Corruption and Market in Contemporary China 9781501729980

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CORRUPTION AND MARKET IN CONTEMPORARY CHINA

CORRUPTION AND MARKET IN CONTEMPORARY CHINA

YANSUN

CORNELL U NIV ERSITY PRESS

Ith aca a nd Lond o n

Copyright © 2004 by Cornell University All rights reserved. Except for brief quotations in a review, this book, or parts thereof, must not be reproduced in any form without permission in writing from the publisher. For information, address Cornell University Press, Sage House, 512 East State Street, Ithaca, New York 14850. First published 2004 by Cornell University Press First printing, Cornell Paperbacks, 2004 Printed in the United States of America Library of Congress Cataloging-in-Publication Data Sun,Yan, 1959Corruption and market in contemporary China /Yan Sun. p.cm. Includes bibliographical references and index. ISBN 0-8014-4284-2 (cloth: alk. paper)- ISBN 0-8014-8942-3 (pbk. alk. paper) I. Political corruption-China. I. Title. JQ1509.5.C6S88 2004 364.1 '323'0951-dc22 2004007180 Cornell University Press strives to use environmentally responsible suppliers and materials to the fullest extent possible in the publishing of its books. Such materials include vegetable-based, low-VOC inks and acid-free papers that are recycled, totally chlorine-free, or partly composed of non wood fibers. For further information, visit our website at www.cornellpress.cornell.edu. Cloth printing Paperback printing

10 9 8 7 6 54 3 2 1098765432

For Ben, Kenny, and Gang and For my parents

CONTENTS

List of Tables and Figures

IX

Preface

XI

List if Abbreviations

XV

Introduction: The Transition to the Market and Corruption 1. The Phenomenology ofReform-era Corruption: Categories, Distribution, and Perpetrators

26

2. Between Officials and Citizens: Transaction Types of Corruption

53

3. Between Officials and the Public Coffer: Nontransaction Types of Corruption

87

4. Between the State and Localities:The Regional Dynamics of Corruption

120

5. Between the State and Officials:The Decline of Disincentives against Corruption

158

6. Conclusion: The Transition to the Market and Post-Socialist Corruption

192

Appendixes 1. Casebooks Used

217

2. List ofPeriodicals Digested

219

viii

Contents

3. List ofWorst Construction Failures

223

4. List of Worst Office Sellers

225

5. List of Fallen Gamblers

227

Chinese Language Bibliography

229

English Language Bibliography

233

Index

241

TABLES AND FIGURES

TABLES

1.1

Topology of Chinese corruption

36

1.2 Top three categories among all prosecuted economic cnme cases

39

1.3 Distribution of corruption types over two reform periods

39

1.4

Prosecuted bribery cases nationwide, 1988 and 1989

43

1.5

Distribution of offenders among "three plus one" agencies nationwide, 1993-1997

44

1.6 Distribution of offenders among "three plus one" agencies and public firms: fourteen provinces

45

1.7

Five-year trends in the discipline ofParty members

47

1.8

Nationwide trends in the discipline of corrupt officials

47

1. 9

Highest ranking corrupt officials since reform, pre-1992

49

1.10 Highest ranking corrupt officials, post-1992 2.1 2.2 3.1

50

List of bribe givers to Xue Shangli, CEO of Shanghai No.2 Refrigerator Plant

78

List of bribe givers to Li Chenghong, mayor ofYuling City, Guangxi Autonomous Region

