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2015 Cambridge Business & Economics Conference ISBN : 9780974211428
Corruption Culture in the United States and
China
Akram Chamut, University of Texas at Dallas
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ABSTRACT
Purpose
The purpose of this paper is to examine most aspects of the corruption
that takes place in the United States and compare it to the corruption that takes
place in China by analyzing previous empirical research performed regarding
the matter.
Method
The information used for this examination was gathered from peer-
reviewed articles in which research was performed to study corruption levels,
triggers, consequences and perception in the United States and China.
Findings
The empirical research reviewed showed that, although there are many
similarit ies on both cause and effect of corruption in both countries, there are
far more differences. This is mainly due to the different cultures present in each
country.
Contribution
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The analysis made in this document is original since i t compares the
factors that contribute to corruption and what the effects of it are in two
different countries with two very different cultures. This can contribute to the
business world by showing how corruption is performed in these two countries
and how it is perceived by their respective governments and citizens.
INTRODUCTION
In order to successfully conduct business in a foreign country, we must
not only understand the ethical and legal surface of a country. In fact, it could
be argued that i t would be even more important to understand the unethical and
illegal way of life that takes place underground, far out of sight from people
who are not involved. If managers can understand the legal and il legal conducts
of governments, corporations and individuals, they will have a significant
advantage over competitors who focus only on understanding what the law
prohibits and permits them to do. Furthermore, understanding corruption will
allow managers to create the necessary shields to minimize corruption in their
businesses both locally and abroad.
This document is comprised of a review of some scholarly peer-reviewed
regarding corruption in the United States and China. Hopefully, this will be an
aid to managers who wish to distinguish the differences and similarit ies
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between the two countries in order to protect their organizations from potential
harm, whether it is financial, legal, or reputational.
Corruption
Most people, when they hear the word corruption, automatically think of
something or someone related to politics and, more often than not, view it as
something negative, and while political is the most common form of corruption,
it is not the only type. The types of corruption most relevant to this document
are detailed below.
Polit ical corruption, the most common and most relevant type of
corruption, is “the abuse of public power, office, or resources by elected
government officials for personal gain” (Shumba, Gabriel; 2007). There are
varying levels of political corruption depending on the country. In some
countries, polit ical corruption is of such a high extent that the government itself
becomes a kleptocracy , meaning “rule by thieves.” This occurs mostly when
government officials hold their posit ions for the sole purpose of increasing their
personal wealth at the expense of state funds.
Next, we have police corruption. Police corruption occurs most commonly
between individual citizens and individual police officers. Police can reach
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such a high level of corruption that they will fabricate charges against
individuals to incite them to offer a bribe, which officers will gladly accept and
drop the charges. Other forms of police corruption include solicit ing bribes in
exchange of turning a blind eye to organized crime and other i llegal activities,
and also engaging in “noble cause corruption,” which, simply put, is the action
of planting incriminating evidence to be used against “definitely guilty”
criminals to ensure a conviction.
What follows areli terature reviews of academic articles regarding how
these types of corruption occur in the United States and China and what actions
are being taken, if any, to avoid i t. First, the articles will be analyzed and
summarized. Afterwards, a conclusion will be made encompassing all of the
articles and all the information gathered from them.
LITERATURE REVIEW
This li terature review will make use of the definitions described above to
compare different art icles regarding corruption in the United States and China
to better understand the differences and similarit ies between these two countries
and how to approach the problem should the reader encounter it.
United States
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The first article that will be reviewed is “Isolated Capital Cities,
Accountabili ty, and Corruption: Evidence from US States,” which indicates that
capitals of states are more associated with corruption, especially if they are
isolated cities, since there is a reduction of accountability; there is less people
around who will inquire the government about its operations. Also, people from
cit ies further from state capitals are less interested in politics, less informed,
less likely to vote in state elections. This leads the authors to believe that
spatial distribution might be linked to corruption. Usually, capitals are far from
large metropolitan areas and face less scrutiny from them. Even the media is
affected by the distance from the capital city. This is evident by the way
“newspapers give more coverage to state politics when their readership is more
concentrated around the capital city.” During state-related elections, “voter
turnout is greater in counties that are closer to the state capital” (Campante, Do.
