By Diego Guevara,* EL ESPECTADOR, October 31, 2020
(Translated by Eunice Gibson, CSN Volunteer Translator)
Every time the electoral breezes start to blow, the myth of the possible policies that would attack the good and free functioning of the markets reappears, but the point is that the markets in Colombia are not functioning well and are not functioning freely, thanks in good part to the business practices that are torpedoing them.
The English expression “crony capitalism” is usually translated to Spanish as “capitalismo de compinches” or “capitalismo de amigotes”. That term alludes to a type of capitalism in which the success of the business owners is not due to the risk they assume or their capacity for innovation, but rather to their tight connections to the government, to the subsidies they receive from the government in terms of tax benefits, and certain conditions that are convenient for the largest companies to have their profitability guaranteed.
The Colombian version of this scheme of things could be called the capitalism of buddies or pals. It’s a scheme in which for years the revolving door of trade association officials and government officials has been a common practice and hardly ever questioned.
There are TIC (Ministry of Technologies of Information and Communications) Ministers that end up working as consultants to the firms that they regulated just a few months ago, public officials that come from the banks, or there are members of the government team that made their career in the trade associations of producers, defending the interests of the businesses, for example, but ending up in charge of defense policy.
Even though these practices are not illegal and can be seen almost everywhere, the applicable regulations vary among countries. Certainly Colombia’s relatively lax regulations have empowered that tight connection between commercial capital, finance, and political power.
Crony capitalism feels comfortable with highly concentrated market structures in the principal conglomerates in a country. Here nearly 70% of the banking sector is concentrated in four big actors (Bancolombia, Aval, Davivienda, and BVVA) and more than 60% of the pension line is concentrated in two actors (Porvenir and Protección).
Besides that, in other business sectors, for many years the dynamics of cartelization and price-fixing were common and only in recent times, because of the incentives of deflation, have we started to see sanctions against the countless practices of manipulation of prices that we have seen in products like workbooks, diapers, toilet paper, private security, and pipelines. Those examples (a short list to illustrate the size of the drag on the economy) are partly the result of the crony capitalism dynamics that have been the norm in recent decades.
In the world of rural areas, the realities of crony capitalism are dramatic and you can see it in the brutal concentration of the land. Carlos Suescún, in the doctoral thesis that he recently defended at the Campinas University in Brazil, demonstrates how in 2014 the Gini coefficient on concentration of land ownership reached figures around 0.9 in provinces like Córdoba and Meta. He concludes that no matter how much there has existed a certain level of modernization in the countryside, the agrarian structure has not changed fundamentally, and in the end, it’s because of a functional scheme for the status quo of the Colombian rural capitalists who are very evidently in power.
What is the implication of that? What does buddy capitalism have to do with the so-called “castrochavismo” and the fears of central interventions in the market?
The basic economic textbooks and the mainstream insist on the notion of the perfect market, under the supposed existence of many buyers and sellers that work so that the actors can influence the prices in a scenario of perfect information.
Many local politicians have stuck with that easy-bake version of the economy and that is what they are constantly defending in their speeches, with references to the wonders of the free market and of competition, but they hardly ever talk about the concentration of the land, the incomes, and the wealth that affect democracy and the market that they are so worried about when they go out campaigning.
In reality, their interests and the bills they introduce are closer to the influence of lobbyists and the capitalism of their pals than to the free functioning of actors in the market. At the beginning of 2020, La Silla Vacía published a very good report entitled “Santiago Pardo, the Tax Lawyer of the Powerful”. It’s a good example of lobbying and the power of crony capitalism. The site describes Pardo as “a man that defends with tooth and nail the interests of the financial and product sectors which most of his clients are part of. Those interests consider themselves embodied in the paragraphs that they have been able to introduce into the tax reforms.”
With this analysis as a backdrop, pointing toward the poor functioning of Colombian capitalism (when it talks about concentration, buddies, and limited competition) then it’s worth asking: Aren’t the ones that are selling the hauled-in horror of “castrochavismo” the same ones that end up torpedoing the successful functioning of the market?
“Castrochavismo” is related to elections in the same way that Dracula’s popsicle is related to October: they are both products of the season.
After the last round of elections, the term disappeared from the political scene, but with the arrest and subsequent liberation of former President Álvaro Uribe, that idea started to make its rounds again among Colombia’s right-leaning politicians, and it looks as if it will once again be the warhorse as we look at the elections in 2022.
Unfortunately, the term has transcended the national discussion and now it’s also being used by Republican Latinos in Florida (United States) in the midst of the presidential campaign in that country. Those sectors see in Joe Biden a supposed “castrochavista” threat, something that, as with many other things in that election, provokes nervous laughter, because Biden has not even disturbed the financial capitalists of Wall Street.
The caricature of “castrochavismo” comes from the notion that Latin American capitalism is functioning very well, with a market that’s full of competition and with forces and balances that end up benefiting the end user, and that it rewards innovation.
Data from the sidelines: in the midst of the worst crisis in history, in the second trimester of this year, when the decrease in economic growth was close to 15.7%, one of the friendly sectors, as is finance, registered a growth of 1%.
Today the fear ought not to be “castrochavismo”, but rather the permanence of a structure of production, accumulation, and distribution that is static and that accommodates the interests of the elites, the buddies that create a capitalism to their taste and far from the best version of that system. It should tend to improve distribution, lessen accumulation, and assure the good functioning of the mechanisms for distribution.
In the end, these are the aspirations of the capitalists of the golden years (1940-1970), but today capitalism is so aggressive, so much based on cronyism, and so distorted that, curiously, the desires of many of the alternative and progressive sectors in Colombia and in the world are to have a more nuanced capitalism.
*Professor in the School of Economics in the National University of Colombia