Learning the lessons of corruption

Thursday 15 May 2014

A low angle photograph of Swinburne University of Technology signage on the Advanced Technologies Centre building in Hawthorn.

CHINESE President Xi Jinping is leading an intensive anti-corruption campaign targeting official perks, graft and lavish spending. During his first year in office, in the judgment of Minxin Pei of Claremont McKenna College in the US, the campaign has put Chinese officials on notice. Last year, government agencies investi­gated 197,000 cases of suspected corruption and found about 180,000 officials and party members guilty of corrupt practices.

Corruption runs deep in China and in no field deeper than in education. Many years ago on a brief visit to China I asked a distinguished professor why she had never sought a leadership position such as dean or vice-president in her school. She had worked long enough at top national universities to warrant promotion and, as I learned from friends, she was approached several times to serve as dean. Yet she consistently turned down the promotion. Why?

“How could I say no to the phone calls?” she told me. “No to what phone calls?” I asked. “No to those higher-ups asking me to offer places to students who could not make it in on their merits.”

Not every dean in China is corrupt, in the sense of personally accepting bribes for student placements, but most have to sign off on corrupt practices if they want to retain their positions. A dean’s phone runs hot with demands from senior university officers and higher government officials to grant admission on behalf of their fee-paying clients, their friends and relatives, and people to whom they owe a favour of one kind or another.

The scale and value of corruption in undergraduate admissions in China is not on the public record. From conversations through the years, I would estimate that between 10 per cent and 20 per cent of all undergraduate university placements are informally “discretionary”; that is, subject to the discretion of the responsible admissions officer at a given level, outside the formal competitive examination system, with little or no higher administrative oversight. On this estimate, between 100 and 1000 students gain entry to each of China’s 2400 universities every year at someone’s personal discretion. That’s about one million annual undergraduate placements made through backdoor deals each year.

Postgraduate education is no exception. A postgraduate place at a top university in Beijing can cost $40,000 for under-the-table admission.

Not every discretionary undergraduate admission involves a cash transaction — contra deals and personal favours account for many — and not every cash transaction is a large one. The price of discretionary admission can vary across institutions $1000 in a less competitive program to $250,000 for entry into a top program at a top school. In total, the traded annual value of discretionary undergraduate university placements ranges in the billions of dollars.

None of this off-budget revenue goes to universities. Some is retained for personal use by the university staff who collect it and by the university managers who condone it. Last November, an admissions officer of the government’s pre-eminent training institution, Renmin University in Beijing, was detained on suspicion of collecting tens of millions of dollars through discretionary admissions in a case that implicated an official close to the university’s president. After senior university officers take their share, the balance flows to party and government officials in the education bureaucracy who are responsible for managing China’s universities.

The most senior provincial official in Jilin Province was found guilty in 2010 of accepting about $1.5 million in bribes for condoning corrupt admissions. The same officials are responsible for stamping out corruption in the education system.

On this point, higher education is little different from other government services in China. Responsible officials in health, housing, transport and so on generally operate on the principle that they are entitled to a share of any surplus generated through mandated provision of services. The kind of official corruption that stirs ordinary people in China to anger is considered by the officials who run the country as a standard part of their performance contracts.

Basically, the Communist Party holds officials responsible for running territorial units such as cities and counties, or for delivering public goods such as education and health, to meet certain performance criteria that include keeping the peace. In return for keeping a lid on things, officials know that they can retain a personal share of revenues earned from their service provision over and above the minimum required for delivery of the services.

This style of responsibility contracting can be traced to the performance contracts that led Deng Xiaoping’s assault on Maoist socialism in the early 1980s. The introduction of household responsibility contracts ate away at the foundations of Mao’s rural communes by allowing individual farming families to contract for the use of collective property and retain the surplus they produced over state-mandated quotas.

These contracts set a pattern of market-based performance incentives for collective and state enterprises that was progressively extended from communes to industrial enterprises to service industries and eventually to the heart of the state, the national ­bureaucracy itself — China’s largest state-owned enterprise.

As a rule, communist officials do not distinguish between emp­loyment in a state firm producing oil or building telecommunications and appointment in a state bureau delivering health or education. It’s all one big enterprise.

The kind of performance incentives built into state enterprises then flow seamlessly into incentive structures in human services, health, and education departments.

