Ferraris outnumber plans to clean up corruption

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Visitors to a Shanghai exhibition of footwear designs by Vivienne Westwood. One real-world economic indicator that bears out Asia's corruption problem is a widening rich-poor gap. Photograph: AFP/Getty Images

Transparency International's latest corruption report is sober reading for Asian leaders committed to ending dirty dealings in the world's fastest-growing region.

Dec. 9 was International Anti-Corruption Day, and Asia's report card was a big disappointment. China, Japan and South Korea, three of Asia's four biggest economies, all lost ground. So did such emerging-market darlings as Indonesia, Taiwan, Thailand and Vietnam. Even Hong Kong, routinely celebrated as a model of economic freedom, slid two places in the 2012 Corruption Perceptions Index to 14th among 176 nations.

There was some progress. The Philippines jumped to 105th from 129th (the closer you get to first place, the cleaner your economy). India improved one place to 94th. Yet even some of the good news is cautionary. Malaysia raised its overall ranking, but scored the worst globally in a forthcoming Bribe Payers Index, the Wall Street Journal reported.

These results show that Asia's anti-corruption efforts are still more about public relations than substance. That needs to change if the region is to be a prosperous and stable place in the long run. Leaders of all the major countries indulge in much talk about creating independent courts, strong ministries, a free press and networks of outside watchdogs, all while doing little.

Falling behind

There is no good excuse for Asia to be falling behind -- not with a critical mass of world growth concentrated there and strong public support on the side of the reformers. The longer Asia takes to get serious about this issue, the bigger the threat to economic progress.

Graft is incredibly difficult to measure in any one nation, never mind comparing it across borders. Tremendous effort goes into hiding and perpetuating the gray economy, often most enthusiastically at the highest levels of government. Whichever barometer you track, the odds are that graft is far more rampant, ingrained and damaging than data suggest.

One real-world economic indicator bears out Asia's corruption problem: a widening rich-poor gap. Corruption skews and concentrates wealth among the politically connected elites. That keeps the benefits of rapid economic growth from being shared widely and reaching society's weakest economic links. It lowers credit ratings, raises bond yields, impedes foreign investment, and puts lives at risk when floods and earthquakes meet shoddy infrastructure.

The hold that Asia's elite has on wealth and power has grown even stronger since the region's 1997 crisis and the US's crash in 2008. The ascendance of obscenely wealthy businesspeople in Hong Kong, Indonesia, Malaysia, the Philippines, Thailand and elsewhere helps explain why Asia isn't enjoying more homegrown entrepreneurship. Nowhere is that truer than in China, which has become Asia's largest economy in the interim and may surpass the US in the next decade or so.

Xi Jinping, who will become China's president next year, is making a very public show of tackling the corruption that has damaged the Communist Party's legitimacy.

"A mass of facts tells us that if corruption becomes increasingly serious, it will inevitably doom the party and the state," Xi told China's Politburo last month. "We must be vigilant."

China doesn't release an official Gini coefficient, an index that attempts to measure income inequality. A new report from Chengdu's Southwestern University of Finance and Economics put it at 0.61 in 2010, a figure that's surely getting worse and should worry Beijing. The index ranges from 0, which represents perfect equality, to 1, which implies absolute inequality. Readings above 0.4 are sometime seen as a tipping point at which risks of social instability increase.

First target

This year's Bo Xilai scandal has China's 1.3 billion people more interested than ever in the huge bank accounts being amassed by modestly paid public servants. The question is how far Xi will take this anti-corruption drive. Li Chuncheng appears to be among its first targets. A deputy party secretary of the southwestern Sichuan province, Li is under investigation on suspicion of what the official Xinhua News Agency calls "severe violation of discipline."

The risk is that Xi takes down a couple of big targets and then returns to business as usual. China's problem isn't a few rogue and entrepreneurial public officials, but a political system that turns a blind eye to rent-seeking on a scale unmatched in history. The most cursory of random lifestyle checks would show a staggering number of Ferraris and Lamborghinis in the garages of politicians who on paper should struggle to buy a new Toyota.

That's certainly where Susilo Bambang Yudhoyono is falling short in Indonesia. Yudhoyono, president since 2004, scored some headline-grabbing graft victories early on. He has been less successful in flushing out the rot that former dictator Suharto institutionalized during almost 32 years in power. Indonesia slipped 18 places on Transparency International's list in the last 12 months alone, falling behind Egypt.

It should be a lesson for Benigno Aquino in the Philippines. President since 2010, he has wasted little time pursuing high-profile cases against predecessor Gloria Arroyo and her administration, including ousting Supreme Court Chief Justice Renato Corona. But even for leaders doing the right things, efficient and corruption-free government that ends poverty and broadens the reach of rapid growth is a long, long way off.

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William Pesek
William Pesek is a Bloomberg View columnist. The opinions expressed are his own.

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