Friday, April 25, 2014

Money and Politics lobbying in U.S. and China

Credit Yarek Waszul
To understand how money and politics intertwine in the world’s two largest economies, look no further than two important articles in The Times in the last few days.
First, Michael Forsythe, Chris Buckley and Jonathan Ansfield reported on a Chinese public corruption investigation into many of the relatives of Zhou Yongkang. He is a powerful Communist Party leader whose family members became wealthy from energy and real estate contracts — and are now being detained.
Second, Michael Barbaro reported on the sprawling business activities of Jeb Bush since he left the Florida governorship and which began when his brother was president. Mr. Bush’s work included advising Lehman Brothers, the investment bank whose bankruptcy triggered a global financial calamity, and serving on the boards of one company that misappropriated funds and another that had accounting irregularities.
There is no accusation that Mr. Bush, now a presidential contender, did anything illegal, or for that matter, that Mr. Zhou did. But that’s actually the point: The circumstances surrounding the two show the differences — and perhaps more surprising, the similarities — between how influence is peddled in two very different countries.
In every modern society, the people who hold the levers of state power control the deployment of vast riches; every decision about a change in the tax code or the issuance of oil drilling licenses is worth billions to someone. The potential beneficiaries of those policies have every incentive in the world to try to influence the decisions.
One could imagine a society in which all political leaders are some sort of philosopher kings, temperamentally disposed to have no use for money themselves, and thus immune from temptations.
I am aware of no society on earth actually ruled that way. We’ve seen nations with all sorts of methods of selecting their leaders: elected American politicians, Communist party apparatchiks in the former Soviet Union, top cardinals in the Catholic church who run the Vatican. And in the real world, whatever the details of the system of governance, the people who have the ambition and drive to end up in top leadership positions also want some degree of wealth and the comforts it can provide.
Influence peddling is the mechanism by which those hoping to sway politicians ultimately reward those politicians. Whether it is ethical or unethical, legal or illegal, depends on what particular compromises a given country has come to accept.
China has had a system in which the understanding is that legal authorities will take a don’t-ask-don’t-tell approach to family members of high political officials making vast sums. The prosecution of Mr. Zhou’s family is a frontal assault on that understanding of what is official corruption.
In the United States, the basic compact has been this: If you take financial benefits from a private interest that seeks to influence policy while in office, it is probably illegal. It’s the same if a close family member does it. Just ask the former Virginia governor Bob McDonnell and his wife, Maureen, now under indictment for taking gifts while in office.
But once you’ve left high office in the United States, all bets are off. You can go from a job regulating the nation’s media and telecommunications firms to helping a $13 billion private equity firm pick which media and telecommunications firms to invest in, as President Obama’s former Federal Communications Commission chairman did. Or you can become a senior executive of one of the country’s biggest banks after fighting to deregulate the biggest banks, like Robert Rubin, the Clinton administration Treasury secretary, one of a surprisingly long list of Clinton administration officials who found ways to get rich.
Or, in the case of Jeb Bush, you can get paid money by Lehman Brothers to be an adviser. His exact duties in that role have not been publicly disclosed, but when the firm was in trouble in 2008, he was sent to meet with the Mexican billionaire Carlos Slim Helú to see if he might invest in Lehman (he didn’t).
Lehman’s chief executive also considered asking Jeb Bush to ask his brother, President Bush, to call the British prime minister to try to get approval for a last-ditch deal for a takeover of the company, according to an examiner’s report of the Lehman bankruptcy. There is no evidence Jeb Bush made the call, but the very idea of asking a well-paid adviser to call his brother, who happens to be the president, to help in a business situation shows how fraught these arrangements can be.
Using connections like that feels awfully similar to the arrangements that have been widespread in China, in which companies enlist the families of politicians to try to ensure favorable treatment by the government.
The influence games are different in Washington and Beijing, of course. And not all corruption is created equal; it matters whether a particular variety of official corruption drags down a country’s economy. At the worst extreme, a country where public officials at all levels demand constant bribes as a matter of course will not be a very hospitable environment for business.

But as the Columbia economist Ray Fisman has argued, so long as corruption is predictable and manageable, it can coexist with speedy economic growth (Indonesia under Suharto and China over the last few decades are prime examples). And China has greater state control over more of the economy, and little transparency around who is profiting from that control and why. That is a breeding ground for potential corruption on a scale unknown in the United States.
Former American officials can make millions from their political ties, but billions is unthinkable. And the United States has institutions that at least pull the more egregious financial conflicts facing politicians into the open. There are mandatory disclosures for lobbyists and corporate donors to campaigns. We have a free press that receives Pulitzers for exposing official corruption, rather than censorship and arrests. And for American prosecutors, winning an official corruption case is a way toward career advancement rather than career purgatory.
Chinese leaders aren’t, it would seem, ready for most of those steps yet. But the prosecution of Mr. Zhou’s family is a sign that the country is heading toward a new definition of just what sort of soft corruption China’s government — and its people — will live with.
Neil Irwin | NYTimes

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