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Corruption Culture in the United States and
China
Akram Chamut, University of Texas at Dallas
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ABSTRACT
Purpose
The purpose of this paper is to examine mos t aspects of the corruption
that takes place in the United States and compare it to the corruption that takes
place in China by anal yzing previous empirical research performed regarding
the matter.
Method
The information used for this examination was gathered from peer reviewed articles in which research was performed to study corruption levels,
triggers, consequences and perception in the United States and China.
Findings
The empirical research reviewed showed that, although there are many
similarities on both cause and effect of corruption in both countries, there are
far more differences. This is mainl y due to the different cultures present in each
country.
Contribution
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The anal ysis made in this document is original since it compares the
factors that contribute to corruption and what the effects of it are in two
different countries with two very different cultures. This can contribute to the
business world by showing how corruption is performed in these two countries
and how it is perceived by their respective governments and citizens.
INTRODUCTION
In order to successfull y conduct business in a foreign country, we must
not onl y understand the ethical and legal surface of a country. In fact, it could
be argued that it would be even more important to understand the unethical and
illegal way of life that takes place underground, far out of sight f rom people
who are not involved. If managers can understand the legal and illegal conducts
of governments, corporations and i ndividuals, they will have a significant
advantage over competitors who focus only on understanding what the law
prohibits and permits them to do. Furthermore, understanding corruption will
allow managers to create the necessary shields to minimize corruption in their
businesses both locally and abroad.
This document is comprised of a review of some scholarl y peer -reviewed
regarding corruption in the United States and China. Hopefully, this will be an
aid to managers who wish to distinguish the differences and similarities
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between the two countries in order to protect their organizations from potential
harm, whether it is financial, legal, or reputational.
Corruption
Most people, when the y hear the word corruption, automatically think of
something or someone related to politics and, more often than not, view it as
something negative, and while political is the most common form of corruption,
it is not the onl y t ype. The t ypes of corruption most relevant to this document
are detailed below.
Political corruption , the most common and most relevant t ype of
corruption, is “the abuse of public power, office, or resources by elected
government officials for personal gain” (Shumba, Gabriel; 2007). There are
varying levels of political corruption depending on the country. In some
countries, political corruption is of such a high extent that the government
itself becomes a kleptocracy, meaning “rule by thieves.” This occurs mostl y
when government officials hold their positions for the sole purpose of
increasing their personal wealth at the expense of state funds.
Next, we have police corruption . Police corruption occurs most
commonl y between individual citizens and individual police officers. Police can
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reach such a high level of corruption that they will fabricate charges against
individuals to incite them to offer a bribe, which officers will gladl y accept and
drop the charges. Other forms of police corruption include soliciting bribes in
exchange of turning a blind eye to organized crime and other illegal activities,
and also engaging in “noble cause corruption,” which, si mpl y put, is the action
of planting incriminating evidence to be used against “definitely guilt y”
criminals to ensure a conviction.
What follows areliterature reviews of academic articles regarding how
these t ypes of corruption occur in the United States and China and what actions
are being taken, if any, to avoid it. First, the articles will be anal yzed and
summarized. Afterwards, a conclusion will be made encompassing all of the
articles and all the information gathered from them.
LITERATURE REVIEW
This literature review will make use of the definitions described above to
compare different articles regarding corruption in the United States and China
to better understand the differences and similarities between these two
countries and how to approach the problem should the reader encounter it.
United States
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The first article that will be reviewed is “Isolated Capital Cities,
Accountabilit y, and Corruption: Evidence from US States,” which indicates that
capitals of states are more associated with corruption, especiall y if they are
isolated cities, since there is a reduction of accountabilit y; there is less people
around who will inquire the government about its operations. Also, people from
cities further from state capitals are less interested in politics , less informed,
less likel y to vote in state elections. This leads the authors to believe that
spatial distribution might be linked to corruption. Usuall y, capitals are far from
large metropolitan areas and face less scrutiny fr om them. Even the media is
affected by the distance from the capital cit y. This is evident by the way
“newspapers give more coverage to state politics when their readership is more
concentrated around the capital cit y.” During state-related elections, “vot er
turnout is greater in counties that are closer to the state capital” (Campante,
Do. 2014).
