Archit Oswal

6th Period
11/18/16
Sustainable Development: War and Wealth in Colombia
In 2015 the United Nations General Assembly passed the Sustainable Development
Goals, a comprehensive plan to encourage peace, economic prosperity, equality, ecological
conservation, and wellbeing on a global scale. For the Latin American nation of Colombia,
however, many of these goals have yet to be realized. Despite enjoying an overwhelmingly
young population, coastlines with the Pacific and Atlantic oceans, a rare degree of constitutional
stability, and a wealth of natural resources, Colombia has struggled to develop sustainably due to
chronic warfare and stubborn wealth inequality that prevent the fruits of GDP growth from being
distributed fairly and responsibly. The Colombian government should adopt a series of
redistributive economic policies in order to overcome these challenges and bolster sustainable
development.
The Colombian governments struggle to renounce the title of murder capital of the
world has been waged for nearly five decades against several non-state communist actors, all of
whom have funded their respective operations by partaking in the illegal drug trade. The target of
most CIA operations in Colombia prior to the fall of the Soviet Union, left-wing guerilla groups
such as FARC (Fuerzas Armadas Revolucionarias de Colombia) and ELN (Ejercito de
Liberacion Nationals) have fought a low-intensity war against government forces in the
countrys rural backwaters since the 1970s with the aim of making Colombia a communist state.
Poorly financed by the Soviet Union at their inception, these groups failed to gain much traction
and were often at odds with one another due to their varying degrees of ideological extremity.

However, as the demand for cocaine blossomed in the United States, FARC, the larger of the two
groups, began to fund its rapidly escalating war against the government by growing and selling
coca leaves to drug cartels that were trying to satisfy the rising demand for cocaine in the United
States and Europe. Colombias war against FARC, which came to a close with the adoption of a
peace treaty in the November of 2016, cost 275,000 lives and generated over 5 million refugees.
However, ELN and other revolutionary groups have yet to lay down their arms. As the focus
shifts to post-war reconstruction, the Colombian government will need to prioritize reintegrating
the countrys enormous refugee population into the rest of civilian society. Creating several
million jobs, recompensing those who lost both their land and property, and trying guerilla
leaders accused of war crimes are steps requisite to healing the wounds of Colombias violent
past. Fulfilling all three aims would restore institutions of government to their full potency by
reestablishing the legitimacy of the Colombian government, rechristening it as the sole dispenser
of justice in Colombia, and rebuilding the trust that the people of Colombia have in Colombian
democracy.
Opposing FARC are various right wing paramilitaries that regularly operate under the
protection of both the United States and Colombian governments. These groups exist in areas
where Colombians believe that the government is too weak to provide sufficient protection.
These paramilitaries often engage in extrajudicial killings, work with drug cartels in return for
funding, and have repeatedly challenged the authority of the Colombian government (Colombia).
Straddling the political gray area by either supporting or fighting the previous two parties are
Colombias well-known drug cartels. After the governments of Colombia and the United States
began to crack down on Marijuana production and consumption during the 1970s, cocaine
became the product of choice for both consumers and producers. Competition over coca fields

and foreign market share led to gang wars on the streets of cities such as Miami and Bogota,
prompting the DEA, CIA, and Columbian government to topple cocaine kingpins in a series of
violent drug wars. At the height of unrest, the drug war waged by Pablo Escobars Medellin
Cartel against the Columbian government and Cali Cartel during the 1980s and 1990s resulted in
notorious bombings such as the one that downed Avianca Flight 203 (Holmes). Interestingly
enough, all three of the aforementioned actors (the cartels, paramilitaries, and left wing
revolutionaries) maintained their respective operations by profiting from the drug trade. The vast
underground economy needed to sustain the violence perpetuated by these groups is a recurring
theme that aids our understanding of Colombias struggle to realize sustainable development.
Several decades of guerilla warfare have spawned sluggish economic growth by
discouraging foreign investment, hurting labor productivity, and stunting infrastructure
development. One of the most visible indicators of confidence in an economy, foreign
investment, has remained dismally low for much of the past forty years. This is in large part due
to the risk associated with doing business in Colombia, which has the highest homicide rate (60
per 100,000 people) of any country in the Western hemisphere (Holmes). Additionally, basic
infrastructure requisite to rapid economic growth is absent from many districts in the countrys
interior, and wrestling back parts of the country controlled by insurgents has come at a cost. In
2000, for example, Colombia allocated about 4% of its GDP to military spending, the highest
ratio of any country in either Americas at the time (Holmes). Finally, the burden of five million
internally displaced persons combined with the historical flight of Colombias urban poor to
more profitable coca fields means that a sizeable portion of the Columbian labor force operates
within the informal economy (Cook). The consistent allocation of land, labor, and capital to
illegal activities and warfare means that Colombia suffers from economic inefficiency, a situation

