Incentives and corruption in chinese economic reform

Abstract

This paper argues that, given the legacy of Chinese communism and its political structure, corruption, together with the threat of punishment for corruption and the selective enforcement of this threat, serves as a method of compensation that both satisfies the political objectives of the Communist Party and provides an effective inducement to local officials to promote economic reform.Incentives, Corruption, Economic Reform, China, Communist Party,

The Duality of Crony Corruption in Economic Transition: Toward an Integrated Framework

“…Valid as they appear, the above three explanations can shed light on the exogenous and extrinsic incentives for local corporatism. I concur with those who emphasize the multi-level informal corruption, referring to an informal ''bending'' of public power for personal favors ranging from petty perks to de facto privatization, as one of key institutional roots of local corporatism because the latter is intertwined with the former as the endogenous and intrinsic incentive to motivate state officials to ally with business managers (Basu and Li, 2000;Fan and Grossman, 2001;Li, 2005;Putterman, 1995).…”

“…The former refers to a form of crony corruption that is endogenously initiated by local officials and TVE managers (tolerated by the state), while the later refers to a form of crony corruption that is not only endogenously initiated but also exogenously solicited by the state (cf. Basu and Li, 2000;Fan and Grossman, 2001;He, 1998;Li, 2005;Lu, 2000;Sun, 2004).…”

“…Nevertheless, a consensus is emerging that the corruption in China is institutionalized as the de facto rule rather than the ad hoc exceptions (Fan and Grossman, 2001;He, 1998;Li, 2005;Lu, 2000;Sun, 2004). Corruption is institutionalized when it is systemic at two loci (Helmke and Levitsky, 2003): (1) corruption is committed by organized collective (Gong, 2002;Shieh, 2005), and (2) corruption is committed by a large number of individuals as the de facto rule (Cai, 2003;Ding, 2000).…”

“…These scholars argue that the ultimate driver for local officials to favor local economic development lies in the opportunity to gain politically (i.e., to advance political career, which becomes less attractive over time) and economically (i.e., to benefit financially from business involvement, which becomes more attractive over time), both of which involve corruption (Basu and Li, 2000;Fan and Grossman, 2001), thus both political rank-seeking and economic rent-seeking (Lu, 2000;cf. Che, 2002).…”

“…This is further compounded by the erosion of the informal institution of ethics (Ding, 2000;Hao and Johnston, 1995). Though it is insufficient alone to account for local corporatism (Oi, 1999), informal corruption is deeply intertwined with other institutional forces across all levels (Basu and Li, 2000;Fan and Grossman, 2001;Hao and Johnston, 1995), so it serves as the catalyst for all other institutional forces to delineate the institutional context for the positive ''helping-hand'' role of local corporatism when private and public interests are aligned. This extends the view of developmental state by differentiating the capability of state officials from their motive to ally with business managers (cf.…”