Can Digital Transformation Restore People’s Trust?

This article was also published in El País

“It’s not about 30 pesos, it’s about 30 years.” A 30-peso hike in the subway fare triggered violent protests in Santiago de Chile, but behind that is an overall frustration that is shared by people in other Latin American countries.

Chilean protesters claim they feel neglected by an unfair economic model, with an ever-rising cost of living, while their aspirations are thwarted in a context of political disaffection and persistent inequality. In other words, people’s expectations have grown faster than their income.

Broadly speaking, social unrest in the region reflects the unfulfilled aspirations of a growing—albeit vulnerable—middle class that expects better public services and greater integrity from their policy-makers. Despite social improvements and poverty reduction, the development model is stalled and must change its course to correct the institutional imbalances.

And an important factor that affects quality of life is the size of bureaucracies and the encumbered red tape, which creates friction between citizens and states, and undermines competitiveness of the economies. According to the World Bank 2020 report on business climate, the region stands out for the magnitude and complexity of its red tape, and no country made the top 50 streamlined bureaucracies out of the 190 countries evaluated. The paradox is that Latin America is the region with the largest number of standards and, at the same time, where they are least complied with.

It is also the region that makes the most efforts to de-bureaucratize. In 2018, 21 out of 32 Latin American countries implemented 35 streamlining reforms to, for example, facilitate registration of a property or incorporation of a new business. Argentina promoted a productive streamlining program aimed at easing procedures that hindered business operation. Small and medium-sized enterprises, which are the business fabric of Latin American economies, are particularly affected by this red tape.

This undermines the fiscal pact between citizens and their states, because people fail to see the value in paying their taxes, given the low quality of the public services they receive in return. Protests break out, in part, based on the feeling of fiscal injustice and the absence of a fiscal pact that redistributes wealth and provides social protection. What Latin Americans want is not a smaller state, but a better state.

According to the OECD, in 2015, 52% of Latin Americans believed tax evasion to be an excusable offence. This creates a vicious cycle: low confidence reduces tax revenues, and this undermines institutions and reduces their ability to provide services. The region is cornered in what the OECD describes as an “institutional trap.”

The intricate red tape of the states of the region remains their Achilles heel. The complexity of formalities and the discretionary power of officials who handle them create a breeding ground for bribery. According to the 2019 annual report of the development bank of Latin America, one in four Latin Americans declares to have paid a bribe to receive a service or expedite a process in the last year.

Rather than reformsad hoc, the region needs high-impact measures to alleviate the suffocating weight of regulatory burden, both in the amount and the non-stop flow of regulations. In this sense, the digital transformation of administrations offers a unique opportunity to tackle over-regulation. This requires a cultural change in our administrations, because the legalistic tradition establishes that every problem can be solved through a regulation.

Against this backdrop, the governments of the region seek to cut the red tape. In Brazil, de-bureaucratization is a central mandate of the ministry of economy. In Ecuador, an ambitious streamlining program was launched, with a law in 2018 to optimize administrative procedures. In Argentina, important progress has been made in the digital transformation of the state, and in Chile a plan was presented to achieve a state “with no red tape and no lines”.  

One of the main instruments of de-bureaucratization is to digitize services and expedite paperwork. Brazil just launched a single portal for digital services and Colombia is close to achieving this, following in the footsteps of Mexico y Peru and England’s model. In Uruguay, 68% of procedures nationwide can now be initiated and completed online. In November, the Colombian government adopted an “anti-formality” decree to improve citizen services in the 2900 national administrative procedures. For example, authorities will not be allowed to request documents that are already in their files.

But digitization is not enough; processes need to be streamlined. Thus, another set of reforms focuses on streamlining and rethinking red tape. There are many streamlining strategies, from the most radical regulatory “guillotine,” to more conservative regulatory cleansing strategies and ex-post revisions. Colombia, for example, adopted a roadmap in 2014 to streamline regulatory production, but still needs “regulatory cleansing” initiatives such as Estado Simple, Colombia Ágil which in the first year of the Duque administration intervened more than 1,000 procedures.

Thus, it is necessary to rationalize the flow of state-led regulations, with reforms that require more political strength. Mexico completed two decades of reforms in 2018 with the adoption of the general law of regulatory improvement and has an federal entity in charge of enforcing regulatory policy.

Political will from the top government is essential to set the goal, the tone and lower the bar. Failing that, the region will continue to strike an unstable balance between regulatory momentum and the desire for streamlining. But apart from expediting procedures, the region needs to improve the quality of public services. This is what the people on the streets are expecting.