Costs of cor­rup­tion far out­weigh benefits

China Daily (Canada) - - FRONT PAGE -

Pres­i­dent Xi Jin­ping’s anti-cor­rup­tion cam­paign, which has al­ready brought down many “tigers” (cor­rupt high-rank­ing of­fi­cials), has been widely touted as a key com­po­nent of the deep struc­tural re­forms that China needs if it is to build a more sus­tain­able, in­clu­sive and mar­ket-based econ­omy. But wor­ries abound that, in a coun­try where gov­ern­ment of­fi­cials play a ma­jor role in pro­mot­ing eco­nomic growth, root­ing out cor­rup­tion might un­der­mine pros­per­ity.

Some have cited the re­cent strug­gles of luxury ho­tels and restau­rants (which, in China, de­pended heav­ily on gov­ern­ment spend­ing) as ev­i­dence that the anti-cor­rup­tion cam­paign is dis­cour­ag­ing growth-en­hanc­ing ac­tiv­ity. But the decline is likely to be tem­po­rary, with new groups of cus­tomers emerg­ing af­ter a pe­riod of ad­just­ment.

A more cred­i­ble con­cern is whether ef­forts to root out cor­rup­tion weaken the in­cen­tive for gov­ern­ment of­fi­cials to pro­mote growth. Af­ter all, high lev­els of growth trans­late into large rents that can, through cor­rupt prac­tices, be dis­trib­uted among of­fi­cials them­selves, as well as passed on to their friends and pro­tégés. Elim­i­nate such prac­tices, the logic goes, and of­fi­cials will be un­able to reap large re­wards from eco­nomic growth and thus will be less mo­ti­vated to en­cour­age it.

But this ar­gu­ment is far from air­tight. Among the most com­mon forms of cor­rup­tion is the “sale” of gov­ern­ment po­si­tions — a prac­tice that has lit­tle to do with growth, es­pe­cially when it is con­ducted by high-rank­ing mil­i­tary of­fi­cers, such as those ar­rested dur­ing the cam­paign for trad­ing pro­mo­tions for bribes.

An­other ma­jor con­cern is that, if busi­nesses are no longer able to “grease the wheels” — that is, bribe of­fi­cials to al­low them to cir­cum­vent ex­ces­sive reg­u­la­tions — their per­for­mance could suf­fer. And, in­deed, even af­ter 30 years of re­form, China’s econ­omy re­mains bound by red tape, which drags down pro­duc­tiv­ity con­sid­er­ably.

But there are holes in this logic, too. Most im­por­tant, for such bribery to boost eco­nomic growth in any sig­nif­i­cant or sus­tain­able way, it would have to be con­ducted by a wide range of busi­nesses — not just the wealth­i­est and best con­nected. That is not the case to­day; most Chi­nese of­fi­cials who have been charged so far have taken bribes from a sin­gle busi­ness en­tity, thereby al­low­ing it to ac­quire a mo­nop­oly po­si­tion.

So, while bribery in China may fa­cil­i­tate growth to some ex­tent, it does not pro­duce the kind of com­pet­i­tive busi­ness en­vi­ron­ment that sup­ports long-term gains. The re­al­ity is that cor­rup­tion im­poses a large, of­ten ran­dom, tax on busi­nesses, not least by dis­cour­ag­ing of­fi­cials from re­duc­ing red tape for all en­ter­prises — a move that re­ally would boost growth.

The con­clu­sion is clear: the costs of cor­rup­tion far out­weigh the benefits — and not only in China. SinceWorldWar II, many coun­tries have at­tempted the tran­si­tion from low- to high-in­come sta­tus, but only 13 have suc­ceeded — and all had rel­a­tively low lev­els of of­fi­cial cor­rup­tion. The au­thor is direc­tor of the China Cen­ter for Eco­nomic Re­search and dean of the Na­tional School of Devel­op­ment, Pek­ing Uni­ver­sity. Project Syn­di­cate


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