Bribery with Chinese Characteristics? Corruption, Fuzzy Property Rights, and Rapid Growth

Abstract

This paper addresses the question of whether the way bribery is practiced in China is such that corruption might be compatible with rapid economic growth during the boom years between 2000 and 2007. In particular, it examines whether bribery based on diffuse reciprocity transforms a corrupt relationship from one based on short-term egoistic gains (looting) to one based on long-term gains (profit maximizing), with the assumption that such a form of bribery will lead the parties to maximize total gains and hence will encourage long-term growth rather than short-term predatory looting. More broadly, the paper inquires whether a regime of informal property rights based on bribery and diffuse reciprocity might compensate for the shortcomings of an imperfectly constructed and incomplete set of formal property rights such as has emerged in post-Mao China and thereby improve the prospects for economic growth. The paper concludes that while bribery based on diffuse reciprocity may encourage the parties directly involved in such corrupt exchanges to maximize their total long-term gains, so long as bribery remains a private good and an informal property rights regime based on bribery remains subject to abrupt and catastrophic revision due to its illegal nature, “bribery with Chinese characteristics” cannot be characterized as growth enhancing and thus cannot be a major explanation for why the Chinese economy grew rapidly during the “third boom.”