It’s been a mystery for many years, at least to the casual observer, how low ranking Chinese officials manage to get by on their official compensation.
No mystery to those, especially businesses, that directly interact with them though. A well established system that implicitly requires “an affectionate reciprocation of our excellent services.” as one cadre interviewed put it, operates to ‘incentivize’ government officials; but is this ‘corruption’?
The author of the paper highlighted today (and from which the quote above is taken), Yuen Yuen Ang from the University of Michigan at Ann Arbor takes a closer look at the system to see how China has managed to avoid the emerging market problem of corruption begetting poverty that in turn becomes more corruption.
Where China’s model differs from other corruption-blighted economies like, say, India is that the state plays a role providing all manner of supplementary benefits such as “..overtime pay, bonuses, free meals, free vacations, subsidized housing, entertainment budgets, and daily necessities such as food, electricity, and gas. They also supply …spacious buildings, new office furnishing, and subsidized child care.”
Other studies have described this process as one of state-sponsored corruption but China’s Secret-Sauce in this process is to alter the level and amount of these transfers-in-kind in line with performance. In effect this produces real competition for benefits and incentivizes even low-level cadres to try and do a good/better job. The system, de facto then, is a giant profit sharing scheme.
The author notes in other emerging markets the notion that to avoid corruption one need only pay civil servants more doesn’t work because without higher output the higher wages are often an intolerable burden on the state.
China has overcome this conundrum by making state transfers dependent on performance which, in a growing economy, is bound to improve over time. For that reason he cautions about introducing this system elsewhere. Just because it works for China doesn’t mean it’ll work for Uganda.
There’s more specifics (a study of Shandong included) in the full paper you can access via the following link Profit-Sharing, Chinese Style.
Happy Sunday.