“Mexico’s biggest drug lord escapes from jail. Unbelievable corruption and USA is paying the price. I told you so!” Tweet from @realdonaldtrump
Everyone has an opinion on Donald Trump, particularly his controversial statements on Latin America. But whatever your views, we have to admit Trump hits the nail on the head on one thing: corruption in Latin America is unbelievable.
A quick scan of the latest news stories should convince us that no issue in our continent is more pressing. Corruption is so pervasive that it threatens the very democracy that Latin Americans hold dear. And it’s not getting any better.
Aside from the spectacular escape of notorious drug kingpin El Chapo from a Mexican jail, there is no bigger story right now than the unfolding scandal involving Petrobras and Odebrecht, two of Brazil’s largest firms. The allegations involve billions of dollars in kickbacks and influence peddling, and it poses a real threat to the survival of President Dilma Rousseff’s government, whose popularity ratings are in the single digits. Prosecutors all over the continent are scrambling to coordinate their investigations, which include corruption and collusion between multiple infrastructure companies, the semi-state petroleum company and politicians from many parties.
Corruption is at the forefront of popular concern in country after country. In separate 2013 surveys, 56% of Colombians and 44% of Peruvians said corruption was one of their country’s top problems. Even supposedly squeaky-clean Chile has been suffering from months of bad stories related to illegal links between money and power, some including some of President Michelle Bachelet’s relatives. And corruption is so pervasive in Venezuela—routinely ranked the most corrupt country in South America—that new revelations are barely considered news.
The academic literature frequently calls corruption “a tax,” an extra payment citizens have to dish out for basic services. However, if it is a tax, it is a highly regressive one. A recent World Bank study made the case that since bribes represent a higher proportion of the poor’s income, they are hurt more by corruption than the rich. Corruption is so expensive it can shut poor people out of public services entirely.
But corruption is much more than just a tax.
Corruption forces goods to sell at higher prices. It makes procedures more burdensome, and it makes government less effective. All this costs time and effort, and ultimately, erodes the public’s faith in democracy.
One of the reasons why Latin America can’t escape the boom-bust cycle of its main export commodities is that its fiscal policies tend to be pro-cyclical: instead of saving during good years, Latin governments tend to spend more on social programs during boom times, and cut back when prices drop. The predictable pattern of spending during the good times and cutting back during the bad ones leaves citizens at the mercy of global volatility.
This pro-cyclicality is exacerbated by corruption. In a 2008 paper, Harvard economist Alberto Alesina and two of his colleagues claimed that corruption made fiscal policies even more pro-cyclical. When times are good, they claim, citizens demand their share of the bonanza via higher spending or lower taxes because they believe their government will pocket the surplus money instead of saving it for the upcoming rainy day. In other words, in an environment in which citizens expect government to be corrupt, governments respond by temporarily buying them off.
In spite of this, Latin Americans are not condemned to live with corruption. There are examples of countries that have successfully tackled corruption. One of the few success stories is Singapore.
How did Singapore do it? Thanks to a strong commitment from leadership, Singaporeans increased punishments for corrupt practices, increased monitoring and transparency, codified all sorts of crimes against inappropriate use of public money, and empowered the agencies in charge of looking at the issue.
One of Singapore’s most innovative bureaucracies is the Corrupt Practices Investigation Bureau. It works directly with the Prime Minister’s office, and it enjoys significant powers—for example, it can arrest individuals without a warrant, and execute search and seizure orders without a court order. Obviously this would be a controversial move that, in Latin America, would likely lead to serious abuses, but the point is that corruption offices require strong legal powers to do their job effectively.
Singapore also raised the salaries of public servants to match private-sector wages, reducing a reason for public officials to ask for bribes to supplement their meager incomes. By increasing the penalties and decreasing the financial incentives of corruption, they changed it from a low-risk, high-reward game to a high-risk, low-reward one.
Yet if there is one lesson Latin America can draw from Singapore, it is that fighting corruption requires political will. It is essential for political leaders, particularly those at the highest levels, to worry about the problem and implement effective ways of tackling it.
If we keep on electing people who are more worried about not getting caught in corrupt activities rather than undoing them, then we will never solve the problem. To break the cycle of corruption, we need to empower good leaders and mercilessly punish bad ones—but under the rule of law and respect for political and civil rights. Zero tolerance government must be brought about by a zero tolerance society.
That is the only way we can make sure that, in the future, people like Donald Trump cease to have a point.
