The importance of streamlining administration and delegating power
A listing corporation of the Shanghai Stock Exchange announced on May, 18 that the corporation’s chairman of the board is “assisting with investigation”. The chairman is not the first entrepreneur who has been recently asked to assist with investigation due to involvement in alleged improper official-businessman relationships. Exaggeratingly, every government official under investigation gets involved in quiet a few of entrepreneurs. The reason behind it is a comparatively perceptual knowledge that an entrepreneur can get more business resources such as bank loans by allying with officials.
Researches of some scholars show that the ability of private enterprises to obtain financial support from banks has been affected by the differences of political influence and source in political relationship. If private entrepreneurs and their administrative officers owned identities as government officials, they could obtain more favorable loans. Interestingly, many of the entrepreneurs who are assisting with investigation are the members of the CPPCC or the NPC. The granting of such membership is likely related with some government officials.
We also found that most of the businesses of these entrepreneurs are those under stricter government control. Most of the entrepreneurs who have arrested recently were engaged in real estate development, energy industry or banking business.
It is well known that real estate and coal industries are not fully competitive in the market economy, given that the primary real estate market was heavily relied on the land supply from the government in the rapid development of real estate industry a few year ago, which meant the more land a developer could get, the more money he could earn, and that coal mines in Shanxi Province were the gold mines for entrepreneurs who wanted to get rich quickly on conditions that the hard-to-get mining permit was granted by relevant authorities. Thus, the following conclusion can be roughly drawn: industries with more administrative approvals are more likely to form corruption alliances among entrepreneurs and government officials, which means some authorities are sure to seek for renting their rights of market access, whereas the higher the threshold for such access, the higher incentive enterprises will pay the rent.
As early as 1973, a study conducted by Professor Ruth Ackerman of Yale University showed that the man who gets governmental permission in a corruptive way is the one who has the least moral aversion to corruption, whereas the briber is not the most efficient economic subject.
A model on rent seeking established in 1990s proposing that, if governmental intervention is in the form of the requirements for quality or the market access, economic subjects are enthusiastic to bribe government officials and to conduct illegal market transactions, resulting in resources being allocated in non-productive fields. In other words, more administrative approvals lead to more corruption. Audit data show that more than 60% of the major law-breaking cases investigated last year happened in departments or institutions with concentrated executive power or approval power and in those that control the resources of important state-owned assets, which suggests that the best way to simplify the relationship between officials and businessmen and to keep them away from corruption is to streamline administration procedures and reform administrative approval power. Official-businessman relationship will not become normal before the profits of an enterprise stem from market rather than “mayors”.
It is on the above basis that we can understand what Premier Li Keqiang was stressed in the State Council’s third independent work conference held on February 9th this year: “streamlining administration and delegating power are the key moves to release market potentials, and a policy to eradicate corruption.” We believe that the previously distorted official-businessman relationship will gradually return to normal, as the items for administrative approval are reduced greatly and the market access gets more easily.
Published in the Beijing News | 2015-5-21
