Producing a book is like producing a film. For every hour of action on a film, thousands of hours of footage were produced and discarded. Not one by many sponsors and individuals work behind the scenes to create a brief sequence of shots. It is the same way with a book, even though it may appear still on paper.
Why has China’s economy grown so fast for so long despite vast corruption?
This book shows that, in fact, China is not as exceptional as we think it is — the closest parallel is the US in the late 19th century, a period characterized by both feverish growth and glaring inequality, conniving plutocrats and corrupt politicians.
Rather than lump more than 50M functionaries in China’s gigantic bureaucracy into one homogeneous group, my theory distinguishes between political elites and rank-and-file bureaucrats, who engage in different forms of corruption.
Political elites can grant special deals, block access, or control public coffers. This kind of corruption, therefore, involves high monetary stakes and the allocation of valuable resources such as land and legislations. Conversely, rank-and-file bureaucrats exercise discretion only within their limited job scope, for example, processing permits or assigning school enrollment slots.
Whereas petty theft, grand theft, and speed money are almost always illegal, access money can encompass both illegal and legal actions. Illegal forms of access money entail large bribes and kickbacks — which are common in China — but they can also include ambiguously or completely legal exchanges that omit cash bribes, for example, cultivating political connections, campaign finance, “revolving door” practices (moving between leadership posts in private and public sectors), and influence peddling.
Much of the literature on bribery centers on “speed money” but neglects “access money.” The popular analogy of “greasing the wheels” implies overcoming friction or cumbersome regulations, which is equivalent to speed money in my typology. Access money, on the other hand, buys special deals and lucrative rights, making it more sludge than grease.
Access money, on the other hand, is the steroids of capitalism. Steroids are known as “growth-enhancing” drugs, but they come with serious side effects. And countries both rich and poor, in the West and the East, can fall prey to its temptation. From a businessperson’s point of view, access money is less a tax than an investment. For example, Chinese entrepreneurs are willing to bribe their way into legislative congresses because the benefits of networking with Party-state bosses more than offset the expense. Likewise, in the US, big corporations sink billions of dollars into lobbying every year because returns exceed costs. By enriching capitalists who pay for privileges and by rewarding politicians who serve capitalist interests, access money can perversely stimulate commercial transactions and investment, which translate into GDP growth.
Yet this does not mean that access money is “good” for the economy — on the contrary, it distorts the allocation of resources, breeds systemic risks, and exacerbates inequality. For example, in China, bank loans are disproportionately allocated to politically connected companies, forcing cash-strapped entrepreneurs to borrow from shadow banks at usurious rates, while connected companies, flush with excess credit, spend irresponsibly and speculate in real estate. Such distortions, however, are not captured in standard linear regressions that examine only annual income levels or growth rates.
The harm of access money blows up only in the event of a crisis.
Wealthy economies may have low quantities of aggregate corruption, as measured by standard cross-national indices, but it doesn’t meant that they have no corruption; rather, their corruption may be of a different quality — concentrated in access money, which is difficult to capture and not immediately growth-retarding. Contrary to popular beliefs, the rise of capitalism was not accompanied by the eradication of corruption, but rather by the evolution of the quality of corruption from thuggery and theft toward sophisticated exchanges of power and profit. Compared with countries that prospered earlier, China is still a relatively newcomer on this evolutionary path.
First, the dominant type of corruption in China is access money — elite exchanges of power and wealth — rather than petty bribery or outright theft. The standard argument for how corruption impedes growth is that corruption lowers private investment, thereby reducing economic growth. What this argument misses is that access money may actually raise private investment — and ever spur over-investment, as seen in China’s real estate sector — thereby increasing growth, at least until the onset of a crisis.
Political elites have both career and financial incentives to enthusiastically foster development. It is often said that the promotion of local leaders is tied to economic growth, but in reality, the small number of seats for promotion means that not all leaders may aspire to higher office. The surer incentive, therefore, is financial: the more prosperous the local economy, the more local leaders will profit.
