An old joke about Latin America’s corruption that is making the rounds on the Internet says government officials from several countries were asked the same question: “Honestly, what’s your opinion about hunger in the rest of the world?”
The Swiss official, bewildered, responded: “Hunger? What’s hunger?” The Cuban official, equally puzzled, said, “Opinion? What’s opinion?” The U.S. official said, “Rest of the world? What’s rest of the world?” The Argentine official said, “Honestly? What’s ‘honestly?’”
The joke came to mind as I was reading a new book entitled “The Public Wealth of Nations,” by Swedish authors Dag Detter and Stefan Folster, which proposes a bold way to fight corruption across the world: creating National Wealth Funds such as those that exist in Singapore and Austria to prevent the discretionary use of state assets by government officials.
It’s an idea that would be worth exploring in Latin America, where corruption scandals involving state-owned companies are making headlines almost everywhere.
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In Brazil, the scandal over kickbacks paid by the state-run Petrobras oil company to key members of the ruling party is shaking the country. In Argentina, Mexico, Peru, Honduras, Guatemala, Panama and even Chile — long considered the cleanest country in the region — government corruption scandals are the talk of the day.
In Venezuela, public officials and the military have enriched themselves so much that many refer to the ruling “revolutionary” elite as a “kleptocracy.” Venezuela has been ranked by the Transparency International anti-corruption advocacy group as the most corrupt country in Latin America, and one of the most corrupt of the 175 nations it measures.
The conventional wisdom among anti-corruption advocates is that the separation of the executive, legislative and judicial powers, alongside an independent press, are essential to effectively fight government graft.
But the authors of “The Public Wealth of Nations” go one step further, saying that in addition to a functioning democracy, countries need to create National Wealth Funds, or independent holding companies run by professionals to manage public assets ranging from state-owned corporations, to buildings, to historical monuments.
The old left vs. right debate over whether governments should nationalize or privatize misses the point, the authors argue. What really matters is the quality of the management of public assets, and insulating these assets from the hands of politicians. Rather than focusing on ownership, the debate should focus maximizing returns, so that profits can be used to build schools and hospitals, they say.
“Public wealth can be a curse if it is left as an open cookie jar, tempting its overseers into corruption and clientelism,” they say. “This does not mean that all wealth needs to be privatized. The process of privatization itself offers tempting opportunities for quick enrichment, thus risking crony capitalism, outright corruption, or dysfunctional regulation.”
In a telephone interview, co-author Detter, a former investment banker and Swedish Ministry of Industry official, told me that dozens of countries around the world already have independent agencies that seek to manage public assets more efficiently. But many of them don’t work because they are government agencies, rather than holding companies whose directors are accountable to domestic and foreign investors or business partners.
Many countries also have limited versions of National Wealth Funds. Typically, Congress in these countries picks an outside board of directors, which hires a team of outside professional managers. Then, the management team puts together a list of state assets, gets a market valuation for them, and decides what do to with each of them.
For instance, if the government has public offices in expensive downtown neighborhoods that could generate huge profits if converted into fancy hotels, or rented out to big private firms, the management team may decide to pursue one of these options, Detter said.
In Singapore, Temasek, that country’s version of a National Wealth Fund, has had average annual returns of 16 percent since it was created in 1974. That has allowed the government to take a percentage of these profits as dividends, and use them for education, health and infrastructure, he said.
“This could work very well in Latin America,” Detter told me. “That’s the best way to fight corruption.”
My opinion: There are already many public-private enterprises in Latin America that work along these lines, but not a national independent holding company for all state assets whose board members and managers are more accountable than public officials.
It may be high time to insulate state assets from government corruption, so that the joke about a puzzled government official asking “What’s ‘honestly?’” becomes outdated as soon as possible.