Is Brazil Nuts -- Or Just the System?

By MARY ANASTASIA O'GRADY
September 29, 2006

"Corruption is a regular effect of interventionism."

-- Ludwig von Mises
"Human Action," 1949

As Brazilians go to the polls on Sunday to elect a president for the next four years, most pundits are hedging their bets as to whether Luiz Inácio "Lula" da Silva of the Workers' Party (PT) can win re-election in the first round of voting.

A serious allegation of fraud inside the Lula campaign has become the main issue in the race over the past two weeks. Added to a host of other corruption charges implicating PT members close to the president in the past year, this latest scandal has the potential to force a run-off.

Lula may well be innocent, as he claims, of any involvement in the plethora of scandals now swirling around his party. But it is also true that if corruption has blind-sided him, he has only his own politics to blame. It has been the life work of Brazilian socialists -- of which the PT are among the most hardcore -- to empower the state, without limits, as an enforcer of "social justice" through the wholesome work of politicians and bureaucrats. Now they are reaping what they've sowed: a system that breeds corruption by its very nature, as von Mises warned more than a half-century ago.

The odds of a run-off remain slim. On Wednesday polling companies Datafolha and IBOPE released polls that suggest, after statistically adjusting for nullified ballots, that Lula will finish with 53% of the vote versus 35% for his next closest challenger, the two-term governor of São Paulo, Geraldo Alckmin. Yet with mud from scandal splashing higher every day, Alckmin supporters are holding onto the hope that Lula will fall short of the 50% plus one needed to avoid a second round.

Even then, an incumbent victory is fully expected. Lula is a charismatic populist who, in his first term, had enough common sense to avoid messing with the macroeconomic stability he inherited from predecessor Fernando Henrique Cardoso. He has also raised the minimum wage and expanded the welfare rolls to solidify his base. Brazil's majority poor heavily favor him.

Yet real damage may have been done to his second term. Even if he wins in the first round, the hard-left PT is expected to lose seats in the congress; if that happens, Lula will likely have to give up cabinet posts to coalition allies. While the PT is not the only party in Brasilia tarnished by charges of gross dishonesty, in recent years it seems to have elevated to an art form sophisticated practices of vote buying in congress, kickbacks on government procurement and, most recently, a fraudulent plan to commission and purchase a fake report designed to frame a political rival.

Brazilian disgust with the political class is widespread these days, but one wonders whether the more profound lesson is being learned. Long before von Mises wrote his masterpiece "Human Action," Founding Father James Madison warned that governments without limits are bound to become abusive. "All men having power ought to be mistrusted," he wrote. "If angels were to govern men, neither external nor internal controls on government would be necessary."

Brazil's runaway corruption is not due to an unusual collection of greedy politicians in Brasilia. Indeed, it is likely that Brazilian politicians, like their American counterparts, fit well within the bell curve when it comes to human frailty. The trouble is that under the 1988 constitution, mere mortals are trusted to behave like angels.

The constitutional project began in 1987 with good intentions. Fundamentally, it was an attempt to right the wrongs of the military government by securing democracy. But when socialist ideologues piled into a room with an untold number of narrow special interests, the outcome was a roadmap to tyranny, no longer with guns but with the "law." As Mr. Cardoso recalled in his memoir, "Brazil was trying to create a welfare state at the precise moment in history when the welfare states of Europe were collapsing."

Slow economic growth and corruption are but two offspring of the monster government in Brasilia that has badly damaged Lula's legacy. Von Mises predicted it: "The advocates of interventionism pretend to substitute for the -- as they assert, 'socially' detrimental -- effects of private property and vested interests the unlimited discretion of the perfectly wise and disinterested legislator and his conscientious and indefatigable servants, the bureaucrats." In the world of the anticapitalists, he explained, "only those on the government's payroll are rated as unselfish and noble."

Von Mises anticipated the outcome: "Unfortunately the office-holders and their staffs are not angelic. They learn very soon that their decisions mean for the businessmen either considerable losses, or -- sometimes -- considerable gains." In other words, buying influence is normal when influence has a cash value. This is what one Brazilian family did when it allegedly paid kickbacks to politicians who helped it secure contracts for medical equipment.

Such simple observations from classical thinkers have been routinely dismissed as "ideological" by both Latin American socialists and fascists -- that is, by the left and right. Yet the wisdom has proven timeless and universal, and there is no shortage of oppressed citizens who can attest to its veracity. At a World Bank panel to discuss corruption last week, Dele Olojede (an award-winning journalist from Nigeria) had this to say about the problem: "We should recognize that in societies where the bureaucracy is vast, the press is weak, the private sector operates under the yolk of government, these are the clearest indications of corrupt societies, and you cannot begin to fight corruption if you have all powerful government in any society."

Whether or not the equality of outcomes sought by the Brazilian Constitution is morally defensible, experience shows that the power required by the state to achieve it produces highly undesirable consequences. Despite all of socialism's moralizing, when those clamoring for justice make their way to the seat of unchecked power, a portion of them turn out to be no better than their predecessors. Do-gooders too have clay feet. It is a lesson Brazil is learning the hard way.