Do you think your country is governed in the interest of a few powerful groups or is it governed for the good of all? According to 2018 perceptions data from Latinobarómetro, 79% of citizens in Latin American countries believe that their country is governed in the interest of a few powerful groups. This is the highest the measure has been since data started being collected in 2004. In countries such as Brazil and Mexico, this number reaches as high as 90% and 88% respectively.

The increasingly widespread belief that countries are governed to benefit “the few” rather than “the many” suggests that the legitimacy of institutions may be declining in the region. We can think of three sources of legitimacy*: outcome legitimacy, when a government is reliable in delivering on its commitments such as the provision of public services;  procedural or process-based legitimacy, derived from perceptions of fairness in the way that decisions, policies, or laws are designed and implemented; and relational legitimacy, where individuals recognize authority encouraged by a shared set of values and norms.

In Graph 1 what we are seeing is perhaps the erosion of procedural legitimacy. Why does procedural legitimacy matter for development? Because when people believe that rules are fair, they are more likely to comply with them voluntarily. Voluntary compliance is a key enabler of cooperation and coordination, and thus ultimately an important foundation of positive governance-development dynamics. As explained by Margaret Levi, “…citizens are willing to go along with a policy they do not prefer as long as it is made according to a process they deem legitimate, and they are less willing to comply with a policy they like if the process was problematic.”

One widely used measure of willingness of citizens to cooperate is tax morale. Since the gains of evading taxes are high vis-à-vis the potential costs (i.e. penalties), people “decide” whether to pay taxes or not. This decision is likely to be affected by their perceptions of procedural legitimacy, i.e. whether they perceive the tax system is fair, both in terms of how taxes are collected and how they are spent (also by strategic considerations linked to the presence of penalties, but let’s leave that aside for a moment for the sake of the argument).

Graph 2 aims to unravel the situation in some countries in LAC using data from Latinobarometro, which asks citizens “how justifiable do you believe it is to evade paying taxes?” Respondents answer on a scale from 1 (“not at all justifiable”) to 10 (“totally justifiable”). In the graph, the share of people responding greater than 5 is shown as those that think it is “justifiable” to evade taxes. What we see is that while a majority of citizens in all countries manifest disagreement with the idea of evading taxes, there is a clear and positive relationship between the share of people who think their country is governed in the interest of a few powerful groups and the share who think it is justifiable to evade taxes.

If citizens do not believe that institutions are responsive to the needs of all, they may choose not to cooperate. We can think of this as “opting out” of the social contract. This may also materialize in the choice to rely on the private provision of services such as education and health. In Central America, for example, there are three times as many private security personnel as the number of official police staff. This type of “exit” has consequences for the social cohesion across groups and can potentially lead to conflict as the stability of the social contract erodes. Frustration erupted, for example, during the 2013 protests in Brazil in anticipation of the 2014 FIFA World Cup. The demands of protesters for “FIFA standards” for their public schools and health centers can be seen as a reflection of the belief that public money was being spent unfairly in the interest of a powerful few rather than in the collective interest of the many.

Now, what can policy-makers do to improve this dynamic? A good starting point to promote process legitimacy is to enhance ‘ex ante’ accountability mechanisms by creating a more participatory or inclusive decision-making process that is responsive to the demands of ordinary citizens. In other words, expanding the policy arena, which is the place where power asymmetries manifest. While this is easy to say, it is difficult to do—especially given the historical inertia of institutions and the distribution of power in society. The “extractive institutions” created in Latin America centuries ago are still found to have impacts on inequality, income levels, and racial disparities. However, this does not mean that change is impossible. Incremental changes, such as increasing the contestability of the policy arena by enabling more citizens’ voices to be heard can be crucial in charting the path toward a new equilibrium for both governance and development.

*See “Rethinking Trust and Legitimacy: A Functionalist Approach” (2016) by Luis-Felipe Lopez-Calva and Samantha Lach for a longer discussion on different types of legitimacy including outcome-based legitimacy and relational-based legitimacy