83

Largest prosecuted cases of top-three categories, nationwide

89

FIGURE

1.1

Percent of embezzlement and bribery versus all economic crimes

42

PREFACE

The Tiananmen Protests of 1989 first drew me to the issue of corruption. Traveling in several Chinese cities that summer, including Beijing, I learned firsthand that most public grievances were directed at the rise of official corruption since urban reforms in 1984. Foreign media talked a lot about a prodemocracy movement, but my observations and conversations left me in no doubt that corruption was the rallying point for the citizens. Two years later, I published my first professional article, "The Tiananmen Protests of 1989: The Key Issue of Corruption" in Asian Survey. At that time, "corruption" mainly referred to profiteering by the children of well-placed officials-buying low from the state plan and selling high in the market. This type of corruption subsided with the end of central planning in 1992. I returned to China for another extended summer in 1995, and corruption was again the topic of the country. Beijing's deputy mayor committed suicide in the spring amid panic over investigations into his and his aides' abuses. The mayor, Chen Xi tong, resigned over related scandals, and both he and his son were eventually convicted. A mere three years after the launch of full transition to the market, it seemed, corruption was returning with a vengeance. With corruption as a research topic in mind, I visited the library and bookstores of a local law school. There I encountered many books, textbooks, legal documents, and casebooks on corruption. I was fascinated by a rich reservoir of sources to which I could have such easy access. On the law school campus, I talked to some faculty members about the issue, among them the author of one of the casebooks that I would later use for this study. From there, my experience with the corruption and anticorruption realities of China grew into this book. I have been frequently asked, by those unfamiliar with China as well as

xii

Preface

some of those who know the country, "Aren't you afraid of getting into trouble? Isn't it dangerous to look for and sneak out the materials?" Such questions are asked with particular earnestness when alleged cases of espionage capture the headlines. Yet the sources I use are not classified or sensitive material: they can be found in law schools, libraries, bookstores, and party offices, to which every Chinese can have access. The only time I ran into a little trouble had to do with Henry Wu, the so-called human rights activist based at the Hoover Institution. During the summer of 1995, Wu was arrested in China for sneaking into prisons and hospitals and fabricating evidence for his foreign-funded programs. His use of false identities and his covert activities were widely reported in the Chinese media. I began to worry a little, not about my own safety, but about whether the law school librarians who welcomed me every day would become apprehensive about the real nature of my research. Luckily those young women seemed apolitical and did not pay attention to that sort of news. Things went smoothly until one morning I went to the local branch of the CCP's Disciplinary Inspection Commission (DIC), the party's main instrument against corruption. On learning of my research interests, two officials in the documents office were warm and supportive, allowing me to photocopy materials and purchase their publications. Encouraged by their openness and friendliness, I left my business card with them. Apparently they did not recollect Henry Wu's story at that particular moment. They sent me off warmly and promised to answer any further questions I might have. I headed off downtown for more bookstores. Returning to my parents' residence, I found the two DIC officials anxiously waiting for me. They wanted me to return all their materials to them, worrying that if something like the Henry Wu incident were to happen, they-not I -would be in serious trouble. In fact, they had arrived at my parents' place soon after I had left their office, even calling the DIC office on my parents' college campus to make sure there was nothing in my family's background that would produce a treacherous daughter. It was apparent that they were concerned, not about any damage I might bring to China by exposing its dark side, but by damage I might do to their careers. Since this was the mid-1990s, when Chinese citizens no longer feared political repercussions, my parents asked if they, as local residents, could purchase the same materials. The answer was affirmative: if my parents then passed those materials to me, the matter was not their official responsibility, and so it did not concern them. Unflappable, my father went back to the DIC office a few days later and got the same materials from the same two individuals. I have been subscribing to the monthly digest published by that office ever since. This journal, titled Dangfeng Lianzheng Wenzhai before 1999

Preface

xiii

and Dangfeng Lianzheng thereafter, is my single most important source. For the record, I have never had any trouble carrying these and other materials in and out of China. They are openly published materials, and it is not unlawful to take them out of the country. I have many colleagues and friends to thank for the development and maturation of the project. My chairwoman Patricia Rachal helped arrange time and latitude for me to carry out the research. My colleague Andrew Hacker gave me the idea that I should not use abstract theories and models but real stories to convey a concrete sense of what corruption is really like in China. He read various drafts during the course of my writing. My colleague Lenny Markovitz's unfailing faith kept me going, and I value all the intellectual and moral support he has given me along the way. Donald Zagoria, my colleague from another CUNY campus, has been a reliable source of advice and encouragement since we finally met in the spring of2003. My chairwoman at CUNY Graduate Center, Ruth O'Brien, gave me advice on the politics and mechanics of publishing, and offered moral support. Alvin So, at Hong Kong University of Science and Technology, and James Tang, at Hong Kong University, provided generous support while in Hong Kong. He Gaochao, formerly at Hong Kong University of Science and Technology, offered fruitful discussions and insightful comments. I am deeply indebted to Minxin Pei, who offered generous advice and encouragement whenever I needed it. I am equally grateful to a few ofhis former colleagues at Princeton University, especially Lynn White III and Gil Rozman, who both attended a seminar where I presented a very early version of this project. Professor White provided many helpful comments on my manuscript, and his suggestions were indispensable in my revision of the introductory chapter. I also benefited from comments from members of the Modern China Seminar at the East Asian Institute, Columbia University, where I presented an early version of chapter 2. Andrew Nathan and Tom Bernstein at EAI provided challenging insights, inspiration, and gracious advice over the course of my manuscript preparation. In particular, Professor Bernstein's suggestion regarding state capacities, along with Elizabeth Remick's concerning disincentives, resulted in chapter 6 here. Professor Remick's comments also helped me to think more clearly about the relationship between corruption and the economic reform process. Kellee Tsai's comments helped me to sharpen the analytical framework of the book as well as to strengthen the organization and presentation of the introductory chapter. A special word of thanks is reserved for Roger Haydon, my editor at Cornell University Press. Roger appreciated the importance of the topic from the beginning and has remained enthusiastic about the manuscript through-

