The Price of Corruption During the Global Financial Crisis – China Vs Italy

Corruption

The interest on the topic of corruption arose when I was writing my Italian master’s thesis in 2010 “On the Role of Chinese Journalism in the Building of a Chinese Harmonious Society” .

Analyzing every day the behavior of Chinese institutions through the newspaper offered me an opportunity to compare them with Italy. Thanks to this experience I realized how is important the subject of corruption for both the Chinese political agenda and the Chinese population.

So when I worked on a paper on Chinese Institutions for my EMA Master in Chinese Economics in Fudan University in 2012 I have been quite curious to recover my previous studies to compare it with Italy.

While I was analyzing those articles once again it appeared quite surprising how many correlation do exists between the Chinese and the Italian societies.

Not just culturally but especially politically speaking, our two cultures share many similar attitudes their political agenda, in the administrative strategies and in the relationships with the population.

Specifically they both merge together the private and public spheres, but apparently they are moving in opposite directions.

The comparison of this two systems helped me to reflect on what are the two countries priorities, how our governments are facing them and what are the populations’ perceptions of them.

After few years is the time to review what are the main changes.

 

Why Compare China to Italy?

Comparing China with Italy represents to me an in interesting alternative to the classic scale of value for which we use to compare the Chinese system with major players as U.S., Russia, Japan, etc.

The above mentioned systems are quite popular because we all see in each of them a little piece of the Chinese system.

Lets take for example the U.S., the most common example of countries-comparison for been the world economic-leader, a territorially vast country with a large population, which also shares with China many large-scale strategies, and finally for having a strong sense of belonging to their motherland in the population.

Russia, instead, it’s not just a big country which confines with China, but it’s a federation that has most of it experienced the shift from the central planned economy to the market economy (which differs though by China for way this process took place and the following results).

When we look instead to Asian power our first referent is Japan, which has a strong financial role and for this most often to has been imitated as a role model for the Chinese economic development ( despite the political, geographical and economical differences between the two countries).

Below we can see what it happens instead if we compare the systems based on the Corruption Perception Indexes (CPI).

Corruption perception

This graph is based on the statistical data published by Transperency International.

 

CPIs were established in 1995 by Transparency International as a composite indicator to measure the corruption perception . CPI offer us a Cross country comparability and in other words how much people can trusts their own or other countries.

Just for our reference Russia is located between Pakistan and Bangladesh, China between Greece and Tunisia, Italy between Kuwait and Montenegro, while our top in the list HK, Japan, US are located altogether behind Belgium and followed by Uruguay.

Economically, geographically, politically and demographically is not possible the comparison between Italy and China as for the previous countries, but if we look at the CPIs the two countries locate themselves on the same level.

 

 

It all began during the financial crisis? 

CPIs’ comparison shows us that the world financial crisis had lowered the gap between China and Italy everysince 2008.

Nowadays Italy is the eight largest economy in the world in term of nominal GDP[2] (amounting around 2.129 trillion of USD per year), it’s one of the most important member of the G-8 and G-20, and Italian population is composed of almost 60 million units (plus 4.2 millions of immigrants), the GDP per capita in 2009 was $29.068 and in  end 2014 is estimate as $34,455.

Despite this good news Italy is facing a severe issue on managing the financial crisis is leading to even more sever social crisis.

For many observers the issues comes from the inefficiency and malfunction of Italian institutions. When a problem is quite evident for decades and changhing is the sole solution is right in front of you, perhaps thinking about corruption could be the main explanation for Italy to be stucked still in this same position.

Years ago an Italian journalist told me:, “about Italy, the problem of corruption is easy to understand and it’s very simple to analyze… we just need to have the accurateness to utilize the term of “corruption” in a very wide sense”.

What this journalist meant is that corruption in Italy includes also tax evasion, illegal behaviors in the economic sector, and usury.

All this elements are composing by the “code of silence” (in Italian “omertà”).

This concept implies that people do not collaborate with the authorities, for fear or for connivance, to refuse the crimes, and for misstrsut towards institutions. This “let it go” behaviors had strengthen the mechanism and found new space for bad-behavior in their daily life.

The problem of corruption is that it can compromises the stability of a country.

In this sense, China appears to be much more careful than Italy. A collapse of Italian government, and therefore of it’s economy, won’t influence the political strategies other country, but will surely affect their economies.

This hypothesis is not too theoretical or pessimistic if we just consider how the economic tribulations of Greece, Ireland, and Spain have afflicted the European financial and political foundations, first, and the rest of the entire world economy, secondly, between 2009 and 2012.

While only few days separate us from 2015 we can now see clearly who reacted actively to the crisis and who didn’t.

By taking cognizance of these details, is easily understandable how important will be the future decisions and political assets of China for the entire world.

When I wrote this little paper in 2011 I was not focus to which model should helped China to improve, but rather to understand what scenarios China might have faced if by becoming more and more economically and politically strong without eradicating corruption: a phenomenon that all the countries have in common apart from their political values, their development process or geographical location.

