China at risk of imploding if corruption is not checked

Stunning news on China

China has been in the headline news in the recent few years. First, it was China’s impressive growth rate exceeding even 10 per cent per annum year after year that hit the world news. Then the whole world was stunned by a prediction by Goldman Sach’s Chief Economist Jim O’Neill that by 2027 China would overtake USA as the global economic giant.

At the beginning of 2011, China again made headline news by becoming the world’s second largest economy, overtaking Japan, which has now been relegated to the third place, but with prospects of regaining its earlier position easily since the gap between the two is still very narrow.

The rest of the world, especially those in Asia, went into jubilation over this news of 1,339 million Chinese producing an output of $ 5.9 trillion as against one-tenth of that numbering 128 million Japanese producing $ 5.5 trillion. But the Chinese leaders very quickly downplayed it by admitting that China was still a poor country holding the 100th position in the ranking in the world by income per person known as the per capita income.

While the world has been stunned by the news about China Incorporated, the Chinese leaders in fact played a different game, having been privy to the risk factors involved in their much talked about vibrant economy.

In April, this year, on the occasion of the centenary celebrations of China’s Tsinghua University, Chinese President Hu Jintao, having noted the grave need for upgrading the country’s university system, encouraged the academics of the university to enhance the innovativeness and their research capability and students to maintain their individuality by thinking independently.

The President of the Tsinghua University, humbling himself in a later press interview with The South China Morning Post, put a very long date like 2050 by which his university, presently ranked within the top 75 in the world, could join the elite league of universities comprising Harvard, Yale, or MIT in USA or Oxford or Cambridge in the UK.

Hu Jintao’s warning of corruption

The latest news maker on China, Inc. was the address made by President Hu Jintao on the occasion of the 90th anniversary of the Communist Party of China last week.

In his address, Hu emphasised several key points relating to China’s future. He said that for the Communist Party to continue its rule over China, it must adapt to a changing nation and a changing world. If for some reason China fails to continue its fast economic development and maintain social order, it will have to give up all the gains it has made during the past 20 years. For this, the party should fight corruption and create a clean government. Hu warned the party members that acts of corruption by those who hold political office could cause the public to lose trust in the party.

Surely, the 90th birthday celebration is not an occasion for a leader of a great party to talk about corruption of party members unless, in his opinion, it has become chronic, pandemic and acute. This is serious because unlike other countries in the world China does not hesitate to execute, by a single bullet fired to the back of the head, those found guilty of corruption which has been categorised as an economic crime.

Confucius on corruption

The incidence of bribery and corruption is not unique to China. It is everywhere including the developed countries like USA. But, if corruption becomes pandemic and a way of the day to day life of people, both instigators and their victims, then, it has serious repercussions on the social order and the sustainability of the economic, social and political systems.

Even as early as the sixth century BCE, the Chinese Philosopher Confucius warned that the misuse of the state power, if allowed to happen without being checked, could spread like wild fires from top to the bottom.

He said that “one of the evils of the political life was the lawful princes usurping the powers of the king, (that is, acquiring without authority the privileges and other perks), and their supporters following their masters in great numbers”.

Confucius’ observation on the spread of corruption across a society if it is not weeded at the very root has been vindicated by another celebrated theory in modern times known as Gresham’s Law.

Gresham’s Law: Corrupt people drive out honest people

Of course, Sir Thomas Gresham, Advisor to the Queen Elizabeth I, and after whom the celebrated law has been named, did not talk about corruption. All he said in a letter to the Queen in 1558 was that if the British Government issued coins made of cheaper metals along with the gold coins for the same denomination, people would simply hoard the gold coins when they come to their hands and release only the cheap metal coins. Thus, there would be only cheap metals in circulation, while gold coins would disappear.

This led to the famous saying that ‘bad money will drive out good money’ and today, economists use this phenomenon liberally to explain any situation where a low quality product drives out a good quality one when both are issued to the market at the same time. Thus, when applied to unchecked corruption, the corrupt people, if allowed to practise their folly with total impunity, will drive out honest people and as warned by Confucius, will make the whole society corrupt.

Governments lose themselves when they lose people’s trust

Widespread corruption leads to a loss of trust of people in the government, since people begin to believe that government officials and politicians practise corruption with the connivance of the top. It is inevitable that they begin to believe that a part of the spoil is even shared with the top leaders.

This is a dangerous development and according to Confucius, “the most important duty of a government is to earn and maintain the confidence of the people because, a government which loses a people’s trust is itself lost”.

Hence, a top leader of a government cannot sit back and ignore, according to Confucius, when his supporters are engaged in acts of corruption. This Confucian observation would have been the reason for Hu Jintao to warn the party members of the importance of keeping public’s trust undiminished.

Kautilya’s prescription

Kautilya, the fourth century BCE Indian economist of The Arthashastra fame, made a more elaborative analysis of the bribery and corruption by king’s officers. Noting that it is a human tendency to enjoy the fruits of ill-earned money if the practice goes unchecked or uncontrolled, Kautilya said that “just as it is impossible not to taste honey or poison that one may find at the tip of one’s tongue, so it is impossible for one dealing with government funds not to taste at least, a little bit of the king’s wealth”. Hence, the king should be careful not to place honey at the tip of someone’s tongue.

Also, public servants may develop crafty and ingenious schemes to hide the illegal practices of corruption in which they freely engage themselves. Kautilya noted this fact in a practical example when he said that, ‘just as it is impossible to know when a fish moving in water is drinking it, so it is impossible to find out when government servants in charge of undertakings misappropriate money’. Hence, continuous vigilance is needed on the part of the king to prevent his officers getting unduly enriched out of his resources.

