Masked Discontent: Corruption in Brazil and Latin America

 

 

Anyone that has traveled to Brazil can not help but be impressed with the warm, light-hearted, friendly spirit of Brazilians. They are a kind, helpful, joyous, love to eat, drink and be happy society of people.  But lurking deep beneath the surface of their smiling faces is a frustration and discontent that threatens the foundations of their democratic system and severely reduces their trust of politicians. Corruption – that ubiquitous, pervasive term that seems to permeate and oppress the lives of Brazilians and many other Latin Americans. Research has shown that corruption, independent of socioeconomics, demographics, or partisan politics erodes belief in political systems and has a negative impact on economic development.

This process has been closely studied by political scientist for the past fifty years and an amazing amount of qualitative and quantitative data has been collected. More important, researchers have used a number of approaches to analyze and explain it ranging from political economics to cultural relativism and have tried to define its causes, effects and implications on policy making. Some of the explanations offered include the impacts of colonialism, federalism, economic development, democratic consolidation, neopopulism, neoliberal reforms, and even religious work ethics as underlying causes.

In general, there are two types of corruption, political and bureaucratic but the wide variety of forms in which it manifests itself seems to defy categorization.  For example, some of the more prevalent forms of corruption are tax evasion, sale of public office, extortion, bribery, graft, perversion of justice, misappropriation of public funds, forgery, embezzlement, intimidation, undeserved pardons, blackmail, cronyism, nepotism, kickbacks, influence peddling, perjury and cover ups. Here in Brazil, people actually have bumper stickers denouncing political corruption.  They seem to feel that Brazil’s corruption level is extremely high and has systematically left education, housing, health, employment, security, and other social indicators far behind most Latin American countries and they’re fed up with it. Recently, millions of Brazilians mobilized and took to the streets in major cities across the entire country to demonstrate their disdain for the degree of political corruption that plagues their homeland.

But what really is corruption and which countries in Latin America are the most corrupt?

There are several definitions that have been used in a variety of works in political science, public policy, and economics. Sandholtz, Koetzle, and Treisman, for example, suggest that political corruption is the improper use of public office in exchange for private gain. However, we must also include Nye who states that corruption is behavior that deviates from formal duties of a public role for private, pecuniary or status gains. This definition is particularly important because it highlights a crucial element of corruption which is the blurring of the line between public and private responsibilities. And, it is certainly interesting to note that Manzetti, Blake, Porta, and Vannucci emphasize the transactional character of corruption,  in that, corrupt acts are exchanges between parties that offer inducements and receive benefits. All of these considerations seem to indicate that corruption is a process by which something good becomes degraded or sullied. But it is at this level we must be careful in our descriptions. For instance, if we suppose that corruption is the degradation of something good, then this view would inherently imply that the basis of corruption lies in the nature of human relations. This argument would then suggest the presence of some type of cultural relativism – that is to say, for example, people from a particular social class are more prone to corruption than others.  However, there is more than enough research to indicate that corruption is something more than any form of cultural variance.

Since 1995, the Transparency International Corruptions Perceptions Index (CPI) has been collecting data on a variety of sources of corruption throughout the world. However, the CPI makes no distinction between bureaucratic or political corruption. It measures perceived corruption through a wide variety of independent surveys that examine the views of business people and citizens regarding their governments and authorities as trustworthy officials. It also offers relatively good data on Latin American countries. For the years 1995 – 2005, the following countries were considered the most corrupt: Chile, Brazil, Columbia, Mexico, Argentina, and Venezuela. This year’s results report that Mexico and Argentina are the two most corrupt countries in Latin America. Periodistas Frente a la Corrupción (PFC) publishes a report each year that highlights cases of corruption that have actually been indicted.  For example, an unfinished highway in Ecuador that cost tax payers $106 million when the winning bid was only $36 million; in Guatemala, the Ministry of Communication awarded $27 million to fictitious suppliers linked to government officials; in Venezuela ( this also occurs frequently in Brazil), a massive public housing program paid almost $800 million to non-existent companies and builders who never broke ground on the project.  It is estimated that at least 10% of all government spending and 10 – 30% of infrastructure spending is lost to corruption. In Brazil, the figure is about U$40 billion (R$80 billion) a year.