 

Why Financial Crisis Should Change the Political Strategies and why its is all Linked With Corruption Behaviors?

Lets put in this way, that if we understand how corruption works in a system, then we know what are the values, the tradition and components of that society.

What it emerged from the financial crisis is that people needs to trust their institutions. The ability of Governments in restoring the domestic stability and its economy leads to the time of response in private investiment. So in this sense, trust is the necessary element to deal with the financial crisis and not a variable.

The issue around this matter arises when a country is already compromised by a deep and long-term internal social crisis due to corruption and to bad habits.

During the last years, because of the financial crisis, in many developed countries’ democracies it would appears that has arosen a problem due to the difficulty to responding and producing promptly all those necessary mechanism to face it, while in China the One-Party system prove it self to be cohesive, becoming an example of good organization for western media and politicians.

According to the Chinese government, the latest financial stimulus package covers ten main areas including: housing, rural infrastructure, transportation, health and education, environment, industry, disaster rebuilding, incomes, taxes, finance.

The above mentioned are all sectors strictly related with public institutions and that need to be monitored to become successful and safe.

In other countries, such Germany, France and United States, the political agenda has changed on more than one occasion, as happened after the new American mid-term elections in November 2010.[3]

But in this is not a failure for a democracy, but a success, because democracies are based on compromises and agreements which can lead to changes.

Vice versa, the failure for a democracy lies in the endless discussions between the political parties and consequently resulting in decisional inefficiency which can lead to immobility.

In Italy the party holding the majority and other opponent parties demonstrate themselves to be too often incapable not just to cooperate, but even to communicate effectively between themselves.

This is mostly due to the conflict of private interests that are influencing the political leadership more than respect of the public interest would require.

China differs from Italy also from the way the highest levels of the government use to handle to public troubles.

For example, before 2012 already, in China top leaders such as Hu Jintao, Wen Jiabao, and many others, used to participate actively to any kind of event (from natural disasters to sports events) always as representatives of the government and of the interest of the whole population. It happened also that the president Hu criticized openly the cadres for their unsatisfactory work[4].

The main agenda for the new Chinese president Xi Jinping and his team is mostly to fight corruption, and after almost 2 years of his mandate, the results of this strategy are evident at the point the Chinese private and public elites have change their behaviors.

In Italy, in some cases, it happened that top leaders declared imprudently that they would be able to personally solve many serious issues or also that they defended the interests of a small part (but very influential) of the population.

Apparently many countries such as the USA[5], Greece, Hungary and Italy worsened their relationship with corruption in occasion of the global finance crisis, and the trust in public institution declined as a consequence.

 

How Much Does It Cost Corruption?

We like to accept to imagine corruption with the picture of a person with low values which aim is to maximize the benefits of his position, while what we don’t realize is that corruption has also a cost.

The Chinese government calculated that in 2009 the cost of misused or embezzlement of public funds has reach around $35 billions. And just adding to it fraud, bribery and other activities, the cost of corruption could arise around $86 billions each year.

In Italy the cost of corruption in 2008 was about $65,7 billions[6], without considering the earning of the mafia, that has become the biggest enterprise of Italy gaining $118,2 billions a year, equal to the 7% of the entire Italian GDP[7]. It was also calculated that because of the crisis, in Italy there will be annual loss on the state earnings of almost $91.1 billions[8].

This means that if it would be possible just to restrain corruption of the half of its cost, the loss would be almost halved.

 

Instead what happened ?

In China, aside from what some estimations still retains it to be a developing country or a newly industrialized country, is a growing economy. Therefore, it seems that the price of corruption is quantifiable also on the cost of that the government has to spend to obtain the faith of the population in order to ensure the social stability.

The fact that Xi Jingping team has put on the top of is schedule the fight against corruption explains to us that the risk was or for the government to been unable to cover these costs or social instability.

The social instability’s factors are not only related with efficiency, but also with the rapid changes in the economy and in the society, as shown by the growing interest of the government to diminish the socioeconomic inequality within the population.

For this and also for many historical-political reasons, one of the most important solutions offered by Chinese politicians and scholars is to produce a healthy ethics system and moral value. That is correct, because if corruption will spread in China as much as deep as Italy, the only way to treat would be by changing the mentality of the population.

It is interesting to note that recently also in Italy many expert put stress on the importance of ethics. For example, Luigi Giampaolino, when was proclaimed president of the Italian Court of Accounts (a.k.a. Comptroller and Auditor General, an organ responsible for examining departmental accounts and reporting the results to Parliament), has point out the “ethics of [public] service”.[9] Ironically, that day, one of the highest charge that took part to that ceremony was a certain Gianni Letta, Secretary to the Council of Ministers, accused in 2008 of abuse of authority, illegal interferences on auctions, fraud, aid and abet and un-competitive bids[10].

Since then many other public figures and political powers had been removed to make space to new candidates for the next scandals.

 

The Comparison of the Modern History of  the Two Countries:

The phenomenon of corruption in China has a long tradition, older than the foundation of the PRC in 1949, and is very Asian. But the development of the nowadays frame of corruption has began, according to many scholars, after 1978’s reform and opening policies.

