The Colombian left proposes a new economic policy for Latin America

In a recent interview with  El Pais Colombian President-elect, Gustavo Petro from the Historic Pact (Pacto Histórico) was very candid about his strategy to improve the well-being and prosperity of the Colombian people.

His immediate priority is peace. Without that, his presidency and the breakthrough by the left would be in grave jeopardy of being violently overthrown. The decision to normalise relations with Venezuela has already enhanced the prospects for peace. Successfully handling the political fall-out from the  Truth Commission report, including the evidence of US collusion in the deaths of many Colombians, will prove a big test. As will the dismantling of the drug trafficking networks.

Economic policy

But it is on economic policy that Gustavo Petro is determined to break new ground. He wants to carry out a new left economic strategy on a ‘new axis’. He is critical of the dominant economic model of the first Pink Tide of the left. He explains, “no progressive vision of society can be built on the fossil economy because the fossil economy is death. We must consider a new model of development in Latin America, that is our role in the agenda, our legacy. And that is going to be the topic of discussion in that axis.” He calls for the abandonment of the fossil fuel economy [energy transition] and its replacement by economic development based on production and knowledge.

His call for a ‘New progressive axis’ in Latin America will strike a chord as governments across the continent move to the left.  They are increasingly looking to pool their collective resources to boost sustainable economic development for the benefit of the people across the continent. The re-election of Lula to the presidency of Brazil would unleash even more opportunities for progress along these lines.

Economic inheritance

Incoming president Petro and vice-president Márquez are set to lead a country severely scarred by high levels of social inequality and regional underdevelopment. The country’s Gini coefficient ratio is the worst in Latin America. There are very high levels of extreme poverty [less than $1.90 per day] and 38% of the population exists on less than $5.50 per day. Hunger ravages the lives of up to 25% of the people. Discrimination and inequality based on gender and ethnicity add further damage to lives.

Newly-appointed Minister of Finance, Jose Antonio  Ocampo last week highlighted the long-term weaknesses of the Colombian economy: “Economic growth [was]…. 3.5% per year in 1990-2019 (to exclude the pandemic). The expectation is that we will return to a similar growth rate in the coming years. This mediocre result has been accompanied by a stagnation or decline in productivity, a strong deindustrialization and the decline of various agricultural lines. Slow productivity is also a symptom of a very low level of investment in research and development: 0.24% of GDP according to UNESCO, tenth in Latin America and one-tenth of the average percentage of the OECD.”

In the El Pais interview, Petro also pulls no punches about the structural weaknesses of the Colombian economy.  He describes it as ‘fundamentally made up of millions of small businesses, with very little associative capacity. It is a very simple market economy. It is not capitalism, but rather a pre-modern form of economic activity.’

Some of the economic statistics underscore the problems both Petro and Ocampo have highlighted. High levels of capital formation in Colombia mostly occur in extractive industries. The mining sector represents the highest GDP share per worker at US$64,726. [See Table 1] The lower levels of investment in other sectors and consequent poor levels of productivity depress the standard of living of the people.

The country’s labour market has a high incidence of informal economic employment and fragile formal employment. The informal employment rate reached 62% in 2019 and up to 49% of GDP - one of the highest in the region. Underemployment is also a big problem. Colombia is failing to achieve progress on inclusive and sustainable industrialisation. The share of manufacturing in GDP is half of what it was in the 1980s.

Table 1: GDP Share by Subsector and GDP per Worker by Sector in Colombia, 2019

Published in the  Danish Trade Union Development Agency, Labour Market Profile, Colombia – 2020/2021

The way forward

Petro has identified the economic and fiscal policies necessary to address these problems. Greater investment to increase agricultural and industrial production is the most important. Without that the government’s plans to modernise the country and end poverty are unsustainable.

The new government will also reform the tax system and insist big capital pays its taxes. As Petro puts it, “This would reduce the fiscal deficit, improve macroeconomic conditions and help fund progress in the rights of the Colombian population.”

The progress to be funded includes a universal public health care system, and the enlargement of public education, including universal free higher education and kindergarten. All of these steps are essential to raising productivity and in turn, living standards and quality of life.

Roughly 17% of the workforce is employed in agriculture and land reform is also high on the agenda. Petro explains, “Land ownership is concentrated in very few hands. "Land tenure in Colombia is feudal. It is a legacy of Spanish colonial times that has never been overcome because every time it was attempted, there was violence. The country never managed to carry out an agrarian reform."

Political obstacles

Supporters of the new president and vice-president make up about a quarter of Congress. Both leaders are only allowed one term. Their opponents both inside and outside Congress are numerous and powerful. The threat from violent reactionary forces is constant. During the election campaign, both Gustavo Petro and vice-president Francia Márquez spoke behind bullet-proof screens. Petro admits he was not sure he would finish the election alive.

As Petro explains, “Reforms are either made in the first year or they are not made at all.” He accepts these are long-term matters. But his administration will be a ‘government of transitions’, ‘a new era’ for others to continue. That means not repeating the unsustainable ‘golden age of social welfare …. based on oil.’ He also recognises that the ‘winds are not in our favour’ as his economic plans coincide with a largely stagnant world economy with no signs of an upturn.

The progress of the second Pink Tide in Colombia and Latin America will be followed closely throughout the world by friends and foes alike. In Colombia and across the continent economic policy will be critical to the success of the ‘New progressive axis’.

Further reading

Article: What’s at stake in Colombia’s presidential election. By Guillaume Long, Franciso R. Rodriguez, Joe Sammut and Mark Weisbrot. [Center for Economic and Policy Research]

Report: Labour Market Profile Colombia - 2020/21. Danish Trade Union Development Agency

Article in El Espectador: José Antonio Ocampo's roadmap for the Colombian economy

Article in El Espectador:  The prospects of the Colombian economy under the Petro administration by Finance Minister Jose Antonio Ocampo