Politics, Growth, and Inequality in Rural China: Does it Pay to Join the Party?

As the experience of Russia and some Eastern European countries has demonstrated, economic reform is difficult to carry out when the rank-and-file officials or bureaucrats to whom authorities must turn to implement change resist the reforms in order to protect their vested interests. Drawing on an unusual longitudinal survey data set for a representative rural county in northern China, we show an alternative, positive scenario where officials benefit from and support reform. We find that households containing local officials enjoy higher incomes than others, and that their political rents appear to have increased during a period when the reforms accelerated. These results are robust to estimation with controls for unobserved ability and human capital. These political rents are associated with preferential access to wage employment and high-value agricultural production, both of which are subject to the control of local officials, and both of which have benefitted from ongoing reform. Political rents are enjoyed only by those who hold relevant political posts; mere membership in the Communist Party does not yield direct economic benefits. The mechanisms through which local officials benefit are consistent with the presence of an implicit, performance-based incentive contract that ties the household incomes of high local officials to market liberalization, increases in consumer demand, and the provision of public goods. These mechanisms appear to be tolerated by the local population, as the fruits of growth are shared fairly equitably, thus allowing implementation of a politically and economically selfreinforcing reform process.