Five Percent Taxes, Potholes, and Universal Health Insurance

Discussions with Peruvians reveal a high-level of cynicism toward government

September 2018

Huarez, Peru

After a few days in the Trujillo area, we head inland toward Huaraz, high in the Andes. Despite being only about 200 miles from Trujillo, it takes eight hours on a bus to arrive (even by car, Google Maps says six and a half hours).

The horrific roads cause the slow movement. We drive on local roads through villages, probably at no more than 40 miles an hour. Once in open space outside the villages, the roads are not paved which drastically slows down the pace. Moreover, the road's narrowness forces the bus to stop and let large trucks pass. Once we arrive in the mountains, the roads are creeping zig zags.

The Rise and Fall of Nations says a contributor to inflation in developing countries is the lack of good infrastructure. Poor roads not only cause longer travel times, they also wear vehicles down. Poor roads mean that entire areas are inaccessible for periods of time.

Katrina, our friend from Trujillo, worked for a year in a rural community that had poor road connections. Like in Ecuador, her free medical education came with the obligation to work in rural areas. Katrina complained bitterly about how the government took weeks and months to fix major road issues near her work site. Massive potholes rendered many roads impassable.

Poor infrastructure and public services are also a sign of society's lack of commitment to the average citizen. In Lima, we see helicopter taxis ferrying the wealthy across the city that lacks a functioning public transportation system. According to our host in Lima, the wealthy would never consider sending their children to public schools. The rich can get away without basic public infrastructure and services because they can afford their own.

The average citizen, however, must take some responsibility for the poor conditions of roads and other basic services. Peruvians, like many in Latin America, pay very low taxes. As a doctor Katrina makes 2,000 USD a month, a high salary in Peru. She only pays 5 percent in income tax but complains about this low rate. In Bogota, our friend’s sister makes just under 1,000 USD, a good sum there, and pays nothing in income tax. My teacher in Guatemala tells me the majority of Guatemalans do not make enough to pay income tax either. In Latin America, people do pay a VAT tax on many goods but the very low or entirely missing income tax loudly states that many citizens are not expected to contribute to the nation’s common welfare. If few contribute, the idea of common welfare is weak or nonexistent.

Katrina and my friend’s sister in Bogota both say they would be glad to pay higher income taxes if the taxes were well spent like in the United States. Everywhere I go in Latin America, people praise the supposed organization of the United States, its clean government, functioning criminal justice system and well-spent tax money.

While I do feel fortunate to live in a relatively well-functioning society, the comparison with the United States can lead Latin Americans to give up in trying to improve their own governments. Many Latin Americans tell me their dream is to live in the United States. Others say “If we were only like the North Americans…” and give up hope on their own societies. The inability to reach the supposed level of good governance in the United States will always give Latin Americans a convenient excuse not to invest in bettering their own societies. Comparison can destroy motivation and hope.

Most people will not leave their countries of birth, so figuring out how to improve governance is a great way to improve quality of life. And if one desires better services, one must pay for them. But in Peru, Colombia, Guatemala and almost every country in Latin America the thinking is more taxes just mean more money to steal. Everywhere one goes, corruption is a major topic of conversation. There is simply no trust in government in many places. (As an aside, Brazilians pay very high taxes for subpar services. The high tax rate in Brazil is the exception rather than the rule, however.)

Moreover, the government is something to use for individual gain, not to help society. Katrina mentions that many government officials make 1,500 USD monthly and members of congress make 5,000 USD a month. This is far higher than the average Peruvian wage. While there are exams for public officials, you can just pay a coima, or bribe, to get selected, says Katrina. An officially fair process for government jobs is an illusion and mocked.

The government’s image may be a chicken or the egg problem. If a country continues to underfund its government, the services will not meet the public’s needs. The image of the government will be the unfixed potholes and corruption. The public will continue to resist higher taxes. If a government has more funds, even if it is corrupt, it will likely get something done. Even in terribly corrupt Cartagena, the government still paves roads which in turn improves real estate values (Of course, the issue of government funding in developing nations is complicated -- burdensome IMF interest payments often consume large sums of public money.)

Despite the poor roads, however, we can be thankful that there are roads. We finally arrive in Huaraz at dusk. Huaraz is over 10,000 feet and much of the hiking we plan to do is well above that. We read that we should start eating coca candy to alleviate any problems with altitude and take a day to acclimate before attempting any hikes. We comply with both suggestions and spend a day in town.

During our day in town, we meet 19 year-old Richard. Richard is a Lima native who has moved to Huaraz because he loves the mountains. He survives on odd jobs as he pursues his dream to crowdfund a biking trip to Brazil.

