Brazil’s Mercurial Courts Undermine Democracy

(Bloomberg Opinion) -- (This is the sixth of a series of columns on economic growth and the challenges to democracy. Read the other parts here: The Democracy Dividend: Faster Growth; Hardliners Learn That Democracy Can Pay Off; Central Bankers Shouldn’t Have to Rescue Democracy; Democracy’s Dividend Is the Right Kind of Growth; and Democracy Has No Ideal Form.)

Brazilian judges had themselves an exciting weekend. On Sunday, July 8, an appeals court magistrate on call granted a writ of habeas corpus for jailed former President Luiz Inacio Lula da Silva. The surprise ruling thrilled Lula loyalists, who rallied outside the jail to hail the imminent release of the Workers’ Party icon, convicted for graft in Brazil’s historic Carwash corruption case.

The elation lasted till nightfall: After an intense legal battle, the court’s ranking magistrate overruled the sitting judge, leaving Lula behind bars, his followers inflamed and the country guessing over what more turmoil awaited in the run-up to October’s presidential elections, which polls still tout him to win.

At first glance, such judicial hyperactivity may look like democracy at work. Sure, Brazil’s other governing institutions may be damaged goods, with both the executive and legislative branches soiled by scandal. Yet thanks to police, prosecutors and judges, shady public officials are on the run, and not even political legends like Lula are exempt. Never have so many Brazilians been able to bring their grievances before judges and juries; in 2016, more than 110 million cases were filed.

Up close, however, the picture isn’t so nice. For all the prosecutorial zeal and landmark cases, the region’s largest democracy looks increasingly like a model of judicial incontinence. Boasting more than a million lawyers, quarrelsome Brazil is a land of robed avengers — the courtroom a proxy for the partisan battlefield and today’s open-and-shut case often just a prelude to tomorrow’s retrial.

Such inconstancy can turn jurisprudence into a footnote and subject even major rulings to mutable passions, rendering the democratic process hostage to uncertainty. So it is with Lula, who was tried, twice convicted and jailed for corruption. Indeed, because the mercurial Supreme Court is wobbling over when to send a convict to prison — after one failed appeal, per its 2016 ruling, or according to judicial populists, only after all possible appeals are exhausted? — Lula’s boosters and tireless legal team are betting on his triumphant return to freedom and even the presidential palace. And the final word on Lula’s candidacy might well fall to incoming Chief Justice Jose Antonio Dias Toffoli, who served as general counsel to the Lula government.

Political coherence is not the only casualty of a tempestuous justice system. Perishable rulings, disposable case law, judicial overreach and conflicts of interest conspire also to spook investors and sandbag economic growth. “Investors might not abandon the country because of these problems, but judicial unpredictability becomes part of their overall business calculation,” Getulio Vargas Foundation (FGV) economist Armando Castelar Pinheiro told me. “Fifteen or 20 years ago, lawyers were the only ones worried about this. Now legal uncertainty is a massive concern of the business community.”
In order to project spending and investment, said Castelar, companies need clear rules on taxes, sanitary regulations and environmental restrictions, and the assurance that the authorities will enforce the law. “Brazil has problems in all of these areas,” he said. “Our laws are flawed and new rules are issued by the thousands. We even have companies specializing in analyzing norms and legal risks.”

Consider Supreme Court Justice Ricardo Lewandowski’s recent decision to table Petrobras’s plans to privatize dud assets, on grounds that Congress should weigh in case by case. No matter that the selloff is vital to restoring Petrobras to solvency. The ruling was a throwback to the 1990s, when a reformist government privatized scores of state companies, often over the objections of special interests and their lawyers.

Compounding the courts’ lack of clarity over rules and boundaries is the glacial pace of justice. The long delay on judicial settlements “means that companies must factor in the possibility that unpaid debts may only be judicially recovered years in the future, if at all,” writes American University’s Matthew Taylor in a working paper on Brazilian courts. That partly explains why Brazilian businesses struggle to secure loans and pay steep interest rates.

Legal scholar Joaquim Falcao, also of the FGV, says the problem goes to the top of the judiciary. “People look to the Supreme Court to set the tone, resolve conflicts and settle legal impasses,” Falcao told me. Yet that isn’t always what happens. Much of the blame owes to the high court’s impossible brief: a staggering 87,000 cases a year, which clog the docket and relegate tremendous power to each of its 11 justices. Close to 90 percent of Supreme Court cases are decided by a single judge — a revolving door to judicial whim. “We have not one but 11 supreme courts,” observed Falcao. “Instead of settling conflicts and dispelling uncertainty, the court creates even more uncertainty, which generates economic instability. Brazil cannot grow without predictability.”

It’s no small irony that the overwrought and not infrequently undemocratic system of justice was put in place during the country’s return to democracy. As a firewall after more than two decades of military rule, national lawmakers wrote sweeping powers for judges and prosecutors into the 1988 constitution. Today, the Brazilian justice system is considered one of the world’s biggest, most powerful and most expensive.

The Brazilian legislature compounds the problem by layering on new laws. “The constitution just keeps on growing,” said Rogerio Arantes, a constitutional law scholar at the University of Sao Paulo. By his count, in 30 years Brazil has added 105 constitutional amendments, some so detailed that they encroach on public policy. “Just to govern the government often has to change the constitution. This means that more and more, future generations are enslaved to the present.”

Such “judicial inoperancy,” in Taylor’s words, has not just hurt Brazil’s prospects for growth but also undermined confidence in what has been one of the country’s sturdiest governing institutions. A recent survey found that 53 percent of Brazilians partially distrusted the judiciary, while 90 percent believed that not everyone is afforded equal treatment under the law. That’s double jeopardy for a democracy that aspires to be one of the world’s leaders.

To contact the editor responsible for this story: James Gibney at jgibney5@bloomberg.net

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