Petty theft and access money - the contrasting faces of corruption in India and China

The Diplomat has an interview of Yuen Yuen Ang in the context of her latest book, China's Gilded Age: The Paradox of Economic Boom & Vast Corruption.

She provides a new analytical framework for thinking about corruption. This has four typologies of corruption, which are combined to construct the Unbundled Corruption metric. The typologies involve the intersection of the categories of those indulging in corruption and the nature of the corruption.

Using the Indian context, stealing from a hospital budget or PDS supplies is petty theft; pilferage from large infrastructure contracts or public land grabs grand theft; demanding bribes for statutory services is speed money; and preferential access to public resources or favourable contract terms involve access money transfers.

The author conducted pilot expert survey in 15 countries. The graphic below compares the Unbundled Corruption between China and India and find significant differences.

While the aggregate scores are similar, petty theft and speed money (both involving non-elites) are the major form of corruption in India. These are also the types of corruption associated with the delivery of various public and statutory services, the so-called harassment corruption, which engenders large scale public discontent.   

In contrast, in China, these types of non-elite corruption is relatively smaller. Access money, involving the elites, being the major source of corruption. She writes,

Access money is the steroids of capitalism. Steroids are known as “growth-enhancing” drugs, but they come with serious side effects. In China, by enriching capitalists who pay for privileges and by rewarding politicians who serve capitalist interests, access money has perversely stimulated commercial transactions and investment, which translates into GDP growth. At the same time, this corruption distorts the allocation of resources – for example, by incentivizing politically connected businesses to overinvestment in real estate – breeds financial risks, and exacerbates inequality. Therefore, the right way to understand China’s economy is that it’s not just a high-growth economy, but also an imbalanced and unequal economy. This reflects the prevalence of access money.

I had blogged earlier about President Xi Jinping's anti-corruption drive and its impact on bureaucratic efficiency. The campaign engendered China's version of bureaucratic decision paralysis.

Reinforcing this point, Yuen analysed the career paths of 331 city-level Party secretaries (the first-in-command of city governments) in office in 2011. Coinciding with the anti-corruption purge by Xi Jinping, she found a high turnover rate among local leaders. 

I conducted an analysis of the career paths of 331 city-level Party secretaries (the first-in-command of city governments) who were in office in 2011. Two patterns stand out. First, local leaders faced a high turnover rate – 16 percent were investigated for corruption – indicating an unusually volatile and stressful environment. Second, performance did not protect local officials from downfall, only patronage – whether the provincial Party bosses who appointed them survived the crackdown – did. These findings suggest both a chilling climate in the bureaucracy and one in which having the right ties mattered more than doing the right thing. Bureaucratic inaction became so widespread that it inspired a Chinese term: “lazy governance” (lanzheng). The State Council publicly warned against it by shaming individual officials for dereliction of duty, delaying decisions, and leaving funds unused.

Further, she also found that "performance did not protect local officials from downfall, only patronage did".

Update 1 (13.08.2020)

Capitalism with Chinese characteristics - the rise and fall of Jia Tianjiang, the founder of Tian Yuan, one of the world's largest manganese miners. The FT article traces his cautionary tale, documenting the close links with the Party and government financiers who bankrolled his ambitious investments and acquisitions. It describes the relationship between Jia and Lai Xiaomin, head of Huarong, the country's state-owned and largest distressed assets financier. Both persons are now under arrest, charged with corruption. This is the instructive point,

“Politicians and the capitalists connected to them rise and fall together,” said Yuen Yuen Ang of the University of Michigan and author of China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption, “so the latter must be careful who they tie their fates to”.