The more tax revenue a local government generates and the more non-tax revenue (such as fees and service charges) individual offices collect, the more fringe benefits they can provide to their staff members. To borrow a term from economics, fringe compensation in the Chinese bureaucracy functions as an “efficiency wage” — it not only incentivizes revenue-making effort but also deters bureaucrats from resorting to petty corruption.
Why did profit-sharing take root in the Chinese government but not in other poor, predatory states? I would point to Deng Xiaoping’s historic decision to open markets while maintaining the Party’s monopoly rule and giving communist officials a personal stake in capitalist growth. Corruption (rents) rewards their effort and participation. This stood in sharp contrast to the former Soviet Union, where sudden political and economic liberalization prompted the apparatchiks to defect en masse. Profit-sharing arrangements made Chinese officials “stationary bandits” who are invested in promoting collective welfare, as they can fleece off a percentage of gains, rather than “roving bandits” who just rob and flee.
Corruption may induce communist officials to enthusiastically embrace market reforms, but the central government has to steer them away from corruption that damages growth and undermines state performance — theft and extortion. Although bribery has indeed exploded since 2000, embezzlement and misappropriation of public funds — which constitutes “corruption with theft” in my framework — has simultaneously declined.
In China regional competition substitutes for electoral competition in checking predatory corruption. Facing fierce contestation for projects and investors, local leaders are motivated to curb “grabbing hands” among rank-and-file bureaucrats. Such efforts sometimes reached a point of religious fervor, as reflected in the leadership’s slogan in a county of Hubei: “Investors are Gods, prospectors of investors are heroes, bureaucrats are humble servants, and those who harm corporate interests are sinners.” That’s not all — deal-making is part of fervent growth promotion, too. Leaders compete to offer “preferential policies” to selected businesses. To stay ahead, they must also project competence and upgrade their development strategies by strategically positioning their locales, crafting commercial niches, and branding.
The irony of the period may be that corruption was large as a fraction of government but that economy prospered nationally and locally. Bribing legislators, insider trading, political patronage, and so on, were all rampant. And yet America’s economy soared for reasons quite similar to China.
American state governments were fiscally independent and eager to promote development, both to win elections and to get rich. Access money intertwined with the financing of major infrastructure projects that paved the way for economic boom while vastly enriching a handful of tycoons. Ultimately, the risks inherent in such corruption erupted in the Crisis of 1893, leaving banks insolvent and forcing reforms.
This is because, unlike the obliviousness preceding the American or East Asian financial crises, the dangers in China are widely known and under the constant glare of scrutiny. Long-standing Western expectation of Chinese failure have perhaps unintendedly kept the regime alert.
In principle, we should measure what we value, yet the reality is often the opposite — we value what we can measure. Perhaps nowhere is this statement truer than in the study of corruption, which is inherently difficult to gauge and quantify.
Conventional measures predominantly capture the obviously illegal forms of corruption that afflict the poorest countries, such as bribery and outright looting of state assets. Meanwhile, transactional corruption among the rich and the powerful, which is more cleverly disguised, even legitimized, in wealthier states, tends to fall off the radar. As a result, when researchers plot bundled scores like the CPI with national income, poor countries appear to be riddled with corruption while rich countries look clean.
Many hold up the CPI as an authoritative gauge of corruption. Even slight perturbations from year to year are interpreted as if CPI scores were temperature readings on a thermometer. In 2014, when China’s CPI score dropped from 40 to 36, headlines on CNN blared, “China slips down corruption perception index, despite high-profile crackdown.” Two years later, when China’s score nudged back up to 40, commentators declared that the country’s anti-corruption efforts were paying off.
A top politician is linked to an extensive network of former associates, proteges, and / or family members, who monopolize power in certain sectors of the economy. While the politician himself never or rarely accepts bribes, a massive amount of bribes flows through his network.
It is inspired by a NYT article on “a revolving door between Washington and Wall Street,” which revealed that the chief architects of America’s housing policies were or became heads of lobby groups or big banks.
Echoing this argument, Sun agrees that whereas Russia is wrecked by lawless “looting,” China is marked by “rent-seeking” and “profit-sharing.”
