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🔢 Key Takeaways

  1. Both China and America have experienced corruption in their economic systems, with China's being fueled by institutionalized corruption. While the US has lower levels of corruption overall, recent headlines suggest complex forms of corruption still exist, similar to the Gilded Age.
  2. Despite political and cultural differences, the U.S. and China share issues of extreme inequality, cronyism, systemic financial risk, excessive materialism and ecological crisis. Corruption is not easily measurable as it can be hidden.
  3. China's economy grew despite high levels of corruption because certain forms were contained over time and influence peddling became dominant. The Chinese cultural perception of corruption varies, but understanding its nuances is key to studying development in the region.
  4. Corruption can come in many forms and affects both elites and non-elites. The four categories of corruption - petty theft, grand theft, speed money, and access money - have different impacts on society and can erode political legitimacy.
  5. The Evergrande crisis highlights the focus on luxury property over affordable housing and the risks of corruption in real estate development. Transparency in land deals and loans is crucial for sustained economic growth.
  6. The Unbundled Corruption Index provides nuanced data on the four types of corruption - petty theft, grand theft, speed money, and access money - in different countries. It shows that lobbying and influence-peddling are more common in the U.S. than in China.
  7. Democracy can increase transparency and decrease corruption. It is important to understand that corruption has both benefits and costs. Professor Anat Admati's work highlights issues in banking due to lack of transparency.
  8. Despite its authoritarian political system, China's economic growth is not solely attributed to it. Good education, healthcare, and transportation have played a significant role in its success. Access corruption and low levels of petty theft signify successful autocracy.
  9. To curb low-level corruption, bureaucrats should be paid salaries instead of relying on bribes or in-kind benefits. The profit-sharing system incentivized away toxic-drug type of corruption, allowing China to escape poverty.
  10. Development is a dynamic and multidimensional process, and simplistic approaches do not suffice. We must embrace complexity and challenge assumptions to gain a better understanding of real-world issues.
  11. Don't let the ease of information availability dictate what topics you prioritize exploring and researching. Also, beware of conforming to societal norms and sacrificing fulfillment for the sake of pleasing others. Lastly, evaluate motives and intentions behind political campaigns.
  12. Xi's top-down methods may work in China, but democracy requires different tactics, as President Biden navigates lobbying and legislation to invest in public infrastructure.
  13. While the US has historically used democracy to combat corruption, China's top-down approach may not effectively address the issue of inequality and justice. It's important to question the true impact of capitalist prosperity.
  14. Capitalism can create wealth and a strong middle class, but it can also bring about extreme inequality, cronyism, and climate change. Despite its flaws, there are still opportunities for those who are intellectually unique and may not fit in elsewhere.

📝 Podcast Notes

Corruption in China and America: A Comparison

China's political system can be best described as a corrupt meritocracy where institutionalized and legalized corruption has fueled the rapid economic growth. Yuen Yuen Ang argues that corruption in modern China is comparable to the Gilded Age in America, where corruption evolved in form and structure instead of disappearing with economic growth. Corruption is still a newcomer in China's economic system and is being dealt with by the current government. While the United States' corruption is relatively lower than China's, recent headlines highlight sophisticated forms of corruption and influence-peddling in American capitalism, reminiscent of the Gilded Age.

The Clash of Two Gilded Ages: U.S. vs. China

Yuen Yuen Ang suggests that the relationship between China and the U.S. should not be viewed as a clash of civilizations, but as a clash of two gilded ages. While the U.S. is undergoing Gilded Age 2.0 with a more sophisticated, financialized economy, China is experiencing Gilded Age 1.0. Ang's research shows that, despite political and cultural differences, the U.S. and China share issues of extreme inequality, cronyism, systemic financial risk, excessive materialism, and ecological crisis stemming from overconsumption. Ang also notes that the U.S. judgmentalism and belief in being the beacon of freedom and justice around the world may blind Americans to their own legal high-level corruption. Overall, the similarities between the two countries suggest that the U.S. may have more Chinese characteristics than we think, and corruption is not easily measurable as it is meant to be hidden.

How Corruption Shaped China's Economy

China's economy has prospered despite high levels of corruption because the growth-damaging forms of corruption were contained over time, while influence peddling, which can be good for business, became dominant. The legal definition of corruption is an illegal act in which one uses the levers of power to gain something. However, corruption can also border on moral corruption, where something may be legal but not considered the right thing to do. The Chinese culture has its own vocabulary related to corruption, such as 'elegant bribery' and the 'naked official.' The country's rapid economic growth has been a compelling case study for researchers interested in development, including Singaporean academic Ang Yuen Yuen.

Understanding the Different Types of Corruption

Corruption isn't just limited to the abuse of public power for private gain. Whenever one has excessive power to influence or dictate the rules of the game, there is potential for corruption. Professor Tang believes in a typology of four types of corruption involving elites or non-elites and theft or exchange. Petty theft, grand theft, speed money, and access money are the four categories of corruption she describes. She compares them to different types of drugs with different side effects. While toxic drugs like petty and grand theft do no good, speed money relievers headaches but does not help growth. Access money, like steroids, promises superhuman feats but accumulates serious side effects that erode political legitimacy and lead to extreme inequality and policy distortions.

Real Estate Development and Corruption in China: Understanding the Evergrande Crisis and Economic Implications

Real estate development has driven the economic boom in China, with as much as 30% of Chinese GDP stemming from it, yet roughly 20% of housing stock sits unoccupied. The Evergrande crisis, where the company reportedly owes more than $300 billion to lenders worldwide and may collapse, is a reflection of the focus on luxury property over affordable housing and the shift from manufacturing toward construction and debt. Capitalists have been bribing officials for land deals, loans, and projects, fueling risks and higher delinquency rates, as seen in the US history of financial crises. Transparency International's corruption index, while ranking the US as the 25th-least corrupt country, is a simplification of the complicated nature of corruption.