2014).
Considering the finances of state capitals, it seems that isolated capital cit ies
spend less while achieving worse outcomes on public services, and the media
does not do a good job in showing this, since “states with isolated capitals tend
to display lower levels of media coverage of state polit ics” (Campante, Do.
2014).
By this point, the reader might wonder how capitals are determined to be
isolated or not. The authors of the article, Campante and Do, express that “what
matters most for the connection is how isolated the capital city is relative to the
geographical size of the state.” So a smaller state with require smaller distances
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from the capital to be considered isolated, while a larger state will require its
capital to be further from other cit ies.
Individuals are not the only ones affected by the isolation of capital cities,
“firms located in counties that are farther from the capital spend less in
campaign contributions,” as do individuals.
The authors conclude that “isolated capital cit ies are significantly correlated
with lower spending on public good provision, and with most spending on items
not directly related to i t” (Campante, Do. 2014).
The second article reviewed, “American Hustle: Reflections on Abscam
and the Entrapment Defense,” talks about Abscam, as the tile suggests. From
1977 to 1980, Abscam led to the convictions of six United States
Representatives, one Senator, and over a dozen of additional politicians and
government employees. FBI agents posed as wealthy Arab Sheiks to incite
polit icians into corrupt actions. Abscam resulted in public outrage since the
state, by enticing the crimes, may have entrapped the politicians.
The first recorded entrapment case in the United States, “ Woo Wai v. United
States ,” occurred in 1915, when Woo Wai was persuaded to smuggle Chinese
cit izens through the Mexican border into the United States by California
Immigration officials.
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During prohibition, government agents init iated alcohol operations with the
intent to raid such operations and arrest the entrapped “perpetrators.”
Regarding Abscam, the courts and the public ended up tolerating it because it
“served” i ts purpose of eliminating a greater evil, which is corruption of public
officials. Abscam resulted in the creation of the Civilett i Guidelines, which
formalized the procedures to be followed during undercover operations to
prevent an intrusive FBI. The Civiletti Guidelines later evolved into the Smith
Guidelines in 1983, then to the Thornburgh Guidelines in 1989, and finally into
the Reno Guidelines in 2001, all extending protection of possible entrapment
victims by government agencies.
Matthew Kinskey, the author if this art icle, declares that “the best way to
protect citizens from overzealous law enforcement is for courts to fully uti lize
their position to provide oversight, leadership, and guidance to encourage
prudent government conduct” (Kinskey. 2014).
The next art icle, “Corporate Influence and Political Corruption,” talks
about the role of corporations as an influence for corruption on government
officials.
According to this art icle, “the role of money in politics and the influence of
corporations is much more limited than imagined by the conventional wisdom.
For many Americans, politics is an inherently corrupt activity” (Milyo. 2014).
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A very prominent activity performed between corporations and political entities
is lobbying. “Campaign contributions and lobbying are often characterized as
corrupt. Privately financed polit ical campaigns facilitate a market for political
favors. Lobbying and polit ical contributions may have effects that are difficult
for researchers to observe and may provide large payoffs to firms that engage in
such activit ies” (Milyo. 2014).
During Jeffrey Milyo’s research, he found that “Republican-connected firms
realized posit ive abnormal returns after the 2000 presidential election, whereas
Democrat-connected firms realized negative abnormal returns” (Milyo. 2014).
One way polit icians and corporations mutually benefit is when a politician has
knowledge of inside government information that a corporation might be
interested in knowing. “Polit icians may profit from market-relevant inside
information about public policy. Polit icians confer policy favors to personal
cronies in exchange for inside information and preferential business deals for
themselves, their families, and their friends” (Milyo. 2014).
U.S. state spending is affected by corruption as well, as expressed in the
article “The Impact of Public Officials’ Corruption on the Size and Allocation
of U.S. State Spending.” This article declares that “self-interested public
officials are l ikely to design and manipulate government institutions to
maximize budgets for their own private gain. Budgets of states with a higher
degree of corruption will become larger. Corruption may distort public resource
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allocation because of rent-seeking behavior among related agents. When
allocating public resources, corrupt officials favor sectors with greater rent,
higher secrecy, and less competitiveness. Corrupt public officials are likely to
spend public resources on items for which it is easier to levy larger bribes”
(Liu, Mikesell. 2014).
