China

In China, Politically Connected Firms Have Higher Worker Death Rates


Workers attend a meeting about safety production in a coal pit in Chongqing Municipality, China

Photograph by China Photos/Getty Images

Workers attend a meeting about safety production in a coal pit in Chongqing Municipality, China

The body of the last miner was pulled from a shaft of Xiangshui Coal Mine in Guizhou province on a chilly Monday in November. The rescue workers had been searching for two days after a violent coal and gas explosion underground, which instantly killed 18 of the 28 miners on site. The final death toll was 23. The local newspapers, as usual, did not print any of their names.

Coal mining in China is widely considered one of the world’s deadliest jobs. Government statistics record that in the first nine and a half months of last year, 1,146 Chinese coal miners died in work-related accidents, about four deaths per day—and most analysts assume official numbers represent significant underreporting. (For comparison, 17 American coal miners died in work-related accidents in 2011, according to the U.S. Department of Labor.)

Still, not all Chinese coal mines are equally dangerous. Following the Xiangshui tragedy, Guizhou’s Deputy Governor Sun Guoqiang told local reporters, with surprising candor, that state-run mines are more deadly than private mines—because state-run firms can rely on connections and official favors to evade safety regulations. He called the situation “grave.”

Luo Yun, dean of the engineering and technology department of the China University of Geosciences, in November 2011 told Caixin magazine that plugged-in mine owners often respond to safety issues by promoting “campaign-style, blitz-style, leapfrog-style, slogan-style production management” that “violates scientific principles”—yielding catchy sound bites but not addressing underlying concerns.

Columbia University economist Ray Fisman and University of Southern California finance professor Yongxiang Wang wondered if they could document a link between the nature of a firm’s management and its rate of worker fatalities. “We see so many newspaper reports about corruption and poor working conditions in China, but we wanted to more systematically investigate it,” says Wang. “Why do certain companies have high worker fatalities? Do they get away with this because they have high-level protection?”

Their hunch was that more politically connected executives might be able to grease the wheels for lower compliance with health and safety regulations, through personal connections or outright bribes. Says Fisman, co-author of a 2010 book on comparative global corruption, Economic Gangsters: “You expect to find a non-zero result when you embark on a project, but honestly we were flabbergasted by the magnitude” of the correlation.

Fisman and Wang studied 276 Chinese firms operating in such hazardous industries as mining, smelting, construction, and chemical processing for the years 2008-2011. They examined the résumés of the firms’ top executives to see which ones included managers who had previously held high-level government posts—they defined those companies as politically “connected.”

Their research was made easier by the fact that, in December 2008, the Shanghai Stock Exchange and Shenzhen Stock Exchange had mandated—for the first time—that a subset of listed firms issue Corporate Social Responsibility (CSR) reports for fiscal year 2008 onward. Many other companies began to voluntarily provide some information on CSR in their annual reports, including stats on worker fatalities. The researchers found additional data in newspaper reports and government websites.

The robustness of the link they found was striking: Connected Chinese companies averaged five times as many fatalities as similar unconnected companies. What’s more, the arrival or departure of a highly connected executive was marked by, on average, the death rate per 10,000 workers rising by 10 or falling by 6.4, respectively, in the following year. In a research summary published in the January/February 2013 issue of Harvard Business Review, they dubbed it “the unsafe side of Chinese crony capitalism.” “A fivefold difference I personally find to be stunning,” says Fisman. “I would have expected maybe a 10 percent bump, not 500 percent—this is a case where the fact of a connection is not as surprising as the magnitude of it.”

Shortly after being named Communist Party chief in November, Xi Jinping called corruption an existential threat to the party—he compared its corrosive impact to “worms breeding in decaying matter”—and pledged to make cleaning up corruption a priority. China watchers are divided as to whether he’s both serious and able to curb China’s endemic corruption, or whether the current grandstanding is mostly for show.

Meanwhile, citizen watchdogs on Weibo, China’s Twitter, are busy circulating photos and other evidence exposing the lavish lifestyles of officials with modest salaries, but apparently benefiting from corruption—from cadres flaunting multiple luxury watches to those owning 22 homes to those courting 18 mistresses. Fisman says his and Wang’s work complements this picture by also “shining a light on the consequences of corruption for the downtrodden, rather than simply highlighting the vast benefits to those who are aiding and abetting graft.”

Academic literature on corruption has proliferated in recent years as economists devise new ways to measure what happens under the table. “The real challenge, of course, is that what you’re trying to study is illegal, so you can’t just go ask someone, ‘Hi, how corrupt are you?’” says MIT economist Ben Olken. “A lot of work is focused on developing more sophisticated techniques” to track and quantify illicit behavior. Fisman and Wang’s study, which draws a correlation between management and worker fatalities without attempting to directly document a paper trail of bribes or skipped safety checks, is one example.

One small shaft of light has emerged from their work: In Chinese provinces that have begun to link the advancement of local government officials with safety records, such as coal-rich Shanxi province, improvements in worker conditions are evident. “Officials there are less likely to turn a blind eye, even to well-connected companies,” says Wang. “Chinese officials care even more about their political career than about money; promotion is a really big thing for these guys.”

Larson is a Bloomberg Businessweek contributor.

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