Exclusive to this site, November 29, 2000 [Available in an Italian translation]
In Defence of Lai Changxing
What horrible crimes this Chinese guy must have committed! The Canadian Alliance immigration critic wants him to be expelled from Canada as soon as possible. An NDP candidate of Chinese descent was, as we would expect, kindler and gentler: he thinks the criminal should not have been allowed in Canada. The Chinese Prime Minister asked the Canadian government to send the felon back. The whole political class seems united in disgust. Or is it fear?
What has Lai Changxing done? As a Chinese resident, he has, since 1996, smuggled in China many billions of dollars worth of goods, ranging from crude oil to vegetable oil, rubber, cars, cigarettes, electrical goods, etc. Not only has he evaded nearly billions in taxes, but he did other nasty things like selling oil at half the official price and “distorting national oil prices and thus production and overall energy policy” (Far Eastern Economic Review dated Nov. 30, 2000).
As the press suggests in veiled, self-righteous disapproval, the “smuggling kingpin” also engaged in “corruption.” He had to keep Leviathan at bay. So, he bought off a host of bureaucrats, at least up to the level of the deputy mayor, the local customs chief, and a provincial deputy police chief. He paid them millions in bribes, entertained them with girls, and gave jobs to their relatives. As a result of the anti-corruption repression campaign in China, many of these bureaucrats have been recently charged and condemned, including to the death penalty. The main suspect was still at large, hiding in Vancouver. Fortunately, the Canadian government came to the rescue in upholding morality and the Chinese rule of law.
Enough pidgin ethics for now! What is “corruption”? For sure, a moral (and an economic) argument can be made against breaking one’s contractual obligations in return for a bribe. But bribing a bureaucrat in order to sell oil or cars at lower than official prices does not warrant the same moral condemnation, especially (but not exclusively) when it is done against one of the worst tyrannies on earth.
Moreover, economics shows that bribing bureaucrats can be as efficient as the underground economy or the smuggling operations it facilitates. So-called “black markets” are black not because of some independent moral imperative, but because the state prohibits some individuals from exchanging certain goods. Smuggling and the underground economy are a creation of state prohibitions. Smuggling is not the immoral jumping of a natural wall between two countries, it is the bypassing of an artificial barrier forcibly manned by state agents. Except in cases like murder contracts or markets for stolen goods, black marketers, smugglers and bureaucrat-bribers like Lai Changxing are only paper criminals. They satisfy consumers’ demands by partly re-establishing the free market that the state prohibits.
The economic argument for the Changxing-type of entrepreneurship is not only a general presumption in favour of individual choices and free exchange – “capitalist acts between consenting adults,” as Harvard philosopher Robert Nozick wrote. It also rests on the theory that no institution is perfect and that built-in restraints are necessary to keep the state from doing all the evil it can (remember the 20th century?). Economics Nobel prizewinner Harold Demsetz argues that the underground economy prevents the state from increasing its take over a certain limit: it acts as a built-in stabilizer (Economic, Legal, and Political Dimensions of Competition, North Holland Publishing, 1982). In their recent book Public Spending in the 20th Century: A Global Perspective (Cambridge University Press, 2000), economists Vito Tanzi and Ludger Schuknecht report that the underground economy amounts to 18% of the economy in developed countries with big governments (i.e., governments accounting for more that 50% of official GDP), while this proportion is only 8% in “small” governments (less than 40% of GDP).
As the state grows, tax evaders and people who retreat in the underground economy are not transferring their burden on “honest” citizens. On the contrary, their very actions is what prevents the state from taking even more from anybody.
We should know in Canada, if only because of our experience with cigarette smuggling in the early 90s. The only reason why our rulers had to reduce tobacco taxes, and do not now increase them more, is that smugglers come to the rescue of the market constituted by the 25% of Canadians who like this herb. More generally, without an underground economy, governments would be more tempted to increase taxes and the regulatory burden. This explains government campaigns against the underground economy.
Bribes and the moral corruption that come with smuggling and black markets do constitute a problem, but not in the sense that our rulers and the PC press would like us to believe. Moral corruption may spill over in private relations and slowly destroy the stock of honesty capital that we have built over a few centuries of relative liberty. Now, the cause of this danger is not the underground economy, or the smuggled goods that feed it, or the bribes that keep the bureaucrats at bay (“a bribe a day keeps the bureaucrat away”); it lies in the regulations, the taxes, and the prohibitions of the uncontrolled state.
The best is to have a small government where corruption has little object. The worst is to have a large, tyrannical state without corruption. In such a situation, “corruption” is a second-best because it at least re-establishes some possibility of individual choice. If the only thing Mr. Changxin has done wrong was to smuggle oil, cars, tobacco, cellphones, and guns in China, and neutralize bureaucrats by putting them in bath tubs with prostitutes (poor girls!), he should be congratulated.
Moreover, we may need him here sooner than we think.