In the Chinese developmental autocracy, power is concentrated in the hands of individual leaders who can easily waive restrictions and open doors. By contrast, the system of checks and balances in India’s fragmented democracy gives numerous authorities the power to block decisions but not to unilaterally approve request or extend deals. “If you want me to move a file faster, I am not sure if I can help you. But if you want me to stop a file, I can do it immediately.”
In India “nickel-and-dime bribery infects everyday life.” Such corruption directly stifles growth by imposing delays, inefficiencies, and costs on businesses. Worst of all, the burden of petty bribery falls most heavily on the poor. By contrast, access money fuels China’s capitalist machine, enriching capitalists who pay for deals and rewarding communist officials for promoting rapid growth; yet it can produce serious harm in the long term by sharpening inequality and distorting policies and capital allocation.
This suggest that access money in the US capitalist democracy is institutional, which is consistent with arguments made by several American scholars. Pointing to Congress as an example, Lessig observes, “We could imagine an institution that is corrupt even when no one within that institution is also corrupt.” In short, whereas access money in the US today is primarily institutional, in China it is enmeshed within personal relationships and still involves bribes and illegal actions. One might say China has a backward version of access money.
Johnston selects 4 countries to represent 4 varieties of corruption: Japan as “influence markets,” South Korea as “elite cartels,” India as “oligarchs and clans,” and China as “official moguls.”
The structure of corruption matters as much as the overall level of corruption. Corruption in China is less damaging than in Russia because of divergence in composition. Both countries are rife with cronyism, but China has lower levels of corruption that directly stifles growth: speed money, petty theft, and grand theft.
Corruption was limited under Mao not because bureaucrats were morally upright, as fervent Maoists believe, but because people were impoverished and punishments were harsh. During the era, people were summarily executed for even a bit of corruption. Nobody dared to be corrupt. Moreover, although monetary corruption was scarce, abuse of power was rampant: Authorities could extract “favors” — such as sex in exchange for recommendations to attend university — or when quotas came down for people to purge, officials would purge individuals whom they disliked. When markets opened and the economy sputtered to life, however, the currency of corruption shifted from brute power to money.
Granting local governments and local agencies the right to generate and retain extra-budgetary revenue may be understood as part of a nationwide “profit-sharing” scheme: public employees took a cut of the revenue produced by their organizations, be it taxes, fees, or profits. This incentivized the entire bureaucracy to embrace market reforms and dive headlong into making money. In this particular context of profit-sharing, it may be said that the economy took off because of — rather than despite — corruption. Yet this system produced clear drawbacks: excessive discretion, bureaucratic extortion, petty bribery, and profiteering. Such corruption also burdened businesses and stoked public resentment.
China is often perceived as exceptional, but the situation today closely parallel the “taxless (public) financing” in America during the 19th century, when state governments built massive projects by selling bonds through investment companies and charters (monopoly rights) to business instead of raising taxes on residents. Taxless financing led to widespread corruption and incurred contingent liabilities (debt that manifests itself when projects fail to generate expected revenue). These accumulated risks eventually imploded in 1837 — America’s first great depression.
As a leader, Ji could designate chose plots of land for commercial purposes, acquire plots of land cheaply from farmers and resell them at high prices to developers, grant preferential tax breaks, and distribute a bounty of procurement and construction projects to family members and cronies. Because they outrank local banks and financial institutions, local leaders can also direct them to extend credit to favored companies.
The Western media often portrays China’s political economy as “state capitalism,” characterized by The Economist as state ownership of giant companies. For the public, this label gives the impression of China as still a centrally planned, state-owned economy. In fact, China’s economy is predominantly driven by the private sector, which accounts for 60% of GDP, 70% of innovation, 80% of employment, and 90% of new jobs and businesses. Although the Chinese apparatchiks grew richer over the course of market transition, so did millions of newly minted private entrepreneurs.
In the late 19th century, the Gilded Age in America gave way to the Progressive Era, a period of sweeping political and administrative reforms that subsequently curtailed petty corruption and embezzlement. What’s different in China is that a Gilded Age and a Progressive Era collied within a 20-year period.
