There’s a good reason that Venezuela and several other Latin American countries rank very high in world corruption rankings: These nations have so much red tape that people grow up knowing that they have to grease a lot of palms to get almost anything done.
That was the first thing I thought when I read a new World Bank report showing that Latin America is, in many ways, the world’s most bureaucratic region.
The report, titled “Doing Business 2018,” examines the number of legal procedures people around the world have to complete to do simple things such as starting a business, obtaining a building permit or registering a property. Its results are staggering.
To start a domestically owned new business, whether it’s a big factory or a small store, Latin American and Caribbean countries require an average of 8.4 legal procedures, more than in any other world region. By comparison, in sub-Saharan Africa, the average is 7.6 procedures, and in the United States and high-income European countries, it’s 4.9 procedures.
But the numbers are more amazing when you compare countries. While in Venezuela you need to go through 20 legal procedures to start a business — and often stand in line in different places to complete each of them — in Argentina it is 13, in Brazil it’s 11, and in Mexico, it takes eight. Canada requires only two procedures; New Zealand, only one.
Measured in days, the legal steps to start a new business in Venezuela take 230 days. In Brazil, it’s 79, in Argentina it’s 25, and in Mexico, it takes 17 days. But it’s easier in Chile, where it takes seven days, and in Canada, with 11/2 days. In New Zealand, it takes just a half day.
Another example cited by the World Bank study deals with how many days it takes in each country to obtain a building permit for a warehouse. That takes 434 days in Venezuela and Brazil, 347 days in Argentina, 322 days in Bolivia, 205 days in Guatemala, 188 days in Peru, 132 days in Colombia and 82 days in Mexico. By comparison, it takes 80 days in the United States.
Red tape is one of the big reasons that, according to Transparency International’s annual corruption ranking, several Latin American countries are among the world’s most corrupt. Since few people have the time to go through the required government paperwork, they either bribe a government employee to speed up the paperwork or simply skip acquiring government permits.
Construction done without permits is one of the reasons so many buildings and houses collapsed during the recent earthquake in Mexico, and in the 2010 earthquake in Haiti. A lot of construction didn’t follow safety rules because of hard-to-meet legal requirements.
Also, excessive red tape is one of the key reasons behind the huge underground economy in Latin America. As Peruvian economist Hernando de Soto discovered in the 1980s, many people join the informal economy because red tape — and the bribes that go with it — make it almost impossible for them to operate legally.
Why is Latin America a world champion of bureaucracy? Among other reasons, it’s because populist governments have given public jobs to millions of people for political reasons, and needed to find something for them to do. So they created new bureaucratic requirements, and appointed inspectors and office workers to enforce them.
And when responsible governments won elections, they were reluctant to fire needless public employees because that would have triggered protests. So years went by, and bureaucracies grew to ridiculous levels.
Asked what can be done to reduce red tape and corruption in Latin America, Maria Amparo Casar, president of the Mexicans United Against Corruption and Impunity advocacy group, told me: “Three things: technology, technology and technology.”
I totally agree. Doing much of the paperwork online — at least for the estimated 62 percent of Latin Americans who have access to the internet — would help save time, eliminate the need to bribe public employees and get millions of people out of the shadow economy. It’s a political problem that can largely be solved with technology.