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Marie Antoinette rules in Colombia as the masses protest against inequality

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By Fabio Andrés Díaz Pabón and María Gabriela Palacio

Since late November, Colombia has seen unprecedented mass protests, the longest since 1977. These protests illustrate the awakening of a muffled civil society. Protests in Colombia are part of a Latin American “spring”. Demonstrations have, since September, swept across Haiti, Mexico, Nicaragua, Venezuela, Panama, Uruguay, Peru, Ecuador, Bolivia and Chile. But Colombia’s protests are not merely following a regional trend, nor can they be attributed to a single ideological leaning.

Who is protesting and why

Colombians are protesting against inequality, because the country has the most unequal society among the 36 Organisation for Economic Co-operation and Development (OECD) countries. In addition, recent government measures, such as cuts in taxes to wealthy investors and an increase in taxes for the middle classes, have generated a significant backlash in a failed attempt to implement “trickle-down economics”.

Though the Colombian economy has experienced resilient economic growth despite the fall in commodity prices, there is little to no redistribution taking place. The richest 1% of the population captures more than 20% of the total labour income.

Because measures recently adopted by the government probably exacerbate inequalities, peasants, student, urbanites, labour unions and indigenous groups have taken to the streets. Their grievances might differ but the persistence of inequality has led to a reduction of their tolerance to measures that maintain the status quo.

Protesters are demanding the implementation of the provisions signed in the 2016 by the Revolutionary Armed Forces of Colombia — People’s Army Colombian peace agreement. For some factions in the government, demanding the fulfilment of the promises of the Constitution and demanding peace is seen as a subversive act. Yet Colombians are not demanding a revolution; they are demanding the right to a dignifying life and the fulfilment of the promises made by the government.

In a country that is in an armed conflict and is home to one of the highest shares of internally displaced populations in the world, the dismissal of protesters’ grievances constitutes a threat to civil society and democracy. The number of assassinated social and indigenous leaders and activists illustrate these risks.

The motivation for protests relates to the deepening of inequalities and levels of precarity in terms of access to education, health and social protection and the weariness of armed conflict. The strength of the protests can be explained as the result of the transition of the Colombia society towards peace — the peace accords with paramilitaries in 2006 and guerrillas in 2016 opened different venues for political participation — and the strengthening of social movements.

Government’s response

The response from the government of Iván Duque has been one of denials, accusations and failed attempts to regain control over public discourse.

He took office thanks to the political backing of politicians and sectors in society who opposed the peace negotiations with guerrillas and the state reforms taking place since 2010. Once in power, Duque found himself having to comply with state policies his support base did not agree with.

But these groups do not represent the majority of the population. Because of this, Duque faces a 70% disapproval rate and only 24% approval rate, according to a recent Gallup poll. This also means he has no control over the congress, posing a dilemma to his government. Either Duque tries to clear his policies to receive the broader support of society and face the alienation of his core supporters or he loses the capacity to lead the country. Because of this, media such as The Economist have depicted Duque as a president without direction.

Given this limited political space, the government attempted a propaganda campaign that tried to cast protesters as not contributing to the development of the country and drove Duque to plan the first meeting after the national strike with the industrials and business people rather than with the protestors.

This illustrates that the government cannot see that the protests span across race, location and class. Protests have brought together diverse actors that have found in the streets a space of encounter. Social groups are refusing government measures concerning social security, pensions and labour reforms, because they would have a pervasive effect on the livelihoods of the majority of the population. This explains why protests are supported by 74% of the population.

The disconnection between self-interested elites and the rest of society is evident. The proposal for a tax break, such as allowing consumption without value-added tax for three days a year and an extended “Black Friday” as a solution to the protests illustrate how little the government understands its citizens. Initiatives such as these reflect the aloofness of Maria Antoinette; a “let them eat cake” response.

Economists have opposed other proposals tabled by the government as lacking any technical basis. Populist economic measures aim to increase the acceptability of Duque’s government but can drive inequality and further grievances. The elimination of a 2% tax for buying houses worth more than $260 000 shows that the government is not undertaking reforms to improve the livelihood of the majority of Colombians, neither are improving state revenues.

Policy challenges

The debate can be framed about the availability of public resources and how to spend these, but data shows that the country is growing faster than any other OECD country. Nevertheless, the gains of growth are not evenly distributed, because the cost of living for the middle class is growing faster than their incomes.