Considering the finances of state capitals, it seems that isolated capital cities
spend less while achieving wor se outcomes on public services, and the media
does not do a good job in showing this, since “states with isolated capitals tend
to display lower levels of m edia coverage of state politics ” (Campante, Do.
2014).
By this point, the reader might wonder how capitals are determined to be
isolated or not. The authors of the article, Campante and Do, express that “what
matters most for the connection is how isolated the capital city is relative to the
geographical size of the state.” So a smaller state with require smaller distances
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from the capital to be conside red isolated, while a larger state will require its
capital to be further from other cities.
Individuals are not the onl y ones affected by the isolation of capital cities,
“firms located in counties that are farther from the capital spend less in
campaign contributions,” as do individuals.
The authors conclude that “isolated capital cities are significantl y correlated
with lower spending on public good provision, and with most spending on ite ms
not directl y related to it” (Campante, Do. 2014).
The second article reviewed, “American Hustle: Reflections on Abscam
and the Entrapment Defense,” talks about Abscam, as the tile suggests. From
1977 to 1980, Abscam led to the convictions of six United States
Representatives, one Senator, and over a dozen of additi onal politicians and
government employees. FBI agents posed as wealthy Arab Sheiks to incite
politicians into corrupt actions. Abscam resulted in public outrage since the
state, by enticing the crimes, may have entrapped the politicians.
The first recorded entrapment case in the United States, “ Woo Wai v. United
States,” occurred in 1915, when Woo Wai was persuaded to smuggle Chinese
citizens through the Mexican border into the United States by California
Immigration officials.
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During prohibition, governmen t agents initiated alcohol operations with the
intent to raid such operations and arrest the entrapped “perpetrators.”
Regarding Abscam, the courts and the public ended up tolerating it because it
“served” its purpose of eliminating a greater evil, which i s corruption of public
officials. Abscam resulted in the creation of the Civiletti Guidelines, which
formalized the procedures to be followed during undercover operations to
prevent an intrusive FBI. The Civiletti Guidelines later evolved into the Smith
Guidelines in 1983, then to the Thornburgh Guidelines in 1989, and finall y into
the Reno Guidelines in 2001, all extending protection of possible entrapment
victims by government agencies.
Matthew Kinskey, the author if this article, declares that “the best way to
protect citizens from overzealous law enforcement is for courts to full y utilize
their position to provide oversight, leadership, and guidance to encourage
prudent government conduct” (Kinskey. 2014).
The next article, “Corporate Influence and Pol itical Corruption,” talks
about the role of corporations as an influence for corruption on government
officials.
According to this article, “the role of money in politics and the influence of
corporations is much more limited than imagined by the conventio nal wisdom.
For many Americans, politics is an inherentl y corrupt activit y” (Mil yo. 2014).
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A very prominent activit y performed between corporations and political entities
is lobbying. “Campaign contributions and lobbying are often characterized as
corrupt. Privatel y financed political campaigns facilitate a market for political
favors. Lobbying and political contributions may have effects that are difficult
for researchers to observe and may provide large payoffs to firms that engage in
such activities” (Mi lyo. 2014).
During Jeffrey Mil yo’s research, he found that “Republican -connected firms
realized positive abnormal returns after the 2000 presidential election, whereas
Democrat-connected firms realized negative abnormal returns” (Mil yo. 2014).
One way politicians and corporations mutuall y benefit is when a politician has
knowledge of inside government information that a corporation might be
interested in knowing. “Politicians may profit from market -relevant inside
information about public policy. Politician s confer policy favors to personal
cronies in exchange for inside information and preferential business deals for
themselves, their families, and their friends” (Mil yo. 2014).
U.S. state spending is affected by corruption as well, as expressed in the
article “The Impact of Public Officials’ Corruption on the Size and Allocation
of U.S. State Spending.” This article declares that “self -interested public
officials are likel y to de sign and manipulate government institutions to
maximize budgets for their own private gain. Budgets of states with a higher
degree of corruption will become larger. Corruption may distort public resource
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allocation because of rent -seeking behavior among re lated agents. When
allocating public resources, corrupt officials favor sectors with greater rent,
higher secrecy, and less competitiveness. Corrupt public officials are likel y to
spend public resources on items for which it is easier to levy larger bribes ”
(Liu, Mikesell. 2014).
