Solution to the Drug Problem in Colombia

How was Colombia Able to Tackle the Problem of Drug Cartels?

ECN 475- Capstone Economics

November 6th, 2020

Colombia has been battling against the interests of a variety of domestic and international entities. Influence from private agents, foreign powers, guerilla fighters, and the people has shaped policy decisions within Colombia in contradictory ways. Private agents desire targeted policy that will affect their businesses association, foreign powers want an extradition of drug traffickers, guerrilla fighters want favorable terms in a peace agreement, and the people want economic prosperity. Because of a lack of sufficient formal channels, the biggest businesses associations have the most power through informal policy making channels. A fragmentation of these massive groups has directly led to a lack of beneficial horizontal legislation and an emphasis on vertical policies.

The story of drug trafficking in Colombia cannot be said without factoring in the United States of America's War on drugs. The United States, under President Nixon, funded governments all around the world to fight against drug production in any way necessary. This was a primary catalyst in Colombia against the cartels and led to the current wars between the FARC and the Colombian government. This escalating war and increased trafficking caused massive socio-political instability along with hampering the entire economy. Colombian people have grown used to the fighting and have surrendered to the opinion that the economic advantage far outweighs the harm and damage done. Drug trafficking is a low percentage of the nations GDP and when accounting for a loss of saving and investment there is a negative effect on the economy.

Colombia has so far failed to tackle the issue of drug cartels and guerilla fighters. Deterrence via increased jail time has had the opposite effect and causes the lowest links to return to the drug trade. The destruction of crops has in fact led to more crops being cultivated. An increasingly militarized police force has inflamed tensions with no recourse of each side. There has been a scattering of goals with each administration, and outside influence have contributed to the nullification of peace talks. Colombia has not tackled its drug problem, and a novel attempt must be made in an attempt to bring normalcy to a region where the abnormal has become the new normal.

Historical Basis

Colombia first began its process of becoming a country in the early 1800's from the Spanish empire. Following this, there was a period of relative peace until Colombia experienced an extremely bloody civil war from 1948 to 1950 (Gutierrez, F. 2003). Following the end of the war, a pact called the "National Front" took hold, which endured for almost twenty years from 1958 to 1974. In an attempt to not stir any of the recent tensions, there was a concerted effort to maintain basic democratic institutions and peace among the people. The cost of this was political stagnation. Starting in 1964, there was a credible threat of revolutionary Guerrillas as holdouts from the civil war. This was mostly "an imaginary war"(Gutierrez, F. 2003) as the main revolutionary group known as FARC only had 500 members in 1978. The war against these guerilla fighter groups began officially in 1983, which caused tensions to escalate.

In the mid 1970's Colombia had seriously begun involving itself in the traffic of narcotics. This was initially influenced by the eradication of large marijuana plantations in Mexico. As the supply dwindled, the prices rose and suddenly Colombia began large scale cultivation (García, R. R., 2003). This was, in part, due to favorable growing conditions and a previously established contraband network. Following this, in the 1980's, Colombia began the processing of imported coca leaves and paste creating the final product of cocaine. After an extended eradication process of marijuana plantations, cocaine began to be Colombia's main export of narcotics. In the 1990's Colombia began to be the world's main supplier of cocaine which continued to the early 2000's.(García, R. R., 2003) The United States was, by far, the largest consumer.

In the 1980's, cartels began to be formed as a result of the mass profitability of the illicit substances. The wholesale market at the time was the most profitable which led to an attempt of economies of scale. These economies of scale led to larger operations that directly caused several national cartels to form. Additionally, an attempt at vertical integration has led to an increased amount of growing operations locally rather than relying on imports from Peru and Bolivia (Gutierrez, F. 2003). At this moment, repatriated drug income was approximately equivalent to 2.7% of the GDP.

By 1978, The FARC had assumed control over a majority of the illegal crop production. They moved from a ragtag group of 500 members to a powerful group with 20,000 members in a few years (Gutierrez, F. 2003). However, an important distinction must be made. FARC is an insurgent counter revolutionary force focused on fighting known as guerillas. Guerillas cannot be confused with drug traffickers. Interactions between guerillas and traffickers range from mutual cooperation to brutal conflict. Guerilla expansion remained constant in this timeframe while organized crime peaked between 1984 and 1996.(Gutierrez, F. 2003) Guerillas used drug trafficking as a method of funding their war against the government. Traffickers saw drug production in the eyes of short term results and economical efficiency. There was no apparent collusion between these two groups against the state.