in which the three factors of production are not adequately directed towards the production of
consumer and capital goods. In short, Colombia is struggling to fulfill its economic potential.
Most visibly, however, is the toll that that decades of subversive movements have taken
on the rule of law in Colombia. Granted, Colombia has never been roiled by the same sort of
coups and power grabs as its neighbors. Groups such as FARC have never had the manpower or
funding requisite to conducting a bloodless coup dtat, paramilitaries have rarely advanced
beyond their local power bases, and business-minded cartels have indicated that they would
rather work around the state than hijack it altogether. Although this means that there is no single
entity capable of effectively challenging the Colombian government on a macro-scale, it does
mean that the political geography of Colombia resembles that of a quilt, with non-government
actors filling the power vacuums left in some locales by a weak or incompetent government.
Although there are many organizations that have filled such power vacuums, the most notable
one is FARC. After forty years of seizing territory form its rivals, FARC has perfected the art of
colonizing rural areas without strong ties to the central government. After colonizing such
territory, FARC takes on quasi-governments functions which include enforcing Las Reglas de
Convivencia, a civil code that covers activities such as tax-collection, regulation, and law
enforcement (Cook). To win local support, FARC often supports community reinvestment
programs centered on coca cultivation (Cook). The absence of Colombias government in such
areas is troublesome for a number of reasons. First, power vacuums offer groups such as FARC
bases from which to launch further attacks, thus exacerbating violence. Second, increased coca
cultivation is highly unsustainable and dangerous since coca plantations become ground zero for
intense drug wars between rival producers. Finally, FARC activities spawn even more

paramilitary groups dedicated to resisting encroachment, making an immensely complicated

situation even more complex.
The United Nations considers the construction of strong institutions an important
component of developing sustainably. FARC, which has consistently challenged the legitimacy
of the Colombian government, is an irreconcilable impediment to this aspect of sustainable
development. Thus it is important for Colombians to come to terms with the new peace deal that
their government signed with FARC in the November of 2016. While the agreement in its current
form would not send guerillas who confess to war crimes to jail, it would ensure that they are
judged and punished under a strict legal framework (Cook). This treaty strikes a balance
between peace and justice that provides Colombians with the best chance that their country has
had in over a generation to end this deadly conflict. Moving past this dark period in Colombian
history would allow the government to focus their efforts on reducing wealth inequality, another
chronic barrier to sustainable development that has made prospects for poverty reduction, decent
economic growth, and quality education frustratingly grim.
Colombian society is most notable for its unusual degree of wealth inequality, and the
tremendous impact to quality of life can be detected through nearly every type of indicator, from
educational attainment to income levels. Data recently collected by the World Bank shows that
roughly 40% of the countrys wealth is concentrated into the hands of those whose income level
earns them a spot at the top 1% (Szkely). This sort of gaping inequality can have profound
impacts on the rule of law, scope of opportunities for growth among those in lower income
brackets, and economic prosperity. There are redistributive economic policies, however, that
should be implemented in order to reduce poverty and encourage sustainable development.