The state is facing a long-standing problem of export-dependent economies. As the global economy cools down, the demand for Colombian exports has declined. In response to an imminent trade deficit, the state must increase its revenues but is afraid of taxing the wealthy — its remaining support base. This scenario takes place in a country in which informal employment is rising, and the size of industrial production is declining. The country is also going through a demographic transition, with an ageing population adding pressure to the pension system. As the population grows older, fewer contributors can sustain the social security system, and the costs for public health and pension fees increase.

One of the government proposals was to reduce employment costs and make youth employment flexible. Driving the most significant segment of the population into precariousness cannot be sound politics or economics, especially if the government is thinking about financing the pension system for future generations. Duque’s government praises the discourse of innovation and entrepreneurship, but it should consider that people in insecure employment are less likely to take risks and innovate.

Policies need to tackle the sources of inequality in Colombia and work to the benefit of the growing youth and middle class. The policy dilemma the government has is either to increase taxes to the bulk of the population, or reduce exemptions to wealthy citizens. Given the little political capital that the government has, increasing taxes for the wealthy might mean the government could run out of support. But failing to create the fiscal space that could sustain the economy and redistribute income might exacerbate inequalities in the future.

Moving towards an equal society is not only an ethical response to the grievances of diverse social groups but also a necessary condition for accelerating economic growth. Structural changes should be considered. The government should shift its attention towards innovation and industrial policies that can internalise and disseminate technological gains while driving domestic demand towards the local industry. Redistributive reforms are a prerequisite for progress because they help to close structural gaps and lead to higher levels of productivity, full use of capacities and resources, a fairer distribution of income and wealth and provide all citizens with the right to embark on the plans that they consider worthwhile.

Transition from violence

Protests remain spaces of uncertainty and crisis, but they also are spaces of representation, democracy and opportunity. Protesters bypass the structures of representation and send signals to institutions when they do not work. Furthermore, they allow governments to hear different voices and provide valuable feedback on the workings of the economy. Yet privileged actors invest energy and resources in preventing positive dissent and protecting the status quo.

Inequality and precariousness hinder economic growth and social cohesion. The mass protests, in the Colombian case, not only demonstrate how public voice emerges when violence is declining, but also how inequalities can be exposed once violence decreases, because people demand basic rights for the losers of development processes. As the country tries to leave violence behind, the nature of the conversations changed from armed conflict to citizens’ rights. Nevertheless, Colombia is a country that remains in fear of violence, the legacy of a 70-year war. The leadership of the government or its lack thereof remains central in blocking the transition away from violence.

Picture credit: Roboting on Wikimedia Commons

This article was originally published by Mail and Guardian.

UntitledAbout the authors:

Fabio Andrés Díaz Pabón is a researcher at the African Centre of Excellence for Inequalities Research, a research associate in the department of political and international studies at Rhodes University and a researcher at the International Institute of Social Studies in the Netherlands.

200x200María Gabriela Palacio is an Ecuadorian political economist interested in social policy, inequality and exclusion, who works as an Assistant Professor at the Faculty of Humanities of Leiden University. She holds a PhD in Development Studies by the International Institute of Social Studies (ISS).

 

Micky Mouse economics: how trade theory fails but policy still sells its fairytale benefits by Irene van Staveren

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Income inequality is rising globally. Trade has not delivered on its promises. Statistics and econometric analyses begin to show this failure in the global south as well as in the global north. However, IMF economists and the Trump administration stick to the usual policies of ‘workers, just get more education’ and ‘tax cuts for the rich are good for workers’. These policies are inconsistent with the evidence of increasing inequality. When even some filthy rich Americans see this and oppose their own tax cuts, it’s time that IMF economists begin to give consistent policy advice too—to the benefit of workers worldwide.

 

Worldwide, economic inequality is on the rise—both in incomes and in wealth. See, for example, the first World Inequality Report, published in December 2017. The problem occurs within developing as well as developed countries. And it occurs at a global scale: the world’s richest households get richer at a much faster rate than the global poor, while globally, middle class incomes are stagnating. The only decline in inequality we see is between developing countries as a group and developed countries as a group. But those are just country-level statistics not reflected in the everyday reality of people.

A related problem is the decreasing share of wages in national income. Again, this trend occurs in both developing and developed nations. In other words, the labour share in national income declines and the capital share in national income increases, with China being among the countries showing the strongest trend of this rising factor income inequality.

A logical question, then, is whether this trend is indeed problematic, or perhaps is inevitable for economic growth. If the rich would be more productive than the poor, thereby contributing more to economic development, as neoliberal policy-makers believe and would have us believe, rising inequality is perhaps the price to pay if we want economies to grow out of poverty. According to the dominant economic theory, the answer to the question is yes: let the rich be free to make money because by doing so, they stimulate the economy, create jobs, and let employees benefit too.

