Saturday, March 19, 2016

Corruption and Crisis: Brazil edition

I've only been vaguely aware of the scandal roiling Brazil, where up to three million people have taken to the streets to demonstrate, so I was happy to come across this explainer in Vox:
Between about 2004 and 2014, the state-run energy firm Petrobras — which is Brazil's largest company and one of the largest corporations in the world — engaged in one of the most astonishing corruption schemes ever to be uncovered. That Petrobras employees and their co-conspirators thought they could get away with it speaks to just how bad corruption in Brazil had become.
Nobody knows who exactly came up with the scheme. But it was developed during the commodities boom of the 2000s, when oil prices were high, and involved three main groups of players: leaders at Petrobras, top executives at Brazil's major construction companies, and Brazilian politicians.
It worked in four steps:
  1. Construction executives secretly created a cartel to coordinate bids on Petrobras contracts and systematically overcharge the company.
  2. A select group of Petrobras employees turned a blind eye, allowing the construction companies to charge Petrobras outrageous sums.
  3. The construction executives then pocketed the proceeds from these inflated contracts and rewarded their partners inside Petrobras with big bribes.
  4. Some of the proceeds also got sent to friendly politicians, as either personal gifts or donations to their campaigns. Because Petrobras is partially owned by the state, politicians can install people as executives — who then turn around and reward that politician with a bribe.
Huge sums of money, according to the New York Times, would be "hand-delivered by an elderly gentleman who flew around the world with bricks of cash, shrink-wrapped and strapped beneath thigh-high socks and a Spanx-like vest." Sometimes bribes would be distributed in the form of "Rolex watches, $3,000 bottles of wine, yachts, helicopters and prostitutes."
All in all, somewhere upward of $5.3 billion changed hands as part of this scheme.
How did corruption in Brazil get so bad? Colonialism, racial hierarchies, and a history of theft and bribery.
 The Portuguese began colonizing the area we now know as Brazil during the early 1500s, and before long it became the hub for the Atlantic slave trade, dwarfing even the colonies in what would become the United States. Portuguese colonists used slaves to grow sugar and mine gold, bringing those colonists enormous wealth — and developing what would become a deeply entrenched caste system.
By the time Brazil declared independence, in 1822, the caste system had hardened along clear lines — the white elite was fabulously wealthy, while the darker-skinned slaves and laborers were deeply impoverished.
The country formally abolished slavery only in 1888 — the last country to do so in the Western world. But class hierarchies remained. The Brazilian elite retained their advantages, and used their wealth to entrench their own power in society. One common method they developed for doing this was by bribing government officials.
"Brazil is a country that's defined by its income inequality," Brian Winter, the vice president of the Americas Society and Council on the Americas, told me. Winter calls this inequality "the most important structural factor" in encouraging Brazilian corruption.
It is disquieting for those of us in the US to note that income inequality in the US, while still less than that in Brazil, is moving much closer to Brazilian levels.
 "You had this tiny elite that really thought they could get away with anything, and often did," he said. "The corruption comes from that."
This problem persisted throughout Brazilian history, through multiple governments and even a military coup in the 1960s.
"There's a famous president of Brazil who ran on the slogan of 'sweeping away corruption' in the 1950s," Matthew Taylor, an American University scholar who studies Brazilian corruption, explained. "He even carried a broom around ... to show that he was serious about corruption."
Over time, corruption became more normalized. For decades, prosecutors and police failed to investigate corruption, creating a climate of impunity in which even the grossest corruption became business as usual.
"Until 2010," Taylor said, "the chances of you going to jail, especially if you were a politician, were virtually nil."
Estimates suggest that in Brazil, roughly "3 to 5 percent of GDP is lost to corruption," according to Taylor.
It's important to note that Brazil is far from unique in this regard: A number of other Latin American countries, for example, have similar corruption problems, sometimes owing to similar factors. But Brazil is a much bigger country — the world's fifth largest by population and seventh by GDP — so the scale of the problem is larger as well.
Petrobras, then, is the culmination of what happens when you have a corruption problem building, more or less unchecked, over several generations and in one of the world's largest countries.
Brazil's entrenched inequality marks the protests as well.

But the protests against them [Lula and Rousseff] have tended to draw from the middle class and other relatively privileged segments of society.
"Polls suggest the demonstrations are dominated by white and upper-middle-class people," the BBC reports. "One survey of protesters in Sao Paulo indicated that protesters were much wealthier than average and that three-quarters were white (compared to less than half of the general population)."
That's because Lula and Rousseff have made care for the poorer and less white segments of Brazil a top priority. Lula, in his presidency, pushed through the Bolsa Familia program, a poverty relief initiative that distributed cash to about 12 million poor Brazilian families.
As a result, many poor Brazilians are deeply loyal to the PT, even in the face of the Petrobras scandal. You can see how this plays out in a photo from a recent protest: It shows a white couple walking to a protest with their dog, dressed in Brazil's national colors. Alongside them there's a black nanny, dressed in an all-white maid's uniform, walking their kids in a stroller:
 Another point disquieting for those of us in the US to note is that the likely GOP nominee for president comes from two of our most corrupt and corrupting enterprises: New York real estate and casinos. Not to mention the habit of other likely nominees to pocket six figure payoffsdays from another leading crooked enterprise: the financial industry.


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