From 1978 to 1982, the administration of Julio Cesar Trubay Ayala reigned and took an aggressive position against the guerrillas. He was likely under US pressure to improve human rights over an opposition to the trafficking of drugs. Under such pressure, he passed an extradition treaty that allowed traffickers to suffer punishment elsewhere.(Gutierrez, F. 2003) His successor, Belisario Betancur, was elected in 1982 and sought to lower the current conflict and focused on a peaceful resolution. However, the military took an aggressive stance and did not match the presidents wants. The geurillas and traffickers, under pressure from the army and the extradition treaty, found they could be nationalistic allies.

In the second half of the 1980's, cartels/traffickers had become much stronger. An almost complete reliance on their own growing operations led to improvement in yield and lower costs. A maximum amount of 5.5% of the GDP represented the increase in trafficking and an increasing pressure to legalize their new wealth.(García, R. R., 2003) This was in the timeframe of Nixon's War on Drugs in June of 1971 in the US. Increasing American pressure on Colombia made cartels want to preserve Colombia as a sanctuary. This directly ushered into the most bloody phase of violence with mass killings and bribery.

In the beginning of 1990, there was a continuation of the conflict. This directly prompted an attempt to dismantle the cartels and the imprisonment of political sympathisers. New actors replaced the old cartels and as such, another increase of coca planting insued. An average of 4.5% of GDP was recorded in repatriated money.(García, R. R., 2003) This restructuring resulted in Colombia being the world's largest producer of coca leaves in the second half of the 1990's. The previous alliance between the guerrillas and the traffickers grew as growers moved to border areas. Production remained high, as profits decreased because the wholesale price was lowered. See figure 1.

Economic Effects of Public Policy

There have been repeated attempts in Colombia to hamper the drug trade and also bolster the economy. As shown in the literature, there are two ways to inhibit productivity growth. One can enforce policies that discourage firms from investing in new forms of efficiency, or inhibit the processes of activity towards high productivity producers. The reforms of the early 1990's sought to increase both competition and factor market flexibility.(Eslava, M. and Meléndez, M. 2009) The performance was not as dynamic as expected. GDP growth has remained stagnant as compared to previous years with more strife and less favorable policies. "...conclusion in a formal measurement of the share of potential gains from the reforms that has been realized."(Eslava, M. and Meléndez, M. 2009)

The Policymaking Process (PMP) in Colombia is rife with influence from both official and unofficial sources. It is intriguing to find out that a majority of companies as well as private actors favor unofficial conferences directly with the lawmakers. For instance, only 29.8% of respondents state that they participated in the design of policies that affected their own business (Eslava, M. and Meléndez, M. 2009). Additionally, only 15.4% found formal mechanisms on policy participation adequate and as such informal participation is the favored method of communication. Private actors who discuss targeted policies must choose informal participation and their success depends on the political power of their group.

Regarding successes and failures of the PMP, groups which are found in certain sectors with significant weight are able to influence policies in their favor. Groups represented by business associations and especially those located within high conflict areas have a lot of influence. Areas of high productivity are not necessarily favored. Aggregate productivity, by and large, is harmed by these targeted policy benefits. There is no clear microeconomic rationale and is entirely reliant on the political grip of particular groups.

With specific regards to Private actors, all groups have varying amounts of political power. It should be known that larger firms, specifically those with strategic importance (i.e oil), who are a part of massive conglomerates have much more pull and sway with regards to policy making. The four largest groups, made up of diverse firms, make up over 12% of the GDP(Eslava, M. and Meléndez, M. 2009). As in America, the main power is via private contributions to political campaigns. Additionally, many of larger groups own the main news stations and as such can influence the public opinion and run propaganda campaigns.

As of 2000, there are over 220 businesses associations compared to a few in 1950. Businesses' actions have had much more fragmented interests as the Herfindahl-Hirshsman index went from .48 in 1980 to .08 in 2007 (Eslava, M. and Meléndez, M. 2009). Over time, as these interests have split, business associations have lost more power as they get increasingly diverse.

As shown, there are many private interests (firms, sectors, associations, regions, business groups, etc) with varying power who participate in remarkably different ways. In order to find the eventual effects of these policies being enacted, the political power of a group must be found. Eslava and Melendex Marcela find the strength with the following regression:

(Eslava, M. and Meléndez, M. 2009)

where τ s,r,t is the policy power index for a firm located in sector s, region r and year t. PMPs,r,t is a vector that measures the group's involvement in the PMP, and Ecs,r,t is a

vector of characteristics that are seen as proper factors of whether a sector in a certain region is currently in government favor. This estimation is over the 1998 to 2006 period. This policy index summarizes policy affects with trade policies, tax regimes, export incentives, and policies from the Domestic Agenda. See table 3. This, in addition to dummy variables to account for omitted variables, makes the PMP variable robust.

