ABSTRACT
The relationship between decentralization and corruption is controversial. Some scholars treat decentralization as an effective means to improve governance, as it provides a better match of government policies with local interests. Corruption may therefore decrease as a result of diffusing spending power and revenue control across different government levels with clearly defined responsibilities (e.g. Fisman and Gatti 2002; Arikan 2004). Others believe that power fragmentation, or cellularization of polity, increases the proximity between local officials and private corporations/individuals and may in fact create more opportunities for corruption, since it multiplies the risks of local capture of political power by vested interests (e.g. Prud’homme 1994; Tanzi 1998; Brueckner 2000). What explains the proliferation of corruption at mid-and lower government levels we witness in post-reform China, when wide powers were devolved to local officials? Was power decentralization to blame for rampant corruption among local officials? If the answer is affirmative-diffusion of power led to corruption-how and why did this happen? This chapter addresses these questions by examining China’s corruption in
the context of its changing central-local relations. It argues that it is not so much decentralization as the incompleteness of power devolution that has contributed to the spreading of corruption in China in recent years. The incompleteness in decentralizing public authority is most clearly reflected in the development of the double identity of local government as both a state political agent and a local economic principal. As state agents, local governments have received from the central government increased discretionary power to make and implement public policies since the advent of reform. At the same time, they have also assumed the role of local economic principals, taking responsibility for protecting, promoting, and even directly managing local economies. This dual identity places both broad discretionary power and immediate economic benefits within the reach of local officials. Corruption results therefore from expanding discretionary power over economic interests of local governments. This chapter draws on the principal-agent approach to corruption, known to
students of corruption through the writings of Susan Rose-Ackerman and
Robert Klitgaard. It is built upon the analysis of an “agency relationship,” which includes a principal or supervisor who embodies public interests, an agent acting on the principal’s behalf, and a client or private person with whom the agent interacts (Rose-Ackerman 1978: 6). Corruption occurs when an agent betrays the interests of the principal in pursuit of his own. Despite the principal’s desire that his agents fulfill the set objectives faithfully, agents generally have some freedom to put their individual interests ahead of their principal’s and will do so if perceived benefits outweigh possible costs. The question, however, is under what circumstances an agent would be
prone to do so. Klitgaard points out the danger of an agent being corrupted by his client, who “seeks to influence the agent’s decision by offering him a monetary payment” (Klitgaard 1988: 23). When this happens, the agency relationship breaks up, with the agent virtually working for the client instead of his principal. The agent may also betray the principal when he develops his own independent interests vis-à-vis his supervisor’s and uses the discretionary power granted by the latter for his own benefit. This leads to a new set of agency relationships where the former agent becomes a principal embodying certain interests and recruiting his own agents to work for him. Such evolution of “agency relationships” has taken place between the
center and localities in China during the reform period. As the state retreats from socialist paternalism, local authorities have undertaken many new social and economic responsibilities and acquired unprecedented power in various areas. Thus, having long worked as mere agents of the paternalistic state, local governments now act like principals themselves, especially in handling local social and economic affairs, where they become the ultimate representatives and advocates of local interests. Local authorities may find parity between their two identities as political agents representing the state and as local economic principals defending local interests, as long as there is no conflict between national and local interests. However, tensions may arise when the two contradict each other. A common dilemma facing many local governments in China’s reform process arises when strictly following the center’s order as a state agent may damage local interests, while acting solely on behalf of the locality may be deemed disloyal to the center. The dilemma pinpoints a structural limitation of China’s decentralization process; that is, it has not led to a downward accountability system and has therefore failed to create democratic governance. What we have seen, consequently, is a surge of corruption accompanying the development of the double identity of local governments. Those who have a vested interest in the locality spare no effort to influence local decision-makers by all possible means as the latter’s scope for power rapidly expands, while local officials with personal interests at stake seek to exploit the duality of their government roles for their own benefit. This chapter looks at the dual role of local governments as both state
agents and local economic principals, and the opportunities and incentives the two roles provide for corruption. In doing so, it focuses on two particularly prevalent forms of corruption in China today-illegal land transfers and
“little money lockers” (xiaojinku). As the chapter will show, both forms of corruption are closely associated with the unbridled expansion of discretionary power at subnational levels and the increasingly deep involvement of public officials in local economic affairs.