According to Kautilya, even the loss of revenue due to the king constitutes a corrupt practice, because ‘such officers eat the king’s wealth’. Kautilya has gone a one step further. He has said that those who causes losses to king’s enterprises, (in today’s parlance, loss making public enterprises), not only cause a loss to the king. They ‘by not bringing any profits, eat up the labour of the workers’ too.

According to Kautilya’s prescriptions, the heads of such loss making enterprises should be made to pay back to the king the multiples of the losses made. In the case of the head of the king’s treasury, Kautilya has recommended that if losses have been caused to the Treasury by his deliberate action, he should be whipped.

However, Kautilya has been merciful to those who have abetted the head of the treasury in such deliberate acts. He has recommended that such abettors should be given only half the punishment given to their boss.

The incidence of corruption in China

The widespread corruption in China has been known well before Hu Jintao’s warning at the 90th anniversary celebration of the Communist Party. According to the cyberspace encyclopaedia, Wikipedia, opinion surveys conducted from time to time have revealed corruption as the top concern of Chinese society.

The researchers of the Central Party School, Communist Party’s organ for training senior and midlevel officials, conduct an opinion survey of about 100 officials attending the courses. Between 1999 and 2004, the respondents have ranked corruption as the most serious or the second most serious problem faced by China. In 2006, State Council’s development research surveyed 4586 business executives about the integrity of party officers. Of the respondents, 12 per cent said that the integrity of the party officers was very bad while 25 per cent said it was bad.

Common types of corruption in China

There are three types of corrupt practices used by Chinese party officials. The first is the common graft, that is, obtaining money or other gifts as compulsory payments for doing or accelerating the work within the legitimate purview of the official concerned. This has happened in giving licences and approvals for the Chinese or foreign companies, allocating houses to people in housing estates and other normal government duties like distribution of water or fertiliser to farmers, just to mention a few of such occurrences.

The second type is rent seeking which government officials resort to by using their discretionary powers relating to the administration of the government duties. Since all public officers have these discretionary powers given to them by laws, it is inevitable that they use them like the Kautilyan public servant ‘tasting the honey placed on the tip of his tongue’. Hence, discretionary powers, unguarded and uncontrolled, are the prime source of rent seeking by public officers. It causes the government to lose its revenue on one hand and the trust of the people on the other.

The third type is ‘prebendalism,’ a system where public officers get perks and privileges illegally through their office. This was the crime about which Confucius warned about as usurpation by regional lords and their supporters. In today’s parlance, it can be compared to ministers and other senior officials holding public office acquiring to themselves without authority privileges and perquisites to which they are not entitled. Even at lower levels, using public facilities for private gains or businesses is an example for prebendalism. In this manner, the public officers convert their work stations from public serving offices to ‘resource banks’ for private gains.

These types of corrupt practices are common in other countries as well.

The Corruption Perception Index

Transparency International, or TI, the global watchdog of corruption, has prepared a Corruption Perception Index or CPI since 1995 ranking countries in the world in terms of the level of perceived corruption. Corruption has been defined by TI as the ‘abuse of entrusted power for private gain’.

According to TI, such corruption makes poor people poorer, deprives their children of facilities to advance themselves and leads to an unfair distribution of wealth leading to social disorder. Hence, corruption is a malady which has to be fought globally and locally.

The purpose of compiling CPI is to show countries where they stand and take anti corruption measures to improve the conditions. However, many countries ranked low in the CPI have accused TI of interfering with their internal affairs and misrepresenting them in an attempt to discredit their development programmes.

In terms of the index, the least corrupt country scores 10 points while the most corrupt country scores 0. To compile the index, TI conducts 16 different polls and surveys from 10 leading institutions. The views of these expert institutions are then correlated with the opinions of the public in the respective countries.

Out of the 182 countries that are included in the index, China is ranked midway at 78 and has not improved its position between 2002 and 2010, scoring a midpoint of 3.5 out of 10. However, compared to Sri Lanka, China’s level of perceived corruption is less than that of Sri Lanka, which is ranked 13 notches below China at 91.

While China’s corruption level has remained stagnant during 2002 to 2010 at 3.5 scores, Sri Lanka’s perceived corruption level has indeed increased during this period with a decline in the score from 3.7 in 2002 to 3.2 in 2010. India where there is a wide perception of corruption is however ranked four notches above Sri Lanka at 87. India, to its credit, has improved its corruption perception marginally during this period. All other countries in the South Asia Region are ranked below Sri Lanka.

Corruption, an invisible implosive

Rulers may ignore the incidence of corruption and safeguard those who practice corruption by denying their existence. They may even counter-charge those who charge governments of corruption. But that they would do to their own peril. This is because corruption is an invisible implosive that causes an internal implosion without warning.

Governments which appear to the outside world as strong and stable collapse all of a sudden as the former Soviet Union did in 1989. That is because, as Confucius warned, the continued corrupt practices cause governments to lose public trust and losing public trust is the biggest enemy which a government can create for itself.

This truth has been driven home in a hard way to the current leadership in China. That is why on a celebratory occasion like the 90th anniversary of the Communist Party of China the incumbent President Hu Jintao thought it fitting to give an advance warning to party members of the impending catastrophe created by the party itself. Taking cue from the Chinese leadership, the other countries which are ranked below China in TI’s CPI should take immediate measures to stamp out corruption before it becomes too late.

China may be wise in identifying even as late as today the growing catastrophe. But, uprooting corruption is no easy task, since as one commentator, Yan Sun, has said that China may have to execute every other party official to create a clean government there.

Hence, in my view, if China does not take effective action to uproot corruption totally from the political and civil life, it runs the risk of imploding, thereby having to sacrifice all gains it has made so far, including the ascendancy to the second largest economy in the world, as warned by Hu Jintao.

(W.A. Wijewardena can be reached at [email protected] )