Who are the tigers and the flies? In the Chinese Party-state apparatus, officials who hold leadership positions are divided into 10 ranks.
The procuratorate defines “high-rank” as officials at the deputy ting level and above, which includes, for example, the deputy major of a city government or the division chief of a central-level ministry. All officials at the chu level and above are directly appointed by the Party and rotated across offices.
One of the most intractable problems of development is the trap of “corruption-causing-poverty-causing-corruption.” In other words, countries are poor because they are corrupt, and they are corrupt because they are poor. How can the state keep poorly compensated public agents from harassing business for petty gains and induce them to support long-term development goals?
The scholarly literature proposes 2 solutions to this problem. The first is to “skip straight to Weber” by replicating the best practices of first-world public administration in developing countries. Pay tool low? Raise it. Bureaucracy is overstaffed? Slash it. Petty corruption is rampant? Vow to punish it. Although these measures appear correct in principle, in practice, they routinely fail and may even backfire, raising administrative costs and undermining public sector morale.
The second solution is to “trigger a change in social norm.” Social norms are important, and muck-raking journalism and public protests can help citizens hold corrupt elites accountable. But norms cannot fill empty stomachs. Poorly paid bureaucrats often steal, extort, or moonlight in order to subsist.
Reform-era China charted an unusual pathway out of this vicious cycle. Its solution was to allow street-level bureaucrats to extract some payments to top up their paltry formal salaries, while also aligning their financial incentives with long-term economic development objectives. Essentially, the state applied a profit-sharing model to the communist bureaucracy.
As Max Weber points out, all public officials in pre-modern states were de facto entrepreneurs. Although they received little or no formal pay from the state treasury, they were allowed to generate income through the prerogatives of public office by extracting taxes and fees from local residents, running monopoly trades, or accepting gifts in exchange for services (what we now regard as bribes). Weber termed these rights “prebends” or rents. In modern economic terms, prebendalism is a form of profit-sharing that allows public agents to keep a full or partial share of the revenue their offices collect.
In pre-modern times, prebendal practices brought certain advantages, but they also created problems. On the one hand, by allowing public administrators to “self-finance,” rulers did not have to pay regular wages in money, which was especially burdensome in the absence of fully monetized economies and stable tax collection. On the other hand, entrepreneurial officials often seized as much as they could, resulting in excessive predation and even popular revolts. Facing these risks, modern governments gradually replaced prebendalism with “fixed salaries paid in money” — a norm of public administration that we now take for granted in the first world.
In Western Europe and the US, the transformation of public administration from prebendal to state-funded and from profit- to service-oriented took centuries to complete, whereas in contemporary developing countries, this transition is still in progress. But standard theories of public administration are ahistorical and first-world-centric; they posit norms in present-day industrialized democracies as universal.
Although China is a unitary political regime, it has one of the world’s most economically and administratively decentralized public administrations. While the central government lays out the national vision and broad policy parameters, subnational governments exercise tremendous autonomy over their own economic and social development plans. They also fund and deliver the bulk of essential public services such as education, health, public safety, pensions, and urban infrastructure, at levels exceeding many federal governments, including the US.
As one of the district’s officers described it, “We hope to forge a friendly business environment by providing all-round services, for example, applying for permits, filling out paperwork, coordinating among various departments, parking, schooling, taking care of the surrounding sanitation, and so on. We want to serve businesses well, because every business has a thick network behind it, including friends and business associates. If we serve one investor well, we can access and mobilize these resources and attract more investors, thereby promoting our district’s economic development and tax revenue base.”
Apart from enjoying increased tax revenue and staff bonuses, the district office benefited from a business-sponsored refurbishment. As the district leader recounted, “Our office used to be so shabby, even the walls are not painted. Last year, because we served an enterprise well, it donated more than 100,000 Yuan to renovate our office and also bought computers for our staff members.” He described this sponsorship as “an affectionate reciprocation of our excellence services.”
Leaders and elite officials aim for higher office, greater personal power, or both. But, for most bureaucrats, the chances of ascending to elite ranks are exceedingly small. Mid-level managers and street-level operators care less about rising to power than mundane things such as salary and perks.
