Fighting Corruption

Published on Author reilly

Under the new President Xi Jinping; a wave of reform against corruption within China’s government has occurred. Jiang Jiemin, the minister of state-owned enterprises was charged with “serious violations of discipline” or corruption. Mr. Jiang along with several officials in the state-run oil industry have been charged as well. Mr. Jiang likely used his position as a minister to accumulate wealth from the industries he oversaw in the use of the state monopoly and continuation of projects that probably wouldn’t have been given the go ahead in a free market or corrupt management.

The writer of the article hopes that President Xi’s crackdown on party officials will “break up the various boondoggles and monopolies, and there will be far fewer chances for theft.” Any of the author’s suggestions, from a consumer’s perspective, would be improvements. The allowance of competitive firms in replace of a single producer(the state) would eventually lead to prices falling and improved quality of goods leaving consumers added surplus. China’s industries should hope to alleviate graft as well. By getting rid of essentially a tax on production the company increases its producer surplus and average costs. At worst the monopoly simply stays the same in regards to profit and consumers again benefit from not having to pay the “graft tax”.

Taxes are meant to be used by the government to run the state. Along with this comes social programs for the poor and economic incentives for industries to produce and innovate. Firms which find new ways of going about producing lower their marginal costs and prices in the long run to gain a competitive edge in the short run.The article further dives into the political scene involving recent crackdowns of party officials. Several officials, including Mr. Jiang, have been charged with corruption after President Xi took office. Several of these are opponents of President Xi. President Xi himself has a vast fortune to protect and it is doubtful close members to Mr. Xi would be prosecuted.

Citation: “A Chinese Power Struggle.” The Economist. 07 Sept. 2013. Web. 10 Sept. 2013. Image from BBC.CO.UK

Paul Reilly

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2 Responses to Fighting Corruption

  1. Don’t focus unduly on monopoly – there are lots of players in construction, and kickbacks, well, there’s a long history of corruption around such contracts even in the US. The energy sector has fewer players, but the money would come from construction and equipment and service contracts. Firms with market power have “rents” – income above that needed to employ factors of production, including the time and efforts of managers. If the government doesn’t aggressively tax such rents, or (when the government has an equity stake) push for high dividends, well, don’t let the money sit around until the government changes its mind, pay it out to contractors in cozy deals, and ask for favors in return for giving them access to your firm’s lucre.

    Note however that ending corruption won’t benefit consumers directly if firms are pricing in a manner that reflects market power: as a first approximation less corruption will only shift who controls the excess profits, not the level of such profits.

    Oh, and please go back and clean up typos and infelicities of expression.

  2. I read about President Xi’s anti-corruption campaign for my paper on luxury goods which has a big market as “gifts” to political officials that equates to bribery. There is an obvious need to reduce corruption in China, yet after the presentation in class about democracy it is difficult to determine if efforts to reduce corruption are actually for the betterment of China or if they are merely used as a scapegoat to make the central government and President look good in comparison to the evil and corrupt local government (flies); or the larger tiger officials.