David J. Pyle

The relationship between crime, punishment and economic conditions: is reliable inference possible when crimes are under-recorded?

We investigate the estimation of dynamic models of criminal activity, when there is significant under-recording of crime. We give a theoretical analysis and use simulation techniques to investigate the resulting biases in conventional regression estimates. We find the biases to be of little practical significance. We develop and apply a new simulated maximum likelihood procedure that estimates simultaneously the measurement error and crime processes, using extraneous survey data. This also confirms that measurement error biases are small. Our estimation results for data from England and Wales imply a significant response of crime to both the economic and the enforcement environment.

Foreign Trade and Investment

Both foreign trade and inward foreign direct investment were literally forced upon the Chinese in the nineteenth century, following the Opium Wars and the Treaty of Nanjing in 1842 (see Chapter 2). After the declaration of a Communist state (1949), involvement in foreign trade and with foreign inward investment changed quite dramatically. During much of the 1950s China was in conflict with the USA and the West generally and turned to the Soviet Union as its main trading partner and for aid with investment. This had a marked effect upon the way that the foreign trade system was developed (see section 5.2). Also, China’s earlier domination by foreign powers had soured Chinese attitudes to foreign direct investment which was essentially discouraged. However, China (or more accurately, Mao) fell out with the Soviet Union in the late 1950s. This caused a shift towards Western European trading partners, a move that was further encouraged by the need to import both foodstuffs and capital following the disastrous events of the Great Leap Forward. Nevertheless, this warming to the West was reversed during the Cultural Revolution, when everything Western (that is, capitalist) was regarded with disdain, if not outright contempt. Indeed, during this period foreign investment was completely outlawed (Howell, 1993) and China essentially turned its back on the rest of the world.

Combating crime: Do the police give value for money?

The Government have honoured their commitment to ‘law and order’ by increasing spending on the police. But is that likely to be effective in reducing crime? The answer appears to be: not by much. Other policies, such as reducing unemployment, may be more cost‐effective.

The Determinants of Police Expenditures

In this chapter we consider a number of empirical studies of the determinants of variations in expenditures between local police agencies. The vast majority of such studies have been concerned with police expenditures in the USA and this chapter will reflect that bias. Before considering these studies in some detail, a few introductory remarks are called for.

Economy and Society, 1800–1978

When the Communists took control of China in 1949, the economy had been ravaged by nearly one hundred years of conflict. First had come internal conflicts which culminated in the civil war between the Communists and the Nationalists (the Kuomintang). Second, superimposed upon this conflict, there had been a series of wars with various Western imperialist aggressors, the last of which was the war with Japan (1937–45). As a result, industrial production in 1949 was barely more than one half of its pre-war peak (Riskin, 1987).

Economic Reforms, 1979–94: Introduction and Overview

The objective of this book is to provide a review of the economic reform process which began in China in 1979 and has continued to this day. It is clear that when Deng Xiaoping took over the reins of power there was no real blueprint of how economic reform would proceed. As a result, the pace of reform has not been even. China has pursued both an experimental and a gradualist approach to economic reform, which is in stark contrast to the ‘big bang’ approach adopted by the countries of Eastern Europe in the 1990s. No doubt some will argue that the success of China’s reforms can be attributed to this cautious approach. However, others have argued that China’s groping towards a market system presents its own special set of problems, especially in terms of macroeconomic management. We will examine these issues in more detail in Chapters 6 and 7 below.

Financial Reform and Macroeconomic Performance

Since the economic reform programme began in the late 1970s there is no doubt that China has experienced exceptionally rapid economic growth (see Table 6.1). Between 1978 and 1994 the average annual growth rate of real gross domestic product (GDP) averaged over 9 per cent.1 In 1992 and 1993 China’s real GDP grew by more than 13 per cent in each year. According to the World Bank (1995, p. 2), ‘China was the fastest growing economy in the world in 1993’. In fact, in 1992 and 1993 manufacturing output was growing at approximately 20 per cent per year.

Chinese Lessons or Chinese Puzzles

In this book we have undertaken a quite detailed examination of the economic reforms which have been taking place in China, a process that has been ongoing now for almost 20 years. It is time to summarise what we have found and to assess both the impact of the economic reform process upon the Chinese people and the lessons which can be applied to other transitional economies. As a result, this chapter will focus upon issues such as how much progress there has been in China over the period and how much of it can be directly attributed to the reforms themselves. We will also consider what remains to be done and the scope for further economic reform in China over the next few decades. Finally, we will assess what lessons the Chinese experience of economic reform offers to our understanding of the process of transition from a communist/centrally planned economy to a socialist market economy/capitalist economy. In this, we will be led to compare the reform experiences of the countries of Eastern Europe and the former Soviet Union with that of China. On the surface, at least, the process of transition followed by the countries of Eastern Europe has been quite different from that followed by China and the outcomes, too, look to be dissimilar. As we will see, there is a great deal of controversy concerning the lessons which the Chinese experience offers to other command economies undergoing the process of economic transformation.

Reform of Industrial Enterprises

In the last chapter we examined reforms in the agricultural sector. We now examine reform of Chinese industry and particularly of the so-called state-owned enterprises (henceforth these will be referred to as SOEs). A number of concepts explored in the last chapter will re-emerge in the discussion of SOEs — in particular ideas such as principal-agent relationships, monitoring costs, and incentive compatibility. This should not be a complete surprise. The pre-reform institutional structure in industry, and the incentive system which flowed from that structure, was not unlike that which pervaded the agricultural system prior to reform.1 What is noticeably different is the proffered ‘solution’ to the problem of poor economic performance. In agriculture the solution was to essentially privatise farming, with each household becoming a decision making unit able to pursue its own goals, primarily maximisation of profit. In industry, there has been no attempt at privatisation of the SOEs. The result has been to produce a rather strange paradox, which is that far from reducing the involvement of the state in the running of industry, the reforms have, if anything, increased the amount of state intervention in industrial production (Fan, 1994).

Agricultural and Rural Reforms

At the end of the 1970s China was a predominantly agricultural, rural community. Eighty per cent of China’s vast population lived in the countryside and the number of people employed in agricultural pursuits was about 300 million. That only 40 per cent of national income in 1979 (Lardy, 1983, p. 1) originated in the agricultural sector largely reflected Communist China’s preference for industry over agriculture, although Lardy (1983) refers also to the land constraint, which had generated diminishing returns to labour in agriculture.