Pentagate Corruption Scandal Rocks Chile

According to Transparency International´s Corruption Perceptions Index Chile ranks as one of the least corrupt countries in the world, ahead of the likes of Austria and France and similar to the United States and Ireland. The World Bank’s governance indicators suggest corruption in 2013 was under better control in Chile than in the U.S. and neared that of the United Kingdom and Canada. Note that we are talking about a country in Latin-America, a continent whose governments are not exactly known for their incorruptible politicians. Consistent free-market policies have made Chile the rare exception.

However, a major political scandal that broke last week is threatening that status. Known as Pentagate the campaign finance scandal currently making headlines in Chile allegedly involved dozens of politicians from across the political spectrum, although the majority are said to be members of the Independent Palacio-de-JusticiaDemocratic Union (UDI) party. Some of the more prominent individuals being investigated include former Finance Minister Andrés Velasco, who served one term under current president Michelle Bachelet during her first four years in office, officials of the previous Sebastián Piñera administration, as well as several former presidential candidates.

It was the privatization of state corporations after the fall of the Pinochet military dictatorship in 1989 that gave birth to the Penta Group. Formerly known as the Instituto de Seguros del Estado the insurance company was bought by two investors – Carlos Alberto Délano y Carlos Eugenio Lavín – who incidentally both used to work for the government during the regime. The former is known as a big political donor and a friend of former president Piñera, while the latter tends to keep a lower profile. Last August their holding company came under investigation by Chilean authorities for tax fraud, which besides several arrests lead to the laying off of the Group’s director. And while many a libertarian may not raise any moral objections to these sorts of practices, it now seems the increased scrutiny of the Carlos duo has brought other, more reprehensible facts to light.

While the revelations may have shocked some Chileans, for proponents of the free market there is arguably a very bright side to the story. After all, what better libertarian arrows could one possibly wish to have in his quiver than the sort of widespread political scandal that reads like a novel? Besides, if this is what is happening in a country whose government is regarded across the continent as the most effective and efficient, just imagine what is going on in all those other countries!

Admittedly some on the left will seize the opportunity to espouse the supposed virtues of government-run enterprise as compared to the greedy capitalists only out to make a buck. Yet this argument is easily refuted; since few people are in favor of a completely centralized economy all they need to be convinced of is that interventionism invariably leads an economy down that very path – two prominent and current examples being Venezuela and Argentina.

The better alternative, then, is to start from the premise that a government big enough to “regulate” an industry is a government big enough to award the well-connected within that industry special favors. It should be concluded that privatizing some industries is not sufficient to achieve a free society. So long as government is allowed to drive the economic bus, it will always determine who gets to sit in the front and who is relegated to the back – before ultimately driving over a cliff.

[N.B. Some of you may have noticed I (unexpectedly) took a bit of a hiatus at the end of last year. If you missed seeing regular articles on here rest assured things are back up and running, so be sure to look for those weekly posts again in 2015!]


Saving the Amazon from Socialism

As reported by the BBC last week, Brazilian authorities have dismantled a criminal organization believed to be the “biggest destroyer” of the Amazon rainforest. The gang stands accused of invading, logging and burning large areas of public land to put up for sale for farming and grazing. Their crimes, said to be worth more than $220 million, could land them up to 50 years of jail time if found guilty on all charges of invading public land, theft, environmental crimes, forgery, conspiracy, tax evasion and money laundering.

AmazonRepresenting more than half of the world’s rainforests the Amazon is the largest and most biologically diverse tropical rainforest on the planet. Its millions of square miles are home to the largest collection of living plants and animal species in the world. While the Amazon is largely contained within Brazil, its 2.1 million miles span a total of nine countries from Peru on the Pacific side of the continent to French Guiana on the east coast. Given the vast size of the area it is little wonder that some (illicit) activity goes unnoticed. In the case of the Amazon, however, there is a major contributing factor.

One of the aforementioned charges likely to catch a libertarian’s eye is invasion of public land. The real underlying problem, then, becomes readily apparent: no one owns the Amazon! Even the BBC’s correspondent in Brazil is quick to point out that political and police corruption coupled with the federal government’s ineptitude allows loggers and illegal miners “to operate with impunity”. So here we have a situation in which a lack of real ownership of land predictably leads to poor conservation of the area and its natural beauty. The solution, then, should be equally obvious. And it is.

