EconoMonitor

Does Corruption Limit China’s Growth, or Pose a Threat to its Existence?

Summary:   Critics of China often cite its high level of corruption as a limiting factor to its growth, or a possible cause of its fall — or even disintegration. Like so many of American’s views about China, it’s false. Probably a way to diffuse awareness that a powerful rival has emerged on the world stage.  Here we compare China’s corruption to that of America’s past — and present.

 

Contents

  1. China today
  2. Late 19th century America
  3. America today
  4. For More Information

(1)  China today

Is Corruption in China ‘Out of Control’? A Comparison with the U.S. In Historical Perspective“, Carlos D. Ramirez (Assoc Prof Economics, George Mason U), 4 December 2012 — Abstract:

This paper compares corruption in China over the past 15 years with corruption in the U.S. between 1870 and 1930, periods that are roughly comparable in terms of real income per capita. Corruption indicators for both countries and both periods are constructed by tracking corruption news in prominent U.S. newspapers. Several robustness checks confirm the reliability of the constructed corruption indices for both countries.

The comparison indicates that corruption in the U.S. in the early 1870s — when it’s real income per capita was about $2,800 (in 2005 dollars) — was 7 to 9 times higher than China’s corruption level in 1996, the corresponding year in terms of income per capita. By the time the U.S. reached $7,500 in 1928 — approximately equivalent to China’s real income per capita in 2009 — corruption was similar in both countries.

The findings imply that, while corruption in China is an issue that merits attention, it is not at alarmingly high levels, compared to the U.S. historical experience. The paper further argues that the corruption and development experiences of both the U.S. and China appear to be consistent with the “life-cycle” theory of corruption — rising at the early stages of development, and declining after modernization has taken place. Hence, as China continues its development process, corruption will likely decline.

(2)  Late 19th century America

This unflattering comparison of modern China with late 19th century America should not surprise us. Post-civil war America (especially the Gilded Age) America was a horror show. Public and private force was used to suppress Blacks, American Indians, Asians, and workers (see the Wikipedia entry, also for the1892 Homestead Strike and the 1894 Pullman Strike).  When the cavalry arrived, it was often to help the bad guys (or one of the groups of dueling bad guys, as in the Lincoln County War).

 

 

Justice was for sale. Public resources were for sale through bribery. The government itself was for sale (or lease).  Only national amnesia makes this era a subject of pride instead of shame.

This makes our recovery during the next century even more impressive (1900 – 1970; the Progressive Era, the New Deal, and the post-WWII renaissance) .  We can learn must from our history; our amnesia is among our greatest weaknesses.

(3)  America today

We have come far from the Gilded Age.  But not as far as we think.

  • We boast about our fine accounting standards.  But the bursting of the tech and real estate bubbles resulting in massive restatements of corporate books — revealing massive fakery of the books of our leading corporations.
  • The real estate bubble resulted from massive fraud in the mortgage underwriting process (especially loan origination and property appraisals) and, later, the foreclosure process (eg, fraud and perjury by mortgage servicers in the documentation).
  • The defense industry is little but a on-going process of systematic corruption.
  • The FBI’s Abscam sting (1978-1980) proved how easily — and cheaply — Federal officials could be bribed. We can only imagine how many could be caught from a large-scale and sustained anti-corruption program.

Perhaps the key difference between China and the US is that we’ve normalized corruption.  Our representatives in Washington take money through their campaigns (easily converted to personal use) and spouses (rumors abound of the lavish incomes of Washington spouses from what are in effect bribes).  Mid-level and senior officials ride the revolving door from public service to personal profit.

This is yet another aspect of the odd parallels between China and America.  Two very different societies, yet in some ways oddly similar.  For more about this see Are America and China secret twins? The similarities are striking, but we don’t see them.

We must do better if we seek to remain a global hegemon in the 21st century.  The competition will be strong.

(4)  For More Information about China

  1. China – the mysterious other pole of the world economy,
    22 July 2009
  2. Another big step for China on its road to becoming a great power, 27 July 2009
  3. Will China collapse?, 5 August 2009
  4. A revolution is not a dinner party. Thoughts about the future of China, 19 August 2009
  5. Update about China: a new center of the world, 13 December 2009
  6. China moves to the center of the world. America moves to the edge, 6 January 2010
  7. Why China will again rise to the top, and their most important advantage over America, 11 November 2010
  8. Will China become a superpower?, 9 September 2011
  9. What China Wants Us to Understand about China’s Rise, 12 March 2012
  10. Are America and China secret twins? The similarities are striking, but we don’t see them., 17 May 2012

This piece is cross-posted from Fabius Maximus with permission.

3 Responses to “Does Corruption Limit China’s Growth, or Pose a Threat to its Existence?”

RikDecember 11th, 2012 at 10:44 am

For looking at corruption one should also look at other things:
-does the state basically functions normal (it does in China). No massive violence, not impossible to start a business, things like that. China is not worse than other countries in that per capita income bracket (may be different but not worse).
-is the corruption money spend inland. It can also been seen as a transfer outside the taxsystem from the rest to the elite. As other transfers are low in China the two combined are still much lower than transfers in say Europe. Often it also compensates as tax-evasion/tax-fraud, high taxes.
Only problem more and more looks to be transferred abroad. So not consumed inland (as with transfers in the West). But as long as China has a huge current account surplus that might even have other advantages.

mewariAugust 13th, 2013 at 4:18 am

Very informative and helpful. I was searching for this information but there are very limited resources. Thank you for providing this information.

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