The connection between bribery and property rights
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These institutional arrangements are both political and economic. Constitutional government means reining in the power of officials and restricting political malpractice. In terms of the economy, the main thing is to clearly define property rights. For improvements in the political field, we must wait for future reforms. And improvements in defining property rights depend on all levels of society developing an understanding of these rights and their importance.
What is the relationship between property rights and bribery? According to Peruvian economist Hernando De Soto, one of the main problems facing poor people is that they do not have clear title to their property. Their houses are built on land without clear ownership records, and their companies are not legally incorporated. The result is that, faced with complicated approvals needed to engage in trade, they must resort to bribery.
The point of defining property rights is not to exclude poor people – although this may be a dream of the rich. Rather, clearly delimiting property rights clears the path to the realization of the "open access social order" advocated by Douglass North that will draw more and more people into the global marketplace.
Examining the status quo in China reveals we have a long way to go. Let me cite an example from my personal investigations in Wenchuan following the devastating 2008 earthquake. The quake destroyed most of the buildings in the town. In the process of rebuilding, the first problem was to establish property rights. One problem that emerged was that many people who did not have official local residence permits and could not prove ownership of their homes, were not allocated houses despite having contributed to the construction of Wenchuan. Another problem was that, in allocating compensation, the government took no account of improvements made to the land by its owners. In interviews, villagers told me that when the land was originally distributed, most farmers chose cultivable land. No one took out contracts on the barren mountainside land. That was allocated to village officials who were not engaged in agricultural production. But when it came to paying compensation, the government allocated new land based on the original contracted acreage. The result was that peasants who had improved their land were inadequately compensated, while village officials, who had essentially done nothing, received more.
This net result was to undermine productive effort and to boost non-economic consumption. The compensation people received was just a matter of luck, unrelated to effort. Villagers told me that some people were allocated millions in compensation and blew it all on entertainment and gambling. They didn't use the money to invest, which would have improved economic output.
The reason for examining Wenchuan in discussing property rights is that the town was rebuilt from scratch and this represented an opportunity to break from the existing institutional structures and build a new and more flexible definition of property rights that would take into account the role of improvements made by landholders.
To build this more flexible definition of property rights will not be easy. It requires legal innovation and corresponding reforms in government institutions. But it is a precondition for realizing the impersonal exchange associated with a modern economy. Only when such institutions have been built, will we thoroughly eliminate bribery and corruption.
The author is a researcher with the Institute of Journalism and Communication of the China Academy of Social Sciences.
