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How Democracy Was Subverted in Peru

May 2004

STANFORD GRADUATE SCHOOL OF BUSINESS—In September 2000, the government of Peruvian President Alberto Fujimori collapsed amidst a bribery scandal of breathtaking proportions. Legislators, supreme court justices, media barons, and others were on the receiving end of a seemingly unending stream of dirty money dispensed by Vladimiro Montesinos, head of the feared secret police.

Corruption rarely sees the light of day. But the now-imprisoned head of the National Intelligence Service kept meticulous records of his illicit transactions—demanding signed contracts and receipts, even videotaping bargaining sessions with other corrupt politicians and owners of the nation's major media outlets.

When the illicit network finally came to light—a small but not-for-sale television station broadcast one of the so-called vladivideos—the government fell, leaving prosecutors and researchers to pore through the records of more than $40 million in bribes.

Professor John McMillan of the Stanford Graduate School of Business and doctoral student Pablo Zoido, who have studied reform and corruption in developing nations, first learned of the vladivideos and other records from Luis Moreno Ocampo, an Argentinean lawyer who was visiting Stanford Law School. Intrigued by the opportunity to analyze an unusually detailed record of corruption, they studied the fall of Montesinos and will publish the results of their work in a forthcoming issue of the Journal of Economic Perspectives. "It gave us a unique opportunity to get under the table and see how the money changes hands," McMillan said in a recent interview with Stanford Business.

What they found was a stunningly bold and effective effort to circumvent three institutions key to maintaining democracy in Peru: the judiciary, the legislature, and the media. "Montesinos and Fujimori maintained the façade of democracy—the citizens voted, judges decided, the media reported—but they drained its substance," McMillan and Zoido wrote. What's more, by analyzing the size of the bribes, they demonstrate that the media, or more specifically, television, has become the most forceful of the checks and balances that underpin constitutional government.

"The typical bribe paid to a television-channel owner was about a hundred times larger than that paid to a politician, which was somewhat higher than that paid to a judge. One single television channel's bribe was five times larger than the total of the opposition politicians' bribes. The strongest of the checks and balances on the Peruvian government's power, by Montesinos's revealed preference, was television," they wrote.

Although the scandal was unearthed by Peruvian investigators, it is worth noting that the painstaking work of gathering, summarizing, and totaling the details of hundreds of separate transactions was completed by the Stanford researchers. "One of the initial reasons we were attracted to this topic was the seeming accessibility of the data," McMillan said. "It turned out we were wrong." The data was scattered among accounts in the media, records of criminal investigators, the website of the Peruvian Congress, and an aide to Montesinos.

McMillan and Zoido found that four major TV channels shared some $26 million in bribes, while two others got much smaller amounts in cash or political favors. Mainstream newspapers were paid about $2.5 million to distort the news, while smaller circulation papers and magazines favored by the intelligentsia got nothing. "A vladivideo shows [Montesinos] saying he was unconcerned. 'What do I care about El Comercio? They have an 80,000 print run; 80,000 newspapers is shit. What worries me is Channel 4. … It gets to 2 million people.'"

So complete was Montesinos's domination of the media that he even held a daily "news meeting" to inform the journalists which stories to feature in their evening broadcasts and the next edition of their papers.

Twenty-one top justices, including members of the supreme court and the appeals court, and a justice on the national elections board, received bribes ranging from $2,500 to $55,000. More than a dozen other judges were involved, but data on bribes allegedly paid to them was not available.

Government officials and politicians also got non-cash bribes, such as a car or a house. A judge on the national elections board, Rómulo Muñoz Arce, negotiated jobs for his wife and son as well as payment for his daughter's education in the United States. Montesinos threw in a first-class airfare for her, exclaiming, when the judge remarked on this, "First class? Of course I wouldn't send her coach!"

Numerous members of opposition political parties were bribed, some receiving payments of $10,000 to $20,000 a month. Even members of Fujimori's own party were paid off to ensure their continuing loyalty.

Why did the TV stations command such enormous payments? On the simplest level, the owners of TV stations are much richer than their corrupt colleagues; it takes more cash to buy them. And because it takes only one TV station to let the cat out of the bag, each station has enormous bargaining power.

Looking deeper, though, it is clear that the media commanded a high price because it is the trigger of the ultimate check in a democracy—an informed citizenry, said McMillan. Without an honest mass media, Peruvians had little recourse to other sources of information. And even an informed citizen is unlikely to act without the knowledge that other people know what he or she already knows.

"What's the good of exposing a corrupt politician if no one is willing or able to spread the news?" McMillan asked.

Some critics say that McMillan and Zoido paint too heroic a portrait of the media. "We've been accused of that," McMillan said. "But we don't deny that the media can use its power in the wrong direction." The point, he said, is the power of the media to be a key force in a working system of checks and balances. What it does, or fails to do, with that power is a separate question.

To what extent is the research on Peru useful in other areas? "Understanding the ways in which democratic institutions can be subverted—where the weak points are and how the parts of the system interact with each other—might be useful in designing governance systems elsewhere that are less corruptible. Montesinos's bribes reveal which of the checks is the most expensive to undermine."

—Bill Snyder

Related Information

How to Subvert Democracy: Montesinos in Peru
John McMillan and Pablo Zoido
Social Science Research Network Electronic Library

How to Subvert Democracy: Montesinos in Peru
John McMillan and Pablo Zoido
Stanford Research Paper No. 1851, May 2004

García Calderón, Ernesto, "Peru's Decade of Living Dangerously," Journal of Democracy 12 (2), April 2001, 46-58

The World Bank Group: Corruption and Anti-Corruption

Center for Global Business and the Economy

Center for Global Business and the Economy Inaugural Conference, May 19, 2004