This is exactly what Donald Trump promises with his tax cut policy for the rich and large firms. The hardworking American would see his annual wages rise by a few thousand dollars if his boss’ tax bill is cut. So, when Scrooge McDuck gets richer, all inhabitants of Duckburg benefit, according to neoclassical economic theory.

The trickle-down effect: A fantasy

But institutional economists know, since Thorstein Veblen published his Theory of the Leisure Class in 1899, that such a trickle-down effect is a fantasy. The rich protect their vested interests and manage to change the institutional environment in such a way that they benefit as much as possible. Today’s statistics prove him right. The globalised economy of today, in which low-skilled jobs move around following the location choices of capital, and medium-skilled jobs get replaced by machines, the production factor labour is on the losing end everywhere.

To my surprise, this view suddenly receives support from researchers at the IMF in a working paper and in other IMF publications. They state that investment in the world’s stock of capital has become cheaper over time due to technological development. And, of course, the low interest rate in the developed world has helped too. As a consequence, more and more labour is being replaced by relatively cheap machines and software. Hence, however hard an employee or subcontractor works to add even more to the increasing labour productivity, it does not pay out in a higher wage or fee. Moreover, newly created jobs tend to be increasingly flexible jobs—a euphemism for insecure as well as low paid jobs.

This lack of power of labour over total income generated in the economy affects workers worldwide. In China, for example, wage growth is under pressure because the export products are not sold in a competitive world market to the highest bidder. Rather, the entire production process is contracted by oligopolistic multinationals controlling global value chains.

This means that just a few big companies control a whole sector, ranging from food to electronics and from personal care products to sports brands. They pay very low prices for the goods produced in local Chinese-run factories thanks to the threat to end the contract with the factory and move to another factory that keeps wage demands better in control. So, when a few big multinationals outsource their production through global value chains, local contractors, factories, sweatshops and workers are on the losing end.

So, the IMF has in fact admitted that technological development and globalisation disadvantages workers in both the developed and the developing world. This is nothing new for labour economists and development economists, but it is interesting to see this assessment coming from a mainstream and influential development institution.

Interestingly, this view goes against the dominant trade theory which has found strong support in the IMF. This theory predicts that trade is beneficial for low-skilled workers in developing countries—not only in terms of numbers of jobs but also through rising wages. The same theory also predicts that although low-skilled workers would lose jobs in developed economies, the middle class, relying on medium-skilled labour, would benefit.

Well, the disappointment expressed in populist votes by these middle class workers in the US, Europe and other western countries shows that also that prediction has not come true. The only benefit of trade for them is lower consumer prices of imported products—but what is the benefit of cheaper consumer goods if you don’t have sufficient income to buy them?

Of course wages in China have risen enormously over the past two decades. But China’s capital income has risen faster, alongside the capital earnings of shareholders of multinationals who are largely located in the developed world.

So, what was the policy advice that the IMF report came up with? What was the conclusion of the IMF in the face of evidence provided by their in-house researchers promoting this dominant theory that trade and elite development would simultaneously benefit workers and the poor? Amazingly (or not), the IMF’s report’s main conclusion was that workers worldwide should keep on investing in their education. As if one had advised the passengers of the Titanic to move up a deck to stay safe.

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What surprises me most is that it has apparently not occurred to the IMF economists that there is a gap between their recommendation and the findings from their own study. I almost feel sorry for those poor IMF researchers. How attached the IMF economists are to out-dated theories. When will they open their eyes for the benefits of shifting taxation from labour income to capital earnings? Or to the disadvantages of free trade of goods and free capital flows when at the same time labour migration is severely restricted?

Perhaps they should watch the short YouTube video by a Disney heiress, Abigail Disney, who informs us about the immoral and ineffective tax cuts for the rich in the US. She states how appalled she is that her already relatively low tax bill is cut even further. She is convinced that this will not help middle class Americans in any way, let alone those with low incomes without access to affordable healthcare. In conclusion, if such rich individuals in the entertainment industry can relinquish their Scrooge McDuck personas to see through the rhetoric, IMF economists should do so too.

Picture credit: Fibonacci Blue. Photo has been edited by cropping and applying a filter.

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Irene van Staveren is Professor of Pluralist Development Economics at the ISS. Professor Van Staveren’s field of research included feminist economics, heterodox economics, pluralist economics and social economics. Specifically, her field of expertises lie in ethics and economic philosophy.