xiv

Preface

out the strenuous process of reviews, revisions, and editorial work. I have benefited greatly from his interest, enthusiasm, efficiency, and great editorial skills. To all of the aforementioned people, I express my deep gratitude: they deserve whatever credit this book may get, whereas I own its faults and errors. For research support, I thank the Research Foundation of the City University of New York for three research grants for the project; a Presidential Research Award from CUNY Queens College; and a faculty research mentaring fellowship from the college.JianmingYang andWaiYan Ng, along with several other students involved in the mentoring fellowship, provided research assistance. I also express appreciation to the University Seminars at Columbia University for their help in publishing this book. Material in this work was presented at the University Seminar on Modern China. To Ben, Kenny, and Gang I am grateful for their putting up with my hours in front of the computer. My children almost think being a professor is a cool profession, since I get to sit so much in front of the screen while they are allocated only limited amounts of computer time. A final word about translation matters. Since I use such an abundance of Chinese sources, I give the titles of Chinese articles in English. Only Chinese book titles appear in both Pinyin and English translation. Nor are Chinese articles referenced in the bibliography. Though many of the articles come from the monthly digest, Dangfcng Lianzheng Wenzhai, they were originally published in a wide range of national and regional periodicals. Space does not allow me to identifY the original publication in which each first appeared. Rather, a list of periodicals from which the articles were digested is provided in Appendix 2, along with English translation. The Chinese currency values frequently cited in this book should be understood in the context of not only the exchange rate but also the average income and purchase power parity. China's official exchange rate prior to 1994 was $1 to Y5.75 and still lower in the early 1980s, but the black market rate could go as high as $1 toY10-12 in the early 1990s.The yuan has been pegged to the dollar at $1 to Y8.28 since 1994, and the black market for the dollar has also subsided since. When converted to the dollar, a bribe of Y10,000 may not look extraordinary at first-about $1250. But given that the annual income averages between YS,OOO-Y16,000 ($1 ,000-$2,000) in urban China, the bribe then amounts to the entire annual salary of an average Chinese. Added to the factor of purchase power parity, Y10,000 feels more like $10,000 in actual value in the Chinese context. YAN SuN New York City and Barrington, Rhode Island

ABBREVIATIONS

ICMB

Industry and Commerce Management Bureaus

CCPDIC

Chinese Communist Party Discipline Inspection Commission

DIC

Discipline Inspection Commission

DFLZ

Dangfeng Lianzheng (Party Ethics and Government Integrity)

DFLZWZ

Dangfeng Lianzheng Wenzhai (Digest of Party Ethics and Government Integrity

RMRB

Renmin Ribao (People's Daily)

