Tuesday, April 12, 2011


The case of modern China suggests that widespread corruption and strong economic growth can co-exist.  The caveat is that the combination is not sustainable.  That is the view of Toke Aidt.  But at what point do we toss in the towel?  China has posted strong growth numbers for almost thirty years.  Aidt evokes the idea of "sanders" and "greasers".  The latter reduce transactions costs whereas the former do the opposite.

Over the years, there have been numerous recommendations for political reform that would do away with the demand for greasers. That's first-best, but second-best is to have the greasers dominate the sanders.

While there are many cases where corruption throttles growth, there is also China.  But does second-best suggest untenable distributional outcomes?  The authorities are forever looking for the "sweet spot", the level of limited rights and freedoms whereby the regime stays in power, rent-seeking and rent-extraction continue as they are and economic growth is maintained.  But sustainable is a huge order.