Touching the Elephant
By Kwok Ping Tsang
- Review of China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption, by Yuen Yuen Ang.1
The parable of blind men touching an elephant is a good description of how scholars are putting forward theories to explain the growth of China. Wanting to know what an elephant looks like, each man touches one part of it and reaches a different conclusion. The man who touches the leg says the elephant is like a pillar, the one who touches the tail says the elephant is like a rope, and so on. All the men find part of the truth, yet none get the whole picture. For social scientists, one moral of the parable is that our eagerness to generalize knows no bound. People studying the Chinese economy have touched every inch of the elephant and, based on the part they have felt, have come up with dozens if not hundreds of explanations.
In her new book China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption, the political scientist Yuen Yuen Ang mentions the parable more than once to point out how the focus and judgment of analysts influence their approach to understanding modern China. Early on, she instills the reader with the confidence that what is in store in the book is more than one touch of the elephant, and that we are finally able to solve China’s growth puzzle: how can an economy grow so rapidly given its rampant amount of corruption?
Throughout the book, Ang reminds us how the answers put forward by others all suffer from different levels of blindness. To have a fuller picture of what the elephant looks like, she provides a more subtle definition and categorization of corruption. Ang rightly points out that the conventional measure of corruption, which lumps all sorts of corruption together, is too simplistic. To avoid adding apples to oranges, she proposes to unbundle them into four categories. Corruption may involve theft by officials or exchange to “get things done,” and the officials who participate may be elites at the top or the rest of the Chinese Communist Party mammoth of bureaucrats.
The two-by-two dimension gives us four self-explained categories of petty theft, grand theft, speed money, and access money, and Ang shows that it is the last that dominates in China. Ang defines “petty theft” as corruption among non-elites consisting of street-level bureaucrats privately pocketing illegal fees. Corruption involving theft among elites she labels “grand theft,” and includes such examples as siphoning public funds into private funds and embezzlement. “Speed money” involves exchanges among non-elites such as low-level bribes to avoid penalties or prompt services. Finally, “access money” involves exchanges among elites such as business paying massive bribes, allocating positions to politicians’ family, lobbying for favorable regulations, and loose oversight combined with potential bailouts. (page 28)
Businesses are eager to pay massive bribes for deals that promise even bigger returns, and high-level officials are happy to sell lands and other goodies under their control to the highest bidder. While resources are egregiously misallocated (think ghost towns of empty housing projects), the prevalence of access money does move the economy forward at least for the short term. Career concerns also ensure that officials are incentivized to keep the local economy growing and attractive to investors, generating competition across regional governments. Ang argues that such a form of blatant corruption is similar to that during the Gilded Age in the United States at the turn of last century, hence the book’s title.
The book successfully puts all the pieces together, using a wide range of qualitative and quantitative evidence, and by the end of the book, one is convinced that this must be how the elephant looks. But the story starts to look shaky when we look at the numbers more carefully. The blindness is still there, just of a different kind.
As is often the case, the devil is in the details. The main argument of the book is that access money (which promotes growth) dominates in China, and the other three types (which stifle growth) matter less. According to the numbers collected by Ang in Chapter 2 (and its appendix at the end of the book), both as a proportion of all corruption and as an absolute value, access money dominates not only in China. For example, while the other three types of corruption are less of a problem in Brazil, its prevalence of access money is about the same as in China. Yet the growth experience of the two countries is drastically different. The author may argue that the nature of the political regime and forms of access money also matter, but then the story is not only about access money, as the rest of the book is trying to show.
The interpretation of the corruption index is also unclear. Russia has more corruption than China under all four categories, but is that enough to explain its much lower average growth rate? If China’s access money score of 7.6 is good enough to be a growth steroid, at what level does it lose its power?
