Promoting Equal Protection Under Law in Latin America

Democratic governments cannot last long without respect for the rule of law. Today, Latin America faces this important challenge. Despite over two decades of democracy in most countries, the consolidation of long-lasting democratic government hinges upon ensuring broad-based respect for and access to the rule of law.

In its simplest form, the rule of law means that no citizen is above the law, or above the institutions created by the law. Free-market capitalist democracies expand on this basic right to guarantee protection of private property and contracts, transparency and predictability of the regulatory framework, and an independent and competent judiciary. Taken together, these components represent the true kernel of a democracy based on the rule of law: the principle of equal treatment of each individual citizen regardless of status.

While electoral democracy provides for the equality of all citizens on election day (one person, one vote), only a democracy based on the rule of law ensures that such fairness and impartiality is preserved beyond election day for both citizens and non-citizens alike. Rules must override status in order to secure this more meaningful version of equal protection under law.

The political tradition of Latin America has historically been rather authoritarian and contrary to the principle of equality under the law. A minority of citizens wielded all power, and this minority was above the law (led by the so-called caudillos). Electoral democracy gives citizens the power to elect their governments, but this authoritarian tradition, whereby some citizens are above the law, still exerts influence and shapes the legal systems in this region.

Contrary to popular belief, it is not the rule of law that helps perpetuate the status of the most powerful elite groups, but the old authoritarian tradition of impunity from the law. The rule of law is blind to outcomes, and the only certainty it provides is the certainty of rules. Authoritarianism, however, relies on the certainty of outcomes: rules are bent so that they will lead to the desired results. Elite groups seek to sidestep the law, not to abide by it, whenever the law might hinder the attainment of their goals. Advancing the rule of law inverts this equation by making the rules, and the way business is conducted, certain and known (how the game is played), while making the results uncertain and unknown (who wins and loses the game).

The weak standing of the rule of law in Latin America helps explain the high levels of corruption and nepotism, and the lack of transparency and meritocracy in this region. Like the rule of law, meritocracy also rests on clear rules and provides uncertain outcomes. For these very reasons, it is contrary to the authoritarian tradition of a region that cherishes status more than rules.

A democratic government committed to equal protection under law is all the more essential for economic development in a region like Latin America. A lack of equality under the law heightens volatility, increasing the cost of capital and negatively affecting the ability to conduct business. By increasing predictability, more investment, both international and local, would likely flow into local economies. Small and medium-sized local businesses, the main drivers of economic growth, are some of the primary beneficiaries in an environment with protection of the rule of law and equal treatment thereunder. Larger and international businesses also stand to benefit, but they are better positioned to hedge against potential risks by spreading and mitigating their consequences.

This makes the case for the rule of law straightforward. One of the primary goals of any legal system is to protect the most vulnerable groups. Thus, the legal system of every civilized nation typically has special laws providing for the protection of children, elderly people, disabled people, and the like. The world of business is not alien to this logic. It is indeed smaller businesses that most need the stability that the rule of law can afford.

While bigger and international businesses may have access to mechanisms such as alternative dispute resolution, which can mitigate risk by calling for the application of international rules, this option may be out of reach for smaller and local businesses. Thus, while larger businesses can lessen some risk through alternative mechanisms, smaller businesses must rely solely on the rule of law to accomplish this goal.

However, small business entrepreneurs can also help advance the rule of law. First, as citizens, they can comply with, and demand compliance with, the rule of law. A collective effort in this regard would have a positive impact on institutions and society as a whole. Second, small business entrepreneurs would do well to vote for candidates that show respect for and adherence to the rule of law. Those are the candidates most likely to benefit small businesses by advancing the rule of law and breaking with the authoritarian tradition.

Latin America remains a volatile region in which to conduct business, and for that reason, businessmen are well-advised to plan for potential risks before engaging in a transaction. Our law firm will hold a seminar on Managing Risk in the Face of Volatility in Latin America in Miami on March 15 to further explore on-the-ground realities. For more information or to register, please visit http://www.hugheshubbard.com/practice/seminar.asp

Advancing the rule of law and the related principle of equal protection under the law in Latin America will improve the prospects for doing business in this region. This will benefit the region as a whole, including all types and sizes of businesses.

Eduardo Vidal is co-chairman and Gustavo Laborde is a member of the Latin America practice group at Hughes Hubbard & Reed LLP.