The consequences of Colombias high inequality include, but are not limited to,
stubbornly high rates of poverty that are difficult to bring down, impaired economic growth, and
negative public opinion. Inequalitys impact on poverty can be depicted mathematically. In most
societies the poverty line is to be found below the mean income. The distribution of wealth is
equitable such that people are occupying a variety of income brackets. However, when inequality
increases, people occupying middle income brackets are forced to either end of the spectrum and
in the case of those who make less past the poverty line. The mean income level remains the
same despite the increased number of people in poverty. The takeaway is that in Latin America,
more so than in other regions, GDP per capita is not a reliable indicator of quality of life. This
distortion of data is indicative of the warped nature of Colombias past two decades of economic
growth. Data accumulated by Bourguignon (2002) is demonstrative of the fact that although
economic growth does reduce poverty, inequality effectively dampers that reduction (Walton).
Finally, inequality in of itself is viewed with immense dislike in the countries it afflicts.
Interestingly enough, perceptions of fairness of income distribution among those who live in
countries such as Argentina and Chile that are among the wealthiest in Latin America are poorer
than the perceptions of those living in poorer countries such as Guatemala (Walton). We can
conclude that the average Latin American cares less for their absolute income than for their
comparative income (how much they make in comparison to those wealthier than them).
Inequality reduction, if analyzed from no other point of view than that of someone who seeks to
quell public dissatisfaction which in Colombias past has often boiled over into left-wing
insurgencies, should thus be considered as significant of an issue as GDP growth. Finally,
inequality facilitates abuses of power, and in Colombia 75% of the land owned is estimated to
have been procured through fraud, theft, sheer skullduggery, etc (Birdsall). This hardens public

opinion against the current state of affairs, and insurgencies such as FARC establish power bases
in communities aggrieved by a history of injustices inflicted by Colombian societys upper
echelons. A society in which wealth is distributed along the lines of extrajudicial rulings will lack
the social stability and cohesion requisite to sustainable development.
It is a generally accepted fact that a unit of wealth accrued by someone in a lower income
bracket is of greater value than if said unit of wealth were accrued by someone in a higher
income bracket. There is correlation between consumption and income resembles an S-curve, for
a person living under the poverty line is more likely to spend what is given than a person living
in the top income decile. So for the purpose of spurring economic growth through increased
spending, the Colombian government ought to utilize redistributive mechanisms that have been
both popular and effective at encouraging sustainable growth elsewhere in Latin America.
Conditional Cash Transfers, designed to transfer hard currency to select families that promise to
enroll their kids in school, have been popularized in Mexico, Chile, Brazil, and Guatemala for
their tendency to eliminate bureaucracy and place the initiative in the hands of the recipients
(Birdsall). They also have an excellent track record. Mexicos Progresa program bolstered
middle school enrollment among girls in target communities by 7.2-9.3 percentage points while
Nicaraguas RPS program raised overall enrollment rates in treatment communities by 21
percentage points (Walton). The stumbling block to most redistributive policies in Colombia is a
longstanding conservative economic mentality that favors a more hands-off Reaganesque
approach to economic management, at least in theory if not in practice. However, Colombia
should begin the process of applying for a loan from the World Bank with the goal of investing
in poverty-reducing schemes such as Conditional Cash Transfers. Home to over five million
internally displaced persons, Colombia is primed for international aid (Ibez).

In addition to implementing conditional cash transfer programs, this paper believes that
the Colombian government ought to replace several of its consumption taxes with a progressive
tax code that shifts the tax burden, on average, toward wealthier households and away from
poorer ones. The regressive nature of Colombias consumption taxes warrants their need to be
replaced.
It is incredibly important that we consider the implications of progressive taxation
schemes on the daily lives of average Colombians, and since data available on Colombia is
incredibly limited it is equally important to consider the cases of neighboring Latin American
countries that are at a stage of development comparable to Colombias. The first step to creating
a progressive tax code that shifts the tax burden, on average, toward wealthier households and
away from poorer ones is rooting out the rotten components of Colombias aging tax code.
Colombias consumption tax is one of the most regressive in the world since it disproportionately
hurts the poor, thus it is preferable for Colombia to replace several of its consumption taxes with
a progressive tax system.
In order to prevent the economy from becoming distorted, tax bases should be broad. In
Colombia, however, consumption taxes are only drawn from the following areas: the sale of
vehicles, telecommunications, food, and beverages (Walton). This needs to change. A broad
based consumption tax would eliminate the difference the difference between tradeable and nontradeable goods. Tradeable goods, goods that have accessible substitutes, can include everyday
products such as toothbrushes, clothes, and utensils (Velez). Non-tradeable goods, goods that
have no accessible substitutes, can include products such as commodities, gasoline, tobacco, and
alcohol (Velez). Usually, taxes on tradeable goods distort the economy by placing a
disproportionate amount of pressure on a particular industry. For example, taxes on electronics