PC

People's Congress

PCC

Political Consultative Conference

PPC

Provincial People's Congress

PPCC

Provincial Political Consultative Conference

SEZ

Special Economic Zone

SOE

State-owned enterprise

TVE

Township and village enterprise

CORRUPTION AND MARKET IN CONTEMPORARY CHINA

INTRODUCTION The Transition to the Market and Corruption

"For thFe past several years, wealthy Chinese officials, businessmen, bookies and gangsters have been cutting a golden path to the casinos of Las Vegas, losing vast sums of money, much of it not theirs. Their exploits combine capitalist-style excesses of the rich and famous with post-Communist sleaze, and Vegas's glitter with China's ancient fascination with gaming, while reflecting China's mind-boggling corruption and its record-breaking economic growth." 1 On first look, most readers would find it hard to believe that this Washington Post report, dated March 26, 2002, was talking about mainland China. There, in a land that Westerners still frequently refer to as a Communist country, gambling houses of the world have opened offices to attract and serve big clients. As the Post report continued, "Starting several years ago, the MGM Grand, Harrah's, the Venetian, Caesars Palace and the Stratosphere, among others, opened offices in China or began dispatching representatives to China to organize groups of high-stakes gamblers. Casinos from South Korea, the Philippines, Australia and North Korea have followed suit." Fast becoming the gambling world's leading source of growth, "high rollers from China and the amount they are willing to gamble have captured the imaginations of Vegas's gambling industry." Many of those "fat cats" are gov1 John Pomfret, "China's High Rollers Find a Seat at Table-in Vegas-Wealthy Aren't Afraid to Blow Millions, Especially When the Money Isn't Theirs," WaslzinRton Post, March 26, 2002.

2

Corruption and Market in Contemporary China

ernment officials and CEOs of state firms who have embezzled public funds and taken huge bribes, or business people who have acquired huge wealth through smuggling, tax evasion, or other dubious activities. Like other former socialist economies that have undergone monumental transition, post-Mao China has experienced unprecedented levels of corruption. Almost every public opinion survey since the late 1980s has shown corruption to be the top concern among the general public. It was this very issue, rather than democratization per se, that contributed to the widespread social roots of the Tiananmen protest movement of 1989. More than a decade later, corruption has not been tamed by greater economic liberalization. Rather, it has grown routine and more severe in character, scope, and scale. In Chinese popular perceptions, there were more honest officials than dishonest ones in the first decade of reform (1980s), but the reverse may hold true in the second. One folk saying vividly illustrates how the public views the problem: "If the Party executes every official for corruption, it will overdo a little; but if the Party executes every other official for corruption, it cannot go wrong." Bribe taking has become such an accustomed practice that in one poor county, the party secretary received repeated death threats for rejecting Y600,000 in bribes during his tenure from 1999 to 2001. He had to be promoted to a different location against his will. 2 In another region with officially impoverished counties, a delegation of the UN Food and Agriculture Organization arrived for a local conference on development. On seeing rows of imported luxury cars at the conference site, they reputedly asked, "Are you really poor?" 3 The outbreak ofSARS in the spring of2003 inspired scathing political humor that again underscored the extent of cadre abuse:"Lavish dining and wining, the Party cannot cure it, SARS did it. Public funded sightseeing, the Party cannot cure it, SARS did it. A sea of documents and meetings, the Party cannot cure it, SARS did it. Deceiving those above and cheating those below, the Party cannot cure it, SARS did it. Frequenting prostitutes, the Party cannot cure it, SARS did it!" The evolution and character of cadre abuse under China's market reforms since 1978 is the subject of this book. The meaning of corruption is a complex and contested one. Some conceptions emphasize "public office" and "legalistic" criteria, defining corruption as deviation from the duties of the public office and the confines of the law.Yet such criteria suffer from problems of identifYing clear roles and rules, while leaving little room for the richness and subtlety of cultural and social settings. Other conceptions emphasize "public interest" and "public opinion" factors, defining corruption as deviation from public interests and public 2 Wu Xiaofeng and Jiang Niao, "Repeated Threats against a County Party Secretary Who DeclinedY600,000 in Bribes," DFLZ 8 (2001): 38-40. 3 "The Hot Waves of Automobiles," DFLZWZ 7 (1994): 9-10.

Introduction

3

opinions. But such definitions suffer from imprecision and political maneuverability. For societies in transition, in particular, corruption is often a politically contested or unresolved concept, further complicating the matter. 4 In the Chinese context, those who favor effective enforcement and market efficiency prefer a narrow definition, limiting it to the core element of "abuse of the public office." 5 Those who favor tough enforcement and party discipline, on the other hand, endorse a broad concept, one covering not only public office but also public interest and public opinion factors. 6 Even different regions have different conceptions of corruption, depending on local policy conditions and experience.As one Chinese folk saying dramatizes:"A model worker in Guangdong may be a criminal in Shanghai, a chair of meetings in Hainan may be a bearer of handcuffs in Beijing." For my purpose here, I use a definition that corresponds with what the Chinese disciplinary and legal authorities define as corruption. That is, corruption is the "abuse of public power (gonggong quanli) by occupants of public office (gongzhi renyuan) in the state and party apparatus for private interests." 7 This is essentially a public-office-centered, narrow conception of corruption. The rich meanings and manifestations of Chinese corruption will become clear as the dramatic story of the post-Mao years unfolds.