Contrary to mainstream environmentalist thinking examples of successful private management of nature reserves abound. A recent National Geographic article for instance, details how the Lapa Rios private reserve in Costa Rica plays a critical role in sustaining a connected and healthy population of large cats. Funded by low-impact ecotourism these reserves are not dependent on the whims of politicians and offer more reliable protection from illegal hunting and forest degradation.

Much closer to the Amazon region is an area known as the Pantanal, the world’s largest tropical wetland area. Located mostly in the Brazilian state of Mato Grosso do Sul it is almost entirely in private hands, namely those of indigenous cattle herders. Though much less famous than the Amazon the Pantanal is known as a must for any and all who like to see wildlife up close – better than the Amazon according to many a traveler. The same sort of ecotourism commonly seen in Costa Rica enables the highly successful preservation of natural flora and fauna.

The objections commonly voiced against the private ownership of parks and reserves can be easily refuted using basic economic laws of supply and demand and the profit motive. In addition we can point to plenty of successful real-world examples to build a convincing pro-liberty case. Besides, if everyone is so worried about preserving the environment and maintaining biodiversity, how much more successful will voluntary action aimed at doing just those things be?

The key to proper management and preservation of our beautiful planet is nothing more or less than good old-fashioned property rights. Absent the recognition of those rights and the incentives inherent therein we can only expect environmental degradation.

Privatize Water!

In recent days reports have been coming out about authorities’ struggle to battle a water shortage in Brazil’s two major cities of Rio de Janeiro and São Paulo. Ostensibly caused by a severe drought, the crisis has even sparked fears of an impending “water war”. Measures taken earlier this month to reduce the water flow at a major dam were unsuccessful to say the least, cutting off running water to families in some neighborhoods for as long as 12 hours a day.

Unsurprisingly, the vast majority of the water system is government-run without much debate. After all, for all its ubiquity, government incompetence does not always overtly affect people’s daily lives. Now that it does, it might bOLYMPUS DIGITAL CAMERAe an opportune time for Brazilian freedom advocates to voice their opinions.

While some market reform has taken place in recent years, the process has been severely stifled by jurisdictional conflicts fueled by Constitutional as well as other regulations. Besides establishing a national system of water resources management the Constitution also defines criteria for granting rights of use, and it regards surface water and groundwater as property of the states. The National Water Resources Policy even specifies many uses of water that require government permission.

A World Bank publication analyzing market reform in urban water supplies in Santiago de Chile found “surprisingly large” net benefits in economic welfare despite significant price hikes. After years of losses largely imposed by regulatory obstacles the Santiago Metropolitan Works Enterprise had become so underfunded it could no longer perform basic maintenance on its systems. Some of the positive results included almost 100 percent coverage of expanding demand, better water pressure, fewer interruptions of service and higher wages for employees. The outcomes were so positive, in fact, that full privatization of the entire urban water supply and sanitation sector was eventually implemented.

Studies on market reform of the water sector in other South American countries have also found positive results. In Argentina the privatization of local water companies – covering approximately 30 percent of the country’s municipalities – reduced child mortality on average 5 to 7 percent, preventing 375 child deaths per year. It is worth noting also that the effect was most pronounced (24 percent) in the poorest areas, offering empirical evidence that runs contrary to oft-heard claims about increased inequality. Overall the number of households connected to the water network increased by nearly 12 percent.

In Bolivia privatization was shown to increase water access relative to both the existing trend and the non-privatized areas. The results also concurred with the aforementioned that the relative benefits of were larger for the poorest segments of the population, who gained from the largest increases in access. Some of the same findings have been reported in Brazil, if only on a small scale.

Notwithstanding those positive results generated by market reform, the current legal framework is a severe impediment. These obstacles will have to be dealt with if Brazilians are to reap the full benefits of voluntary – rather than compulsory – human action in the provision of such a basic need as water. Empirical evidence clearly confirms it can be done, giving liberals and libertarians plenty of arrows in their quiver to build a convincing case for liberty and against statists’ fear mongering. If successful that could be a big step toward a freer Brazil.