Impunity and Vautrin’s Law in Chile and the US

I’ve noticed an interesting phenomenon as I’ve worked in Chile more deeply over the past two years building companies. Many, if not most, Chileans believe they don’t have much influence on events in their lives and in their country.

I see it all the time in multiple contexts: business, politics, customer service and corporate bureaucracy. I’m very familiar with this feeling in politics, as I feel the same way about non-local US politics, but at first I didn’t understand it in the other contexts.

For example, in business, if Chileans get screwed over, they are less likely to take to social media or write a blog post detailing their experience than people in the US are. When there was an issue with a Chilean business incubator, it festered for months before a foreign entrepreneur shared his experience and only then did nearly a dozen Chileans corroborate their experiences. I asked some of the Chilean entrepreneurs why they hand’t said anything before, and they all said that they didn’t think they could do anything to fix the situation and that they didn’t want to rock the boat.

Large Chilean companies pay suppliers using 90 day payment terms and then only really pay a half year later, entrepreneurs can’t and don’t do anything about it. When large companies lie to your face and treat you poorly, the typical Chilean reaction is to say “yeah, they’re screwing me over, but there’s nothing I can do about it!”

When the vast majority of landlords take your security deposit when you move out, regardless of damage, Chileans hate it. But the vast majority don’t do anything about it and resort to extralegal methods, like not paying the last month’s rent, to avoid getting screwed.

In the legal realm, the son of a powerful politician got drunk, drove, hit a guy and left him for dead. The man later died and the politician’s son lied to police. The son of the politician didn’t get punished. More ridiculously, his passengers were the only ones punished, each getting $150 fines for lying to police. There was some twitter outrage, but no serious calls for change, no mass protests. People were resigned to the fact that the rich and powerful have different rules than the rest of us.

When the President’s daughter in law got a sweetheart loan deal for $10m to purchase a property and sell it quickly, netting $5m, it didn’t lead to criminal charges or real change in the system. When Chilean politicians give themselves raises to bring their yearly salaries to $260,000 in a country where the average salary is $9,000 per year, and members of the US House of Representatives only earn $175,000, people complain, but don’t do anything about it.

When bad things happen, most Chileans are momentarily outraged, then don’t try to do anything about it, because they believe nothing will change. And they’re probably right.

Couple this impunity with the fact that only 15% of Chilean households earn $1350 in monthly income and 50% earn less than $800, compared to $6250 average household income in the wealthy areas of Santiago, and lack real possibilities to get into the top 15%, you have a recipe for social tension and potentially worse.

When elites and large companies act with impunity and the rest of society has a lack of opportunity, it creates a toxic brew that corrodes civil society and democracy.

Two heuristics have been helping me think about opportunity and impunity in society.

1. Impunity Index – The index is high and society is in trouble when elites do whatever they want without any consequences and the weak either think they cannot or really cannot do anything about it.

2. Vautrin’s law – Society is in trouble when it’s better to marry someone rich or commit crime that to better yourself via hard work and education. This law comes from Vautrin from Balzac’s Le Pere Goriot as cited by Thomas Piketty in Capital in the 21st Century.

Chilean elites and large businesses have acted with high degrees of impunity ever since the Spanish first arrived. And Vautrin’s law is clearly in force. For at least 85% of the population, its an economically sound decision to try to marry someone wealthy or to look for extralegal ways to make money than it is to work hard, take out a loan to get an education and try to work your way up. Because even if you work hard, most people will top out around $1350 in family income if they are smart, hard working and lucky. And to make matters worse, because of severe classism (really just racism), most of the people in the bottom 85% can never marry up anyway, so that avenue is closed off to them.

Put yourself in the shoes of someone in the bottom 85%. You probably can’t marry up, basic elementary education only works for a lucky few, universities require borrowing large sums of money and when stealing an iPhone is the same as two weeks salary, stealing a Toyota Yaris is the same as six months salary, you can see why people would be attracted to crime or are resigned to their fates. You can also see why taxi drivers try to screw over passengers for $2-$10 if they have the chance. When people see elites and large businesses acting with impunity, it takes another excuse away and pushes people into a destructive path.

As the internet has permitted people to know about cases of impunity that previously would have been swept under the rug and have magnified wealth differences, the elite is faced with a choice: allow the bad apples who act with impunity and continue to get away with their behavior in all of the elite’s name and continue to stifle opportunity for the 85%, or decide enough is enough and strongly condemn bad behavior when it happens and begin to loosen it’s grip on society.

If the elites continue down the business as usual path, they risk consequences from increased crime and political instability to potentially a populist leftist leader who can undo the real progress Chile has experienced that has set it apart from its neighbors over the past 50+ years, or even worse.

I believe the US is going down a similar path and is taking big risks by not addressing the situation now. As the US elites continue to amass wealth on a scale reminiscent of the years just before the Great Depression and continue to move toward Chilean levels and you see things like affluenza being used as a successful defense for drunkenly killing people and large corporations paying nominal fines and nearly zero taxes while normal people are punished severely for similar or lesser transgressions.

I think solving these issues and putting the impunity index and Vautrin’s Law back into balance requires buy-in from government, politicians and most of all the elites that are currently benefiting from these conditions. I don’t believe that these conditions can last forever without some sort of reaction, whether its an economic reaction like the financial crisis or the election of a populist leader who will implement already disproven ideas that will punish the elites, but not raise the standard of the rest.

Photo Credit: Marie-Chantale Turgeon