During the research performed to create this article, the authors surveyed
several individuals to find their perception of corporate-government corruption
and asked them which industry was more likely to engage in corrupt actions
with the government. The result was that “the construction industry is
consistently marked as one of the most corrupt industries” (Liu, Mikesell .
2014).
Other factors are evident in states with higher levels of corruption. For
example, “total salaries and wages of public employees are likely to be higher
in states with higher levels of corruption.” Also, “states with a higher extent of
corruption tend to spend more on correction and police protection.” One
special, and very important public service affected by corrupt states is
education. “Total expenditures on education are likely to decrease in states with
higher levels of public officials’ corruption.” But education is not the only
public service affected. “State government expenditures on public welfare,
health, and hospitals tend to be lower in states with higher degrees of
corruption” (Liu, Mikesell. 2014).
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The next art icle, “PACking a Punch: Political Action Committees and
Corruption,” investigates whether Political Action Committees (PACs) have an
influence over the levels of corporate-political corruption. In this article, it is
asked if “Political Action Committees (PACs) might resort to illegal means
such as bribery to further their agendas.” Some people believe that contributing
to PACs could be considered a legitimate form of bribery. The sizes of both
government and population are extremely relevant determinants for corruption.
Therefore, the more PACs there are, the more corruption there is l ikely to be.
Income is not relevant to corruption. All income levels can be involved in
corrupt acts, although they may not be similar in form.
PACs are related to all levels of government; all the way from local up to
federal. Corporation PACs are mostly involved at the local and state levels of
corruption, since they would be easily exposed at the federal level.
The results for this research show that PACs definitely have an influence over
corruption, whether i t is directly or indirectly. “PACs are positively associated
with corrupt activit ies,” and “judicial employment is posit ively t ied to
corruption” (Goel. 2014).
The judicial system of the United States is extremely prone to corrupt and
to be corrupted, as seen in the article “The Jury and Participatory Democracy.”
This article demonstrates how, during civilian-government disputes, judges
could be bribed and often favor the government. It was also found that “the
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selection of jurors could be corrupt and the jurors themselves could be bribed,”
and that “judicial elections present serious concerns about corruption and lack
of independence; in part as a result of judicial reliance on donations” (Lahav.
2014).
During polit ical campaigns, some donators do not simply contribute out
their support for their selected candidate. They expect something in return.
That’s what the next article, “Campaign Cash and Corruption: Honey in
Polit ics, Post-Citizens United,” talks mainly about. When a situation presents
possible conflicts of interest, there are countless opportunities for corruption
and bribery to take place, and when people around such situation are unaware of
it, there is an even higher probability that bribery and corruption will take
place. When public officials realize that here is nobody watching, they are more
probable to make use of the situation at the expense of the good of the public.
Many organizations have the support of politicians whom they have and sti ll
support. “Outside organizations are supposed to be independent but actually can
be closely tied to specific candidates of elected officials.” In return for their
support, “organizations are able to accept contributions with essentially no
limits and no prohibitions on resources” (Krumholz. 2013). Individuals and
organizations not publicly known can have extensive influence on political
policies.
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A very brief article, but that describes very well the effects of corruption
scandals on congressmen is “Scandals and Congressional Elections in the Post-
Watergate Era.” In this article, it is declared that congress-related corruption
can consist of obstruction of justice, conspiracy, influence peddling, and
bribery. “Corruption scandals appear to have the worst effect on the
incumbent’s vote” (Basinger. 2013) making him or her lose the election and
possibly any other opportunity to recover their polit ical career.
In 2010, the city of Bell, California was involved in a scandal where
public officials were giving themselves a salary more than 300 times larger than
it is usual for the same positions in other cities of about the same size. That is
the event “Lessons of Bell, California” talks about.