Every bureau director needs a share of the surplus to do what government bureaucrats normally do — their routine jobs.

What does corruption mean in such a system? It means failing to act responsibly. Those who fail to deliver on their responsibilities are detained on corruption ­charges not because they are more corrupt than others but because they fail to keep their side of the bargain. Officials who cause trouble, possibly by annoying a more senior party official or having their corrupt practices inadvertently exposed by civic activists, suffer the consequences. This is widely understood. The prospect of facing a corruption charge for not keeping their end of a contract is an unstated clause in the performance assessment of responsible officials.

The effect of responsibility contracting on government operations is to convert responsible official positions in territorial jurisdictions or functional bureaus into small business enterprises — similar to individual contractors entering into agreements with Australia Post to operate a post office. Responsible government positions are available for purchase in China, similar to post offices in Australia, but the transactions are not officially sanctioned. Individuals pay rent for their positions, deliver the goods and keep the surplus.

Private investment in official positions is recouped in a variety of ways. In major infrastructure contracting, about 2 per cent of the total contract price (which could run to billions of dollars) is reported to be returned to project managers in responsible government bureaus. Firms awarded the contracts extract 5 per cent in kickbacks in turn from each subcontracting firm. In education, the purchase price of a government position is largely recouped through sale of discretionary enrolments into kindergartens, schools and universities, and through selling subordinate positions in the education system.

The going price of party and government positions in the education bureaucracy is not widely advertised but similar arrangements in other fields provide useful benchmarks. One local party directorship in Inner Mongolia traded for $1m and the directorship of a local government planning department in the same region traded for roughly the same amount. Senior positions in the military are reported to cost hundreds of thousands of dollars each. Management positions in a local city police force traded for roughly $60,000 in 2010 and presumably for higher rates in major urban centres.

In 2010, a prison official in Hunan was arrested for accepting about $2m in bribes from 130 prospective candidates for posts in the prison system and for falsifying prison records. He was selling deputy directorships for about $10,000 a post.

Educational positions command similar sums. In one province, teachers wishing to transfer from poor rural schools to wealthier urban ones are reported to have paid a local education director between $5000 and $10,000 each for their transfers. The local education director paid considerably more to purchase the lucrative post. The position of school principal in a wealthy urban neighbourhood can trade for about $200,000 but $20,000 will purchase a similar if less lucrative position in a regional high school. A teaching position in a national performing arts academy can cost $100,000.

These are the rents that school teachers, principals and academy lecturers pay to party and government superiors for holding down a job that pulls in a salary worth a fraction of that amount. The cost of positions is recouped not through salaries but through sale of subordinate positions and under-the-table sales of college or school placements to parents whose children are not eligible to attend their preferred schools or preschools by merit or entitlement.

Still, principals and teachers get to keep just a fraction of the revenues they raise.

As in the university system, much of the cash is passed on to officials higher up the chain of command in relevant education bureaus and in the party ­hierarchy. In addition to off-budget income earned through trading positions, communist education officials enjoy exclusive access to privileged education facilities that they can rent out for a tidy sum.

Senior officials are reported to pay just $1500 a year all inclusive for their dependants to attend a top kindergarten in Beijing, valued at more than $20,000 at market rates.

An enterprising official entitled to a place in such a kindergarten can be persuaded to sponsor another’s child into that kindergarten for a hefty facilitation fee. The same applies to exclusive university creches. The International Herald ­Tribune reported in 2012 that for a facilitation fee of about $25,000 a parent could secure a university official’s endorsement to attend the Clean China Kindergarten attached to Tsinghua University.

Corruption in schools and kindergartens is more widespread than in universities. All parents everywhere want a good education for their children. In China parents are willing to pay as much as they can afford in under-the-table placement fees to get their children into preferred schools and preschools. One parent told me that his little girl came home one day from her tin-shed migrant school in Beijing to say that a rural classmate had just been admitted into a formal Beijing city school up the road.

When would her turn come to move up to the real school, she asked her father. He told her that the parents of her fortunate classmate had probably “made a phone call” to the principal. “Dad,” she answered, “why can’t you make a phone call for me?” Her father was lost for words. How could he begin to explain to a six year-old what it means to make a phone call to an educational authority in China?

Written by John Fitzgerald, Swinburne University of Technology. This article originally appeared in The Australian. You can read the original article here