During the research performed to create this article, the author s surveyed
several individuals to find their perception of corporate -government corruption
and asked them which industry was more likel y to engage in corrupt actions
with the government. The result was that “the construction industry is
consistentl y marked as one of the most corrupt industries” (Liu, Mikesell.
2014).
Other factors are evident in states with higher levels of corruption. For
example, “total salaries and w ages of public employees are likel y to be higher
in states with higher levels of corruption.” Also, “states with a higher extent of
corruption tend to spend more on correction and police protection.” One
special, and very important public service affected by corrupt states is
education. “Total expenditures on education are likel y to decrease in states with
higher levels of public officials’ corruption.” But education is not the onl y
public service affected. “State government expenditures on public welfare,
health, and hospitals tend to be lower in states with higher degrees of
corruption” (Liu, Mikesell. 2014).
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The next article, “PACking a Punch: Political Action Committees and
Corruption,” investigates whether Political Action Committees (PACs) have an
influence over the levels of corporate -political corruption. In this article, it is
asked if “Political Action Committees (PACs) might resort to illegal means
such as bribery to further their agendas.” Some people believe that contributing
to PACs could be c onsidered a legitimate form of bribery . The sizes of both
government and population are extremely relevant determinants for corruption.
Therefore, the more PACs there are, the more corruption there is likel y to be.
Income is not relevant to corruption. All income levels can be involved in
corrupt acts, although they may not be similar in form.
PACs are related to all levels of government; all the way from local up to
federal. Corporation PACs are mostl y involved at the local and state levels of
corruption, since they would be easil y exposed at the federal level.
The results for this research show that PACs definitel y have an influence over
corruption, whether it is directl y or indirectl y. “PACs are positivel y associated
with corrupt activities,” and “judicia l employment is positivel y tied to
corruption” (Goel. 2014).
The judicial system of the United States is extremel y prone to corrupt and
to be corrupted, as seen in the article “The Jury and Participatory Democracy.”
This article demonstrates how, during civilian-government disputes, judges
could be bribed and often favor the government. It was also found that “the
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selection of jurors could be corrupt and the juro rs themselves could be bribed,”
and that “judicial elections present serious concerns about co rruption and lack
of independence; in part as a result of judicial reliance on donations” (Lahav.
2014).
During political campaigns, some donators do not simpl y contribute out
their support for their selected candidate. They expect something in return.
That’s what the next article, “Campaign Cash and Corruption: Honey in
Politics, Post -Citizens United,” talks mainl y about. When a situation presents
possible conflicts of interest, there are countless opportunities for corruption
and bribery to take place, and when people around such situation are unaware
of it, there is an even higher probabilit y that bribery a nd corruption will take
place. When public officials realize that here is nobody watching, they are more
probable to make use of the situation at the expense of the good of the public.
Many organizations have the support of politicians whom they have and s till
support. “Outside organizations are supposed to be independent but actuall y can
be closel y tied to specific candidates of elected officials.” In return for their
support, “organizations are able to accept contributions with essentiall y no
limits and n o prohibitions on resources” (Krumholz. 2013). Individuals and
organizations not publicl y known can have extensive influence on political
policies.
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A very brief article, but that describes very well the effects of corruption
scandals on congressmen is “S candals and Congressional Elections in the Post Watergate Era.” In this article, it is declared that congress -related corruption
can consist of obstruction of justice, conspiracy, influence peddling, and
bribery. “Corruption scandals appear to have the wor st effect on the
incumbent’s vote” (Basinger. 2013) making him or her lose the election and
possibl y any other opportunit y to recover their political career.
In 2010, the cit y of Bell, California was involved in a scandal where
public officials were givi ng themselves a salary more than 300 times larger than
it is usual for the same positions in other cities of about the same size. That is
the event “Lessons of Bell, California” talks about.
In 2005, public workers in Bell, California altered the electoral process in
which it would be decided whether Bell would become a charter cit y by
removing a clause from the ballots that specified that there would also be no
limit in the pay of council mem bers, although the election did include such
clause. The election passed and the result was that they were able to give
themselves ridiculousl y high salaries and other bonuses. Officials used portions
of the Home Rule Charter to benefit themselves while th e public remained
unknowing of it. The irony here is that Home Rule was actually create d to
prevent corruption.
