“Small government” and the rule of law, Latin style

Most interesting thing I learned at Ernesto Zedillo’s “War on Drugs” conference at Yale yesterday and today:

One chronic problem for Latin America, and one of the reasons drug trafficking flourishes, is the underfunded, undertrained, underpaid, undermanned, and often outgunned law enforcement/prosecution/judicial system. That system is also massively corrupt, partly because the people in it are so badly paid. That’s not news.

Also not news, but something I hadn’t reflected on: the “neoliberal”/IMF/Washington Consensus emphasis on reducing taxes and public spending made the problem – already bad enough – worse, and almost impossible to fix. One reason the Colombian security/rule of law situation has gotten better (which is not to say good) is a special tax levy on high incomes dedicated for the use of the security services. The back story on that tax, according to Zedillo, is that Bill Clinton went to Bogota in 1999, met with a bunch of rich folks, and told them that if they wanted security they’d have to pay for it. Apparently they agreed, and basically volunteered the tax increase.

But when Zedillo at about the same time (when he was President of Mexico) talked to Mexican “civil society” groups that were complaining about lawlessness, and told them “The taxes you don’t pay are the security you don’t have,” he got nowhere. “Right away, I lost eye contact,” he said. Prosperous Mexicans would rather hire private “security firms” to protect their children from kidnapping, without too much concern about that fact that some of those firms maintain demand for the service by kidnapping the children of non-clients.

It’s easy to spot the social trap here. It’s harder to spot the way out. Figuring out a rational (rather than ideological) basis for the international organizations that advise developing countries not advising them to pay their police adequately is almost impossible.

Footnote (added) Aren’t you glad you don’t live in a country where the wealthy elite is both crazy enough to prefer low taxes to adequate public services and powerful enough to enforce that preference? Oh, wait …

Comments

  1. Dylan says

    I’m sure they would say something like, “When we said cut taxes and spending, we didn’t mean THAT.” But when you put tax and spending cuts on the top of your agenda, other things (like, uh, good government) are too easily forgotten or ignored. You explain some of the consequences here.

  2. Graeagle says

    For some reason, this post reminds me of one of the things Republicans say that makes me feel crazy — one of many such things, I should add — namely, that government can’t create jobs, only the private sector can create jobs. This obviously comes from the side of their mouths that is not simultaneously complaining about too many public sectors workers. I don’t understand why Democrats let them get away with that.

  3. says

    Oh sure, blame it on the rich. It isn’t *their* fault they are so awesome. Everyone is just jealous of their fancy private security firms. “Ooh, look at me, I’m not going to get shot today, all thanks to Mommy government.” Real men set up automatic turrets outside their haciendas.

  4. koreyel says

    Kleiman: Bill Clinton went to Bogota in 1999, met with a bunch of rich folks, and told them that if they wanted security they’d have to pay for it.

    Bernie Sanders: “We need shared sacrifice,” says Sen. Bernie Sanders, I-Vt., who is calling out GE, as well as Exxon Mobil, Bank of America, Citigroup, Boeing and other companies for owing little or no tax in recent years. “Instead of throwing children off of Head Start or cutting back on community health centers, maybe we want to ask Exxon Mobil to actually pay taxes rather than get a refund.” GE officials say they’re playing by the rules. “GE is fully compliant with all tax laws. There are no exceptions,” said Andrew Williams, a company spokesman, who acknowledged that GE’s 2010 tax bill will be “small” when it files sometime before September.

    Kleiman: Prosperous Mexicans would rather hire private “security firms” to protect their children from kidnapping, without too much concern about that fact that some of those firms maintain demand for the service by kidnapping the children of non-clients.

    Tom Scocca at Slate: Will they get it? At the arch-plutocrats’ end of things, the Koch brothers’ end, the end occupied by the most devout worshippers of Ayn Rand, the answer is: no. That’s the goal. It’s long since time for the sloppy, implicit, badly supported social contract to go away. Rich people have been trimming their contribution to the general revenue for decades now. They are not interested in paying the premium that keeps old people and ailing people or just backward people out of the streets. If the day comes that they have to travel to and from their various compounds in armored helicopters, they can afford the helicopters. It’s not their problem.

  5. says

    Time was, the rich were a bit scared of revolution. There are always more poor people than rich, and it might occur to them to just seize the loot. It’s no consolation at all to know that the revolution will recreate its own kleptocratic élites – they won’t include you. From roughly 1850 to 1950, there were hard-left parties organizing the poor to do just that; and bigger soft left parties offering a kinder, gentler social transformation – always worrying about losing appeal to their left as well as the centre. Of course, the rich had two options: containing the risk by buying off the median citizen – Disraeli, Bismarck, Lloyd George, de Gaulle – or supporting fascist repression – Franco and Pinochet. Now it’s clear that there’s no risk at all.
    I concede that reviving the Wobblies is not a viable strategy at this point. But a Greenpeace tactic of media stunts aimed at embarrassing and ridiculing plutocrats like the Kochs, Mellon Scaife, Blankfein, &c personally might be effective. Quaere: would it be protected political speech?

