Social Inclusion, Economic Growth

Colombia is a society characterized by its deep social exclusion. More than 60 percent of the population is poor—more than 11 million Colombians do not even earn a dollar a day and cannot maintain minimal levels of nutrition. Furthermore, 80 percent of the rural population is poor and nearly 60 percent is destitute.

Three out of every five economically active Colombians work outside the formal economy in extremely precarious conditions. One of the most perverse characteristics of the exclusion process is that its inter-generational character is becoming more acute. More than three million school-aged children and youth do not have access to education. It is important to remember, moreover, the lack of reproduction of social capital within the family as the initial environment for human development, and its progressive depreciation. Today, more than 30 percent of Colombian families have a woman as the head of the family; this woman has to perform multiple functions in conditions of uncertain income. Thus, multiple roots of future social exclusion are germinating and reproducing themselves.

One must remember that the 2000 largest debtors have access to more than 75 percent of the commercial credit allotted by the commercial financing system. That is, regardless of the fact that there are more than one million informal businesses, more than 12,000 formal manufacturing establishments, and innumerable commercial establishments, only 2000 natural and legal people have access to the vast majority of commercial credit—which accounts for more than 60 percent for all the credit distributed in the economy. In the midst of the current process of economic opening and competition, the concentration of stocks and capital in the country is even denser than it was 15 years ago. Without the democratization of access to active products—whether called financiers of human capital or human production—social inclusion will not be feasible.

The concentration of wealth and property of active products has not been reduced, and has come to be permeated by illegal capital. Income inequality in Colombia is the second highest in Latin America, after Brazil. Twenty percent of the richest homes possess 52 percent of the income; 1.1 percent of Colombia's landowners have more than 55 percent of the exploitable land. Moreover, in the amply rich agricultural zones, 30 or 35 percent of the territory was bought with capital of doubtful origin, generated in drug trafficking or open corruption.

Social exclusion also manifests itself through income tax exemptions and the squandering of resources. New forms of public contracts and administration of public services with inadequate regulatory and control frameworks have been producing irregularities.

All of the above creates a perverse process of social exclusion and excessive concentration of power. Social exclusion, therefore, is a stumbling block in the process of society's transformation towards the construction of democracy and becoming a state that provides an adequate safety network. Colombian society must make serious decisions about how to earmark efforts and resources to resolve the issue of social exclusion.

Colombia's economic crisis in the middle of a globalization movement imposes the necessity for it to advance in a process of public finance adjustment, but this process should not be restricted to a single inevitable model. One of the challenges of political economy is demonstrating the possibility of realizing a reasonable adjustment that is not recessionary but is relatively socially progressive.

Dilemmas, compromises and social choices

To arrive at a social arrangement that guarantees peace—the coexistence of citizens under a democratic and inclusive order—there will have to be a public debate discussing three fundamental core ideas.

On the economic and social front, a system of social protection and security must truly integrate a comprehensive anti-poverty strategy with the promotion of social inclusion that focuses significant public resources on education, health, pension security, nutrition, and unemployment insurance.

On the civil and political rights front, there are two basic pillars: justice and defense in addition to security for the coexistence of citizens and social peace. This democratic security requires integrally conceiving the coordination of citizen security, the security of liberty of thought and organization, environmental security, juridical security—application of the law—and national security. The conception of democratic security must not be restricted to the traditional concept of national security. These are the three essential objectives. In the Colombian case, it is worth the effort to illustrate the greatest challenges and social dilemmas.

The social sphere

It would cost the state 2.3 percent of its GNP to ensure that Colombia's 11 million destitute inhabitants will have enough alimentation to satisfy their essential needs. Today, Colombia dedicates less than .7 percent of its Producto Interior Bruto (P IB or GDP) to the serious problem of malnutrition, especially considering that 4 million out of the 11 million destitute and malnourished Colombians are children under 15 years of age.

To comply with the 1991 Constitution, the state should dedicate 1.4 percent of the GNP to properly educate the 3 million school-aged children and youths who are not currently attending school.

Health care for the 40 percent of the population without basic services would require 1.3 percent of the GNP.

A plan for an inclusive and financially viable pension system must include provisions for the most unprotected such as the elderly poor. Only 19.8 percent of the economically active population is covered by today's pension system, although today's pension debt is equivalent to 200 per cent of the GNP.