Sources: Biddle, L. Corruption in Latin America: Political, Economic, Structural, and
Institutional Causes (Thesis). Chapel Hill: University of North Carolina, 2009;  Price, J. Corruption is growing (again) in Latin America. Latin Trade Group, 2013. http://latintrade.com/2013/04/corruption-is-growing-again-in-latin-america; Mallén, P.R. Mexico and Argentina are the most corrupt countries in Latin America, survey reveals. International Business Times, 2013. http://www.ibtimes.com/mexico-argentina-are-most-corrupt countries-latin-america-survey-reveals-1340779; Photo: Courtesy iStockphoto.com/P_Wei

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Masked Discontent: Corruption in Brazil and Latin America – Part 2

Although corruption has been around for a very long time, since the 1990s it has attracted a considerable amount of attention. Why so much attention now? On one hand, many believe that governments have fallen, prominent politicians, presidents, prime ministers, and even entire political parties have been replaced because of corrupt practices and it is a serious matter that needs to be addressed. While others believe that there is more corruption now than in the past and the reluctance to hold officials accountable is no longer acceptable. The role played by nongovernmental agencies such as Transparency International, the International Monetary Fund (IMF) and the World Bank support this view as evidenced by their commitments to anticorruption campaigns.

There are several arguments suggesting that the need for exposure and accountability are the motives behind the attention. Globalization, for example, has brought individuals from countries with hardly any corruption into frequent contact with countries where corruption is widespread. These contacts increased international attention to corruption because they believe their companies lost important contracts to companies that paid bribes to receive them.

Also, there is the importance and effectiveness of a country`s legal system. Legal systems have the tendency to differ particularly in regard to the protections and opportunities for recourse they offer, that is, to those that may be harmed by corrupt acts. Take the United States, for example, and its influence on international institutions. Policymakers in the US have argued that many American exporters have lost foreign contracts because they have not been able to pay bribes to foreign officials. It is well know that for American companies bribing foreign officials constitutes a criminal act and bribes paid cannot be deducted as costs for tax purposes. However, in many Latin American countries bribing an official is not illegal and bribes can be deducted as business expenses.

Now this is very interesting particularly when we consider developing countries and their attempts to consolidate democratic institutions. When we consider the differences between the common law system and the civil law system, we will find some interesting dynamics. For example, the common law system that was first developed in England ( …and later transplanted to its former colonies) was essentially designed to act as a defense for parliament, property owners and individuals against attempts by the sovereign power to regulate and expropriate them. On the other hand, the civil law system (designed primarily by continental European countries and later by their former colonies) developed more as an instrument used by sovereign powers for state building and control of economic life. As a result, David, Brierly, and La Porta argue that greater protections are embedded in the common law system and that this system has the tendency to improve various aspects of government including reducing corruption.

Next, we must consider the extent of the increasing role government plays in a country´s economy. In recent decades, this role has brought about an increase in the level of taxes, public spending, and a larger increase in regulations and controls regarding commerce. For example, many countries now require various types of licenses, permits or authorizations by government officials. In turn, these officials are now in a position to request and accept bribes in order to provide these services. As a result, the enticement of corruption has a greater impact on behavior of officials particularly in those countries where diligent fiscal transparency and accountability is lacking. This practice is particularly prevalent in Brazil and many other Latin American countries.

Notwithstanding these considerations, there are two other factors that have a direct connection to that is, the growth of international business and commerce and the economic changes taking place in emerging/developing countries. The growth of international commerce has created many opportunities for companies to benefit from profitable contracts over their competition by the payment of bribes. These bribes for foreign contracts in turn have made it possible for companies to get privileged access to emerging markets and particular tax incentives. Also, privatization is the economic change mostly closely linked to corruption. For example, public and state agencies have been used to finance activities of specific political parties and to provide jobs to individuals of ” are fictitious persons to whom various funds and salaries are ciphered. In addition, the process of privatization, enables some high officials to have access to information and make decisions based on information not readily available to others. Again, this occurs quite frequently in Brazil and many Latin American countries.

