Tue | Apr 25, 2017

Air of intolerance

Published:Friday | June 19, 2015 | 6:00 AM
In this May 27, 2015 file photo two persons are reflected in the FIFA logo at the FIFA headquarters in Zurich, Switzerland. Swiss Attorney-General Michael Lauber said in a press conference Wednesday, June 17, 2015 that banks have noted 53 possible money-laundering cases in a FIFA probe. (AP Photo/Michael Probst, file)

An air of intolerance is sweeping through the emerging world, particularly across Latin America.

While corruption was once a staple of daily life, politicians and public figures are coming under intense scrutiny.

From India to Jakarta to the hallowed halls of FIFA, established acts of impropriety are being brought to the light of day. Most of these activities were public secrets, but new technologies and attitudes made them more apparent.

Almost every single Latin American country is embroiled in a major corruption scandal. Chile, once admired for its sound governance, was destabilised when a routine tax investigation uncovered a bribery scandal that affected its top firms and politicians.

Even the president's son was ensnared in a scandal that almost cost her presidency. The result was the dismissal of the Cabinet and the derailment of an ambitious set of social reforms.

Although better known for its plan to modernise the trans-oceanic canal, Panama is also in the midst of a probe that could land former President Ricardo Martinelli in jail. He was recently stripped of his constitutional immunity and a close ally, Supreme Court Justice Alejandro Moncada Luna, was sentenced to five years in prison.

However, the most notorious incident was the so-called Car Wash scandal in Brazil that brought President Dilma Rousseff's government to its knees and almost cost the country its investment grade rating.

Intolerance taking hold

Corruption is nothing new in the emerging world, especially in Latin America, but for the first time, indictments are being made and people are going to jail.

In other words, an air of intolerance is taking hold. The question is, why now?

Some of the reasons for the increased scrutiny are the technological advances in data processing and communications.

The Internet has made the world more transparent, facilitating the processing of information and the supervision of information. New government programmes to clamp down on tax evasion and non-compliant transactions have allowed officials to uncover a parallel universe of illegal activity. As a result, age-old practices in trading, banking, and football are now open to public scrutiny.

Another big factor has been the internationalisation of training and skills. Tens of thousands of students trained abroad, in the United States, and Europe are returning home to take positions in ministries of justice and regulatory agencies. They are implementing in their home countries the practices that successfully clamped down on corruption in the developed world.

This is being abetted by the standardisation of international banking and tax codes through legal vehicles such as Basel II and FATCA.

However, the biggest reason for the growing intolerance towards corruption is the expansion of the middle class in the developing world.

Greater efficiency

As societies become more productive, they become more efficient. However, greater efficiency means a more precise allocation of resources. This reduces the margin available for waste.

During phases of low efficiency, corruption is regarded as a necessary cost of doing business. The opposite happens as efficiency improves. Society begins to function so well that the cost of corruption becomes an unnecessary tax.

In other words, the improvements in technology, communications, and business practices eliminate the role of the intermediary.

During the early days of FIFA, for example, the high costs that were paid for the cooperation of smaller countries were necessary to create a global sports network. Yet, given the enormous success of the last few World Cups, football has been formally transformed into a global institution, therefore, their cooperation is no longer needed.

The same can be said for the awarding of lucrative infrastructure projects. The emerging world has become a major destination for investors and multinationals. They have the skills and tools needed to successfully operate across the emerging markets spectrum.

Likewise, emerging-market policymakers have ample information on the virtues and capabilities of all of these players. The role of the intermediary has disappeared.

Intolerance in the developed world

A similar trend is gripping the developed world. As technology makes the service sector more efficient, the role of the intermediary disappears. More important, emerging market countries are now competing in a marketplace that has no margin for error.

Nations can no longer afford to invest billions of dollars in second-rate projects. Last of all, given the growing rate of taxation around the globe, the public is no longer willing to see so much of its hard-earned money go into programmes that do not add to their general level of global competitiveness.

This is why the public has become so intolerant of practices that were standard fare a few years ago.

The intolerance of corruption is not a sign of a new public morality. It is a reflection of the new technologies that are spreading through the planet and a higher level of competitiveness that has imbued the global marketplace.

• Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.

wmolano@bcpsecurities.com