Moreover, despite the structural reforms mentioned in the book, China still has plenty of corruption of the other three types. We still often see news about politicians at all levels stealing from the public fund or low-level officials taking small bribes. When we read the fascinating stories of Bo Xilai and Ji Jianye in Chapter 5, it is also obvious that they took in a lot more than just access money. Further, the unbundled corruption index constructed by Ang also shows that China is still far from intact in those forms of corruption that impede growth. Is the stimulating effect of access money that powerful, and how come that does not work for other countries? Again, China’s distribution of corruption does not look unique enough to explain that much growth over such a long period. In the context of regression analysis, Ang may want to demonstrate how much of the cross-section of growth experience can be explained by the unbundled corruption index. If we only look at the 15 countries included in the study, my educated guess is not much. More data is needed to answer this question reliably.
The concept of access money is the hinge of Ang’s argument, but it is doubtful if the modest difference in the corruption index is enough to carry all the weight of explaining the spectacular growth of China. After the data analysis in Chapter 2, the book carefully puts together evidence from various sources that access money plays a role in China’s economic growth, but at the end the book does not tell us how big that role is. Like the parable of the blind men and the elephant, too much is made of access money, which is merely one of the many features of China’s economic growth.
Despite the measurement problem, this book is also frustrating for people who care about the distinction between causation and correlation. The rise of access money is explained by the “value of political connections” that “multiplied astronomically” due to the opening of the economy in the early 1990s (page 83), and according to the description of the book “the rise of capitalism” is “accompanied” by an “evolution from thuggery and theft to access money.” But Ang also repeatedly argues in the book that access money is like a “steroid” that “stimulates” growth. Indeed, after going through chapter after chapter of how “access money” can get things done, one cannot help but form the idea that access money is what pushes China’s growth, and it is assisted by reforms and anticorruption efforts that have reduced the other types of corruption. The narrative seems like a one-way traffic from corruption to growth.
The truth is likely to be somewhere in the middle: that corruption affects growth and growth also changes the way corruption is carried out. What is missing in the book is a discussion about the other direction. After decades of dismal economic performance, a substantial part of China’s growth can be explained by catching up and the immense gains from free trade (both internal and external). As the economy expands, the power of allocating resources (land use or other monopoly rights) becomes more valuable, and the prevalence of access money can merely be an outcome. On the other hand, when local governments compete to attract investors (page 91), corruption in the form of theft becomes less appealing. If the distribution of corruption types is mainly a result of growth experience, then the book loses much of its appeal. While it is unreasonable to expect one book to do everything (it will probably take another project to clarify the causal relationship), a clearer stand on the issue would be helpful to the reader.
For more on these topics, see
- Corruption, by François Melese. Concise Encyclopedia of Economics.
- Economic Freedom, by Robert A. Lawson. Concise Encyclopedia of Economics.
- Branko Milanovic on Capitalism, Alone. EconTalk.
Ang’s idea of unbundling corruption is innovative, and future scholars will likely use and extend her index to answer important research questions. Some of the methodological comments in the book are also refreshing (social scientists will more than chuckle at this sentence on page 207: “Datasets that are easily downloaded and plugged into regressions have shaped concepts, theories, and policies more profoundly than we’d like to admit.”). The collection and analysis of a wide range of data, accompanied by a barrage of sophisticated techniques that include textual analysis and error-correction modeling, is also an impressive scholarly feat. But after reading more than 200 pages of engaging and entertaining prose, I cannot help but feel that the book does not fully deliver what it promises. There is not enough direct evidence to support that access money is a major mechanism behind China’s growth, and the paradox of economic boom and vast corruption is still there. Nevertheless, Ang’s book is a significant first step towards finding out more about the elephant.
 Yuen Yuen Ang, China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption. Cambridge University Press, 2021.
*Kwok Ping (Byron) Tsang is an Associate Professor of Economics, Virginia Tech. He is also Affiliated Faculty at the Kellogg Center for Philosophy, Politics, and Economics at Virginia Tech and a member of the Economic Research Centre at the Hong Kong Institute of Asia-Pacific Studies, and is a Co-editor of Contemporary Economic Policy.