produced in Colombia make foreign companies far more competitive by offering Colombians the
opportunity to turn down low-value Colombian products and buy high-value foreign products.
The Colombian manufacturing sector, as a result, has become distorted by government
interference and in 2016 manufacturing exports made up only 12% of Colombias GDP, a
number that pales in comparison to Canadas 30% in 2009 (Bernardi). On the other hand, taxes
imposed upon non-tradeable products such as gasoline rarely distort the economy since such
products are fairly inelastic. This means that demand for this product will likely change very
little in response to modest fluctuations in price or production (Velez). The Colombian
government ought to spread taxes to encompass more non-tradeable goods so that Colombian
businesses hurt thus far by consumption taxes may become more competitive in the face of
foreign competition while continuing to offer Colombians varied market choices.
As important as it is in order to avoid economic distortion so that businesses can thrive in
a competitive environment, it is also important to not make the poor even poorer through taxes.
Taxes on gasoline are often regressive since they burden lower income groups more than they do
higher income groups. Often, Latin American countries lack sophisticated, detailed transfer
systems that wealthier countries have in order to facilitate a progressive tax system (Walton).
Their limited administrative capacities make it easier for them to collect excise, sales, and
consumption taxes. The collection of progressive taxes requires an advanced bureaucracy that
Colombia has yet to develop. In absence of this transfer system, or at least until such a system
that allows for the more robust collection of income tax is created, Colombia will have to
manipulate consumption and production taxes in order to shift more of the economic burden
away from the poor and towards the wealthy. Data from a recent study in Jamaica showed
eliminating value added tax for just five items in Port Au Prince removed 50% of tax burden

from the poorest 40% of the population (Bernardi). The value added tax is a tax that is imposed
up every stage of products evolution, from importation or manufacturing to purchase by
wholesalers or shoppers (Velez). These consumption taxes, despite their unpopularity, must
remain an integral part of Colombias taxation system. The nationalist alternative would be to
exercise import-substitution, which is the practice of raising tariffs on imported goods. However,
this has failed to work for other Latin American countries in the past for the following reasons.
First, foreign investment, a critical factor to consider when calculating GDP growth, plummets,
when tariffs and barriers to entry are erected. Second, lack of foreign completion reduces the
incentive for domestic companies to focus on quality production, thus resulting in higher rates of
economic inefficiency. Ideally, Colombia should embrace free markets while continuing to
subsidize local manufacturers. For tax revenue it must turn to its own population, preferably its
top 1% of earners who by themselves earn as much as the bottom 40% of Colombians (Velez).
Although political realities in countries such as Colombia prevent the government from imposing
larger income taxes on the rich, imposing taxes upon specific products that are more likely to
affect the rich is one way to achieve the effects of progressive taxation without enduring the
drawn-out political melee associated with one.
The above recommendations skirt the edge of what ought to be the end goal of any Latin
American country aspiring to wealth and sustainable developmenta progressive taxation
system. However, given the obvious opposition by Colombias wealthy elite, it would be hard to
escape this underlying political reality. They can block legislation, corrupt administrators, and
shift resources to channels that would delay the implementation of progressive policies.
However, it is possible to draw revenue from the wealthy through corporate taxes (Shome). As it
is in many Latin American countries, the wealth of Colombias elite is often tied to their business

