Guest Post: Michael Goldfarb, The Latest From China

22Apr10

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At the beginning of the term here, in each of my classes I attempted to elucidate from my students what it is, specifically, they wanted to learn. The most interesting response I received, from the class of teachers who I teach, was, “Can you teach us about tipping?” Tipping in China is all but non-existent; multiple sources have told me it is actually illegal for taxi drivers to accept cash in excess of the metered fare, unless a prearranged agreement was made. In this context, one can imagine the perplexed looks staring back at me as I attempted to explain that, in the restaurant setting alone, the waiter is the primary recipient of a gratuity, but one must not forget the dashing bartender who splashed a tad extra vodka in our martini, the coat check who so gracefully placed our beloved parka on a hanger and the valet who masterfully avoided major body damage to our BMW as he drove it twelve feet to the parking lot. Even someone like myself, born and raised in the tipping capital of the world (New York), is flabbergasted at the barrage of tip requests (demands?) thrown at Americans. An employee of an ice cream parlor back home seemed irate when I questioned, “For what am I tipping?” They briskly responded, “For serving your ice cream.” Silly me, I thought that was what their wage was for. Nonetheless we have come to accept tips as a commonplace occurrence and, I would argue, they oft serve a valuable incentivizing function. Perhaps I cannot prove it, but I firmly believe Chinese waiters are less concerned with masking their cantankerous frowns because their earnings are static.

The seemingly tangential ramblings about transcontinental tipping differences leads to a recent BBC article highlighting what is otherwise the world’s largest city that no one in the West has ever heard of, Chongqing (http://news.bbc.co.uk/2/hi/asia-pacific/8607900.stm). Tipping’s sinister stepbrother, bribery, in all its guises, has had, for the last decade, not only a foothold, but a summer villa and a waterside condo here. Chongqing has been the Sino Sicily with racketeering, laundering, gambling and so on. For most Americans, their view of China is not the Godfather IV with Mr. Hu calling a meeting of the great Wang, Tang, and Heng families over grandma’s homemade Kung Pao Chicken and Sweet and Sour Cabbage. Yet one of Chongqing’s all-time greatest politicians, Mr. Bo Xi Lai, has uncovered exactly that. The BBC article is an excellent first foray for the uninitiated reader.

Corruption has been, throughout China, not only in CQ, far more endemic, immensely more all-encompassing, than its connection to organized crime would betray. From food regulators who turn a blind eye to permit officers who turn a deaf ear, tea money is the lubrication that makes the Chinese cogs turn. While the lay workers are irate that the wealthy political aristocracy accumulates while hard-earned tax dollars are ameliorated, it is common practice in many walks of life to keep one hand under the table at all times. I speak in vague, generalized terms because the intricacies of the situation are poorly understood, even locally, and providing a single image of the issue would likely distort the mural that is its entirety. The reader will have to take a leap of faith, or perform a single Google search, to accept that this is, in fact, the situation on the ground here.

I’m here to argue the unpopular position that corruption may not be so bad after all. Not that all corruption is good all the time (interesting research has been done on the specific characteristics of corruption that make it “ideal,” [links will be provided when available]), but that sometimes it is the lesser evil. As in any debate it is of paramount importance that we remember what the alternatives are. For example, child labor is bad, but, to the chagrin of many, I proffer that it is necessary, given the alternative of child starvation. Where corruption ceases in China, bureaucracy begins. I’m not talking about lining up at the DMV and waiting until pigs fly to renew your driver’s license bureaucracy, I’m talking the mother of all bureaucracies. My (American) girlfriend had an experience in Beijing recently where she lost her passport. If taxis issued frequent flier miles, she could drive home to New York for free. There were the five police stations in two different cities, two visa offices, one hotel, one embassy. She was four slays a sledding away from a Twelve Days of Christmas remix. She gladly would have traded a few extra yuan for a little less yawn in the process.

I firmly believe that business in China would have a similar attitude. Well-organized corruption, as in corruption where the parties being bought are able to provide credible commitments that other players will not engage in similar rent-seeking, can smooth processes in the same way tipping does back home. People have incentives to work more efficiently, provide clearer answers and generally ensure that their “customers” are satisfied when they have a direct financial stake in the outcome. A business who gets the building permit it needs this time will likely come back again, bearing additional gifts for the permit official of course; if the process proves cumbersome or unsuccessful, the bribe will be unjustifiable and the official will be circumvented.

As policymakers, business decision makers, intellectuals, writers or just concerned citizens, we must determine which is more crucial to stamp out: corruption or inefficiency. Mr. Bo deserves all the high praise he has received for rooting out the Chongqing underworld. Much of it brought gambling, drugs, laundering and violence. But he, as with all other leaders, must decide where to target his wrath. I am suggesting that he, and those similarly situated, and those who apply pressure to him and his peers, tread carefully around officials whose sole misdeed is pocket lining. They may be the only ones getting things done.

On unrelated notes:

My favorite student quote of the week: “Do you think President Obama is pushing the Toyota and Goldman Sachs stories so that he can pass the policies he wants?” Maybe my students are more insightful than I thought.

Speaking of GS, while everyone is rightly concerned with the reputation hit they have taken in the US, let us not forget the pedestal from which they fell. There has been no question that Goldman is the king of Wall Street, and so even a hit like this may be too little to bring them down to even on par with the competition. But overseas, like in China, a Goldman managing director is not a deity. The Goldman name is nearly synonymous for many with JPMorgan or Citi, and so reputation damage like this can have a significant effect indeed.

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