More on corruption in China

I mentioned in a recent post that a single-minded pursuit of anti-corruption would have probably derailed high growth in China. Bert Hofman, who is the lead economist of the World Bank in Beijing, sent me the following comment, which I thought would be useful to share with everyone.

Sure enough, an anti-corruption strategy is not a development strategy, but not having the first may derail the latter.  China is actually a case where rather stern action against corruption kept rent seeking in check, rents that were abound in a gradually reforming former centrally planned state. China's central party disciplinary inspection committee and State procoratorate are credible threats against corruption: last year, according to the Procurator Office, a total of more than 40,000 government employees (0.1 percent of total) were investigated for corruption, of which 29,000 were brought to court.  Perhaps as important as the control of rent seeking has been the dissipation of some of the rents through decentralization, which gave investors at least some option to avoid predatory governments.  Some of the rents that did accrue were officially condoned--e.g. by means of extrabudgetary funds, which depended largely on the entrepreneurial success of local  governments, and which were at least in part used for personnel emoluments.

Comments

[wjd123]

First Rodrik makes this claim:

"A development strategy that focused on anti-corruption in China would not have produced anything like the growth rate that this country has experienced since 1978, nor would it have resulted in 400 million plus fewer people in extreme poverty."

Then he offers this statement by Bert Hofman which seems to challenge the above claim:

"Sure enough, an anti-corruption strategy is not a development strategy, but not having the first may derail the latter. China is actually a case where rather stern action against corruption kept rent seeking in check...."

Hofman is saying that you can't have development without going after corruption, yet development strategies and anti-corruption strategies are two separate but complimentary strategies. Also that the World Bank didn't have to worry about corruption in China, because China was doing a good job keeping it in check. That takes most of the wind out of Rodrik's statement about anti-corruption strategies and the growth rates in China.

Rodrik seems to be asking "How much corruption should be tolerated to get maximum development?"

Since rents cause inefficiencies, wouldn't the logical conclusion be that allowing less rents would have produced an even faster growth rate in China, along with greater equality, bringing even more people out of poverty.

But this isn't about "the more" but "the most" efficient way to promote development.

Rodrik is saying that the World Bank shouldn't concentrate on anti-corruption strategies where corruption isn't the problem to development.

That statement seems obvious, but it begs the question. To make that statement Rodrik would have to show that corruption isn't causing the economic problems he sees as a greater barrier to development. For instance, if people in China save to much and spend to little because they don't trust their government, then, to some extent, both are corruption problems as much as development problems.

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