In Italy, after more than 150 years of history, is not possible to trace it back to a precise event or year anymore.

Just by comparing the way Italy and China have managed their anniversaries can help us to understand in which part of the growth parable the two countries are moving into.

Website of the Chinese 60th Anniversary.

Website of the Chinese 60th Anniversary.

 

In 2009 the Chinese institutions has spent many energies to organize one of the biggest parades and domestic events for the 60th anniversary of his history, to restate once again the unity, the stability of the country, and the historical continuity and transformations of his political project in spite of all its rapid social changes. In China, even though some people don’t entirely agree with the government choices, they are still very attentive to their own history in order to explain many of the current socioeconomic conditions.

In Italy, instead of insisting on the cohesive policy, the political powers have decided to divide the population, as

Website of the Italian 150th Anniversary.

Website of the Italian 150th Anniversary.

demonstrated during the Italian 150th anniversary, when media and government didn’t pay to much attention on it. The reason of this decision was due to the will of make the society less interest in the sociopolitical projects, an essential requirement at the time of the unification of the country many decades ago.

The financial hearts of Italy and China, Milan and Shanghai, shares another example the Expo.

While the Chinese government has spent many energies and money to promote this event in 2010, in Italy the most of the energy are focus on speculations on the fact that people mistrust the capability of Italian institution to organize it by 2015[11].

Those are merely two simple examples of how different approach on strategies can actually reflect a much deeper problem inside a government, and in society in a more broaden sense, and perhaps we could reopen this question when Milano Expo 2015 will starts.

 

Conclusion:

Even if corruption is inevitable for all the societies, China has the opportunity to contain it, especially, since the country is still growing. She can do it by producing a stable legal mechanism to handle bad behaviors and by keeping on form the sense of duty in the population. And the last two years policies prove my previous consideration correct, but to see the result we might need to wait for the 70th RPC anniversary of 2019.

When institutions react actively to fight corruption is still possible through the dialogue to find a solution. But when it doesn’t take place, then we can see that the institutions are showing their resignation and that corruption resides becoming permanently a component of the daily life of a society.

The solution, once again, stands in our role models, which can teach us good or bad examples.

 

 

 

 

 


 

Some Bibliography

 

 

 

  • Anonymous, “Freedom needed”, Beijing Review, vol.52 n°27 Jul.9,2009, pg.4.

 

 

  • Anonymous, “Is It Acceptable to Secretly Check And Report Officials?, Beijing Review vol.52 n°14 Apr.9,2009, pg.46-47.

 

 

 

 

 

 

 

 

  • Hu, Xiaobo, Lin, Gang, China after Jiang, Chicago, Stanford University Press, 2003, pg.108.

 

  • Junqueira, Diniz Rugério, Marinelly, Maurizio, The Fight Against Corruption in China, Milano, Liberia Editrice Cafoscarina, 2006.

 

 

 

  • Li, Shuwang 利舒望, “Jiaqiang fan fubai de wenhua goujian” 加强反腐败的文化构建 (Strengthen Cultural Construction of Anti-Corruption), Zuzhi renshi bao, 05 April 2007, pg.7.

 

  • Lucas, Fred. “Political Corruption ‘Major Factor’ in Financial Crisis, Poll Shows | CNSnews.com.” CNSnews.com. 21 Oct. 2010. Web. 29 Dec. 2010. <http://cnsnews.com/news/article/37919>.

 

 

 

 

 

  • Yue, Gaizhi 岳改枝, Fubai, “Xiqian yu fanxiqian toushi 腐败、洗钱与反洗钱透视 (Introspection on corruption, on the money-laundering, and on the fight to money-laundering), Zhoukou ribao, 21, 03, 2007.

 

  • Zhang, Hongling 张红玲, “Cong yuantou shang zhili fubai xianxiang fasheng de sikao xuexi yu tansuo” 从源头上治理腐败现象发生的思考学习与探索 (Considerations, Study and Analysis on The Phenomenon of Corruption in the Government), Xinwen aihaozhe, 2009, August, pg. 93.

 

 

[1] Transparency International. Web. 29 Dec. 2010. <http://www.transparency.org/policy_research/surveys_indices/cpi/2010>.

[2] Between United Kingdom, $ 2.178 trillions, and Brazil, $ 1.574 trillions.

[3] KHAN, 30 Nov.2010.

[4] Anonymous, “Hu Criticizes Officials for Poor Job.” China Daily, 20 September 2008.

[5] F. Lucas, 21 October. 2010.

[6] Galullo, 12 February 2008.

[7] The level of illegal activities in China in the last year wasn’t retain to be higher than the 3-4% of the entire national GDP.

[8] Fatto Quotidiano, 19 October 2010.

[9] Corte dei Conti, 19 October 2010.

[10] Il Sole 24 Ore, 23 September 2009.

[11] During the Shanghai Expo 2010, have also emerged some issues on the Italian pavilion’s administrative system due to tax evasion, bribes, and nepotism.

 

 

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