In 2005, public workers in Bell , California altered the electoral process in
which it would be decided whether Bell would become a charter city by
removing a clause from the ballots that specified that there would also be no
limit in the pay of council members, although the election did include such
clause. The election passed and the result was that they were able to give
themselves ridiculously high salaries and other bonuses. Officials used portions
of the Home Rule Charter to benefit themselves while the public remained
unknowing of it. The irony here is that Home Rule was actually created to
prevent corruption.
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This case has been compared to corruption common in underdeveloped
countries, and some of the people involved come from Latin American countries
where corruption is a common practice. This comparison stems from the fact
that when the public is uninvolved and government can decide without public
input, corruption is l ikely to occur.
These are all the articles reviewed for the United States portion of this
paper. The next section will be about how corruption takes place in China and
how it is being dealt with.
China
In “Income Inequality, Fiscal Redistribution, and Governmental
Corruption: Evidence form Chinese Provincial Data,” one learns that officials
and individuals who make a profit from corruption tend to favor higher taxes
and more control regarding public projects.
Corruption creates huge gaps between incomes, making china a country with
high income inequality. Tax and spending further contribute to income
inequality, and “as the expenditure increases, the tax becomes heavier, and then
the corruption becomes worse.” The result is that “a considerable portion of the
extra-budgetary revenues go directly to the pockets of corrupt officials” (Mi;
Liu. 2014).
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China is one of the countries with a severe case of corruption. Corruption in
China consists of both individuals and groups. Collective corruption has been
increasing year after year, and it has spread to the judicial authority, personnel
departments, law enforcement authority, general economic management,
education, and other government leading organs. “Corruption had an adverse
impact on Chinese economic development and brought about a certain amount
of economic losses” (Mi; Liu. 2014).
Even though China has been economically improving, corruption has been
increasing. Public services are not being performed without malice, “there are a
large number of order apertures or system vulnerabilit ies that can breed
corruption.” Rich groups and individuals constantly block policies that might
benefit the poor.
Corruption in China is not proportional to the size of government. The rich have
more motivation and opportunity to be involved in corrupt acts, while the poor
are more easily extorted and powerless enough to have to accept corruption.
Individuals with lower income are more probable to offer bribes to be able to
access different public services. Income inequality causes corruption, and
corruption causes further income inequality. “Corruption exists in government
expenditure. Corrupt officials may spend more public resources on the public
projects that facil itate their confidential corruption. Policies that reduce
corruption will most likely reduce income inequality and poverty as well” (Mi;
Liu. 2014).
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Not only does corruption create income inequality, i t also affects all public
services. Education spending is reduced by corruption, for example. For
cit izens, the tradeoff of corruption in exchange of welfare is not appropriate.
In addition to the situations described above, “corruption also exists in tax
collection.” As tax rates increase, tax revenue decreases due to corruption and
tax evasion. “Corruption is similar to a regressive tax, it does more in punishing
the poor than it does the rich” (Mi; Liu. 2014). To reduce corruption, spending
and taxing must also be reduced. People who do not engage in corrupt activit ies
have higher tax expenditures. Not only metropolitan areas are affl icted from
this, neighboring provinces have similar corruption rates.
The next art icle, “China’s Strategic Censorship,” talks about government
control over media reporting. Government controls the quantity of investigation
for reporting purposes, leaving many local issues unattended and hidden from
the public. “The risk of being exposed in the media acts to check corruption by
local officials.” Unless the levels of corruption are too high, the government
will try to keep local reporting to a minimum.
When the economy is thriving, corruption is not perceived as negatively as
when there are high social tensions. If the quantity of investigative reports
increases, there is a higher probability that a public official who engages in
corrupt acts will be exposed. When the public has a high level of discontent,
government will allow an almost unlimited amount of investigative reports
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where corrupt officials might be exposed. Although the government tries to
keep the public uninformed about people’s discontent, they must allow some
information to leak when reports on corruption are published, since they also
want to keep corruption levels to a minimum. If there are high levels of tension
within the society, but corruption is not a major issue, the government will
restrict investigative reports, but if corruption is a major issue, then they will
allow reporting to take place.