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This case has been compared to corruption common in underdeveloped
countries, and some of the people involved come from Latin American countries
where corruption is a common practice. This comparison stems from the fact
that when the public is uninvolved and government can decide without public
input, corruption is likel y to occur.
These are all the articles reviewed for the United States portio n of this
paper. The next section will be about how corruption takes place in China and
how it is being dealt with.
China
In “Income Inequality, Fiscal Redistribution, and Governmental
Corruption: Evidence form Chinese Provincial Data,” one learns that o fficials
and individuals who make a profit from corruption tend to favor higher taxes
and more control regarding public projects.
Corruption creates huge gaps between incomes, making china a country with
high income inequality. Tax and spending further con tribute to income
inequalit y, and “as the expenditure increases, the tax becomes heavier, and then
the corruption becomes worse.” The result is that “a considerable portion of the
extra-budgetary revenues go directl y to the pockets of corrupt officials” (M i;
Liu. 2014).
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China is one of the countries with a severe case of corruption. Corruption in
China consists of both individuals and groups. Collective corruption has been
increasing year after year, and it has spread to the judicial authorit y, personnel
departments, law enforcement authorit y, general economic management,
education, and other government leading organs. “Corruption had an adverse
impact on Chinese economic development and brought about a certain amount
of economic losses” (Mi; Liu. 2014).
Even though China has been economically improving, corruption has been
increasing. Public services are not being performed without malice , “there are a
large number of order apertures or system vulnerabilities that can breed
corruption.” Rich groups and indiv iduals constantl y block policies that might
benefit the poor.
Corruption in China is not proportional to the size of government. The rich
have more motivation and opportunit y to be involved in corrupt acts, while the
poor are more easil y extorted and power less enough to have to accept
corruption. Individuals with lower income are more probable to offer bribes to
be able to access different public services. Income inequalit y causes corruption,
and corruption causes further income inequalit y. “Corruption exis ts in
government expenditure. Corrupt officials may spend more public resources on
the public projects that facilitate their confidential corruption. Policies that
reduce corruption will most likel y reduce income inequalit y and povert y as
well” (Mi; Liu. 2014).
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Not onl y does corruption create income inequalit y, it also affects all public
services. Education spending is reduced by corruption, for example. For
citizens, the tradeoff of corruption in exchange of welfare is not appropriate.
In addition to the situations described above, “corruption also exists in tax
collection.” As tax rates increase, tax revenue decreases due to corruption and
tax evasion. “Corruption is similar to a regressive tax, it does more in
punishing the poor than i t does the rich” (Mi; Liu. 2014). To reduce corruption,
spending and taxing must also be reduced. People who do not engage in corrupt
activities have higher tax expenditures. Not onl y metropolitan areas are
afflicted from this, neighboring provinces have s imilar corruption rates.
The next article, “C hina’s Strategic Censorship,” talks about government
control over media reporting. Government controls the quantity of investigation
for reporting purposes, leaving many local issues unattended and hidden from
the public. “The risk of being exposed in the media acts to check corruption by
local officials.” Unless the levels of corruption are too high, the government
will try to keep local reporting to a minimum.
When the econom y is thriving, corruption is not p erceived as negativel y as
when there are high social tensions. If the quantit y of investigative reports
increases, there is a higher probabilit y that a public official who engages in
corrupt acts will be exposed. When the public has a high level of discont ent,
government will allow an almost unlimited amount of investigative reports
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where corrupt officials might be exposed. Although the government tries to
keep the public uninformed about people’s discontent, they must allow some
information to leak when re ports on corruption are published, since they also
want to keep corruption levels to a minimum. If there are high levels of tension
within the societ y, but corruption is not a major issue, the government will
restrict investigative reports, but if corrupti on is a major issue, then they will
allow reporting to take place.
The government has also placed restrictions for what officials spend
public funds on, forbidding them from purchasing expensive, unnecessary, or
foreign products, as can be read in “China ’s Crackdown on Corruption and
Government Spending: A Timeline.” According to this article, there have been
several recentl y passed rules that prohibit public officials from using luxury
cars, as well as limiting official dinners and other galas, and elimi nates
extravagant gifts for officials, along with other privileges that they have
enjoyed in the past. “The regulations have allowed the Xi administration to
single out officials for punishment, starting at the local level and moving up the
ranks of part y hierarchy” (Donovan. 2014). Bans allow every single official to
be vulnerable to crackdowns, from the lowest to the highest levels.
