Perverse incentives, corruption and monopolies

By: Hugo Marcelo Balderrama - 28/04/2024

Guest columnist.
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Corruption is one of the many evils that Bolivians live with daily. In 2022, in the Corruption Perception Index, the country was ranked 126 out of 180 nations studied. In turn, it accumulated a total of 31 points out of 100, a critical rating.

In Bolivia, nothing moves without an official asking us for money to, ironically, "speed up" our procedures. Let's face it, we have already normalized kickbacks, "gifts" and bribes.

Although, especially during electoral times, everyone begins to talk about corruption, no one has identified the origin of the evil, therefore, they do not get the diagnosis right.

John Mukun Mbaku, economist, university professor and political advisor, in his book: The corruption in Africa, explains corruption as a matter of perverse incentives. That is, it occurs on a large scale when there is a group that has captured political power to obtain personal benefits, but not honestly, but by screwing the common citizen.

These groups are not exclusively within the bureaucratic apparatus. In fact, they can be unions, professional associations or business chambers that from the private sector use their power and connections to obtain privileges, captive markets or subsidies.

Mukun Mbaku affirms that monopolies are the most extreme form of corruption, since they violate the entire legal and economic system for the benefit of a group of companies. Ergo, the monopoly is not a large company, but a group with the capacity to attack the system of free competition.

In 1912, Ludwig von Mises, in: Theory of Money and Credit, took companies producing war material as an example to explain how certain corporate groups profit from inflation:

If, for example, a paper currency is issued in time of war, the new banknotes will first go into the pockets of the suppliers of war material. As a result, these people's demands for certain items will increase, as will their sale and price, especially as they are luxury items. In this way the situation of the producers of these articles will improve; its demand for other commodities will also increase, thus continuing the increase in prices and sales, distributing itself among a continually increasing number of articles, until at last it reaches all of them. In this case, there are some who gain and others who lose from inflation. Basically, the winners are those who receive the fresh money at a lower price level.

If we take the case exemplified by Mises, we can deduce that gunsmiths will always be interested in increasing military spending, even in times of peace.

However, regardless of the sector, privilege hunters always appear seeking to get ahold of state spending. For example, in 2021, the NGO FORES (Forum for Studies on the Administration of Justice) presented a report for the sixth round of the Implementation Follow-up Mechanism of the Inter-American Convention against Corruption (MESICIC) of the OAS in which it concluded that Argentina It is a paradise for corruption.

What was one of the most used mechanisms to benefit from corruption?

Eureka, state spending on public works, especially on roads.

Indeed, the case opened for corruption in the awarding of public works against Lázaro Báez was the tip of the line to sentence Cristina Fernández to six years in prison.

Right now, with the strange suicide of Juan Carlos Montenegro in the middle, a mega corruption scandal linked to lithium broke out in Bolivia. In this regard, El Deber, a newspaper from the Bolivian department of Santa Cruz, in its editorial titled: Litio, the old history of corruption (04/23/2024), states that:

The stagnation of the lithium project is not simply an economic failure, it is a symptom of a deeper evil that afflicts Bolivia: persistent politicking, bureaucratic inefficiency and deep-rooted corruption. As politicians engage in partisan disputes and public officials enrich themselves at the expense of the people, the country is left behind in a world that is rapidly moving towards sustainability and innovation.

I fully agree with the editorial. However, to end politicking and corruption, it is necessary to dismantle the Plurinational State, liberalize the economy and give the private sector back the role in wealth creation.

Can such ideas prosper in a country where state dependency is so entrenched?

Don't know. But I am glad that, driven by the moral and economic crisis that we are experiencing, these issues are already being debated in certain public spaces, especially among the youngest.

«The opinions published herein are the sole responsibility of its author».