The government has also placed restrictions for what officials spend
public funds on, forbidding them from purchasing expensive, unnecessary, or
foreign products, as can be read in “China’s Crackdown on Corruption and
Government Spending: A Timeline.” According to this article, there have been
several recently passed rules that prohibit public officials from using luxury
cars, as well as l imiting official dinners and other galas, and eliminates
extravagant gifts for officials, along with other privileges that they have
enjoyed in the past. “The regulations have allowed the Xi administration to
single out officials for punishment, starting at the local level and moving up the
ranks of party hierarchy” (Donovan. 2014). Bans allow every single official to
be vulnerable to crackdowns, from the lowest to the highest levels.
The restrictions placed are many, and more than helping combat corruption,
they help boost the Chinese economy, since many of the product that were
banned must now be replaced by similar ones made in China. Several brands of
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foreign luxury vehicles can no longer receive police or mili tary l icense plates,
the Chinese army can no longer purchase foreign brands of cars, public funds
can no longer be used for galas or dinners, and some types of outlandish food
have been prohibited in these events, as well as expensive brands of l iquors and
cigarettes, and public funds have been restricted with regard to travel expenses.
“Such action-oriented policies against corruption and spending are l ikely to
have a positive effect on the Chinese public’s perception of governance, but an
adverse effect in the global market for luxury goods” (Donovan. 2014). High-
end services and products, such as hotels, have experienced a considerable
downfall in the amount of services provided, and consequently in earnings and
profit.
Corruption in China does not only involve the government and some other
party, business-to-business corruption is a major concern as well, as discussed
in “The Dark Side of Business with Chinese Characteristics.” In China,
corruption between businesses is as il legal as corruption with government
involvement, although business-to-business corruption is not seen as negatively
as government corruption by the public.
The article discusses a theory that dictates that if corporate corruption spreads
within a society, it will create a culture of corruption and it will spread to the
government as well. Since China owns a considerable amount of enterprises,
there is an unclear dividing line between corporate and government corruption.
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Most of the bribery that occurs is between businesses instead of it being
between businesses and government officials, and most of the people involved
in business corruption are not government officials. Government officials and
business agents engage in different types of corruption, among those are
embezzlement, bribery, and insider trading. Commercial corruption is made up
of networks of commercial agents and government officials.
The result of corporate corruption is that if a company engages in corrupt acts,
other companies will also engage in corruption in order to not be left behind.
Especially since bribes provide great ROIs for businesses. The fact is that
corruption is profitable and financially worth the risk. “It has long been obvious
that the business sector plays a major role in public corruption” (Wedeman.
2014).
Private parties can be a major creator of public corruption, and government
officials are suppliers of corruption because there is demand by the private
parties. If official corruption is to be attacked, first , private corruption should
be attacked.
In China, “corruption worsened as growth prospered.” This quote
describes the main focus of “Developmental Corruption in China,” the next
article reviewed.
There are two types of corruption, degenerative and developmental.
Degenerative corruption occurs when public welfare and the economy
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degenerates due to corrupt actions. On the other hand, developmental corruption
occurs when there is economic growth and politicians are funded and rewarded
by companies to keep them in power to continue with their policies that favor
growth.
In China, corruption boomed when the economy started to be more market-
based. “Marketized reform was the engine propelling both growth and
corruption” (Wolf. 2013).
A perpetrator will measure his expectation of the outcomes from engaging or
not engaging in corrupt acts and will decide based on the expected payoff and
consequences of each choice. Consequences for corruption in China are much
more severe than in the U.S. Potential corrupt situations must be overseen by an
uncorrupted and independent institution in order to discourage possible
perpetrators.
An important aspect of corruption is how it is perceived by the common
cit izen. A survey was made to write the article “Perception of Corruption in 36
Major Chinese Cities: Based on Survey of 1,642 Experts” in which people who
are familiar with corruption and its effects were asked about what they believed
was the perception of corruption among cit izens. The survey discovered that for
the public, corruption that really matters is the one that occurs at a local level.
Coincidentally, the majority of corruption cases occur in local areas.
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Corruption and efforts to eradicate corruption in Chinese cities have a
significant impact on the economic and political development of China, as well
as individuals’ day-to-day life. Only an extremely low percentage of all corrupt
acts become public knowledge.
Of all the sectors that are related to corruption, construction is the one with
most corrupt actions. Corruption in courts and police departments is of high
concern for citizens. The media provides an important share of information
regarding anti-corruption to cit izens.
