing its authority. If it does not, it risks handing over the country to corrupt local elites.

On the other hand, if China is growing by 8 per cent a year, does corruption matter? It does not appear to be holding back the country’s development. South Korea, Japan and Taiwan all experienced the same phenomenon during their early years of development. Look at them now. Will China follow the same pattern and gradually reduce the impact of corruption? After all, a certain level of corruption is needed to oil the machinery of the system.

The problem is that the enormous benefits of corruption – possibly 3 per cent of GDP – are enjoyed by a small proportion of the population. It is fuelling the emergence of a powerful moneyed elite which does not feel itself socially responsible. The gulf between the haves and the have-nots is widening by the day. Corruption sparks tens of thousands of riots annually as the aggrieved have no other recourse than to engage in violent protest.

Corruption is a major factor in the environmental damage being suffered by the country. The rich can ignore legislation if they pay a bribe. Coal contributes about 70 per cent of China’s energy needs. Demand always exceeds supply. Small mines are regulated by town officials. They ignore safety and environmental guidelines in order to produce more coal.

Economists argue that with a much lower level of corruption, China’s growth would have been even greater. The environmental price paid would have been lower as well. Corruption also socially destabilises a country. The June 1989 events were fuelled in large part by anger at official corruption. Economic growth at present levels is unsustainable. China will gradually have to go over to more high quality growth like its neighbours Japan, South Korea and Taiwan. Is the Communist Party capable of managing this transition? It will need public support to effect radical changes.

At present, it appears that public faith in the authorities is declining. Can Beijing turn the tide?

– End –

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