Corrupt and Unequal

NEW YORK – The stunning fall from grace and power of the Chinese politician Bo Xilai, and the continuing revelations concerning the enormous wealth that he and his family illicitly amassed, has gripped the world’s attention. Bo’s case exemplifies what many in China believe to be endemic corruption among officials, and highlights the widening divide between ordinary people and those with political connections. But the easy coexistence of rising corruption and growing inequality can be seen throughout the region.

I saw it myself one evening in 2008. While navigating my motorbike through Ho Chi Minh City’s thick traffic, I was quickly overtaken by a black Bentley, horn blazing, lights flashing, and sporting red “ngoai giao” diplomatic plates. I didn’t, and still don’t, know any diplomats with the means to purchase a Bentley. As Vietnam’s Youth Newspaper reported in 2010, there is an underground market for diplomatic license plates: for about $20,000, the purchaser can avoid tens, even hundreds, of thousands of dollars in customs duties. Diplomats in Vietnam were using their tax-free status to import vehicles on behalf of wealthy Vietnamese buyers, or selling their license plates at the end of their postings.

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While this year’s Asian Development Outlook 2012, published by the Asian Development Bank (ADB), recognizes “swelling income disparities” in the region, there is almost no mention of persistent corruption, particularly in Southeast Asia. Of course, corruption is not unique to the region; but six of the ten members of the Association of Southeast Asian Nations ranked in the bottom half of Transparency International’s annual Corruption Perceptions index.

Corruption is a more important factor in rising economic inequality than the ADB recognizes, and undermines programs aimed at closing gaps between the region’s wealthiest and its poor. Increased spending on social programs, as suggested in the ADB report, will not succeed if officials are syphoning state funds for personal gain.

A report published last year by the International Monetary Fund provides evidence that “high and rising corruption increases inequality and poverty, including by reducing the progressivity of the tax system, the level and effectiveness of social spending, and the formation of human capital.” Governments, with the support of the international community and multilateral institutions, would benefit from increased stability, and increased investment, by cleaning up their acts.

In a region where official salaries tend to be very low, government employees at all levels have been found to leverage positions of authority for personal gain. In Cambodia, for example, a United Nations agency found in 2004 that salaries of public employees, at just $28 per month, were “below subsistence levels,” thus creating “incentives for corruption” among low-ranking officials, as well as in the judiciary and at the highest levels of the political hierarchy.

Nowadays, however, the risks to political stability as a result of government corruption are considerable, given the prying digital eyes of citizen journalists. The Chinese Web site Boxun was established to publish reports critical of the Chinese government and largely banned in the Chinese media. Similar Web sites are flourishing across Southeast Asia, raising awareness about corrupt practices.

The ADB recognizes “the importance of the middle class for stability and growth.” But, in an unstable global economic environment, the failure of a few Southeast Asian states to take meaningful action toward cleaning up graft could be a trigger for larger political unrest.

The UN Development Program warned in a 2008 report that, “Many democratic regimes have been overthrown because elected governments failed not only to deliver results; they abused their offices for securing private gains.”

Southeast Asia in recent decades has shown, and continues to show, remarkably steady growth and achievement. Not all officials are corrupt – far from it. But the region’s achievements will not be sustained if states fail to create institutions capable of holding government employees accountable for professional integrity.

When all levels of government are complicit, corruption is a much more challenging phenomenon to combat, and malaise permeates all aspects of society, including tax discipline and trust in official justice. It is therefore important that multilateral institutions like the ADB do not shy away from it.

Illegally imported luxury cars in Vietnam are only a small part of the corruption scourge in Asia. Nevertheless, such opulent criminality, in a country where average annual per capita income is roughly $1,100, may well help to fuel popular outrage, instability, and unrest. Indeed, fear of a similar dynamic is evident in Chinese officials’ response to the Bo scandal.

Anti-corruption efforts – whether directed at political bosses, officials who turn a blind eye to customs violations, or local traffic cops accepting a few dollars for an infraction – should figure centrally in the region’s strategy for mitigating inequality. Otherwise, the distribution of income, wealth, and opportunities in the region will continue to worsen, with social and political repercussions that could be difficult to contain.

Read more from our “China’s Scandalous Politics” Focal Point.