India and China: Mega-population, mega-corruption, mega-growth

Author: Sandy Gordon, ANU

India and China are Asian mega-population powers. Each has enviable economic growth rates, but each also has a mega-sized problem with corruption — and each is handling it differently.

Corruption in India is nothing new. But recent accusations appear to place India in the same class as Africa’s worst kleptocracies.

Corruption is not only politically destabilising, it is also a potential restraint on India’s rapidly emerging economy. India needs to guzzle massive amounts of capital over the next three decades to pick up the labour-intensive manufacturing mantle — which will likely be dropped by China as its population ages. A recent study by the consultancy firm McKinsey & Company estimated that India would need to spend US$1.2 trillion by 2030 to cater for the high levels of urbanisation involved. Ports, power and roads will also be needed to cater for rapid industrialisation.

Unless markets can be confident that funds will be allocated quickly, efficiently and fairly, investment and associated technical assistance will slow. Politicians concerned about accusations of corruption will be paralysed in the allocation of funds, as occurred in the power sector following the Enron debacle in Maharashtra.

Frequently, relatively low-key government instrumentalities, set up under India’s Westminster system of checks and balances, have been involved in exposing major corruption, assisted by civil society and media. Political pressure exercised through India’s democracy has also played an important part. For example, in the minerals-rich state of Jharkhand, former Chief Minister Madhu Koda allegedly syphoned off about US$1 billion during his short tenure. Koda was exposed not by local police but by a central government tax compliance authority. The press attacked, and Koda languishes in jail.

Similarly, in the recent 2G telecommunications scandal, in which the central government allegedly undersold mobile network licences, the state lost approximately US$39 billion. The government’s own audit office, the office of the Comptroller and Auditor General (CAG), identified the apparent shortfall. Following the CAG report, the matter was pursued vigorously in the press and the telecommunications minister has been forced to resign. Prosecutions are likely to follow.

A campaigning Supreme Court was involved in forcing the government’s hand in the telecommunications scandal, and an activist Supreme Court is also bringing to light major tax evasion cases kept secret by the government.

Another key instrument in fighting corruption is the Right to Information Act 2005, a powerful piece of legislation by international standards, and one that has been used effectively even by small-time anti-corruption campaigners. Sadly, at least a dozen campaigners seeking information under the Act have been murdered.

This patchwork of checks and balances needs to be strengthened and consolidated. If the besieged Singh government is to give teeth to India’s weak-kneed anti-corruption agencies then a robust, independent, well-resourced judicial agency with royal commission-like powers at the central level and at the individual state level is needed. Hong Kong’s Independent Commission Against Corruption provides a successful model for both central and state governments.

The situation in China is very different. To the extent corruption is exposed, it is often through a ‘top-down’ decision rather than a ‘bottom-up’ process. The hierarchy in Beijing is reportedly deeply concerned about the effect of pervasive corruption on perceptions of the Communist Party.

At the provincial level, such is the nexus between corrupt senior officials and businesses and even criminal enterprises that exposure often requires the attention of a very senior official who may have a personal agenda. In the giant Chongqing urban conurbation, Bo Xilai, who reputedly has central political ambitions, has exposed significant official and criminal collusion in the city.

Alternatively, it will take a major disaster such as the Sichuan earthquake, in which poorly built schools collapsed killing hundreds of children, or the Sanlu milk scandal involving the addition of melamine to milk and the deaths of a number of infants, to precipitate action.

It is often difficult though for a small-time campaigner to achieve a result. In China you will rarely find a government agency, auditor, individual, district or even central court exposing corruption — at least not without top-level sanction. Indeed, some of those seeking to petition against corrupt officials in Beijing are reportedly spirited away to private jails.

So we have two systems, two models. The Indian one delivers economic delay, but its long-term promise is rule of law and relative transparency. The system in China has provided for rapid, command-driven economic growth. When needed, land is quickly, and often corruptly, appropriated. But the Chinese system contains little promise of a long-term amelioration of the grievances of affected people.

Given this, can India improve on its anti-corruption record so as to provide a rapid and relatively transparent vehicle for much-needed investment? And can China improve individual rights while retaining the economic benefits that have contributed to the growing wealth of its citizens? Two giant, rapidly growing countries: two ‘experiments’. It will be fascinating to observe the results.

Sandy Gordon is a Professor at the ARC Centre for Excellence in Policing and Security, in the Regulatory Institutions Network, at the Australian National University.

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  • Adam Morgan

    This is an excellent article on India’s corruption; perhaps the best I’ve read in a non-academic journal. Regarding China’s corruption, it would have helped to note that the efficiency the author writes of, regarding, say, execution of infrastructure projects, this may be directly related to China’s corruption. That is, incentives, such as a share of proceeds from an expressway’s tolls, are the reason that China is efficient.

  • Sandy Gordon’s post indirectly raises a question, that is, is there a best model for a very large and developing or under-developed country to develop?
    A large country is different in many respects from a small or perhaps a city country.
    Professor Gordon suggests that “The Indian one delivers economic delay, but its long-term promise is rule of law and relative transparency. The system in China has provided for rapid, command-driven economic growth. When needed, land is quickly, and often corruptly, appropriated. But the Chinese system contains little promise of a long-term amelioration of the grievances of affected people.”
    Obviously neither is perfect, but Professor Gordon appears to prefer the India one for its long run promise.
    There is nothing wrong with that, except when one considers Keynes’ remark that in the long run we are all dead.
    But, more seriously, the post exposes the difficulties with development. Countries are different in their histories, cultures and social traditions, as well as values. Let’s leave ideology aside and ask a question: is there a way to optimise development, subject to the initial conditions?
    Further, let’s go a step further than simple linear paths and assume that nonlinearity can be achieved, can the optimal path for development for a country mean non-democratic for some and possibly a significant period or periods on the way to final prosperity?
    If the answer is yes, what would it mean for some ‘universal values’?