China’s gilded age?

George Mason University economist Carlos Ramirez has a new working paper which argues that China’s level of corruption over the past 15 years is comparable to that of the United States when it was at a similar level of economic development: the period between 1870 and 1930. Here’s how it works:

Finally, I match both series at particular points in time when the level of real income per capita for these two countries was roughly similar. This matching process enables us to compare and contrast corruption curves for both countries at similar stages of development.

The results of this comparison are quite revealing. The newspapers-based corruption indicators suggest that the level of corruption in the U.S. was 7 to 9 times higher than China’s level when income per capita in both countries was approximately $2,800 (in real 2005 U.S. dollars). That occurred in 1870 for the U.S. and in 1996 for China. By the time the U.S. income per capita reached $4,200, the U.S. to China corruption ratio was 1.7, implying a significant drop in corruption in the U.S. (relative to China) as it developed through 1890s and early 1900s.

By the time the U.S. reached approximately $7,500 (in 1928)-roughly equivalent to China in 2009 (in real 2005 U.S. dollars)-the newspapers-based corruption indicators were quite similar.

The data source here — U.S. newspaper reports — seems pretty problematic. Though the New York Times has recently been dogged in its coverage of Chinese corruption scandals, it’s deosen’t seem reasonable to expect it to devote the same amount of attention that it does to national news. That’s even more the case for more locally-focused papers like the Atlanta Journal-Constitution and the Chicago Tribune, which are also included in the sample.

Ramirez acknowledges this objection and includes several robustness checks including running the numbers against Transparency International’s Corruption Perceptions Index and reports on both countries from British newspapers. I still don’t think this fully addresses the apples and organges proglem: the New York Times of 1870 and the New York Times of today are very different papers both in style of reporting and newsgathering capability. 

But though the data doesn’t seem entirely convincing, it’s fair to say that from the Whisky Ring, to Tammany Hall, to the Teapot Dome scandal, widespread blatant corruption was a hallmark of America’s rise to prosperity. Which is not the same as saying it should be tolerated elsewhere.