With more equitable taxation resulting in increased public resources dedicated to the elimination of inequality, the country could provide basic education and healthcare for almost the entire population within the next five years by increasing the percentage by increasing the percentage of the GNP used for these services from 1.5 to 3.5 percent during that five-year period.

The goal of providing basic education, health and pension subsidies for the country's poorest sector requires resources roughly comparable with that of tax exemptions, deductions and tributary privileges which are not socially justifiable—about 2.5 percent of the GNP is concentrated in a very small number of individuals and companies and this is not even including the percentage of state monies lost to corruption and bureaucratic waste.

The defense and security sphere

Although some argue that defense and security do not receive enough public money, Colombian society spends 5.4 percent of its GNP on defense and security, including 2.1 percent for the military, an additional .3 percent for other security forces, 1.2 percent for the police, and 1.1 percent on private legal security forces such as bodyguards and watchmen. According to the Superintendencia de Vigilancia y Seguridad, the current number of private legal guards (more than 130,000) exceeds those in the armed forces (about 100,000); these figures do not include unregistered private security firms or well-financed illegally armed groups.

Colombia, which spent 3.6 percent of its GNP on defense in 2001 (compared to the 1.9 percent spent in most of Latin America), is expected to spend 4.2 percent to 6.4 percent of its GNP on defense from 2002-2006 Including the additional costs of private security, that figure spirals to 7.6 percent of the GNP in 2006 for public safety and private security, a level substantially superior to that of developed countries.

Society must deliberately prioritize these basic objectives to determine the appropriate dedication of resources to each. Colombia appears to be immersed in a classic textbook dilemma more elementary than the economics of last century, clearly illustrated by Professor Samuelson's study on the ironic disparity between how much Colombia spends on guns, and how little is spent on butter.

The justice sphere

Justice is characterized today as a socially exclusive system: access is costly and discriminatory towards the poor. Social impunity prevails: more than 70 percent of criminal behavior is not placed under the consideration of the authorities or resolved in a timely and legal fashion. In the worst case scenario, crimes are resolved against the victim and in favor of the victimizer. Therefore, it is necessary to advance a judicial system that guarantees the observance of the fundamental rights of the citizens. But this alone is not sufficient. In the face of existing conflict in Colombian society, a culture geared towards peaceful resolution of conflicts must be simultaneously restored as a sign of a modern, civilized, democracy. Colombian society must open spaces that permit the incorporation of legal mechanisms and regulations that authorize the community itself to directly participate in peaceful resolution of certain types of differences and civic conflicts. Examples of such policies are community judges and justices of the peace who are able to bring the administration of justice close to the citizen himself.

For example, today, 75 percent of civil court activity involves contractual disputes between the financial system and its debtors or cases of restitution of leased property. This is an unnecessary expenditure of state resources. The State must be, in the end, the inalienable and ultimate guarantor of the rights of all citizens. With the same public resources currently destined for the country's justice sector, it would be possible to guarantee a more ample, opportune, efficient, and equitable access to justice with both a formal judicial and duly regulated alternative by invoking new commitment to a culture of peaceful resolution of conflicts and the strict observance of law within the constitution's social guarantees.

The sphere of economic democratization

In the face of profound social exclusion, democratization of the access to assets is essential. This access refers not only to certain traditional forms of wealth such as land, but also to conditions of equity and financial, technological, information, and commercialization of assets, for example. It should not be concerned with neo-populist policy, but rather with the construction of an equitable institutional and financial architecture within the context of market systems, enabling the reproduction of its human and physical capital. Policymakers should focus on promoting available resources that society is not presently taking advantage of.

At this point, one must remember that true democracy consists of the exercise of liberties and the development of capacities in conditions of equality; the implication is that the members of the collective are exercising the status of social citizenship. However, this can not be sustained in the midst of progressive impoverishment and social exclusion; as a result, the institution of favorable conditions for economic growth is necessary, although clearly insufficient.