An Unbundled Corruption Index to Measure Different Types of Corruption in Countries

Ang developed an Unbundled Corruption Index (U.C.I) to measure the four different types of corruption - petty theft, grand theft, speed money, and access money - in 15 countries. The U.C.I unbundles the total score for each category, providing more nuanced data. In China, power is personalist, leading to an absence of lobbying, which is present in the U.S. On the other hand, the U.S. has more access money than China, indicating that lobbying and influence-peddling are more common in the U.S. Technology transfer is not considered corruption because corruption is restricted to political and bureaucratic gains from exploiting power, while technology transfer is a corporate activity.

Yuen Yuen Ang believes that corruption is not unique to China or any particular country. She argues that corruption and opacity in highly financialized economies can create the conditions for no accountability. However, she points out that democracy can create transparency and tackle corruption effectively. Interestingly, she doesn't view the U.S. as irredeemably corrupt and suggests that American democracy is the reason why it is possible to get off the corruption treadmill. It is hard to tell whether or not corruption provides benefits or costs and this issue is intertwined. Finally, she recommends the work of professor Anat Admati at Stanford Graduate Business School, who points out the problems in banking because of opacity.

China's Multiple Models & the Role of Authoritarianism in its Economic Growth

China's Gilded Age author Yuen Yuen Ang explains that there are multiple China models that have evolved over the years, contradicting the common belief in one unified Chinese model. Despite China's explosive economic growth since 1979, some development scholars are hesitant to give China credit due to its authoritarian political system. While Mao Zedong's era was marked by a personalist dictatorship and a centrally planned economy, Deng Xiaoping shifted the role of the central government from a dictator to a director. However, after Xi Jinping became president in 2012, China took a more authoritarian turn. The success of China's economic growth is not due to authoritarianism and top-down control, but rather, access to good education, healthcare, and transportation. High levels of access corruption and low levels of speed corruption and petty theft signify successful autocracy for at least two reasons.

Chinese Leaders' Complexity in Controlling Corruption

Chinese leaders have a personal interest in curtailing low-level predatory corruption because it affects the image of the state, making it harder for them to practice higher-level corruption with less scrutiny. However, curbing low-level corruption requires paying bureaucrats real salaries instead of relying on bribes or in-kind benefits, which make up more than 75% of their compensation. The profit-sharing system incentivized away toxic-drug type of corruption and allowed steroid form of corruption at higher levels. This system is one of the reasons China was able to escape the poverty trap.

Moving Beyond Simplistic Approaches to Understanding Development and Social Realities

Social science has a fundamental assumption that development can be broken down into discrete variables and interventions can provide predictable outcomes, but this mechanical worldview is artificial. Social realities are dynamic and multidimensional, more like forest ecosystems than machines. Therefore, we need a different set of methodological tools. Yuen Yuen Ang challenges conventional measures, such as the Corruption Index, by proposing a new way of understanding the complex reality of China. Western scholars have often overlooked the unique aspects of China, resulting in flawed analysis. The ease of using data sets to create theories and policies has led to a reliance on oversimplified solutions that do not address the complexity of real-world issues. As researchers and scholars, we must be willing to challenge assumptions and embrace complexity for better analysis.

The Pitfalls of Convenience: Prioritizing Easy Data Over Important Questions

Academics and policymakers often prioritize studying topics that are easy to find data on, leading to a neglect of truly important questions. This is similar to the concept of 'machine-friendly crops', where farmers choose crops that can be easily mechanized. The incentive to please conventions and norms may cause individuals to waste their lives on unfulfilling work. The anti-corruption campaign in China under Xi Jinping is a mixture of a genuine reform and an instrument to eradicate enemies.

Xi Jinping's Approach to Power and Corruption

Xi Jinping sees corruption as a structural problem and has been cracking down on it in China. He views capitalism's excesses negatively and has expressed this in his speeches. Xi has used top-down methods to cut back on the influence of big tech companies and ban private tutoring and video games. However, in a democracy, problems cannot simply be ordered away. Although the President of the United States has executive orders, the American system is different from China's, and Xi would likely struggle to cut back on lobbyists' influence as President Biden could. Unlike Xi's method of telling the rich to donate, President Biden has to convince enough people in Congress to pass bills to invest in public infrastructure.

State-business relations in China vs the US

China's state-business relations differ greatly from the US, where capitalists arguably have more power than office holders. The Progressive Era in the early 20th century marked the end of America's first Gilded Age and introduced tools such as open press, muckraking journalism, and independent prosecutors to combat corruption. These tools were possible because of democracy. In China, President Xi's mission is to take the country into its own Progressive Era, but his top-down approach may not solve the roots of the problem. Maintaining prosperity while delivering equality and justice is a tricky challenge. The scholar, Ang, is more passionate about getting people to think about whether capitalist prosperity has been as good as we think it is.

The Benefits and Pitfalls of Capitalism

Yuen Yuen Ang recognizes the benefits and the negative aspects of capitalism in both her home country, China, and her adopted country, the United States. She acknowledges that while capitalism creates wealth and a strong middle class, it can also bring about extreme inequality, cronyism, and climate change. Living in the US has taught her that even with a high income and advanced democracy, issues such as inequality, polarization, and populism can still occur. However, Ang remains optimistic about the opportunities provided by capitalism's openness, especially for individuals who are intellectually unique and may not fit in elsewhere.