With regards to economic determinants, it is found that high productivity is not a main driver of policy within Colombia. Total Factor Productivity (TFP), within this regression has a coefficient of -.008, with an error of (.003) at a significant of 1%. TFP growth has a similar coefficient of -.005 with an error of .003 at a significance of 10%. The second order has similar results. These are only significant when the model specifications do not account for the average plant size. This (along with other minor factors) lead to the conclusion that smaller plants are being targeted while policy favors groups that generated more employment. The coefficient of employment is .002, with an error of .001 at a significance of 5%. When using this regression for specific Region-sector groups, one can see that the top 25 groups with the most political power are food groups. (Eslava, M. and Meléndez, M. 2009)

The effect of policy on aggregate productivity must now be found since the most influential groups have been discovered. We must include the following exploratory variables for this to be found: International Standard Industrial Classification (ISIC) two-digit sector standard deviation of the political strengths, the average ISIC political strength, and the ISIC correlation between the political strength measure and the TFP of the average plant. Following this, we find that for a given distribution of plant level TFP idiosyncratic policies harm aggregate productivity (Eslava, M. and Meléndez, M. 2009). This effect is amplified when less productive units are the most benefited.

Finally, we can use a regression to discover our results. The regression includes dummies for year and ISIC sectors. It is found that the coefficient on the standard deviation of political strength is significant. With a negative sign, it can be confirmed that deviations from a no influence system have been negative to aggregate productivity. For every change of standard deviation of political strength, there is a -.63 effect on the ISIC aggregate TFP measure. Since the TFP mean is 2.11, such an effect is large and significant. The mean of political strength is not significantly different from zero. This is likely due to the preference of targeted policies over horizontal ones that affect all. Finally, the coefficient on the correlation of political strength and average plant TFP is both significant and positive. This implies that one standard deviation change in the correlation affects the ISIC aggregate TFP by .2(Eslava, M. and Meléndez, M. 2009).

The data fails to reject our previous hypothesis that the aggregate productivity performance after 1990's market reforms is due to targeted policy benefits which are granted without an economic rationale and simply reliant on political power.

Within the PMP process in Colombia, there is a wide variety of different groups with different policy ideals. They have methods of formal representation within policy making and should have led to economic policies that benefited many. With a wide variety of groups, each divergent interest should help aggregate productivity and eventually favor general welfare over any one group's interest. However, informal consultations are only given to larger groups, and formal policy making is found to be unsatisfactory by the majority of people. As such, there is a slow adoption of general policies and a fast adoption of targeted policies. Over time, as political fragmentation has increased, there has been a segmentation of private actors. This increases the relative effectiveness of informal participation which is not granted equally to all. This results in only vertical policies being passed which is the primary reason for a lack of productivity and GDP growth over 2000-2009.(Eslava, M. and Meléndez, M. 2009)

Economic and Political Effects Due to the Drug Market

The effects of drugs are by and large negative without any regulation. Drugs, being illegal, bring other illegal activities with them which leads to bad outcomes all around. Within Colombia, drugs are a part of the culture and economy; a large percentage of people believe that there are positive economic effects to the drug market. Specifically, there is a prevailing belief that Colombia's economy is dependent on the repatriation of profits from the drug trade, and its overall economic impact is positive. These people may have succumbed to the status quo and are not considering all of the effects.

When running any criminal enterprise, there are obvious hurdles that must be crossed. One must avoid detection by the government, succeed in distributing their product, and remain profitable. However, one of the biggest concerns is the repatriation of money back to Colombia and "washing" the money. This process is called repatriation of funds but a criminal organization cannot brazenly move this money back to themselves. This money must be laundered, which depends on the controls of the government and the size of an economy. With a closed economy, changing invoices, and smuggling foreign currency are the best methods. Within Colombia, there is, in fact, a tax placed on transferring foreign currency between the parallel market and the regulated market which raises the cost of repatriation.

Net drug income was an average of 4.4% of the GDP of Colombia between 1982 and 2000(García, R. R., 2003). Three percent of the GDP from drugs was repatriated via money transfers and black market imports. There is a perception that this is larger than it is by the gaudy consumption of luxury items by bosses within the drug market. This was additionally exaggerated by drug traffickers' tendency to invest in rural estates and was also thought to be linked in effect on real salaries in certain regions. In reality, cocaine money was being used to finance contraband (which hurt local industries), overseas tourism, and capital flight. All of these factors harm the growth of the economy.