THE TRANSITION TO THE MARKET AND CHINA

The case of China is of great importance to theories of economic liberalization and political corruption. As in other former socialist economies, corruption is frequently cited in China as the leading barrier to a genuine 4 Michael Johnston, "The Search for Definitions: The Vitality of Politics and the Issue of Corruption," International Social Sciencejournal149 (Summer 1996): 321-335; Robin Theobald, Corruption, Development, and Underdevelopment (Durham: Duke University Press, 1990): ch. 1; and John Gardiner, "Defining Corruption," in A.]. Heidenheimer and Michael Johnston, Political Corruption: Concepts and Contexts (New Brunswick, N.J.:Transaction Publishers, 2000): 25-40. For Chinese conceptions, see Yan Sun, "The Politics of Conceptualizing Corruption in Reform China," Crime, Law and Social Chan~e 35 (April2001): 245-270. 5 E.g.,Wang Huning, Fanfubai-ZhonJ?guo de Shiyan (Combating Corruption-the Chinese Experiment) (Beijing: Sanhuan Chubanshe, 1993): 30-31; Liu Mingbo, Lianzheng Sixiang yu Lilun (Theories of and Reflections on Honest Administration) (Beijing: Renmin Chubanshe, 1994): 358361. For a summary of Chinese discussions, see Mu Ye, "A Summary Account of Public Discussions on the Corruption Issue," Lilun XuexiYuekan 2 (February 1994): 52-53; andYi Dong, "A Summary of Studies on Corruption and Bureaucratic Negligence among Public Officeholders," Zhen~zhi yu Fa 2 (February 1994): 61-64. 6 Office of Public Promulgation and Education, the Discipline Inspection Committee of the Chinese Communist Party, ed., Fanfu Changlianjianghua (Topics on Fighting Corruption and Promoting Honest Administration) (Beijing: Zhonggong Zhongyang Dangxiao Chubanshe, 1994), passim. 7 The Discipline Inspection Committee, Supervisory Office, and Marxism-Leninism Research Office of Beijing University, eds., Fanfubai Zongheng Tan (Essays on Combating Corruption) (Beijing: Beijing Daxue Chubanshe, 1994): 122.

4

Corruption and Market in Contemporary China

transition to the market and a major source of public discontent. Yet China is unusual in that it has not adopted the big bang model of comprehensive, systemic transformation. Its gradualism and economic primacy run contrary to the conventional wisdom of those Western advisers who see partial reform as implausible. 8 Yet despite its half reforms and rampant corruption, China has experienced unprecedented levels of economic growth for more than two decades.The Chinese case thus poses many theoretical paradoxes. If conventional liberalism holds democracy and transparency as key to reducing corruption, why have more thoroughly reformed postsocialist societies not fared better regarding the level of corruption, especially Russia, other former Soviet republics, and the Balkan states? If prevailing indictments of corruption hold the problem responsible for undermining economic growth and development, why has not the Chinese economy been seriously hindered? At the same time, if revisionist theories view corruption as contributing to economic efficiency, why have not the other postsocialist economies fared as well as the Chinese? By defYing conventional theories, the Chinese case forces a reexamination of conventional theories and a search for new answers.

