The Global Stake in China’s Anti-Corruption Reform

China’s future prosperity requires restricting government officials’ administrative discretion, reducing state-owned enterprises’ power and subsidies, and strengthening the rule of law by developing an independent judiciary. But these reforms imply a change in culture and incentives. Some officials use their considerable discretion in granting licenses, permits, and contracts to solicit favors and side payments. The fortune accumulated by Bo’s wife (reliance on proxies, especially relatives, is a common tactic of corrupt officials everywhere) highlights the opportunities for the well connected to get ahead. Many Chinese, regarding this as just the way things are, behave accordingly.

To be sure, rent-seeking and favor-dispensing corruption exist to some degree everywhere; but they are more widespread in developing than developed countries and in resource-rich and/or centrally planned economies than in capitalist democracies. The time and other resources that individuals and firms devote to seeking government favors would be far more valuable if redirected to producing goods and services.

Some promising anti-corruption ideas have successful antecedents in Chinese history, from the Ming Dynasty to modern Hong Kong. Under the Ming Dynasty, the emperor’s officials came from other provinces and were frequently rotated. To protect China’s central bank from local political pressure, reformist Premier Zhu Rongji, on my and others’ advice in the 1990’s, reorganized the People’s Bank of China along regional lines, similar to the Federal Reserve’s district banks.

In Hong Kong, corruption was so pervasive as late as the 1970’s – if your house was on fire, the fire department demanded payment before pumping water! – that an independent anti-corruption commission was appointed specifically to investigate and prosecute both public and private corruption. Hong Kong greatly reduced corruption and improved administration with an amnesty, pay increases, and financial-disclosure requirements for officials.

China’s current leaders should revisit these precedents. A truly independent judiciary will take time to establish, but some judges can be appointed and paid by – and report to – the central government rather than local officials. And, as in Ming China, judges and other officials could be rotated every few years.

Likewise, as in Hong Kong, an amnesty could be granted, conditional on financial disclosure and a fine for unexplainable wealth, for all but the most egregious behavior, thereby leaving the past behind. At that point, judges’ and government officials’ pay could be raised to competitive levels, which would weaken the incentive to continue corrupt practices – particularly if officials must regularly file financial-disclosure statements and are penalized for withholding information.

The recent willingness of ordinary Chinese to condemn corruption publicly is a harbinger, one hopes, of real anti-corruption reforms from the country’s new leadership. An independent judiciary, financial disclosure by government officials, and other independent institutions have been essential to limiting and forestalling – though not fully eliminating – corruption in the United States and most other advanced capitalist democracies. That is a lesson that China needs to learn far more quickly than some members of its entrenched elite will find comfortable.

Michael J. Boskin, Professor of Economics at Stanford University and Senior Fellow at the Hoover Institution, was Chairman of George H. W. Bush’s Council of Economic Advisers from 1989 to 1993.

Copyright: Project Syndicate, 2013.

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