It is because formal wages were only part of the story. Since the 1980s, local bureaucracies in China routinely topped up salaries with perks including overtime pay, bonuses, free meals, free vacations, subsidized housing, entertainment budgets, and daily necessities such as food, electricity, and gas. They also supplied items of collective welfare, for example, spacious buildings, new office furnishing, and subsidized child care.
This structure may be found in other developing countries too, except that, in China, the supply of fringe benefits was regulated and linked to financial performance, such that it functions as a monetary incentive.
The relationship of staff pay and perks to local tax income is akin to a dividend system, whereas its connection to the fees and fines collected by individual departments functions like a commission.
Why didn’t the local states simply stop individual agencies extracting rents and pay them entirely through tax income? The reason is simple: most local governments cannot afford to do so. As one finance bureaucrat explained, “We don’t have enough tax revenue to feed the bureaucracy and invest in economic development at the same time.” Another bureaucrat added that if the state removed the departments’ rights to spend the fees, fines, and charges they collect, “they would have no motivation to generate revenue for themselves,” and consequently, “the financial burden of our country would be too large.”
Public employees in different localities, even ones that are geographically adjacent, may receive starkly unequal levels of renumeration. Within each locality, staff benefits also vary across departments. Agencies that enjoy access to rich streams of income through their regulatory power over booming economic sectors are known as “greasy agencies.” Those with few means are dubbed “distilled water agencies.” As one county-level bureaucrat mused, “Even an idiot knows the gap between the Construction Bureau and the Archives Office.”
Put succinctly, bureaucratic compensation is derived both from “helping” (attracting and retaining businesses) and from “grabbing” (extracting fees, fines, and payments). This institutional arrangement explains an abiding paradox in China: the coexistence of developmental and predatory behavior among street-level bureaucrats.
In addition, the prohibitions were built into the cadre-evaluation system, such that bureau chiefs would be held accountable for violations made by their staff members.
Relying on individual agencies to partially self-finance is meant to be a crutch, not a permanent solution. In the wealthiest locations such as Shanghai, districts and counties have become sufficiently wealthy to pay their civil servants entirely through formal tax income. As a result, these locales do not need draconian control measures to curtail bureaucratic extraction.
Why standard reforms fail. More broadly, this chapter sheds light on why replicating “best practices” in developing countries frequently fails. Standard public sector reforms, adopted by international agencies such as the WB and national governments, aim to slash redundant staff and raise formal wages to deter corruption.
Although such reforms seem right in principle, they rarely work in practice. In 2007, the Nigerian government increased wages by 15% across the board. The result was a huge financial burden on public services with little in the way of positive outputs. Meanwhile, attempts to import pay-for-performance models from the first world soon fell apart because evaluating “performance” in patronage-dominant contexts proved unrealistic.
Why did seemingly straightforward, technical reforms fail? First, firing bureaucrats and public employees is alway politically contentious. Second, raising formal wages across the board poses a huge burden to state budgets, and without robust monitoring and administrative capacity, it does not ensure less corruption or better performance. Third, pay-for-performance models imported from wealthy industrialized economies are premised upon first-world conditions, namely, that civil servants receive a secure living wage and that politics is separated from public administration. The problem with much of the prescriptive literature in public administration is that Western models are marketed as universally applicable to developing states even though they are not.
First, if policymakers expect bureaucracies to promote growth and deliver services, then they must think about giving rank-and-file public agents a personal stake in the outcomes of their efforts, a condition woefully absent in the developing world. China’s bureaucracy is unusual in its focus on monetary incentives, but non-monetary incentives such as organizational solidarity and a sense of purpose may be just as important. That said, filling stomachs is an imperative; inspirational messages alone cannot whip public workers into action. Public administrations in developing countries must therefore consider a mixture of non-monetary incentives and monetary incentives beyond formal pay.
