This Is What Could Really Fix Brazil’s Corruption Crisis

Approximately 25 thousand people, according to organizers,
RIO DE JANEIRO, BRAZIL - 2015/03/15: Approximately 25 thousand people, according to organizers, took the Copacabana Beach and Cinelandia, in the south, to protest against the government of President Dilma Rousseff for massive corruption scandal at state oil giant Petrobras. (Photo by Fabio Teixeira/Pacific Press/LightRocket via Getty Images)
Photograph by Fabio Teixeira — Pacific Press LightRocket via Getty Images

Brazil is not doing well. Does this come as a surprise? Well, generally, yes. It is hard, at least for me, to imagine Brazil facing not just one type of crisis but a whole range of critical challenges, all at once. The economy is in the doldrums, inequality is growing again, the Zika virus threatens the most vulnerable, and corruption scandals have engulfed the business and political elites. If God is Brazilian, as many in the country claim, we are witnessing a Wagnerian moment.

It is true that Brazil’s economy has entered a recession primarily because of China’s economic slowdown and the strength of the U.S. Dollar, both of which tend to reduce earnings for commodity exports. Brazil, however, should have laid the foundations for sustainable growth and reduced its dependency on commodities. At the core of the problem is the lack of a political and social consensus to increase productivity as the only possible way to reduce poverty and improve living standards.

The political aspects of the crisis are especially problematic. An important background factor is the extreme degree of fragmentation of the political landscape, with more than 20 parties represented in the national congress alone. Some kind of a German-style minimum threshold would go a long way to rein in this extreme Balkanization. Still, that is not the main source of the current political crisis, which revolves around the issue of corruption.

Corruption in Brazil is not unlike other countries around the world. The difference lies in its scale and scope. I do not believe that, in some kind of cultural or psychological sense, Brazilians are more prone to being corrupt. The issue is structural, systemic, and systematic. Brazil’s economy is one of the most heavily intertwined with state agencies and banks. In principle, that is not a problem. But in a country polarized by politics, and with weak judicial institutions, the temptations are just too difficult to resist. In addition, everyone complains about the amount of red tape that businesses need to go through in order to get things done. Expediting things and cutting corners usually results in bribes.

But the Petrobras scandal goes beyond corruption as usual. It effectively amounts to a scheme that undermines the entire party and political systems of the country. It is not simply about individual politicians who are corrupt. Rather, Brazil has a systemic problem with institutionalized corruption that involves parties and the largest business corporations.

In addition to institutionalized political corruption, I personally worry about the irreparable polarization of Brazil between two political camps. The Workers’ Party—in coalition with others—has been in power for 13 years. When there is so much division and so much corruption, it is important that no political force perpetuates itself in office for so long.

There are two ways out of the situation. The first is for the impeachment effort of President Dilma Rousseff currently under way to succeed. The problem is that it does not address the real issue because the President would be removed from office due to her manipulation of certain government accounts so as to conceal the true size of the public deficit during her reelection campaign, a wrong-doing that has little to do with the main scandal. Rousseff herself is not immune from it, both during her years as Minister of Energy and her time as President of the country.

Impeachment is being used by both the ruling parties and the opposition as a political weapon. If there is a vote to impeach, Rousseff would be suspended for 180 days as president while the trial takes place. Her Vice President, who is also suspected of wrongdoing, would be compromised. Brazil could be hosting the Summer Olympics without a legitimate President in office. Most shockingly, both the speaker of the Congress and the speaker of the Senate are under investigation themselves due to the Petrobras scandal.

The situation spells trouble. Both sides are dug in. The stalemate persists while the economy is in a tailspin. Much of the progress made in terms of reducing inequality and helping some industries become more competitive is at risk of being reversed. The recession already is the longest and deepest since the 1930s, when Brazil sustained huge losses from plummeting commodity prices. While the economy today is very different from that a century ago, its key vulnerabilities have not changed much.

Brazil needs a fresh start. And yet, that is impossible. The bridges have been burnt. The political polarization is unbearable. Some argue that calling for an early election might help clear the air. I am not sure this is the moment for an election. It is the moment for corrupt officials to resign, and for the courts to do their job.

Mauro F. Guillen is a professor of international management at the Wharton School at the University of Pennsylvania. He is also director of the Joseph H. Lauder Institute at Penn, a research-and-teaching program on management and international relations, and author of The Architecture of Collapse: The Global System in the 21st Century.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.

Read More

Great ResignationClimate ChangeLeadershipInflationUkraine Invasion