Bad (and Worse) Corruption

Ray Fisman, writing in Foreign Policy, explains that some types of corruption are better than others: “In an orderly, predictable — yet corrupt — system, businesses can at least calculate expected returns and plan accordingly.  Paying bribes to an unstable or unpredictable government, on the other hand, requires a leap of faith and a quick exit strategy.” Viewed in this light, the recent Rio Tinto trial in China may actually be bad for business as “it might be signaling to foreigners that they are entering a new era of uncertainty over the rules that govern their interactions with Chinese bureaucrats.”[%comments]

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  1. Joe Dokes says:

    China’s lack of two basic rights is going to end or at least severely curtail their economic development. First a lack of Free Speech and open criticism of the government dooms China to only developing crony capitalism.

    The Milk scandal before, during and after the Olympics is a classic example. Since consumers cannot get good information regarding products that are produced consumers will never pay top dollar for Chinese made products. A consumer oriented economy REQUIRES open criticism of both the government and producers. Good economic decisions require unfettered information about products.

    Second since China still doesn’t respect property rights, investors will learn the hard way that their investments are only as safe as the local Chinese bureaucrat dictates. If the local party boss decides to expropriate your investment, you have little recourse. Not only does China not respect property rights in the physical sense, but the conception of intellectual property rights is entirely alien to them.

    In the end this will hurt Chinese business and consumers.

    Regards

    Joe Dokes

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  2. Sridhar Gurivireddy says:

    For people who immigrate from India to US, this is very much evident. It’s not corruption, but the form of corruption that affects people.

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