Second, instead of skipping straight to Weber, policymakers should develop transitional strategies of administrative reform. In China “transitional institutions,” such as dual-track pricing (part centrally planned, part market-based), worked because they improve economic efficiency on the one hand, and make the reform a win-win game and interest compatible for those in power on the other. China did not become trapped in cycles of petty corruption because as local governments became wealthier, they compensated bureaucrats with increased tax revenue.
Similarly, in the social sciences, discovery through observation and immersion is indispensable. Had I not spent time talking with local Chinese bureaucrats, I wouldn’t have known how they were actually compensated, let alone have hypothesized the incentive logic behind their profit-sharing practices. It is unfortunate, however, that such qualitative work is increasingly dismissed as mere “description” and perceived as inferior to statistical methods.
But there are some things that the news doesn’t cover. In reality, many corrupt Chinese officials were once political stars, workaholics famed for their ability to deliver results, who were genuinely appreciated by local residents. The best-known example is Bo Xilai, who became a notorious symbol of corruption and Machiavellian intrigue. Before his fall, however, Bo was in the running for China’s top leadership. His heavy-handed yet resolute style of leadership dramatically transformed the Southwestern backwater of Chongqing within 5 years, spurring its economy, distributing benefits to the poor, and revising Maoist fervor all at once. At the height of his political career, Bo’s “Chongqing model” seized national and even global attention.
All over the country and at all levels of government, there are many other officials like Bo: ruthless and charming, at times fearsome, at times pitiful. To caricature all of them as sleazy crooks is to miss a core feature of China’s political system: growth promotion and self-enrichment often go hand-in-hand.
Public esteem is capricious. When politicians are on the rise, the people and media are full of praise. But as soon as they fall, stars become pariahs overnight.
Vaunted by the media as “tall, handsome, and charismatic,” Bo was a natural publicist who frequently seized news headlines. The BBC once called him “the nearest thing China has to a Western-style politician.” Bo’s ambition and charm, however, may have rattled the leadership in Beijing, who transferred him to Chongqing to remove him from the spotlight. But, instead of lying low, Bo stirred up even more attention and controversy.
But a construction spree doesn’t come free. Chongqing’s infrastructure projects were financed partly by government spending and even more loans, typically using land as collateral.
Yet Ji’s real forte was industrial policy. In 2002, long before other parts of the country thought about industrial upgrading, Ji proposed a plan to promote a cluster of three new industries in Yangzhou: energy, lighting, and construction materials. “Attracting investment requires selectivity and complementaries. We must create a complete industrial supply chain.” To achieve this vision, Ji persuaded the China Science Academy and Nanjing University to establish research centers for industrial upgrading.
Access money functions like steroids of capitalism — it stimulates growth but distorts by misallocating resources, breeding systemic risks, and exacerbating inequality. Corruption in the manner of access money is not a tax but rather an investment. The capitalists who extended graft to Bo and Ji all got terrific deals, including this list of perks:
- Major construction contracts.
- Monopoly privileges.
- Access to credit.
- Access to land.
Yet this does mean that access money is “good” for the economy — on the contrary, its harm is indirect but deep. Such corruption channels excessive investment into real estate, a sector offering unmatched windfalls for the politically connected. In China all land is state-controlled, meaning that it can be leased through a bidding process but not sold. Powerful officials can help developers acquire valuable land parcels at bargain prices, which they can either turn into pricey properties or resell for colossal profit.
One long-term structural risk is that Chinese investors face distorted incentives to abandon productive economic activities for real estate investment. Since market opening, manufacturing has been the foundation of China’s “real economy” — meaning the production of essential goods and services — which drove massive job and wealth creation. But, facing rising labor costs and trade frictions with the US, manufacturing’s appeal has drastically weakened. The rush of investment toward real estate exposes the economy to speculative bubbles and over-construction.
It is imperative to think beyond the simplistic binary of whether corruption is “good” or “bad” for economic growth.
Ji knew that Yangzhou could not compete in export manufacturing with Kunshan (a city he had previously governed), so instead he branded Yangzhou as a heritage site. To accomplish this, he refurbished the historic Guyun Canal that runs through the city, thereby attracting both tourists and developers of luxury properties. As a former newspaper editor, Ji was also shrewd at harnessing the media to his advantage. In Yangzhou, he organized a marathon by city leaders along the refurbished canal, which was broadcast on TV. Through this publicity stunt, he showed off the impressive landscape and won the support of local residents.