  6. NCG says

    To be fair, Mexico has only been “free” for a few years now. And that last presidential election looked mighty suspect to me. It is always a concern when the people in charge don’t care enough to find out who really won.

    So, yes, it’s a bit of a basket case now, but I hope it will not always be. Mexico has rich resources and hardworking people. They’ve just never had decent government, through, I am confident, no fault of most of the people there. We should be doing whatever we can to help, and maybe even, we could try to stop hurting them. Feudalism and oligarchy take time to fight.

  7. Brett Bellmore says

    Realistically, there IS this little problem in poor countries: On the one hand, they desperately need services which are typically supplied by government. On the other hand, they’re poor, which means that they don’t have a lot of surplus they can afford to have frittered away. And corrupt governments are VERY good at taking tax money, and not delivering anything of value. Which means that if, when the nice guy offering the deal you can’t refuse comes by, and demands money for protection, you can be pretty confident you’ll lose the money, but thinking you’ll get the protection might very well be irrational.

    In wealthy countries the main difference is that having some of the economy’s economic surplus frittered away isn’t an immediate existential threat. It “just” leaves you poorer.

  8. says

    (Mark): “One chronic problem for Latin America, and one of the reasons drug trafficking flourishes, is the underfunded, undertrained, underpaid, undermanned, and often outgunned law enforcement/prosecution/judicial system. That system is also massively corrupt, partly because the people in it are so badly paid. That’s not news…Aren’t you glad you don’t live in a country where the wealthy elite is both crazy enough to prefer low taxes to adequate public services and powerful enough to enforce that preference? Oh, wait …
    Professor Kleiman makes an argument for a government which does not spread itself thin, a government which leaves schooling, broadcast news, health care, pensions, and charity to individuals and non-State agencies, and puts to bid the construction of public projects like roads and bridges. Governments exacerbate their problems when they assume responsibility for services which markets provide better, and they invite corruption when they concentrate resources that otherwise would flow to non-State organizations providing these services.

  9. Alejandro Hope says

    Mark,

    Glad you did make it to the conference. There is indeed a fiscal component to Mexico’s security crisis, but I would argue that financial insufficiencies should not be overplayed as an explanatory device. Consider the following: an entry-level police officer in the US probably makes USD 40-50,000 a year. That is more or less equivalent, PPP-wise, to about USD20,000-25,000 in Mexico; using the UN parameter of 3 police officers per 1000 inhabitants (a somewhat bogus benchmark, but anyway), Mexico would probably need about 330,000 well paid cops (it currently has 450,000 poorly paid ones). That would come out to about USD 6.6-8.3 bn. Add in a similar amount for training, equipment, facilities, etc and yet another similar chunk for the criminal justice and penal systems and you come up with a figure of USD20-25 bn (and I’m probably overstating the overall cost). Currently, Mexico is spending some USD7-9 bn in its police forces, criminal justice and penitentiary systems. So you have a shortfall of 11-18 bn at most: that represents 1.1-1.8% of GDP, 4-7.2% of total public expenditure, and 10-17% of the non-oil, non-social-security tax take. That is not small change, but it is certainly achievable with some budgetary reassignments and a modest increase in the tax take. Whether there is the political will to do it at the required speed is a different matter.

    A final note on the politics of taxation: the “neoliberal”/Washington Consensus approach in Mexico never put a particularly heavy emphasis on reducing taxes (because taxes were never that high to begin with). It was all about deregulation, trade liberalization, privatization, etc. The big tax debate in Mexico is about VAT and more particularly, about extending it to currently exempt items (food, medicine, education, etc.). The left opposes it (because of its clear regressive nature) and the right supports it (because of the ease of collection of VAT and its pro-savings bias, among other reasons). There have been at least four serious tax reform efforts since 2001 and all have floundered because of that issue (mainly). So indeed there are political economy constraints on increasing tax revenues in Mexico, but they are somewhat more complicated than the refusal of the rich to pay more taxes. And even with those constraints, some efforts at reform have managed to clear Congress over the years: Zedillo, for instance, increased the general VAT rate from 10 to 15% in 1995; Calderón, meanwhile, introduced a so-called “control tax” in 2007 (against the howling protests of most business lobbies), and raised both the VAT rate (from 15 to 16%) and the marginal income tax rate (from 28 to 30%) in 2009 (in the middle of the worst recession since the 30′s, mind you).

    Best regards.

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