Markkula Center of Applied Ethics

The Ethics of Governance

by Jamil Mahuad

Former President of Ecuador Jamil Mahuad gave this presentation January 12, 2005, as part of the William P. Laughlin Lecture Series.

When we have a set of principles, of values, which we have been learning for many years, we organize our life following this structure, and then we try to apply that frame of mind to practical situations in our life. But often, we find ourselves in a sort of uncomfortable position because the moment we try to apply our values to this very present practical issue, we feel that the situation is not as clear as we would like, that we can not tell very clearly which is the best possible alternative. Often, it is not a choice between good answers and bad answers, good and evil, but maybe between two good things or two bad things. We would like to be much surer about our decisions.

When this happens in government, it is even worse because the whole society will be affected by your decision. You are not dealing with your own life. You are dealing with many millions of lives at the same time. Maybe things will never be the same again in the future because of your decision. So, ethical decisions in government are: How do you apply your theoretical values to practical decisions where you do not have pure answers and when the whole life of your society or community will be affected?

I have found a lot of really important information at the Web site of the Markkula Center. You have very good practical advice and tips on how to deal with these problems. The first is to get the facts. For example, when you have a headache, probably, the headache is not the problem; the headache is the symptom of the problem. If you hit your head against the wall, that's Scenario A. If you have a hangover, that's Scenario B. If you have a tumor in your brain, that is Scenario C. So, to have a headache is just a symptom of something else. What you need to do if you have the symptom or a group of symptoms is to try to sort them out, to elaborate possible explanations for them—that is how doctors proceed. For each possible explanation, you can have an action plan and then you have to implement it. So you go from practical things—the headache—to theoretical things—the possible diagnosis—then to the possible solutions—the prescription—and then back to the practical field—the treatment or the implementation of the cure.

You have more or less the same system dealing with the problems in government. You need the facts. The facts can be the symptoms or the problem. You never know at the moment you start analyzing the problem. So, you get the facts, and then you try to make some sense of them. You have some theories or hypothesis of what is causing the symptoms. And then you try to implement the course of action.

You also have to deal with the problem in ethical terms. The ethical approach is the Utilitarian. You have to balance how much good and how much evil you produce with your actions. If the good outweighs the evil, you should do it, as it is a sort of balance. The second is based on the concept of rights. There are some basic human rights that you have to respect. You are not allowed to affect those human rights in order to produce good in your society. The third one is based on the concept of justice or fairness. We have at least three different concepts about justice. You can have distributive justice in which you try to distribute all the goods of the society according to the needs of the people. But you can also have the concept of contribution. In this case you are not receiving on the basis of what you need but on the basis of what you are contributing to society. And then you have the compensation concept. In this case you have the right to be compensated if you have losses or harm done due to others. The fourth major ethical approach is based on virtues. The question is not what I should do, but what kind of society would I like to have in the future. How are my actions going to contribute to that future? And then you have the common good, the concept in which you are doing things that are equally good for everybody in your community.

Now I want to invite you to think about how to apply these approaches to three different scenarios that were real and practical in the life of Latin American presidents in the last five years. In January 2000, five years ago, I was President of Ecuador. My country had faced the worst economic crisis of the century. Everything that could go wrong went wrong. We were exporting oil. Oil represents 50 percent of the exports of the country. (This changes every year, but to give you the magnitude we dealt with). Fifty percent of the income of the state is coming from oil. And, oil prices in '98 went down to $7 per barrel. The legislature that approved the budget of the country had estimated that the price would be $14 per barrel. This means that when the price went down to $7, you had only enough money to pay salaries for half of the year, not the whole year. The people who didn't get paid—public servants, teachers of public schools, doctors, nurses, police—started striking and protesting. The moment the police had to control the protesters in the street, they knew that the teachers were representing their problems because the police were not paid either. We had a big problem.

On top of that, we were leaving the worst El Nino in the last 500 years. We lost 16 points of GNP due to the flooding. All of our exports were affected by that. At the same time we had a big financial crisis in the country. The financial sector was doomed to fail. We had the Asian crisis, in Russia and Brazil. Things were absolutely complicated. As a consequence, after many months, the people were very angry; the popularity of my government was very low. The people were tired of waiting for solutions that we couldn't provide, fed up with public declarations from the main voice of the economy of the country.