Bo accepted Xu as his favorite not simply because he gave bribe (as numerous capitalists would queue up to do the same), but because Xu was competent and proved he could deliver.
Thus understood, Bell’s praise of the Chinese political system as a meritocracy that select officials by “ability and virtue” misses a crucial reality: it is difficult for politicians to perform without political patrons and corporate clients.
Chinese crony capitalism is competitive. As a princeling, Bo was exceptional in the power and influence he wielded. Other leaders, however, must demonstrate ambition and ability to draw capitalist cronies, who otherwise will not want to hitch themselves to weaklings or losers.
The work of a city Party secretary is at once macro and micro, abstract and concrete. Leaders in the township [the lowest level] don’t have much authority to solve problems. But cities do possess macro planning powers. Provinces are even more macro. As for the central government, it’s completely macro, concerned with setting strategic direction for the entire country. Policy implementation occurs most concretely at the county level.
Constitutional rules stipulate that local Party secretaries and chief executive should be appointed for a term of 5 years, up to a maximum of 2 terms, but in practice, local leaders rarely stay in office beyond 5 years. Among the cohort of 331 Party secretaries, only 6 secretaries (2%) remained “intact” in their original office. Within a 6-year period, 279 (84%) were transferred to other localities or positions, and 54 of them (16%) fell. The intensity of Xi’s anti-corruption drive has evidently created a volatile and stressful environment for sub-provincial leaders.
Among the 54 fallen city Party secretaries, 2 had patrons in the PSC (including Premier Li Keqiang and Yu Zhengsheng) and 14 had patrons in the Politburo.
Fearful of being implicated in the crackdown on officials, wealthy private entrepreneurs are fleeing abroad, provoking worries about capital flight that is estimated to have approached $425B in 2014. But, arguably, these are painful but necessary adjustments that accompany the Party’s determination to root out cronyism, which, if successful, should eventually bring about a healthier economy and a more disciplined administration.
In Western history, the emergence of legal-rational bureaucracy was accompanied by the rise of liberal market economies because the two were complementary. Since coming to office, however, Xi’s policies have stifled freedom both within the Party-state and in society.
Simply put, to channel corruption away from its most destructive forms, incentives and penalties must go hand in hand; neither is sufficient on its own.
Regional competition checks predatory corruption, spurs on developmental efforts, and ratchets up deals.
As the 20th century went on, campaign contributions soared. Lobbyists found creative ways to purchase influence without case bribes. These strategies include plying politicians with plush vacations and tickets to expensive sport games, free flow of food and alcohol at designated restaurants and, most effective of all, enticing staffers with lucrative positions in the private sector. In an interview on 60 Minutes, Abramoff baldly stated, “We owned them [members of Congress]. What does that mean? Every request of our client, everything that we want, they are going to do. Not only that, they’re going to think of things we can’t think of to do.”
Yet China’s style of access money still remain crude and personal, whereas it became sophisticated and institutionalized in Wester politics. In addition, to curb crony capitalism, Xi deploys a top-down disciplinary apparatus to hunt down individual corrupt politicians and capitalists, while rejecting democratic checks. The American Progressive Era, on the other hand, successfully mitigated illegal forms of corruption through democratic means: investigative journalism, electoral competition, secret ballots, and transparency policies.
Furthermore, the process of arriving at this outcome is not “first, get institutions right” and then all good things will follow. Rather, as some historian remind us, the emergence and spread of democracy, the rule of law, and meritocracy in Western societies coincided with rampant deal-making at home and the extraction of resources from colonies abroad. The rise of the West was by no means just the result of good institutions and “a culture of innovation” — undeniably, it went hand in hand with corruption, exploitation, and inequality. An honest evaluation of Western history, warts and all, helps us better understand the process of economic and political modernization in developing countries today. Corruption does not necessarily disappear with affluence and modern institutions; rather, it evolves toward impersonal exchanges and sophistication. Post-communist China underwent a similar process of structural transformation on a tightly compressed time scale, ant it is still ongoing.