REFORM AND CORRUPTION: STRONG LINKAGES

Generally corruption is likely to occur under two sets of circumstances. One is the presence of opportunity, such as the extensive role of the government as a regulator, allocator, producer, and employer; the weakening of institutional and legal sanctions; and the prevalence of regulatory loopholes and legal ambiguities. The other is the presence of motivation, such as confusion over changing values; weakness of moral sanctions; relative impoverishment; and a lack of alternative access to self-enrichment. Both conditions have been present in postsocialist economies. But is the reform context a key structural and motivational cause of surging corruption in recent times? Several studies on post-Communist transition confirm strong causal linkages between economic reform and corruption, unintended as they may be by policy designers. These studies show that differences in the model of reform and the strength of the state have led to divergent opportunities and incentives during transitions from socialism. Reform models are important determinants of levels of corruption because they help shape the kind and 8 Cited in Peter Nolan, China's Rise and Russia's Fall (New York: St. Martin's Press, 1995): ch. 4; and Nolan, State and Market in the Chinese Economy: Essays on Controversial Issues (London: Macrnillan, 1992): 218. See also Steven Goldstein, "China in Transition:The Political Foundations oflncremental Reform," The China Quarterly 144 (Dec. 1995): 1106.

Introduction

5

scope of self-seeking opportumtles and incentives for officials and social groups. 9 The structure of government institutions and political processes are also important determinants because weak governments that cannot control their agencies experience high levels of corruption. 10 Some area specialists of post-Soviet politics thus point to the nature of transition as a key cause of the type and level of recent corruption. According to Steven Solnick, a key reason for Russia's "insider privatization" of Soviet-era state assets was the defection of local and enterprise officials when hierarchical authority broke down and ministerial superiors could no longer stop them from claiming property already under their control. Why did China's central authority retain control over local officials even when the latter increasingly gained the resources to defect during economic and fiscal reforms? Solnick emphasizes the incentives that Chinese reforms have created, such as local governments' roles as shareholders and as tax authority, for preserving hierarchical links. Since local officials rely on their position in the bureaucracy to preserve their" quasi-ownership rights," they faced strong incentives to keep their state and party position and accepted whatever discipline necessary to retain it. 11 This explanation is plausible for much of the 1980s and early 1990s. Michael McFaul has shown that the easy access enjoyed by new nomenclature managers to Russia's new political system have allowed them to lobby for favorable property rights shares, tax exemptions, and industrial subsidies. These benefits in turn became powerful incentives to engage in predatory behavior and resist competitive productive behavior.12 This explanation points to the special vulnerability ofRussia's new system to corruption. Other students of post-Communist transition identifY the failure of state building as the central reason for derailed transition to market democracy, especially in post-Soviet Russia. 13 Here the new government's lack of attention to the role of the state in the transitional process, coupled with the weakness of the state more generally, has resulted in a dearth ofkey legal and 9 Yan Sun, "Reform, State, and Post-Communist Corruption: Is Corruption Less Destructive in China than in Russia?" Comparative Politics 32:1 (Oct. 1999): 1-20. 10 Andei Shleifer and Robert W Vishny, "Corruption," Quarterly journal of Economics 108:3 (1993): 599-617. 11 Steven Solnick, "The Breakdown of Hierarchies in the Soviet Union and China," World Politics 48:2 (January 1996): esp. 232-33. 12 Michael McFaul, "State Power, Institutional Change, and the Politics of Privatization in Russia," World Politics 47:2 (1995): 210-43; and McFaul, "The Allocation of Property Rights in Russia," Communist and Post-Communist Studies 29:3 (1996): 287-308. 13 See a review of studies on the Russian transition by Cynthia Roberts and Thomas Sherlock, "Bringing the State Back In-Explanations of the Derailed Transition to Democracy," Comparative Politics 31:4 (July 1999): 477-97.

