China's Trapped Transition_ The Limits of Developmental Autocracy - Minxin Pei [24]
By contrast, posttransition state predation is decentralized and manifests itself in various forms of official corruption. Decentralized state predation reduces the aggregate amount of state revenue, as agents divert public money into private pockets. It also causes a fall in the provision of public goods, as state agents convert public resources into private consumption or offshore investments. Although the phenomenon of decentralized state predation in post-transition countries has received enormous attention, the causes of decentralized predation are not well understood.
Centralized predation becomes decentralized when the state, as the principal, loses effective control over its agents. Of course, different types of regime transitions generate different dynamics that affect principal-agent relations. In communist states that saw a quick collapse of the ancien regime, state agents were afforded great advantages by even the temporary decline of the principal’s authority. In those societies, the agents’ theft of state assets was completed within a relatively short period of time. However, the patterns of post-transition agent predation diverged dramatically in those post-communist states that experienced dual transition. As Hellman’s work shows, new regimes with a higher degree of democracy and more complete market reforms tend to restrain such predation, while new regimes with less democracy and partial economic reforms are beset by increased levels of agent-predation.88
By comparison, agent-predation followed a different dynamic in post-communist systems that have seen market liberalization but no political transition, such as in China and Vietnam. In these societies, the political authority of the state remains unchallenged. However, the decentralization of decision making, needed to reincentivize state agents, led to a restructuring of the contracts between the state and its agents, which proved to be extremely advantageous to the latter. Therefore, the key to understanding the rise of decentralized predation is to examine both the preexisting and the transition-related institutional changes that have structured and restructured principal-agent relations. Specifically, changes in the control of property rights, mechanisms of monitoring, exit options, and institutional norms arc the critical variables responsible for the decentralization of state predation in postcommunist societies.
Decentralization of property rights
In theory, the degree of centralization of property rights is negatively correlated with decentralized predation. In countries with a high level of centralization of property rights, the loss of state money through agent theft or misappropriation tends to be small. Under the prereform communist system, despite the lack of clarity of property rights, the high degree of centralization of such rights was the decisive institutional factor that limited agent-predation. In practice, the centralization of property rights prevented large-scale theft of state property. Of course, the mono-property rights regime and the high degree of centralization of property rights caused low efficiency because this system provided few incentives for agents to improve the financial performance of state assets.89 The decentralization of property rights during the transition phase in most state-socialist systems was originally designed to increase agent incentives so that state assets could become more productive. In some countries, such as China, the decentralization of property rights also involved the transfer of formal ownership of state assets from the central government to local governments. Such decentralization granted the state’s managerial agents more discretion in operating SOEs, especially regarding investment and compensation. Although no evidence