Sources: David, R. and Brierly, J. Major Legal Systems in the World Today. 3rd ed. London:
Stevens and Sons, 1985; La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R.W. “The quality
of Government,” Journal of Law, Economics and Organization. no. 15 (1) (1999): 222-279; Treisman, D. “The causes of corruption: a cross national study,” Journal of Public Economics . 76 (2000): 399-457; Photo: Courtesy iStockphoto.com/P_Wei

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Masked Discontent: Corruption in Brazil and Latin America – Part 3

As an illustration of corruption among high officials, the September 2013 issue of the Brazilian
magazine Veja is running an article on a bizarre corruption scandal in Brazil. It concerns the petition of incarcerated federal deputy (Congressman) Natan Donadon. He was sentenced to thirteen years in prison for stealing R$8.4 million (…about U$4.2 million) in public funds. The “disgraced” politician appeared before the parliament telling his story of the hardships of prison life. He complained about having to take showers in cold water among other things and was successful in soliciting tears from members of the parliament. Even though he was in prison, he proclaimed his “right” to continue receiving the benefits of his political office. Notwithstanding, the parliament approved his petition. As a result, and while still in prison, he will be granted four cell phones, five regular telephone lines, a fax, five computers with internet, cable television, a refrigerator and office furniture. In addition, he continues to have 25 employees working for him, a monthly salary of R$26,000 per month (…about U$13,000 per month), another R$32,000 (U$16,000) expense account for food and “other things,” retains the right to decide how R$15 million (U$7.5 million) will be spent for construction projects in his old district, and R$3,800 (U$1,900) per month to cover rental expenses for an apartment. Clearly, a complicated set of factors.

Thus far, arguments about corruption have focused on the motivations of individual officials. However, differences in the extent of corruption may also have certain socio-cultural factors. Treisman asserts that a country’s colonial history also has a very distinct impact on perceived levels of corruption. For example, he performed a series of regressive analyses that examined “legal culture” – that is, a series of tests comparing French, Spanish, Portuguese, British, and Germany legal systems. Compensating for some divergent variables, his results concluded that countries with civil law systems (…as opposed to those with common law systems) had higher perceived corruption levels.

Also, there is the consideration of the differences between Protestant and Anglican religious traditions. His results demonstrated that the larger the portion of Protestants in a country, the lower the level of perceived corruption. But how exactly does one interpret the relationship between Protestantism and corruption? One interpretation is that Protestantism has a greater tolerance for challenges to authority even when it comes to threatening established social hierarchies. Further, widespread Protestantism may reduce corruption by stimulating economic growth in terms of some economic theories posited by German political economist Max Weber (i.e., when per capita GDP is included in the regression). And finally, it may also reduce corruption by sustained stable democracy – that is, the number of consecutive years since 1950 a country has been democratic. All of these considerations seem to indicate that Protestant societies are more likely to discover and punish corruption by officials. There is also evidence suggesting that individualism and self-reliance inculcated by Protestant culture reduces corruption. For example, Lipset and Lenz’s research concluded Protestant countries were more individualistic and less “familistic,” and that Protestantism, in part, reduces corruption because of its association with individualistic, non-familistic relations.

Finally, Treisman’s research offers other plausible interpretations in addition to areas such as legal systems, Protestant tradition, per capita GDP, federal structure, uninterrupted democracy, and openness to trade and imports. However, he does admit difficulties in analyzing factors explaining high levels of perceived corruption when considering countries and regions. His ratings confirm that when comparing Africa, Eastern Europe, Asia, Latin America, the Middle East, Western Europe and North America that Latin America and Asia are perceived to be significantly more corrupt.  However, when controlling for economic development, Latin America and Eastern Europe remain significantly more corrupt than Western Europe and North America. Hence, his research concludes that high levels of perceived corruption can almost always be explained by the degree of economic development and the quality of political systems particularly in those countries with high levels of poverty and meager experience with democratic institutions.

Sources: Lipset,  S.M. and Lenz,  G.S. In:  Corruption,  Culture  and  Markets,  George Mason  University, 1999; Treisman, D. “The causes of corruption: a cross national study,” Journal of Public Economics . no. 76 (2000): 399-457; Bonin, R. “O Gabinete 595 do Congresso Nacional,” Veja, no. 2337 (2013): 47-53; Photo: Courtesy of iStockphoto.com/P_Wei.