6

Corruption and Market in Contemporary China

regulatory institutions critical for free enterprise and unfettered competition. All this has left the state incapable of enforcing contracts; defending property rights, investors, and consumers; or regulating banks, commodity exchanges, and stock markets. 14 Some attribute the failure of st:;te building to the political strategy of Russia's reform elite. 15 Others blame the elite's neoliberal ideology, which led the government to neglect state building while placing undue faith in the "invisible hand." 16 Still others find that Russian leaders lost control over much of the process in the postcollapse context. 17 The failure of market-supporting institutions to emerge spontaneously, in contrast to what the post-Soviet government assumed, has nourished fertile soil for predatory behavior. The result is pervasive lawlessness, corruption, and rent seeking in post-Soviet Russia. 18 The problem also persists in other former Soviet republics and to a lesser extent in East-Central European economies. State building is the process by which state capacity is created, enhanced, or restored, capacity being the ability of the state to govern effectively. 19 Particularly pertinent are three dimensions of state capacity essential to an effective and legitimate state. 20 The institutional dimension includes national political institutions and their capacity to make and enforce political and economic rules. The legitimacy of these rules, especially among the elite and the degree of state autonomy from pressure groups, are important parts of this dimension. 21 Institutions also shape the environment in which markets form and operate-the legal structure to settle property rights and ensure fair competition in the marketplace. 22 Poor institutional infrastructure and poor 14 McFaul, "State Power," 21 0-43; McFaul, "The Allocation," 287- 308; and Federico Varese, "The Transition to the Market and Corruption in Post-socialist Russia," Political Studies 45:3 (1997): 57996. 15 E.g.,Adam Przworski, Democracy and Market: Political and Economic Reforms in Eastern Europe and Latin America (New York: Cambridge University Press, 1991): 165fT; and Peter Rutland,"Has Democracy Failed Russia?" National Interest (Winter 1994-95): 3-12. 16 Peter Stavraski, State Building in Post-Soviet Russia: The Chicago Boys and the Decline of Administrative Capacity (Washington, D.C.: Kennan Institute, 1993). 17 Roberts and Sherlock, "Bringing the State Back," 478. 18 Conunission on Security and Cooperation in Europe, Briefing on Crime and Corruption in Russia (Washington, D.C.:The Commission, 1994); CSIS Task Force Report, Russian Organized Crime and Corruption, Putin's Challenge (Washington D.C.: Center for Strategic Studies, 2000); and Victor Sergeyev, The Wild East: Crime and Lawlessness in Post-Communist Russia (Armonk, N.Y.: M.E. Sharpe, 1998). 19 This paragraph is based on the synthesis by Roberts and Sherlock, "Bringing the State Back," 480-81. 20 Merilee Grindle, Challenging the State: Crisis and Innovation in Latin America and Africa (Cambridge: Cambridge University Press, 1996). 21 Theda Skocpol, "Bringing the State Back In: Strategies ofAnalysis in Current Research," in Peter Evans, Dietrich Rueschemeyer, and Theda Skocpol, eds., Bringing the State Back In (New York: Cambridge University Press, 1985): 3-37. 22 Douglas North, Structure and Chan,~e in Economic History (NewYork:WW Norton, 1981); and North, Institutions, International Change, and Economic Performance (Cambridge: Cambridge University Press, 1990).

Introduction

7

governance tilt weak states to lawlessness and inefficiency. The political dimension of state building comprises linkages between state and society and their effects on state capacity. Cooperative links and strong civil societies contribute to the state's effectiveness. 23 Weak links and polarized intra elite conflicts, as in post-Soviet Russia, motivate politicians to favor the exchange of state resources for political support rather than devote political capital and resources to build state capacity. Moreover, when organized social supports are weak and private interests are concentrated, those political exchange relationships are likely to cluster at the level of political and economic elites, which will likely encourage the emergence of an economic oligarchy. The administrative dimension of state building, finally, entails the state's ability to provide essential public goods, such as law and order, and market infrastructure. Their successful provision and delivery depend on the extractive capacities of the state, and the compliance, organizational coherence, and professional competence of its bureaucracies. An effective state should exhibit significant capacities in all three dimensions of state capacity. Poorly institutionalized states possess less capacity, though not necessarily equivalent deficits in every dimension. 24 At one end, the new Russian state is profoundly weak in all dimensions of capacity. Systemic collapse and economic crisis deprived it of the time and stability to build basic institutions. Sharp intraelite conflicts and weak links with society draw political elite's attention to political survival and advancement rather than basic state building. Elite focus on purchasing political support, in turn, has undermined markets and popular support, as governing elites are inclined to tolerate patronage, rent seeking, and corruption. The result is a combination of bureaucratic capitalism-where political and administrative elites have the power to control market behavior and rewards-and oligarchic capitalism, where an interlocking group of wealthy businessmen monopolize access to policymakers and national resources while restricting domestic and international competition. 25 But political exchange relationships do not stop at the top. If the oligarchy of crony capitalists have benefited from a takeover of the major assets of the Soviet economy and from preferential state policies, the rest of the economy has been dominated and plagued by organized crime, the latter having thrived on the corruption oflower-level officials and law enforcement agents. 23 Robert Putnam with Robert Leonardi and Raffaella Y. Nanetti, Making Democracy VV