Jan 042013
 

An interesting working paper called “Is Corruption in China ‘Out of Control’? A Comparison with the US in Historical Perspective” came out at the beginning of December. It’s worth reading the whole thing, but the succinct abstract does a good job of summarising it for those in a hurry.

This paper compares corruption in China over the past 15 years with corruption in the U.S. between 1870 and 1930, periods that are roughly comparable in terms of real income per capita. Corruption indicators for both countries and both periods are constructed by tracking corruption news in prominent U.S. newspapers. Several robustness checks confirm the reliability of the constructed corruption indices for both countries. The comparison indicates that corruption in the U.S. in the early 1870s — when it’s real income per capita was about $2,800 (in 2005 dollars) — was 7 to 9 times higher than China’s corruption level in 1996, the corresponding year in terms of income per capita. By the time the U.S. reached $7,500 in 1928 — approximately equivalent to China’s real income per capita in 2009 — corruption was similar in both countries. The findings imply that, while corruption in China is an issue that merits attention, it is not at alarmingly high levels, compared to the U.S. historical experience. The paper further argues that the corruption and development experiences of both the U.S. and China appear to be consistent with the “life-cycle” theory of corruption — rising at the early stages of development, and declining after modernization has taken place. Hence, as China continues its development process, corruption will likely decline.

There are some reservations about the methodology – eg tracking corruption in China via mentions in US newspapers (the paper discusses some of these concerns, but is not entirely convincing as to robustness). But while I wouldn’t want to jump to the conclusion that US corruption during the Gilded Age was greater than corruption in China today, the core historical point about high levels of corruption in the US during a similar phase of rapid development is very relevant.

When talking about very serious problems in China – and other emerging markets – there is a tendency to overlook the fact that most developed economies experienced similarly severe problems during their formative years. This applies not just to corruption, but other familiar criticisms of China like pollution, extreme income inequality, lack of labour rights, severe social unrest and an inability to trust in the rule of law. A passing knowledge of 19th and early 20th history in economies such as the UK and US is enough to disabuse you of the idea that development proceeded smoothly.

This doesn’t mean that these matters aren’t a threat – only that their presence at any given point is not a sign that an economy is set for failure. It’s the overcoming of the problems associated with the initial stages of development that represents success, not that they never needed to be tackled in the first place.

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