Ed Dolan recently sent me an interesting theory on difference between Chinese and Russian corruption. I suggested he post it, but his blog specializes in other topics. So we decided I could post it here. This is Ed Dolan’s idea:
Dynamic China, Stagnant Russia: Can Corruption Explain the Difference?
As a long-time Russia watcher, I endorse the widespread notion that corruption is one major explanation for that country’s relative stagnation. Even Russian president Medvedev agrees, saying that corruption is “systemic in nature” and has “deep historic roots.” (The Guardian). But what about China? China is pretty corrupt, too. Transparency International’s corruption perceptions index ranks Russia at a dismal 146 out of 180 countries surveyed, but China, at 79, is not exactly squeaky clean. Other attempts to measure corruption specifically and institutional quality generally seem to reach similar rankings. Yet China is far from stagnant. Why?
Is it simply that China, although corrupt, is less corrupt that Russia? Only as corrupt as Burkina Faso, instead of as corrupt as Kenya? No doubt the degree of corruption plays a role, but I wonder if part of the explanation also lies in differences in kind among the corruption encountered in one place or another.
By analogy, consider a distinction that Russians make between “white envy” and “black envy.” If your neighbor buys a new BMW, and your reaction is to want to work harder so that you can buy one too, that is white envy. If your reaction is to want to sneak over during the night and slash his tires, that is black envy.
By the same token, it seems to me there is “white corruption” and “black corruption.” In the white variant, a corrupt official might say, “I’ll pull strings to help your business grow if you will cut me in on a share of your future profit.” In the black variant, the official would say, “pay me off, or I’ll shut your business down,” or alternatively, “pay me off, and I’ll shut your competitor’s business down.”
I don’t mean to say that “white corruption” is actually good. It introduces distortions and raises costs relative to government based on honesty, transparency, and the rule of law. But it certainly seems possible that comparatively speaking, white corruption is more pro-growth and black corruption is more pro-stagnation. The reason is partly that black corruption involves negative sanctions rather than positive incentives, and partly because it suggests more of a long-term, trust-based relationship. To borrow a term from Mancur Olson, the official practicing white corruption would be more of a stationary bandit, and the one practicing black corruption would be more of a roving bandit. The stationary bandit encourages the local farmers to take good care of their cows; the roving bandit slaughters the cows (maybe the farmers, too) and moves on after the feast.
I know from my own experience in Russia that black corruption is pretty widespread, although the white variant also exists. I have heard anecdotes about China that suggest that the white variant of corruption might be more common there. Does anyone with more experience of China than I have think that is true, and if so, if it could play a role in explaining how China can be corrupt, but dynamic?
This isn’t my area of expertise, but his argument makes sense. I was reminded of Ed’s email when I recently ran across the paper “Spite and Development” by Fehr, Hoff, and Kshetramade:
In a wide variety of settings, spiteful preferences would constitute an obstacle to cooperation, trade, and thus economic development. This paper shows that spiteful preferences – the desire to reduce another’s material payoff for the mere purpose of increasing one’s relative payoff – are surprisingly widespread in experiments conducted in one of the least developed regions in India (Uttar Pradesh). In a one-shot trust game, the authors find that a large majority of subjects punish cooperative behavior although such punishment clearly increases inequality and decreases the payoffs of both subjects. In experiments to study coordination and to measure social preferences, the findings reveal empirical patterns suggesting that the willingness to reduce another’s material payoff – either for the sake of achieving more equality or for the sake of being ahead – is stronger among individuals belonging to high castes than among those belonging to low castes. Because extreme social hierarchies are typically accompanied by a culture that stresses status-seeking, it is plausible that the observed social preference patterns are at least partly shaped by this culture. Thus, an exciting question for future research is the extent to which different institutions and cultures produce preferences that are conducive or detrimental to economic development.
In Russia, the ‘Ask the Audience’ lifeline isn’t one that the contestant would often use because the audience often gives wrong answers intentionally to trick the contestants.