The economic advisors would say what we should do but nothing was implemented. So, the people decided that the time had come for change in the government and organized a big movement—coming from the rural sector to the city - sitting, refusing to move until the president, the vice president resign and the Supreme Court and congress resign. After the resignations, an implementation of a popular government would occur. The people would appoint the new government, congress, and Supreme Court. This was the time of real change in Ecuador. One morning I received a visit from the Joint Chiefs of Staff in the armed forces. They said that they thought that the situation in the country was so difficult, that I should give my resignation to allow a constitutional solution to the crisis. So, you are the president of Ecuador at that moment. Should you resign or not? And what is the criterion for knowing what is best?

I myself decided not to resign. I actually said, if you want to produce a coup d'etat, you are free to do it. I can do nothing to oppose that. Coup d'etat is based on force and I do not have the force. But, I think that my resignation would contribute to that and I am not going to contribute to this obvious break in the constitution of our country that will affect all the institutions in the country. One year and one half after that, President Fernando De La Rua, the president of Argentina faced the same problem. He was in his presidential palace in Buenos Aires, and he was surrounded by civic organizations and movements. The ministers of the cabinet couldn't come to the presidential palace to meet with the president because the access was impossible. There was looting in small businesses, and the owners of the business had begun to shoot to protect their property. The list of people killed was increasing. The president would not resign. Last year, President Gonzalo Sanchez de Lozada, president of Bolivia, faced a similar situation. After many months of a disappointed population, he faced a big crisis. The people thought the government was failing and should be replaced. He could have overcome that, but he had another crisis simultaneously. The opposition in the congress and military asked for his resignation. He refused to resign. In the city of La Paz, it is easy to block the street, preventing the flow of everything. The people blocked the streets of La Paz. There was no food in grocery stores. The situation had become increasing violent. The police and military were killing people while trying to produce order in the streets. And still the president refused to resign, to leave his country during such chaos.

At the end of the day, I didn't resign. I had three or four more attempts made for me to resign. I refused to resign. Congress decided to interpret that as I left the presidential palace, even though I was still in Quito, I had abandoned power. The vice president was given the reins of the country. We actually had four governments in one day. No one could consolidate power that day. At the end, they invited the vice president to take over as president. Thank God no one was wounded or shot; it was a very peaceful movement. In Buenos Aires, Fernando de la Rua did resign. As the vice president of Argentina had resigned before he did, Argentina had four or five governments in two weeks. No one was able to consolidate power in the country. De la Rua left in a helicopter, but stayed in Argentina. I stayed in Ecuador. In Bolivia, President Sanchez resigned, and he came to Washington, where he lives now.

What was the right thing to do in the situation? Should you resign or not? We did not have the time, the tranquility, or the confidence that the information we received was accurate or complete—we learned many things by watching TV—and, we had to act. This is a clear dilemma—the dilemma of acting with responsibility when invited to resign. At this point, you must analyze at least two things: the concept of legality and the concept of legitimacy. You are the legal president. You were elected. In the case of Ecuador, I won by 36 percent of the vote, first round and 2.5 million votes and we have 10 thousand people in the streets protesting against the government. Of course, those 10 thousand were representing a big majority in the country. They were against the president, but they did not want the resignation of the president or a change in government that would be too chaotic for their country. They simply did not like the way the president was governing. So you can be a legal president, but how do you measure the legitimacy of your mandate? Is legitimacy something that you must earn each week through your actions or is something that you gain once. And how do you measure legitimacy. The moment you become unpopular, are you illegitimate? Many presidents in Latin America have made many tough and unpopular decisions. They have seen their popularity dipping down, and after one or two years, the economy recovered and they were re-elected. So at which moment in time, which point in time is the evaluation of the legitimacy of the president to occur? It is unclear. And at what moment do you make the decision to resign or not? In the first minute when you are asked? Do you have to wait and see? If waiting means that you will have 10, 20, 30 or more people killed in the streets, you must ask yourself how you are contributing to the peace of the country. You must evaluate such a decision every single minute. It is not an easy answer.