A public official will mainly determine whether to engage in a corrupt act or
not by the probability of an investigation and consequent conviction against
them. Because of corruption, honest individuals lose an unfair competit ion, and
individuals who engage in corrupt acts have higher probabilit ies of prevailing.
The last art icle reviewed, “Economic Freedom, Economic Growth, and
China,” which is very short, describes some of the effects of corruption in
China. This article explains that “corruption erodes economic freedom by
introducing insecurity and uncertainty into economic relationships,” and that it
is “perceived as widespread in China” (Wu. 2011). Industries heavily affected
by corruption are construction, banking, government procurement and finance.
There appears to be a deficiency of courts and independent investigative bodies.
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CONCLUSION
Through this l iterature review we were able to see that corruption is not
exclusive of a single country; it’s not even exclusive of a single culture.
Corruption is worldwide and every single person in the world has a propensity
to engage in i t. This leads to the conclusion that corruption is inherent of the
human nature. It is part of the so-called “survival of the fi ttest;” those who
truly want to get ahead, find the means necessary to do so, even if it means
bending or breaking a few man-imposed rules. Having said this, it would be
quite safe to assume that corruption is unavoidable and indestructible, but not
uncontrollable.
Corruption should be controlled to a certain extent, but should never be tried to
eliminate. The reason behind this is that corruption, although detrimental to
some, creates a higher probability of the “perpetrator” to grow, most probably
economically. This growth will quite unavoidably be passed on to other people
who receive the benefits gained by the “perpetrator” in exchange for products
or services, making the original corruption gains to be eventually returned to
society.
Let’s take, for example, governments where elected officials decide to increase
the infrastructure of their cit ies with the sole purpose of deviating some public
funds into their own and their friends’ pockets. Yes, society’s money is being
“stolen,” but a large part of it will be spent in construction workers’ salaries
and in products which will be purchased from specialized factories were other
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employees work. All this money will be returned to the society from which it
was taken, maybe not in its entirety, but jobs are being provided for those who
need it, and the unemployment rates will be lowered.
Another example, with a different situation, is the one that led to the extensive
growth of the city of Las Vegas, Nevada. It is no secret that what once was a
small , insignificant town became a huge and fruitful city thanks to the
involvement of organized crime. Thousands, if not mill ions of people have
enjoyed the benefits that have come from the investments made into this city,
which came directly from il legal sources, and the same thing can be said about
Atlantic City.
So far, the examples have been regarding the United States, but China has also
greatly benefited from corruption. China is internationally famous for being the
“capital of brand piracy.” Brand piracy is a multi-bill ion dollar business in
China. Whether i t is movies, music, clothes, electronics or even perfumes, it is
extremely easy to find a knockoff product of a famous name brand, and China’s
economy thrived from selling these products worldwide. Affected brands have
tried to persuade the Chinese government to stop those engage in piracy, but
have not been successful. The Chinese government is not even trying hard
enough to stop them, the reason being that if they do, billions of dollars would
stop being dumped into their economy. China also engages in other forms of
corruption including intellectual property theft and industrial espionage,
benefiting even further. It is a fact that China is growing so fast, that it will
most probably be the next superpower, and corruption has definitely helped.
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The truth is that corruption works. It makes things flow easier and faster, and
the gains can be enjoyed by everyone who even has an indirect involvement in
the situation. The benefits are never completely kept by the “perpetrator,” they
are passed on.
SUGGESTION FOR FUTURE RESEARCH
In the conclusion i t was said that corruption is useful for helping society
prosper and grow and some examples of such situations were provided. Through
the l iterature review, it was noted that big, wealthy cit ies have a high degree of
corruption. Therefore, it is of the author’s belief that future research should
involve an investigation of what effects total corruption eradication would have
on society and how a city, state or country would be economically impacted by
it and researchers can look to the work of Carraher and colleagues (1991 to
present) for suggestions of factors to examine in relation to corrupation.
Advantages and disadvantages should be carefully examined and weighed in
order to determine whether corruption should be tolerated or if it should be
eliminated from society.
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WORKS CITED
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