Sunday, March 22, 2009

Ryan Pyle Blog: Corruption & Construction


Today I wanted to address infrastructure spending. With all this stimulus money being tossed around, much of it earmarked for infrastructure and construction, I thought we should stop for a minute and take note that the collective world is throwing hundreds of billions of dollars at perhaps the doggiest industry on the planet.

A recent article in Fortune Magazine (02/16/2009) reported that, according to Transparency International, a non-governmental organization, the construction industry is the most corrupt industry in the world. An example of this comes from Halliburton, who recently forked out US$599 million in fines to the US Government to settle charges concerning construction related bribes in Nigeria. Wasn't former Vice President of the United States Dick Cheany the former CEO of Halliburton prior to his eight years in public office?

While the Fortune Magazine article focuses on the anti-corruption measures by construction company Fluror, I thought it might be interesting, in this space, to take a look at how all that tax payer stimulus money will be spent. After bailing out the banks the next biggest expenditure in the United States is likely to be construction, whether it be building roads, expressways, bridges, schools, and factories. Does it not raise any flags within the government that the construction industry is such a mess? Now perhaps in the United States there are more regulations and transparency in the bidding process for government contracts, but there is certainly going to be a lot of back dealing; and perhaps that is acceptable because of the great rush everyone is in to repair the economy and put people back to work, but maybe not.

While I don't have much direct experience in the United States on these issues I can promise you that China's US$600 billion stimulus package is going to go pear shaped in the early stages. In an earlier blog I mentioned that much of the benefactors of the stimulus money will be construction companies and firms dealing with natural resources, both industries are essentially government owned. So basically the government wrote a US$600 billion cheque to itself. Fair enough, the government manages over 50% of the Chinese economy either directly or indirectly; and at the end of the day communist leaders have no interest in transparency and no tolerance for criticism, so they don't really worry too much about what ordinary people think about these types of investments in the country. In the end the expenditure will help things, disproportionately to owners of cement and construction companies but that money will trickle down to the service economy as well. Transparent, no. Effective, that has yet to be seen.

But I worry. While the Chinese government knows how to mobilize and move people better than any government on earth, there is no doubt that the money will be used quickly and short-term construction jobs will keep migrant workers happy for a year or two, but how is that sustainable? When that money runs out will there be another stimulus package introduced? If the government fears political stability so much, and keeping migrant workers and University graduates busy, perhaps they should just call the stimulus packages "Political Stability Stimulus"; which is all it really is. Expect more money thrown at the problem in the coming months.

Furthermore, my guess is that Transparency International doesn't have very many nice things to say about the construction industry in China, and it should bother people that there could be so much potential for wasted money. In the United States ordinary people rise up and complain all the time about how "my tax dollars are being wasted". Well Chinese workers pay tax, and so do Chinese companies and so do joint venture multinational corporations; but where are the people in China asking, "are my tax dollars being wasted?". Or what about "are my middle class tax dollars being used to pacify the masses and keep the current corrupt leadership in place?" Interesting questions, no answers and no dialog.

This is what the emerging middle class should be bringing to the table, and in the future they will hopefully demand more transparency and some form of independent rule of law in China. My guess is the government already knows that and doesn't care much for making changes in the great name of "political stability and economic growth". And while stability and economic growth is important it doesn't mean that tax payers should just sit back and watch money be thrown at corrupt industries to solve short term problems.

The next 6 months should be very interesting. Many online bloggers in China were quick to point out that a significant portion of the money donated to rebuild Sichuan after it's devastating earthquake was misused, my guess is the same will be done for this stimulus package. But even if caught with a hand in the cookie jar, don't expect any government officials to be jailed. For those who are keeping score, economic growth once again trumps rule of law, anti-corruption measures and political reform.


Ryan Pyle

1 comment:

  1. Yeah, you have the point that the construction industry is the most corrupt industry in the world. Because they are estimating more than the exact price, manpower, time and materials. They earned double, triple and sometimes more than that.



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