I'd like to move to the second dilemma. We the presidents of conflicted countries with problems of poverty and inequality are only saying what a good father says in a family: "I am doing this for your own good." Who is going to buy that? That's a big question mark! But we truly believe in that thought. We put ourselves in danger. We affect our popularity, our political capital, because we think that is the best solution for the country. We think we have a long-term perspective. We are not thinking of the next election but the future of our country. The difference between a politician and a statesman is the perspective you have. The people of Latin America are very skeptical and increasingly cynical. The main problem is usually an economic problem as we run big fiscal deficits. It is healthy for the economy to have no deficits or at least to have control of all deficits. How do you balance the budget? You increase your revenues or you cut your expenditures. There is no other way, no magic here. What are the expenditures of the government? Well, mostly, social programs. You must cut social programs when you must cut expenditures. You must cut subsidies, yet you were elected for increasing subsidies. Your people want a better standard of living, but you must increase the price of gasoline. Every president does that. It is not because we are inhuman or stupid but because we do not have the alternatives. To not cut subsidies would be worse. So, we make these type of decisions although the people say they disagree.

I invited a great friend and economist to come to Quito, and he met with leaders of the country to explain how important it was for the country to gain control of the fiscal deficit, how this would change the image of Ecuador in the eyes of the international community; how it would allow Ecuador to get a program with IMF; how we would get investment and loans from banks; how, with this investment we could build more factories; how, with these factories, we would create more jobs; how with these jobs, the economy would grow; and how this would be good for everybody.

While he was talking with this group of indigenous people, there was a very poor woman there, with a crying child in her arms. When he finished, she said: "Look, Mister, you have come from the United States to tell us what the president says every day. I voted for this president because I thought he was going to be different. But, he is doing exactly the same things that the former presidents have done. He betrayed us. We thought he could be more human, that he would take care of us. But he is like anybody else. You are saying that if we accept an increase in the price of gasoline, that will increase every thing in the country because the multiplying of that effect will affect everything—food, rent, transportation, everything. And you are asking us to accept this increase in gas prices because if we do that, maybe after four or five years, somebody in the developed world, who thinks that this is a serious country, stable, with a responsibly managed economy, will put a factory here. My husband, who has been unemployed for five years, will have a change to get a job. I just came from the hospital. This child is crying because he is sick. The hospital does not have medicine, and I do not have the money to buy the medicine. So you ask me to accept this present pain for this hypothetical future? No, Mister. I prefer to suffer the problems I am suffering now and to not increase them, hoping that something will change in the future."

She is right. How can you or I guarantee that if we do this, we can provide the people with a better future? We have been saying the same thing for 20 years in this country with every single government. So what is the dilemma here? We can call this a sort of inter-temporal tradeoff. We can agree very easily that we cannot sacrifice the future for present gains. We cannot cut all the trees in the country to make money because we would be affecting our future. So, do not affect the future for the present. But would you compromise the present for the future? Is it not the same sort of reasoning? I understand: No pain, no gain. But, you can have a lot of pain with no gain. So, having pain is not a guarantee of gain in the future. What should you do? What is the right ethical decision here?

I read a great article written during World War II by a priest here in the United States. He was criticizing the bombing of the German cities in Europe by the English Air Force. He was saying that you cannot use the present, to destroy as much as possible, to shorten the period of the war. Ethically speaking, how can you make those sort of real sacrifices for a hypothetical future? When I read that about producing an actual bad thing in the hopes that the future would be better, I thought, that is exactly what we are doing with adjustment programs in Latin America every day.

