19 marzo 2010

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Why Colombia Can’t Leave The Club Of The Poorest?

Por María Teresa Ronderos

REPORTWhile other Latin American countries used the economic boom to lift millions of citizens from poverty, Colombia has lagged behind and still has scandalous poverty and inequality rates. This will be the main challenge for the next president.

Why Colombia Can’t Leave The Club Of The Poorest?.

In prosperous years of the century, between 2003 and 2008, Colombia raised as never seen before: grew on average 5.5 percent of GDP each year, and exceeded Brazil, Chile and Mexico. However, while for several Latin American countries this bonanza meant that many of its inhabitants got a decent job,
in Colombia the rise of investor confidence didn’t move us from the club of the poorest.

Thus, an enormous country like Brazil could rescue from poverty 40 million people. And Peru, where one of every four people was hungry in 2001, reduced extreme poverty by half. Even Venezuela, despite political polarization, reduced its poor and indigent people in half and Ecuador dropped poor rate in 10 percent.

Colombia, however, improved slowly in social terms. Poverty dropped from 51 to 46 percent, only 5 points. And among the poor, the number of indigents again became almost as it was in 2002, on the edge of 18 percent. This means that almost one out of every five Colombians do not have enough income to cover their basic caloric needs, which is the technical way of saying that they’re hungry.

Another ingredient is added to this sad scenario. According to the Economic Commission for Latin America (Cepal), the economic boom widened the gap between rich and poor in Colombia. At the beginning of XXI century, Colombia was among the countries with high inequality rates, as Peru, and Brazil was almost the worst in Latin America. By 2008, Peru had fallen to the middle category and Brazil was out from the list of extreme inequality. Colombia, however, entered the list of the very uneven.

What’s going on?

Why Colombia failed to capitalize the good years to relieve poverty? Why this country with public institutions much more sophisticated than those of Guatemala, more urbanized than Bolivia, and with a more vibrant business sector than that of the Dominican Republic, shares similar poverty rates with those countries? Why after doubling its public expenditure (from 5.9 percent of GDP in 1990 to 12.6 percent in 2008) this can’t translate into less poverty?

A first explanation is that the long armed conflict, as in any other region, has pauperized the population. According to the Second National Survey for Verification of the Displaced Population Rights, 760.000 peasant families were forced to leave about 5.5 millions of hectares between 1998 and 2008.

If before the exodus half of these families were poor and a third part had misery incomes, 97 percent remained in poverty and 80 percent in indigence. This social catastrophe has survived until today. According to Colombia's statistics agency, Dane, poverty among rural people is above 65 percent, far from the national average of 46 percent. And the urban poverty also increased during the last year.

Inequality also intensified in the last decade with the conflict. According to Ana María Ibáñez, from the Center for Economic Development Studies from the Andes University (Cede), since 2005 the Gini coefficient, a measure of income inequality, increased 0.875, the highest in the region after Paraguay, a country much smaller. "The already few landowners bought more land and property concentrated at these point" said Ibáñez.

The war also affected us differently. In the last decade the country focused on a priority: to reduce violence. Álvaro Uribe’s government bet its resources and institutional power to this matter. Thus, although it increased social expenditure, Colombia remains below countries such as Brazil and Costa Rica.

Another big issue is corruption. Billions of dollars of social expenditure has been diverted to unscrupulous politicians or armed groups, as the para-politics scandal made evident. According to the Transparency International Index that measures perceptions of public sector corruption in 180 countries, Colombia has gotten worse in recent years, and in 2009 dropped from 70 to 75 in the ranking.

But there were also public policies that prevented Colombia to take advantage of the prosperity to improve the quality of life.

Anti-poor policy?

It’s a truism that nobody can fight poverty if the state doesn’t produces more. But increasing GDP is not enough. We need to create formal jobs that drive people out of poverty. That is the most effective social policy.

This administration began with a hard panorama: the economy barely growing, 17 percent of unemployment and an amount of old policies that made the job too expensive. We grew, but we fail to lower unemployment below two numbers and more informal than formal jobs were created. Why?

The consensus among economists is that if generating formal employment is already expensive, the recent economic policy deterred even more the creation of new jobs.

A company must turn over nearly 60 percent on each salary payed to its workers in health, pension and payroll taxes. Furthermore, after a certain range, the employee will make deduction at source. These non-wage costs are now the highest in Latin America.

Uribe's policy of investor confidence grants exemptions to companies so that they can invest and grow and, the most important, grants a tax deduction of 40 per cent of productive capital investment. Expensive labor and cheap capital made employers to replace many of its workers by machines. That is to change the security guard of the parking lot by a lever machine.

Two major neoliberal economists, Colombian Rodrigo Botero and Argentine Domingo Cavallo, reached to the same conclusion in a paper published on February: combining payroll taxes and tax exemptions to the capital creates an unfavorable structure for generating formal employment.

The discouragement to formal employment also had an effect in those with lower incomes. The popularization of the subsidized healthcare and programs such as Familias en Acción and Familias Guardabosques have given many informal workers the perfect incentive to not formalizing their job. Why would an informal worker get a minimum wage that forces him to pay health and pension contributions, when he can get subsidized healthcare and receive cash aid?

Thus, a small Colombian businessman will prefer not to bind its employees because its payroll is cheaper and they get government subsidies. According to Senator Cecilia López, there are three million workers whose employers do not pay them social security. "That’s why a health system designed to have more workers paying contributions, and less subsidized, ended upside down and became unsustainable," she told SEMANA.

Olga Lucia Acosta, an expert on social policies of Cepal (the UN Economic Commission for Latin America and the Caribbean) in Bogotá, explains that Colombian governments traditionally have left job creation to market and have not been proactive in promoting audacious employment policies, as Brazil, for example.

Colombia only recently started to develop a timid employment policy and income generation, which doesn’t have the weight that should in a country with an unemployment rate that refuses to go down and high informal jobs.

Familias en Acción is not good enough

Uribe’s administration was successful reaching the biggest number of people with social services: since 2002 the quotas in education expanded, and in healthcare the rate grew from 50 percent of the population covered in 2002 to 89 percent today. But it increased so fast that the system was at risk, as the country found out with the ‘social emergency’ measures. And when comes the time to provide protection to the most marginalized, Colombia has followed the pattern of other Latin American governments: give money to people with certain conditions (to attend medical checks, send their children to school, etc.). In Brazil there is the Bolsa-Familia, in Mexico Oportunidades, and in Ecuador Desarrollo Humano. In 2009 there were 101 million poor Latin Americans in these programs of conditional payments.

In Colombia, Familias en Acción is a massive program with three billion dollars annually serving 2.9 million families. Besides, the government created Red Juntos, by which 7.100 agents have helped 1.060.000 poor families to easily access the services of 14 state entities. All this effort, said Diego Molano, Acción Social director, made lower the impact of the 2008-2009 crisis on poor people.

However, according to Jorge Núñez, expert from Misión de Pobreza, the richest in the country are keeping 30 percent of public expenditure. The main reason is because people with higher incomes receive 86 percent of pensions and the ones that receive lower incomes only get 0.1 percent. "There is no point making a great effort in social spending, if the poorest don’t get it”, he told SEMANA.

The next Colombian President needs to devise an audacious policy if he wants to remove Colombia from its social backwardness. Lower poverty to one digit as Chile and Brazil did, and finally get out of the shameful list of the most unequal countries in the world, requires much more than efficient programs to relieve people’s misery. It is needed to build on what has been done, and make the generation of formal employment and the redistribution of wealth a national purpose.
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