The restrictions placed are many, and more than helping combat corruption,
they help boost the Chinese econom y, since many o f the product that were
banned must now be replaced by similar ones made in China. Several brands of
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foreign luxury vehicles can no longer receive police or military license plates,
the Chinese arm y can no longer purchase foreign brands of cars, public fun ds
can no longer be used for galas or dinners, and some t ypes of outlandish food
have been prohibited in these events, as well as expensive brands of liquors and
cigarettes, and public funds have been restricted with regard to travel expenses.
“Such action-oriented policies against corruption and spending are likel y to
have a positive effect on the Chinese public’s perception of governance, but an
adverse effect in the global market for luxury goods” (Donovan. 2014). High end services and products, such as hotels, have experienced a considerable
downfall in the amount of services provided, and consequentl y in earnings and
profit.
Corruption in China does not onl y involve the government and some
other part y, business -to-business corruption is a major concer n as well, as
discussed in “The Dark Side of Business with Chinese Characteristics.” In
China, corruption between businesses is as illegal as corruption with
government involvement, although business -to-business corruption is not seen
as negativel y as government corruption by the public.
The article discusses a theory that dictates that if corporate corruption spreads
within a societ y, it will create a culture of corruption and it will spread to the
government as well. Since China owns a considerable amount of enterprises,
there is an unclear dividing line between corporate and government corruption.
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Most of the bribery that occurs is between businesses instead of it being
between businesses and government officials, and most of the people involved
in business corruption are not government officials. Government officials and
business agents engage in different t ypes of corruption, among those are
embezzlement, bribery, and insider trading. Commercial corruption is made up
of networks of commercial a gents and government officials.
The result of corporate corruption is that if a company engages in corrupt acts,
other companies will also engage in corruption in order to not be left behind.
Especiall y since bribes provide great ROIs for businesses. The fact is tha t
corruption is profitable and financiall y worth the risk. “It has long been
obvious that the business sector plays a major role in public corruption”
(Wedeman. 2014).
Private parties can be a major creator of public corruption, and government
officials are suppliers of corruption because there is demand by the private
parties. If official corruption is to be attacked, first, private corruption should
be attacked.
In China, “corruption worsened as growth prospered.” This quote
describes the main focus of “Developmental Corruption in China,” the next
article reviewed.
There are two t ypes of corruption, degenerative and developmental.
Degenerative corruption occurs when public welfare and the econom y
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degenerates due to corrupt actions. On the other hand, dev elopmental
corruption occurs when there is economic growth and politicians are funded and
rewarded by companies to keep them in power to continue with their policies
that favor growth.
In China, corruption boomed when the econom y started to be more market based. “Marketized reform was the engine propelling both growth and
corruption” (Wolf. 2013).
A perpetrator will measure his expectation of the outcomes from engaging or
not engaging in corrupt acts and will decide based on the expected payoff and
consequences of each choice. Consequences for corruption in China are much
more severe than in the U.S. Potential corrupt situations must be overseen by an
uncorrupted and independent institution in order to discourage possible
perpetrators.
An important aspect of corruption is how it is perceived by the common
citizen. A survey was made to write the article “Perception of Corruption in 36
Major Chinese Cities: Based on Survey of 1,642 Experts” in which people who
are familiar with corruption and its effects were asked about what they believed
was the perception of corruption among citizens. The survey discovered that for
the public, corruption that reall y matters is the one that occurs at a local level.
Coincidentall y, the majorit y of corruption cases occur in lo cal areas.
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Corruption and efforts to eradicate corruption in Chinese cities have a
significant impact on the economic and political development of China, as well
as individuals’ day-t o-day life. Onl y an extremel y low percentage of all corrupt
acts become public knowledge.
Of all the sectors that are related to corruption, construction is the one with
most corrupt actions. Corruption in courts and police departments is of high
concern for citizens. The media provides an important share of information
regarding anti-corruption to citizens.
