According to the electoral results on June 19th, 2022, Colombians chose their first popular government in the country’s history, with Gustavo Petro and Francia Marquez as president and vice-president, respectively.
In his victory speech, Petro showed himself as a pragmatic politician looking for social change. His government will not come up with an economic model that threatens private ownership over the means of production, all the opposite, in his speech Petro stated the idea of “developing capitalism in Colombia” and the setup of a “popular economy”.
In plain English, the new government will run into the contradictions of the capitalist system, inevitably.
In this post, I will do an economic analysis based on the victory speech given on June 19th, 2022 by Gustavo Petro and Francia Marquez (the first Afro-Colombian vice-president in Colombia).
Change of economic model
Petro stated the need for private investment to be able to develop its government program. It would require policies that do not threaten the capitalist’s rate of profit. The system works under the profit logic, where someone invests and employs workers as long as she or he gets profits.
The thing is that judging by the economy’s behavior in the last years, the capitalists’ rate of profit has followed the performance of the extractive sector made up mainly of coal and oil (as seen in another post, click here), both raw materials that Colombia sooner or later has to shut down, given the global concerns on climate change.
In other words, Colombia must substitute one business for another able to turn out the necessary surplus to be invested.
Figure 1. Rate of profit and international prices of coal (in blue) and oil (in gray)
Petro comes up with the speeding up of energy transition. He said it in his speech when stated that it is not sustainable developing progressivism based on the fossil industry. However, a question arises: how can the economy move from an extractive economy to a productive economy?
If the market economy is kept, as Petro’s contend goes, an industrial policy is needed to encourage private investment in new economic activities; it involves a fiscal policy with tax reduction and/or setting new taxes to incentivize and disincentivize the required industries.
Besides taxes (including tariffs), subsidies may be another tool for stimulus, along with the role of the State as an investor. However, in regards to how to do the energy transition and boost the economy, it is not clear whether Petro’s strategy will rely on incentives to the private sector or on the participation and strengthening of government programs and State-owned enterprises.
Public and social debt
The public debt levels as a percentage of Colombia’s GDP have risen in the last years, with the foreign debt expanding along with the liabilities denominated in dollars (which are paid with exports). It means that the economy will need to grow or the State will need to collect more taxes in order to reduce the ratio of debt/GDP (click here to deepen).
Figure 2. Domestic and foreign public debt as a percentage of GDP
Besides the financial debt, Colombia has a social debt reflected in its inequality indicators (click here) and worsened by inflation and unemployment (click here to deepen). Any government that calls itself popular should look for more social equality, as the new vice-president said it: we will be «the government of the people with calloused hands, the government of the ordinary people… we will go for social justice…«
Nevertheless, how can a new leadership reconcile social justice with the capitalist desire to accumulate profit? After all, as stated by Petro in the victory speech, “it is not possible to distribute what has not been produced”, and the economy relies on private activity.
The new government must deal with the internal contradictions stemming from a capitalist class that seeks its own interests and could draw upon investment blackmail, according to its odds, offshoring factories and taking the capital out of the country.
Moreover, the society is politically divided, Petro got 50.44% of the total votes, and Hernandez, the other candidate, 47.31%. If the popular government wants to hold governability and stability will have to look for agreements with capitalists and the political forces that traditionally have been in favor of the capitalists.
The challenges for the new administration lie in the need for an equilibrium where the change from extractive to productive economy keeps the rate of profit compelling enough for capital accumulation, at the same time that the economic activity grows with equality, that is to say, with more employment that provides social mobility for the majority of the Colombian population.