The third point is related to the second. The Bible says that you cannot serve two masters at the same time. Let's say your people are asking you to do A, and your people are your master because they voted for you—you couldn't be the president without their support. Your legality and legitimacy are based on them, and they are asking you to increase the fiscal deficit. On the other hand, in this globalized era, we must be connected with the international community. If you do not play by the rules of the international community, you are absolutely out of the loop, a pariah in the international market, and you will never get a cent. All the hopes for your country to develop are affected. What do you do? Do you say, "I am their president. I must do this?" If you do that, you know you will die of asphyxia because you will never get a cent from abroad and you don't have a capacity of savings in your country. Or will you say, I will play by the rules of the international financial community? In that case, your people are very angry with you, overthrow you because they don't like what you are doing.

What is your role as president—the core question? If you are president, are you an agent of your people, so you have a mandate and you can only do what they have decided for you to do—you do not have the capacity to act beyond your instructions? Or, are you not an agent but a decision maker? You have the right, the obligation, and responsibility of making your own informed decisions with your own set of values. If you do the second, the question you must answer is: Were you elected president or emperor? Who do you think you are? No one in this country wants an increase in the price of gasoline. From an ethical point of view, where does your authority come from for going against the will of the people. You can say, Vox populi, vox Dei—the voice of the people is the voice of God—but this could be a very easy way out, like Pilate washing his hands. "I don't find a fault in this man, Jesus, but as you say he is guilty, and this is your responsibility. I wash my hands."

Or this is this the real ethical solution? I cannot do more than this because I am not deciding about my life; I am deciding about the future of the country. Why should I assume that I know better than 12 million people? Are they absolutely wrong because they are not educated, because they didn't get college degrees? Or should you say, forget about college degrees. They are 12 million, and they are the rulers of this country if this country is a democracy. If you do the second, can you make decisions? And if you make the decisions of the people against your own conscience, what are you doing? Should you resign? Should you stay there and do your own will? As you can see, those are real ethical dilemmas. I am not talking about political advantage, whether it is good or bad in electoral terms; I don't want to touch that. Just from an ethical point of view, what is the right thing to do?

If you have 70 percent of your country saying, "We want a modern country. We want changes," and you have 30 percent of the population saying, "We oppose that. We don't want that," what would you say? Would you say, "This is a democracy and that means the majority rules, so we will do what the 70 percent want, and you 30 percent align with the 70 percent; otherwise I will use the legitimate force of the government for forcing you to accept this decision." (Assuming that you can do that, this is a very big assumption). Or, would you say, "This is a democracy. Democracy is about respecting the rights of the minority, and 30 percent is a big minority. Who am I to tell you what you should think and believe? I don't have that right. Now, if you are boycotting this 70 percent preference, you will produce a gridlock here, and this is very bad for the country. I don't like it, but I don't have the right to impose on you this will of the 70 percent. I have to respect you." What is the ethical thing to do?

A final note: The Markkula Center is concerned about applied ethics. You can take many classes about ethics, but you have to apply it to your real life. That is the point. Once Mahatma Gandhi said, "When I am cremated after dying, you should cremate with me all the books I have written." But why? "Because if I couldn't convey with my life the message I want to transmit, what is the importance of my writings? It is my example that really counts." We have to watch our deals and our actions but not rush to judge. We are so prone to find faults in others. We are find finger pointing so easy. Every time you are pointing a finger at someone, you have one finger pointing at that person and three pointing to you. Don't rush to judge others. Who are you? Who do you think you are? Are you sure that you have all the facts and that you really understand the case? Are you sure that you are making a final objective appraisal of the situation? Can you judge the consciousness of other people? How can you do that? Who knows that?

There is no recipe book. Sorry. Bad news. There is no recipe book. We have some very basic universal principles. Don't kill others. Yes, everybody agrees with that. We have some other general principles. But we sometimes have difficulty applying these principles to real situations. Another point: Prepare in advance. Prepare your framework, your values. Analyze them. Try to clarify them now at the university. You have the right setting: You have professors, books, time, tranquility. In a moment of crisis, you don't have the atmosphere for doing that. If in the moment of crisis, you try to discover what your values are, you will be in a really difficult situation. The crisis tests your values. This is the moment to test your faith in your values, not the real moment to discover them.