Fixing the public finance sector

In the face of grave structural disequilibrium in public finances, Colombia would have to make fiscal adjustments to assure the sustainability of the public debt and to make advances in urgent social reforms. This would require using 3.5 to 4 percent of the GNP in the next few years—meaning more taxes must be collected while corruption and public misspending is curtailed. A collective choice for progress, equality, and efficiency of adjustment—hopefully through a rigorous and democratic process of debate—should establish social priorities for the orientation of public resources. The questions of: "How should fiscal adjustment be achieved?", "What is the combination between rationalization of tax structure and tax cuts and the reorientation of public spending?", "What types of tax reform should be undertaken and how?" and "How is sustainability of the debt and the attainment of financing of the Colombian economy guaranteed?" should be answered.

Income tax evasion, which consists of almost 3 percent of the GNP—would have to be curtailed, and other measures will have to be taken in order to dismantle the privileges of a few which come at the expense of the public treasury.

Public spending needs to become more efficient, and there should be a strategic campaign against government corruption and administrative errors—which surpass 2.5 percent of the yearly GNP. Recent studies find that corruption tends to be profoundly inequitable and facilitates social exclusion by creating, for example, direct obstacles to the access of public services, disproportionally affecting the poor in terms of cost and opportunity. The fight against corruption and administrative deficiencies requires a true political desire to affect particular powerful interests that unduly profit to the detriment of the public treasury. Clientelism and favoritism in the awarding of government contracts often result in extraordinary gains for certain domestic and international conglomerates. These practices are not illegal—and may even ironically be a perverse source of social inclusion—but they drain public funds.

One of the major problems confronting Colombia, amidst the financial crisis of Latin American countries, is how to administer the public debt and to manage the financing of the economy.

Before the relative "closing" of the international market of capital for the region, the country must introduce a comprehensive strategy to search for adequate retribution, on behalf of the international finance system, for its exceptional condition of "good debtor." Thus, for example, in addition to achieving significant increases in the "exposure" (debt level) of the World Bank in the next few years and the rotation or recycling of the debt with the International Development Bank, the decisive support of the IMF must be relied upon, as well as, ideally, the U.S. Treasury Department, to obtain resources under reasonable conditions—in terms of costs and time limits. The payment of the public debt should not be established per se as an obstacle to social inclusion.

The sphere of economic growth

Since the early 1980s, Colombia has been suffering from a harmful process of production deactivation—deagriculturalization and deindustrialization—that make sustainable annual growth rates superior to 3 to 3.5 percent highly unlikely. However, The World Bank estimates that annual growth rates of 4 to 4.5 percent for the rest of the decade are necessary for Colombia to merely return to its mid-1990s poverty levels.

Economic growth is necessary, although not solely sufficient, to dismantle the structural bases of the social exclusion of significant segments of the population. It is important to develop collective and private funds to achieve structural transformation and to implant policies conducive to a social safety net. Strict governmental coordination is decisive in areas of public policy such as sustainable growth and employment, education, and basic health, the alleviation of hunger, public services, and housing of social interest, work training and public works projects.

For these objectives a true social contract dealing with social inclusion, the fight against poverty, and growth would have to be developed, with the active help of public policy and in strict consultation with the requirements for stability and macroeconomic adjustment. Clear rules must be laid out for the coordination of macroeconomic policy, social programs and other public plans to shape a clean environment for a model of growth, generator of employment and reactivator of internal demand. It becomes less of an either/or situation when economic growth is linked to a program of social inclusion.

About the political economy of social transformation

Colombian society is confronted with serious dilemmas and choices with undeniable repercussions for its economic, political, and social organization. An analysis of the political economy of social transformation must take place with widespread democratic discussion. We Intellectuals, specialists, and technicians of diverse social sciences must stimulate this public debate.

It is clear that "social arithmetic" permits the deduction that it is possible to progressively approach inclusion and development, as long as the "arithmetic of power" is fundamentally altered in favor of equality, solidarity, and efficiency in a market regime. Only with a true social transformation will it be possible to think about the construction of a true political, economic, and social democracy.

Luis Carlos Garay, the author of Rethinking Colombia: Towards a New Social Contract, holds a Ph.D. in Economics from MIT. This essay, presented at the conference "Beyond Armed Actors" held at Harvard last year, is partially based on Colombia: Between Exclusion and Development. Proposals for the Transition to a State with Guarantees for Social Rights, Controller's Office, Bogota, August 2002 (under the academic direction of Luis Jorge Garay).

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