ventures (Walton). Although most of the wealthy elite are commonly united against progressive
taxation since it would affect them all, a corporate tax would render irrelevant this sense of
camaraderie by targeting certain members of wealthy elite, many of whom have conflicting
business interests. However, the fact remains that corporations in general remain the best
possible vehicles for mobilizing large amounts of capital for business purposes. More so than
government programs, they are able to better cut back on economic inefficiency and are less
likely to waste valuable resources due to an ever present profit motive.
Pursuing an indirect progressive taxation system that draws revenue from a broader base
in order to avoid economic distortion, a reduction in regressive taxes on non-tradeable and
commonly used products, and a hike in corporate taxes is in the best interests of the Colombian
people. The first recommendation would involve the introduction of taxes on non-tradeable
products as would the second one, but the second one clarifies that while taxes on non-tradeable
necessities ought to be discouraged, taxes on non-tradeable wants should be applied.
The people of Colombia should accept the peace deal that the Colombian government has
signed with FARC under the auspices of the international community and support redistributive
economic policies, both of which would encourage sustainable development by reducing
poverty, improving education, providing decent work, enhancing economic growth, closing the
wealth gap, boosting industry, establishing peace, and strengthening democratic institutions of
government. Peace, however, is a prerequisite to the following benefits for unless the engine of
war is put to rest and the economy is geared not towards the production of arms but rather the
production of consumer and capital goods, Colombia shall not develop its capacity to develop
rapidly and sustainably. Once peace is realized, the government should not disfavor itself by
letting slip the opportunity to reinvest in conditional cash transfers, microfinancing schemes, and

other redistributive policies that unshackle the poor of the disproportionate economic burden that
they have had to pay since the advent of Spanish colonialism several centuries ago. Gaping
inequality can have profound impacts on the rule of law, scope of opportunities for growth
among those in lower income brackets, and economic prosperity. Redistributive economic
policies such as the above suggested tax plan and Conditional Cash Transfers should be
implemented in order to reduce poverty and encourage sustainable development. Colombia has a
proud tradition of constitutional stability and its economy already grows at 2.3% percent per
annum, a rate faster than its neighbors (Ibez). Recognizing the above concerns and
implementing the above suggestions could lead to a more certain and prosperous future for
Colombia. Colombia has been a reactionary nation for much of its existence, forced to prioritize
internal disputes and external threats over visionary development. That cycle is about to be
broken, and Colombia must capitalize on this break with history.

Works Cited
Bernardi, Luigi. Tax Systems and Tax Reforms in Latin America. Milan: Societa Italiana Di
Economia Pubblica, 2007. Print.
Birdsall, Nancy. The World Is Not Flat: Inequality and Injustice in Our Global Economy.
Helsinki, Finland: United Nations U, World Institute for Development Economics
Research, 2006. Print.
Cook, Thomas R.. "The Financial Arm Of The FARC: A Threat Finance Perspective." Journal of
Strategic Security 4, no. 1 (2011): 19-36.
Colombia: Peace at Last? Rep. no. 45. International Crisis Group, 25 Sept. 2012. Web. 15 Sept.
2016.
Holmes, Jennifer S., Sheila Pieres Amin Gutirrez De, and Kevin Curtin M. "Introduction."
Introduction. Guns, Drugs, and Development in Colombia. Austin: U of Texas, 2008. N. pag.
Google Scholar. Web. 11 Sept. 2016.
Ibanez, Ana Maria. El Desplazamiento Forzoso En Colombia Un Camino Sin Retorno a La
Pobreza. Bogota, D.C.: Universidad De Los Andes, Facultad De Economia, 2008. Print.
Renwick, Danielle. "Colombia's Civil Conflict." Council on Foreign Relations. Council on
Foreign Relations, 25 Aug. 2016. Web. 11 Sept. 2016
Shome, Parthasarathi. "Taxation in Latin America - Structural Trends and Impact of
Administration." Taxation in Latin America - Structural Trends and Impact of
Administration. International Monetary Fund, 19 Aug. 1999. Web. 03 Nov. 2016.
Szkely, M. Volatility: Children Pay the Price. Third Quarter ed. 1999. Print.

Velez, Carlos Eduardo. Gasto Social Y Desigualdad: Logros Y Extravios. Bogota: Departamento
Nacional De Planeacion, Mision Social, 1996. Print.
Walton, Michael. "Proactive States: Smart Instruments for Redistribution. Inequality in Latin
America and the Caribbean. Advance Conference ed. Washington D.C: World Bank,
2003. 361-92. Print. World Bank Latin American and Caribbean Studies.