Popular accounts paint a conflicting picture of China, as either a Confucian-style meritocracy or a festering regime that will soon crumble.
The meritocracy school also fails to address the problem of who guards the guardians. Li praises the Party’s Organization Department, which appoints officials, as a “human resource engine that would be the envy of some of the most successful corporations.” But this department, too, can be corrupted, and indeed is especially corruptible because it controls appointments and promotion. Lo and behold, in 2018, 68 officials at the Central Organization Department were punished for corruption.
While it is commonly assumed that patronage is in opposition to meritocracy, under the CCP, they go together. In most patronage-ridden systems, political patrons appoint unqualified clients into offices. Chinese political patrons, on the other hand, spot promising clients and nurture their competence over the course of their careers. As one Party school leaders explained to me, “It is their patrons who strategically arrange positions for [officials at lower levels], giving them an opportunity to prove themselves.” In other words, while we normally think of “merit” as intrinsic to individuals, in the Chinese political system, it is cultivated by political patrons. He added, “We are after all a top-down system, not elected by the people, so it is those on top who decide who gets to move along and ahead.”
The title is scintillating, but Wolf gets a fact wrong: China is not communist. Far from egalitarian, China has seen widening inequality, at a level exceeding even capitalist America. In practice, Chinese political economy operates not according to Marx’s exhortation of “each according to his needs” but rather by the principle of “each according to his ability and connections.” From this perspective, China is better understood as a capitalist dictatorship disguised as communist.
Rather, Chinese corruption undermines regime stability in other ways. Graft at the highest level intensifies factional rivalry and battles for political succession, as the Bo Xilai scandal displayed. As each fiefdom amasses astronomical rents, it grows ambitious and defiant of the top leadership. Walder compares the current dangers facing the CCP to the Guomindang in the 1930s and 1940s, which was torn apart from within, in Chiang Khai-Shek’s words, by “a special class struggling for power and self-interests, alienating the masses.”
On the effects of access money, take the example in my opening anecdote: the construction of railways during America’s Gilded Age. Money politics and lobbying induced politicians to grant enormous subsidies, ignored inflated cost and financial risks, and then step in to bail out the robber barons when a crisis erupted, always at the expense of the public.
The two types of inequality are inseparable, although the literature and popular discourse tend to focus only on income inequality. The super-rich are not only far wealthier, they are also more powerful and can manipulate political and legal systems to their advantage, through means defined in this book as “access money.” No study of political inequality can be complete, therefore, without examining corruption.
Such inequality takes varied forms across countries. In China, where the rule of law is weak compared with the West, it manifests itself as “political connections,” ties that private entrepreneurs cultivate with individual elite officials for profit-making privileges. In advanced capitalist economies, with strong formal institutions and rule of law, unequal access to political influence is found in lobbying systems, through which big corporations and interest groups can legally exercise overwhelming influence on policymaking. Because unequal access to political influence profoundly shapes the making of laws and policies, it affects inequality in all other realms: income, access to public services, exposure to risks.
Why is it that people working and researching in corruption seem only to enjoy showing how bad it is? They seem to like nothing more than to “admire the problem.”
Although Xi’s campaign has netted numerous corrupt officials, it sidesteps the root causes of access money: state control over the economy and leader’s personal power. Worse, Xi has clamped down on the press, the Internet, NGOs, lawyers, and civil society. His administration also cut back on local experiments in government transparency and consultative decision-making.
It seems that China and the US are hurtling toward a new “cold war” shrouded in cultural terms. It is increasingly popular in Washington to frame the competition between the two superpowers as a “clash of civilizations.” Meanwhile, in Beijing, cultural arguments invoking Confucianism to justify authoritarianism are just as fashionable. But the insistence that China is exceptional and opposed to the West in every respect dooms understanding from the beginning. Understanding China requires that we consider both its differences from the West and their similarities. We should also revisit popular narratives that Western societies hold about our own history.