While young, Richard has well-developed hobbies and has lived in various parts of the country. He thinks Huaraz and the surrounding area is the most beautiful part of the country. In addition to his biking hobby, Richard is an avid photographer. When he hikes or bikes to beautiful places he is snapping photos.

Richard invites us on a hike of 20 kilometers which is long but doable in a day. We accept his invitation. The day we are set to go, my wife does not feel well and stays in town. Richard and I take a bus, full of indigenous women, to a village where our trailhead lies.

The indigenous women all wear the traditional hats that are ubiquitous throughout the Andes. The bus stops at various points to let the women off. We descend at the bus’s terminus, walk past a few indigenous farms, and begin our hike.

We are the only people on the road and after we pass the last farmhouses early in our hike we will see no one else the entire day. I use the word road rather than trail because in Peru much of the hiking is done on roads that are built for vehicles. The hiking culture is not well-developed, and as such hiking must be done on roads constructed for other purposes.

As we walk, Richard expresses his disgust at a recent news report about government functionaries buying new MacBooks. Richard says that with the money from the Mac Books the government could have fixed public hospitals which are in terrible condition.

Terrible, perhaps, but everyone in Peru has health insurance, better than the newly great United States. Richard, whose income is extremely low and unsteady, has access to medical and dental care free of charge whenever he needs it. Given his bike riding, his need for medical care is frequent. He tells me of many nasty falls he has had on his bike.

On the one hand, Peru has its issues with corruption as Katrina and Richard make clear. In addition to the anecdotes we hear, a scandal involving judges receiving bribes for lighter sentences dominates the headlines. “The judge scandal represents everything that is bad about Peru,” Katrina says.

However, it is amazing to me that in Peru, where the minimum wage is under 400 dollars a month, there is universal healthcare. Moreover, in public universities Peruvians educate their doctors for free. (The education is in exchange for a period of rural service; however, in the United States a medical education leaves an individual indebted for decades).

I post the facts about universal healthcare on Facebook and jab the United States’ lack of universal healthcare. A number of indignant responses come from offended North Americans. One asks, “Maybe it is universal, but what is the quality of the Peruvian healthcare?” My answer would be whatever the quality it is better than no health insurance and emergency rooms that charge fifty dollars for latex gloves to the uninsured. I decide, however, not to get further in the weeds of a Facebook argument and leave the North Americans in their reproach.

I point out to both Richard and Katrina the beauty of what they have in Peru. It makes me sad to hear people complain and complain without appreciating what it is they do have. I of course do not have to deal with the society’s poverty and delinquency. I am from an upper-middle class, white American family and have every advantage in the world.

Katrina told us that if given the opportunity to leave Peru, she would leave without thinking. She would love to practice medicine in Europe or even Brazil which she views as a possible stepping stone to Europe. Anywhere but Peru, she says.

At the same time, however, Katrina praises the fortitude of Peruvian people. As I mentioned above, Katrina complained about the government’s negligence at fixing roads. In the same conversation, she mentioned how Trujillo experienced torrential rains recently which flooded parts of the city. The government, predictably, did nothing. “But Peruvians banded together across the city and solved problems together,” she proudly declared.

So Peru has a place from which to work, she admits. At the risk of glamorizing hardship, it can bring out the best in societies. People know how hard the Peruvian life is and band together. Moreover, at least Peruvians have medical insurance.

In addition, Peru is naturally beautiful. Despite my first impressions of northern Peru’s polluted and gloomy desert, the Andean range is breathtaking. My hike with Richard takes us to a pristine lake at the base of a huge glacier. The approach to the lake is full of cows grazing in a meadow but no humans are in sight.

There is a dam at the lake to control the water flow to avoid flooding in times of heavy rain and heavy snow melt. Richard discusses the importance of the water service and the dam. A sign of a partly functioning government.

On the way down, Richard tells me about his grandfather’s role in the civil war. His grandfather was forced by the leftist guerrillas Sendero Luminoso (SL for short, or in English, the Shining Path) to create diversions in the villages to distract government forces. Fed up by SL’s reign of terror in the countryside, Richard’s grandfather joined paramilitary forces that fought SL.

At this point in our hike, however, I start to suffer from dehydration and cannot carry on a conversation. Richard told me the hike was 20 kilometers. What he meant was 20 kilometers one way. I have two liters of water for a 40 kilometer hike at 4,000 meters high and quickly exhaust my coca candy, too. I am absolutely haggard when we finally return.

Getting to the root of Peru’s civil war and current violence will have to wait until tomorrow. My wife, expecting me to arrive much earlier since she, too, thought it was a 20 kilometer hike, was worried stiff. But I am back, and after rehydrating fall into a deep sleep.