A public official will mainl y determine whether to engage in a corrupt act or
not by the probability of an investigation and consequent conviction against
them. Because of corruption, honest individuals lose an unfair compet ition, and
individuals who engage in corrupt acts have higher probabilities of prevailing.
The last article reviewed, “Economic Freedom, Economic Growth, and
China,” which is very short, describes some of the effects of corruption in
China. This article explains that “corruption erodes economic freedom by
introducing insecurity and uncertaint y into economic relationships,” and that it
is “perceived as widespread in China” (Wu. 2011). Industries heavil y affected
by corruption are construction, banking, gov ernment procurement and finance.
There appears to be a deficiency of courts and independent investigative bodies.
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CONCLUSION
Through this literature review we were able to see that corruption is not
exclusive of a single country; it’s not even exclusive of a single culture.
Corruption is worldwide and every single person in the world has a propensit y
to engage in it. This leads to the conclusion that corruption is inherent of the
human nature. It is part of the so -called “survival of the fittest;” those w ho
trul y want to get ahead, find the means necessary to do so, even if it means
bending or breaking a few man -imposed rules. Having said this, it would be
quite safe to assume that corruption is unavoidable and indestructible, but not
uncontrollable.
Corruption should be controlled to a certain extent, but should never be tried to
eliminate. The reason behind this is that corruption, although detrimental to
some, creates a higher probabilit y of the “perpetrator” to grow, most probabl y
economicall y. Thi s growth will quite unavoidabl y be passed on to other people
who receive the benefits gained by the “perpetrator” in exchange for products
or services, making the original corruption gains to be eventuall y returned to
societ y.
Let’s take, for example, gove rnments where elected officials decide to increase
the infrastructure of their cities with the sole purpose of deviating some public
funds into their own and their friends’ pockets. Yes, societ y’s money is being
“stolen,” but a large part of it will be spe nt in construction workers’ salaries
and in products which will be purchased from specialized factories were other
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employees work. All this money will be returned to the society from which it
was taken, maybe not in its entiret y, but jobs are being provide d for those who
need it, and the unemployment rates will be lowered.
Another example, with a different situation, is the one that led to the extensive
growth of the cit y of Las Vegas, Nevada. It is no secret that what once was a
small, insignificant town b ecame a huge and fruitful cit y thanks to the
involvement of organized crime. Thousands, if not millions of people have
enjoyed the benefits that have come from the investments made into this cit y,
which came directl y from illegal sources, and the same thin g can be said about
Atlantic Cit y.
So far, the examples have been regarding the United States, but China has also
greatl y benefited from corruption. China is internationall y famous for being the
“capital of brand piracy.” Brand piracy is a multi -billion dollar business in
China. Whether it is movies, music, clothes, electronics or even perfumes , it is
extremel y easy to find a knockoff product of a famous name brand, and China’s
econom y thrived from selling these products worldwide. Affected brands have
tried to persuade the Chinese government to stop those engage in piracy, but
have not been successful. The Chinese government is not even trying hard
enough to stop them, the reason being that if they do, billions of dollars would
stop being dumped into their econom y. China also engages in other forms of
corruption including intellectual propert y theft and industrial espionage,
benefiting even further. It is a fact that China is growing so fast, that it will
most probabl y be the next superpower, and corruption has definitel y helped.
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The truth is that corruption works. It makes things flow easier and faster, and
the gains can be enjoyed by everyone who even has an indirect involvement in
the situation. The benefits are never completel y kept by the “perpetrator,” they
are passed on.
SUGGESTION FOR FUTURE RESEARCH
In the conclusion it was said that corruption is useful for helping societ y
prosper and grow and some examples of such situations were provided. Through
the literature review, it was noted that big, wealthy cities have a high degree of
corruption. Therefore, it is of the author’s belief that future research should
involve an investigatio n of what effects total corruption eradication would have
on societ y and how a cit y, state or country would be economicall y impacted by
it and researchers can look to the work of Carraher and colleagues (1991 to
present) for suggestions of factors to exami ne in relation to corrupation .
Advantages and disadvantages should be carefull y examined and weighed in
order to determine whether corruption should be tolerated or if it should be
eliminated from societ y.
July 1-2, 2015
Cambridge, UK
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2015 Cambridge Business & Economics Conference
ISBN : 9780974211428
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