Constitutional adjustments

Currently there are two opposing views on the economy. The Government considers that after the pandemic the economy recovered the trend of the past and is evolving satisfactorily. The information from the last decades, before and after the pandemic, reveals a different reality. The product grows below the historical trend and well below the golden period, 1950-1970, and the distribution of income deteriorates.

Let’s look at a longer period. The performance of the Colombian economy in the last 30 years of the international trade opening model is the lowest in the history recorded in the country, and with the greatest deterioration in the distribution of income in the last century. Between 1990 and 2020, the national product grew 3.5%, employment 2%, the balance of payments registered a deficit of 6% of GDP, the share of labor fell considerably and the Gini coefficient rose to 0.55, one of the tallest in the world.

As was seen in Colombia in the past elections and now in Chile, within the polarized environment, candidates with extreme positions tend to win. The public does not vote for their favorite, but against the adversary. In general, the winners do not have the political agreements or the discretion to advance structural economic reforms.

The best support for the next government is a National Constituent Assembly made up of broad national constituencies, to prepare a diagnosis on the state of the economy, in particular on low growth, stagnation of employment, the fiscal deficit in current account and, especially , on income distribution, and advance quick and understandable solutions. Failing that, consensus would have to be achieved through popular consultation and public debates on specific constitutional reforms. As for the Government, specialized agencies would have to take care of the details of execution and coordination to incorporate them into development plans and medium-term fiscal programs.

The country is exposed to a false conflict between economic growth and income distribution that has persisted for decades, and contradicts the dominant theories of international organizations and textbooks. The solutions put forward by Kuznets, the most influential Nobel Prize-winning economist of the 20th century, and now by international lending bodies and Piketty are inadequate and insufficient. Throughout the world, wages grow below labor productivity, while the share of labor in national income falls. Latin America, and in particular Colombia, operate with inequitable models, in which economic growth is fostered in exchange for the deterioration of income distribution. The current government’s official policy of expanding aggregate demand with large fiscal deficits financed by a monumental registered and unrecorded current account deficit, which displaces national value added and employment, and depresses wages, is not sustainable.

The truth is that the required solutions are not possible with simple conventional measures of Congress and unilateral administrative provisions.

The great national controversy is over the economic model that led to the current state, and the existing institutional framework is not adequate to resolve it. Political aspects predominate over technical aspects, particularly economic ones, and governments do not have the legal powers to carry them out unilaterally. It is necessary to go further with the reforms insistently presented in this column and in various books.