Two final comments: First, the only person you will be with forever is yourself. At the end of the day, at the end of your life, the only person that will be with you for sure is yourself. So get a good relationship with yourself. Second, all the decisions in your life, at the very end, force you to choose between two things: to sleep well or to eat well. I think it is better to chose always to sleep well. If on top of that, you can eat well, thank God. Thank you very much.

Q: Talking about the two masters —with your global economy on one side and your people on the other, how difficult is it ethically and as a leader to balance the two to a positive end.

A: There are some things that they have in common. You could argue for example that in the long term, both masters are asking for the same thing: a stable economy, a good future. But, in the short term they are not. You can accept without a problem that a balanced budget is good for the country, but many other things that the international community asks of you as a leader are very whimsical. Some of them do not make sense for third world countries. Let me give you one example. What happens in the US when you have a decrease in the GNP in the growth of the economy? Usually the government says, we have to reduce taxes. You can have a big debate on the system you will use to reduce taxes. You can say the system favors rich people or not-that is a legitimate debate, but I will not enter into that. But the idea of reducing taxes, of leaving more money in the hands of the people to increase demand and so forth, could be a rational one. The moment the president of a developed country does that, he seems to be intelligent, concerned about his people, and making good decisions. If you are in a third world country with exactly the same situation, you have to do the opposite. Why? In the moment of a crisis, your fiscal deficit will increase, and you have to reduce it because of the ghost of inflation. The cost of losing international support is even greater than the cost of increasing taxes. So you have to do it. But, can you imagine how you can sell to your people? At the moment they are worse off than ever, you have the good news that they will pay more taxes? So you seem a bit stupid and lack of sensitivity to problems, living in the sky, not on earth, that sort of thing. So, it is very difficult to balance in moment of extreme crisis. You have to choose and choosing always puts the other half of the people and institutions against you. In good times you can juggle a little with both.

Q: Which western corporations control the oil in Ecuador? And why won't the country take back control of its own oil?

A: The situation in Ecuador is different. In Ecuador, the oil is the property of the state, not of private owners. The state has basically two different ways to deal with it. We have a national corporation that handles lots of wells and production of oil, accused always of incompetence and ineffectiveness and corruption. And, in some other sectors of the economy, we have contracted with international companies. Why? Because the capacity of the country for developing all the wells alone is not there, so we need some sort of international capital there. Second, we get some advantages with that. We can exploit the oil and export it, which is an income, and at the same time, we can have fees or taxes. So, how do you balance the national property and the international is one question. What is the best possible development is another, and we have been debating that in Ecuador for 20 years. Every time somebody tries to privatize any economic sector in the economy—Ecuador is one of the countries lagging in any type of privatization effort—you have the congress with very important voices blocking it. We are in the same position for many years.

Q: Which concrete steps did you take to eradicate corruption while you were in power?

A: Two days before I started as president, I received a telephone call from President Jimmy Carter, saying that the Carter Center in Atlanta had been following my career as the mayor of Quito and had decided to propose that I accept the recommendations and conclusions they had arrived at after analyzing cases of corruption in the whole world. I told him I was very honored by the call. I invited him to come to Quito; he came with his wife Rosalyn, and we developed a project understanding one basic thing: that the fight against corruption is a national effort; it can not be only the task of the government. You need the whole society working in that purpose—the executive branch, the legislative branch, the judiciary, the civil society, the press—you need to mobilize the country. Otherwise you will be so lonely in your fight that you will not succeed. We started working on that. I have two personal comments. First, this is a very widespread problem in the world. My humble understanding is that what we call corruption, in Latin America—the same conduct, I have seen described here as lobbying. Sometimes it is the way you name it. Second, the big cases of corruption are about big bribes in big contracts because the smaller ones are irrelevant to the country. Big contracts are about big projects and you have international bidding with big international companies. So in the case of corruption, always, somebody from the private sector is paying the bribe. And you can say that this country is corrupt because the government of this country is trying to get money or you can say the opposite. How can you keep your government clean, if your civil servants, who are earning very low salaries, are being tempted and offered every single day some sort of rapid change in their lives? Third, more generally, esteem the values of the society; otherwise the society will go in a different direction. If every night you turn on the TV and watch every commercial, what is the message there? You will be happy if you have money. You will get the best car, the best watch, the best whiskey, the best plane. When you have money, everybody is smiling. You can have the best steaks and go to the best places. So the message is, you must get money to be happy, which is absolutely wrong. We have a writer in Uruguay, Eduardo Galeano—very ironic. He says he knows that money doesn't buy happiness, but it buys something so similar that the difference is for experts. So if we send this message to people every day, to captive audiences that do not exercise their critical faculties, but are passive, where in countries the opportunity for having a job doesn't exist, you are putting them between a rock and a hard place. If we don't we have an international crusade in that sense, I don't see change. I don't see that type crusade going on. We are very good at making speeches about corruption, but in practical terms, almost nothing is done.

