• José Ignacio Hernández, Harvard Kennedy School

The Limits of the Rule of Law to Address Systemic Corruption

By José Ignacio Hernández, Fellow, Growth Lab (Harvard Kennedy School)



Venezuela is considered one of the world’s most corrupt countries. A common strategy to address its corruption, and one advocated by the likes of the Council on Foreign Relations no less, is “reinstating the rule of law.” Similarly, the International Commission of Jurists has proposed to “recover the country’s democratic institutions and the functioning of the rule of law.”

Without a doubt, the rule of law should be restored in Venezuela to tackle corruption. The real question to ask, however, is this: What is the root cause of corruption in the country? If the cause is flawed rules, then, yes, the solution should be institutional reform that creates new rules and institutions. This in fact is the path Maduro’s regime has followed, while also recommending a legislative overhaul to boost anti-corruption policies.

Plenty of evidence exists, however, to conclude that flawed rules are not the primary driver of systemic corruption.

And, furthermore, the problem with any strategy focused on institutional reform to reinstate the rule of law to promote anti-corruption policy lies in the assumption that the branches of the Venezuelan Government possess the capability to enforce the policy.

Instead, the root cause of the country’s corruption problem resides not in its laws but in the fragility of the Venezuelan state. The first condition to reinstate the rule of law is that the state should have the capability to enforce the rule of law. And that condition is missing in Venezuela.

Photo of Guiseppe Lampedusa, Wikimedia Commons

That is why, according to Matt Andrews, in the absence of a capable state, institutional reforms will have minimal impact; state fragility will prevent effective enforcement of the new institutions. In Venezuela, even the best comptroller under the proper framework would all but certainly fail to implement successful anti-corruption policies.


Rather than push for institutional reform to reinstate the rule of law in Venezuela, we should diagnose and measure the fragility of the state. As in Lampedusa's novel The Leopard, any anti-corruption strategy based only on an institutional reform will "change everything" to allow everything to stay “as it is.”

Venezuela: a fragile state

The starting point to implement a strategy based on state fragility is to consider that Venezuela is facing an unparalleled complex humanitarian emergency. GDP has collapsed more than 80% since 2013—far more than during the Great Depression. The economic and social turmoil, as well as systematic human rights violations, have led to the world’s second highest migration and refugee crisis, surpassed only by Syria. Venezuela’s economic and social crisis is the direct consequence of the gradual collapse of the state.

Source: USAID

According to the Fragile State Index, state capacity in Venezuela has dramatically declined since 2013. Indeed, it’s possible to consider Venezuela a fragile state with irregular and criminal organizations occupying part of its territory.

Therefore, any comprehensive anti-corruption policy focused on Venezuela should be framed in the context of Fragile and Conflict-Affected States (FCAS). In other words, Venezuela should be regarded as a case of systemic corruption within, as CJL puts it, a fragile state. Thus, “reinstating the rule of law” is an insufficient strategy simply because the “rule of law” is not self-enforced: it requires a capable state.

In the shadows of the fragile state

Framing Venezuelan systemic corruption within the FCAS scope is helpful, at least, for two reasons: (i) it helps to understand the role of informal institutions and social norms, and (ii) this approach captures the impact of the petrostate. Under the FCAS scope, it is possible to understand the vicious cycle that results from the interaction of social norms and the petrostate's incentives to capture oil rents. Not only is the state fragile: because of this cycle, civil society also becomes weak.

One of the characteristics of fragile states is their limited capacity to enforce the law, which creates incentives for the rise of informal institutions, including social norms through which society embraces corrupt behaviors. Therefore, any anti-corruption policy in Venezuela should consider the informal institutions and social norms that emerge in the shadows of the fragile state.

The gradual collapse of the state has created capability gaps, namely, the difference between the de jure or formal institutions and the de facto or informal ones. The Venezuelan Anti-Corruption Act is a modern regulation that establishes a solid framework to conduct anti-corruption policies. However, due to state capability gaps, the formal institutions of the Anti-Corruption Act cannot be enforced and, in its place, arise informal institutions.

Source: Repsol Flickr

Consider, for instance, the Venezuelan petrostate framework and how it creates perverse incentives to capture oil rents. Between 1999 and 2013, the Venezuelan Government administered approximately one trillion dollars in oil revenues because of the oil boom. As the U.S. Department of Justice concluded, without an adequate checks and balances system, the distribution of those oil revenues through an exchange regime control created incentives for systemic corruption. “Rentier” social norms emerged through which the society organized to capture oil rents through fraudulent schemes, for instance, to have access to the exchange quotas fixed by the government.

Therefore, the vicious cycle of systemic corruption in Venezuela results from (i) the incentives to capture the oil rents amidst a weak checks and balances system and (ii) the gradual collapse of the state capability. These conditions have converged to create a kleptocratic system in which criminal organizations act in “areas of limited statehood,” that is, areas in which the fragile state cannot function and civil society has degenerated into organizations that seek their shares over the oil rents.

Four prongs of an effective anti-corruption policy

Corruption is a symptom of the collapse of the Venezuelan state. Yes, Venezuela is considered the worst country in terms of the rule of law, a condition that will require adopting deep institutional reforms. However, any reform aimed to reinstate the rule of law without a capable state will likely fail.

What then can be done? Below I propose a four-prong anti-corruption strategy rooted in a state fragility lens.

1. Rebuild state capabilities through public-private partnerships, international cooperation and supranational responses. Recovering state capability is not a short-term task; it will be necessary to rely, at least in part, on the capacity of public-private partnerships and international organizations.

2. Suppress incentives for arbitrary and clientelist distribution of oil incomes. The Venezuelan oil industry is destroyed but will eventually recover, and with that, oil rents will resume. Thus, it will be necessary to dismantle the institutional arrangements of the petrostate, reducing the incentives to implement clientelist policies.

3. Reduce areas of limited statehood. It is necessary to “bring back the state,” gradually reducing the “areas of limited statehood” and, in the process, closing the gap between formal and informal institutions. This will be a delicate task: the informal and corrupt institutions that facilitate access to goods and services, like food and medicine, won’t simply disappear. However, they should be replaced by a capable state that, through formal institutions, strives to ensure access to goods and services.

4. Modify rentier social norms. As long as civil society tolerates and encourages opportunistic behaviors, rebuilding the state’s capability will prove impossible. As Acemoglu and Robinson have demonstrated, the narrow corridor of freedom requires a capable state and a strong civil society. Therefore, building state capacity should be based on a bottom-up strategy, working with civil society to strengthen its capabilities.

 

Venezuela demonstrates that anti-corruption policies should be designed considering state capability. In fragile states, corruption is symptomatic of complex causes that require complex solutions. Accordingly, reinstating the rule of law will not tackle the root cause of systemic corruption. To achieve this objective, anti-corruption policies should be part of a broader objective: rebuilding state capability and promoting the change of rentier social norms.


 

Dr. José Ignacio Hernández is a Venezuelan lawyer with a PhD from the University of Complutense (Spain). He is a professor of Constitutional and Administrative Law at the Catholic University "Andrés Bello" (Venezuela) and invited professor at Castilla-La Mancha University (Spain), Pontifical University (Dominican Republic), and Tashkent University (Uzbekistan). He is a fellow at the Growth Lab (Center for International Development at Harvard Kennedy School).