Growth and Structure of the Economy

Growth and Structure of the Economy

Colombia first became an exporting region in the sixteenth century, under the Spanish system of mercantilism. Spanish imperial rule defined much of Colombia's social and economic development. The colony became an exporter of raw materials, particularly precious metals, to the mother country. With its colonial status came a highly structured socioeconomic system based on slavery, indentured servitude, and limited foreign contact. Colombia's modern economy, based on coffee and other agricultural exports, did not emerge until well after independence (1810), when local entrepreneurs were free to capitalize on world markets other than Spain.

Although colonialism fostered minimal domestic economic growth, small entrepreneurial efforts began to take shape, so that by the nineteenth century, well-defined economic enterprises were under way. The economy at that time was based primarily on mining, agriculture, and cattle raising, with contributions also made by local artisans and merchants.

Socioeconomic changes proceeded slowly; the economy existed essentially as a loosely related group of regional producers rather than as a national entity. Land and wealth were still the privilege of a minority. Forced labor continued in the mines, and various exploitative labor arrangements existed on the haciendas, such as sharecropping, renting, and low-wage labor. In each case, those owning the land benefited excessively, whereas those working the land remained impoverished.

The late nineteenth century witnessed the development of tobacco and coffee export industries, which greatly enlarged the merchant class and led to population expansion and the growth of cities. Wealth was concentrated in agriculture and commerce, two sectors that focused on opening channels to world markets, a process that continued slowly but steadily throughout the nineteenth century.

Following the War of a Thousand Days (1899-1902), Colombia experienced a coffee boom that catapulted the country into the modern period, bringing the attendant benefits of transportation (railroads) and communications infrastructure and the first major attempts at manufacturing. The period 1905-15 has been described as the most significant growth phase in Colombian history, characterized by an expansion of exports and government revenues, as well as an overall rise in the gross domestic product (GDP). Coffee contributed most to trade, growing from only 7 percent of total exports in the 1870s to nearly 75 percent by the mid-1920s. Unprecedented amounts of foreign capital found their way into both private investment and public works during this period as a result of the strong performance of coffee and other exports.

Despite the outward signs of growth, serious flaws remained in the Colombian economic system. The benefits of economic growth accrued disproportionately to the export sector, cities, and manufacturing groups, with perhaps as much as 70 percent of the population receiving little or no benefit from this period of expansion. Skewed income patterns would continue throughout the twentieth century, as manufacturing and services developed and became significant parts of the national economy.

The rapid growth and development of the economy in the early twentieth century helped prepare Colombia for the economic problems that accompanied the Great Depression of 1929. Colombia continued to produce raw materials, and although coffee prices collapsed during the depression, output continued to expand. Nonetheless, social and economic improvements remained uneven. Wages for agricultural laborers remained low, whereas other workers, notably urban employees, received large salary increases.

The expansion of the coffee industry laid the groundwork for national economic integration after World War II. During the course of the postwar expansion, Colombia underwent a distinct transformation. Before the 1950s, because of the steep terrain and a relatively primitive transportation network, Colombia's manufacturing sector was dominated by local industries that were only loosely linked to other regional businesses. National development proceeded from improved transportation facilities, financed directly and indirectly by the coffee industry. Greater economic integration soon became evident with the heavier concentration of industry and population in the six largest cities. Coffee's success, therefore, was ultimately responsible for a reliable transportation network that hastened urbanization and industrialization.

In addition to coffee production, economic expansion of both the noncoffee industrial sector and the service sector was accomplished in two distinct stages. From 1950 until 1967, Colombia followed a well-defined program of import substitution industrialization, with most manufacturing start-ups directed toward domestic consumption that previously had been satisfied by imports. After 1967 planners in both government and industry shifted the economic strategy to export promotion, emphasizing nontraditional exports, such as clothing and other manufactured consumables, in addition to processed coffee.

From 1967 to 1980, the Colombian economy, and particularly the coffee industry, experienced sustained growth. GDP grew at an average annual rate of over 5 percent during this period, supported by an expanded labor force, increased labor productivity, and accelerated investment. Strong export earnings and a large increase in foreign exchange reserves were the most noticeable results of this economic expansion.

Despite the successes of the 1970s, the national economy began to flounder in the early 1980s. This was largely because the global recession that began in 1981 caused demand in external markets to fall precipitously.

The combination of domestic economic achievements in the 1970s and generous foreign aid, however, placed Colombia in a relatively favorable position to ride out the global recession, especially in comparison with other Latin American states. Drawing down foreign exchange reserves (20 percent in 1982 and 50 percent in 1983) to compensate for both trade and national account imbalances minimized the financial and social consequences of the recession. In contrast, other Latin American nations, facing similar deficits, borrowed heavily from both private financial and multilateral development institutions, which forced them to restrict government spending severely. In addition to the large foreign reserves, external assistance in the form of grants and concessional loans further relieved stress on Colombia's international and domestic finances. Throughout most of the 1980s, Colombia ranked among the leading recipients of World Bank loans, as well as direct assistance from the United States. Although this aid allowed Colombia to maintain a relatively higher rate of GDP growth than the rest of Latin America, aggregate production remained depressed.

By the late 1980s, Colombia's short-term economic outlook had become more promising, in large part because of an unusual confluence of circumstances that occurred in 1986. That year, a coffee production boom in Colombia coincided with a poor harvest in Brazil and rising international prices. The overall effect was a stronger national economy, which benefited most sectors and classes. GDP grew by 4.5 percent in 1987, thanks in part to a particularly strong contribution by the construction industry. For the near future, analysts predicted continued growth and stability. Nevertheless, Colombian planners advocated diversification of the economy to reduce its dependence on coffee, so that future downswings in the industry would not have equally severe consequences.

http://country.eiu.com/Colombia
https://en.wikipedia.org/wiki/Colombia


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