Q: What ethical dilemmas did you face in negotiating the peace agreement with Peru? How do you think the agreement, especially the bi-national development plan, has been implemented since you had to leave office?

A: It was an interesting case because it is difficult to find a cause in which everyone agrees during a peace process. Who can be against peace? You have to be almost mentally ill to say, "I don't like peace." So the problem is never peace itself; it is the conditions or the framework in which the peace is inserted. We had an imminent war with Peru the moment I started my presidency. Actually, both countries were claiming as part of our national sovereign territory, the same piece of land. Three or four hundred years ago, South America must have been about three times the size it is now, if you have to give credence to every claim that arises today. But the situation was very painful with Peru and Ecuador—two hundred years of problems. It started with the discovery of the Amazon River. We, the Ecuadorians, were saying, the expedition that discovered the Amazon River, not a small feat, departed from Quito, and the laws of the time, decided that this belonged to the royals of Quito. How can you Peruvians deny this fact? Well, Peruvians never denied that. They only said that during that time, the royals of Quito were part of the vice royalty of Lima, so the discovery was following orders from Mr. Pizarro of Lima. Yes, you did it, but you were not autonomous, so it is Lima's.

When I took office, the problem was reduced to a small place called Tiwintza, which has the same value that the Alamo had for Mexico and the United States. It was a symbol of identity. Peruvian soldiers died and were buried there. Every thing else was agreed by national projects, trade agreements, and beautiful declarations about the future. But, who will get Tiwintza? Will Tiwintza be on one side of the frontier (Ecuador), or the other (Peru)? The congress of the country that does not get the land, will never approve the treaty. According to national law, the treaty needs the approval congress. That was a dead-end situation. With all the problems I have described in Ecuador, having a war on top of that would be unbelievable. We found a solution, which was a creative one. We separated two concepts that usually come together: the concept of property and the concept of sovereignty. So at the end, the solution was to declare that Tiwintza was part of the sovereign territory of Peru but that Ecuador would have the permanent property of that territory. Both countries saved face and could claim they had Tiwintza. That was a good solution because no one was happy, but no one felt cheated or abused. Peru has always felt abused because we are small, but for the first time we had a treaty that was not imposed either by Peru or international players. Both congresses signed a blank check, voting at the same time. The legislators in Lima with radio transistors listened to the congress in Ecuador. And in Ecuador, it was the same with Lima. No one wanted to vote before the other. At 4 in the morning, both decided to vote and both signed blank checks. I still cannot believe what we did.

Q: Can you speak about the American free trade agreement and how the lack of labor, environmental, and healthcare standards will affect Ecuador if it's passed?

A: Maybe we can construct another dilemma here. You have a people that have no jobs, and they can have opportunities with the new factories. At the same time, they are not receiving as good treatment as other countries. So, it is unfair for them. What is worse, not having a job or having a job in very difficult circumstances? You must choose between the two. Free trade agreements are good in my view. But, it would be a little naïve to think they will change the world because in every single trade, everybody will try to keep the situation as it is now. I like to use the analogy of poker. If you are playing poker, and you have the four aces, would you like to reshuffle the cards? No! And, in this stage of the globalization process, I think that all the developments are going to the developed world. In exchange, we are hoping that changes will come in the future to the under-developed world. Is that going to happen?