China's Trapped Transition_ The Limits of Developmental Autocracy - Minxin Pei [25]
Ineffective monitoring
Given the institutional changes entailed in regime transition, the old system of monitoring state agents is likely to break down. Rule changes are frequent and confusing during transition, resulting in poor coordination among various state agencies monitoring agent behavior, such as the secret police, tax authorities, auditors, and financial controllers. The breakdown of monitoring becomes even more likely if those state agents in charge of monitoring other state agents detect the latter’s theft but decide to divide the spoils with the thieving agents, instead of reporting their malfeasance to the principal. (Unsurprisingly, one of the most corrupt government bureaucracies in China and Russia is the anticorruption agency.) Transition frequently entails changes in political values and erodes the authority of the principal. Agents face negligible risks in defying the authority of the principal. Erosion of the principal’s authority makes effective monitoring of agents ineffective. The monitoring of agents has also become more difficult under reform because of an increase in transaction channels. As X. L. Ding observed, interfirm transactions almost did not exist under the old system, in which ministries directly controlled SOEs’ sales and purchase processes. As a result, the monitoring of agents’ business deals was easier under the old system. In the transition era, the advent of marketization replaced the firm-ministry-firm transactions chain with the more efficient firm-to-firm transactions chain. Consequently, the number of transactions exploded, making effective government monitoring nearly impossible.91
New exit options
Large-scale theft of state assets was made less likely under the old communist system by the absence of exit options from the state sector for nearly all agents. Regime transition has opened numerous exits for these agents, including ownership stakes and managerial positions in the new private or semiprivate firms, and overseas investment opportunities. 92 These exits effectively allowed “stationary bandits” under the old system to become “roving bandits” because they can steal and then store their loot safely elsewhere. The time horizon of state agents with lucrative exit options is likely to be short, resulting in more intense theft of state assets.
Erosion of institutional norms
Institutionalists have long recognized the role of institutional norms in constraining agent opportunism and the free-rider problem.93 As a concept, institutional norms are vague and difficult to define. In practice, institutional norms may derive much of their legitimacy, appeal, and binding power from the prevailing ideology of the political system. In the case of communist systems, it may be controversial to claim that the communist ideology had any appeal. One can point to the widespread cynicism among the ruling elites of the ancien régime. It is nevertheless conceivable that even residual ideological appeals of communism, socialism, or nationalism might have played a role in constraining the predatory instincts of the agents under the old regime. During transition, the total bankruptcy of the communist ideology meant that state agents were under no constraints imposed by institutional norms.
The above theoretical analysis suggests that a temporary partial reform equilibrium, or a transition trapped in semireformed economic and political institutions, is a product of a confluence of factors. The most important among them includes the initial conditions of the transition process in post-totalitarian regimes such as the CCP, which retains unchallenged political supremacy over society and maintains its rule through a mixture of coercion, co-optation, and adaptation. Additional factors contributing to the emergence of such