Earlier, in the 1990's there was a thought that drug trafficking would result in a "Dutch Disease." This disease was thought that the influx of foreign currency from the drug trade would actually strengthen the local currency and lead to a reduction in exports and industry. This did not happen in reality, as a large portion of the repatriated funds were, in fact, used to finance capital flight and didn't affect the exchange rate. Drug trafficking doesn't have systemic effects in a region level.(García, R. R., 2003)

It is often argued that the drug trade also does not affect the composition of products. For instance, the construction industry has no benefit from the drug trade and does not behave accordingly with drug trafficking. The drug trade is seen to have effects on luxury construction, but most of the contamination is independent of the drug trade. Additionally, the planting of the main product itself is found to have negative effects economically on some regional economies.

To quantify this effect, one must look at the drug traffickers and the guerrillas effects on land seizure and effect on GDP. Between 2.2 million and 4.4 million hectares of land have been acquired by drug traffickers (García, R. R., 2003). This is between 5 and 11 percent of all rural land in Colombia. The guerrillas relied on the drug market for 40% of their income and violent actions by such groups have decreased the GDP by 4% (García, R. R., 2003). According to the same source, drug trafficking has reduced private investment by 4% of GDP, caused a 1.2% GDP decrease by capital flight, and makes the government spend on security equivalent to 2% of GDP. There has been a .6% reduction of GDP due to losses of Human Capital, and over 5 percent of the GDP of the legal economy has been displaced. This is without mentioning the thousands of hectares of forest lost for cultivation. Private investment, for example, could rise higher than 4% of Colombia GDP if there was some level of socio-political stability. (García, R. R., 2003)

The public has grossly overestimated the amount of repatriation of earnings, and the positive economic effects of this money. There is no amount of GDP that the drug market can bring back to offset the negatives involved. Political instability, as a result of insurgent groups, have led to a loss of trust of the government and in turn caused both local and international investment to stagnate. Without help, Colombia's economy will continue to stagnate until a resolution is reached.

Solutions Attempted and an Attempt of Remediation

There have been many, seemingly lackadaisical, attempts to curb the drug market and stop the guerillas. The government has attempted peace, fumigation of crops, war, etc. One of the more circulatory processes has been the jailing of the weakest links of drug cartels. This is to attempt to weaken the groups and help reform individuals involved. However, this solution leads to more cartel members, increases costs to the state and is virtually not effective.

In 1974, three years after the war on drugs was started by president Nixon, the first Statute on Narcotics was passed which established penalties for drug crimes ranging from one to twelve years of imprisonment. Following this, Law 30 of 1986 doubled the minimum sentence, created new felonies, and increased some of the maximum penalties. Additionally, Law 599 of 2004 established a higher minimum of five years and a maximum sentence of thirty years. More felonies were put on the books, and as a result there are well over 25,000 persons detailed for drug related activities(Velez-Navarro, J. 2018). This is the third most common crime in the country and usually indicates the members on the lowest side of the totem pole.

These members are known as weak links and are involved with drug trading, but are not violent and must be subservient to the drug trade. These are people who follow orders and get paid because they have little to no other choice in life. They are easily replaceable and often take the blame. They participate in the trade as a job alternative for subsistence but are often not dedicated to the trade as a whole.

The weakest links in the drug trade are those people who are most often getting a criminal conviction. By criminalizing them, the government believes that they are deterring the perpetrator for the future, and to rehabilitate the offenders by eventually reintegrating them into society. However, these goals are not met and the larger goal of reducing violence is also failed because these are non-violent offenders.

The government has failed to deter these individuals from returning back to the business and it is impossible to tell if others have been deterred. In Colombia, between 60% and 97% of crimes committed go unpunished.(Velez-Navarro, J. 2018) This reduces the risk of getting caught and lowers the cost considered when going into the drug market. Additionally, these individuals have no education standards and simply lack abilities to remain successful. If Colombia had a higher percent of punishment for crimes, it would be found that there is an extremely high recidivism rate(Velez-Navarro, J. 2018). To compound this problem, prisons have become a haven of cartel activity and there is some evidence to show that there are more cartel members exiting rather than entering prison.

Once an individual has completed their sentence, they have nowhere to go. By having a criminal record, these individuals have an even more difficult time finding a legal job. This, compounded with the reason that they were the weakest link makes it virtually impossible without outside help to not return. While deterrence may work for other crimes such as murder and theft, there is contrary evidence for the weakest link.

Within prison there is overcrowding, poor sanitation, no doctors, and a lack of food. There has been a fourfold increase from the 1993 prison populations with few to no new jails (Velez-Navarro, J. 2018). With having a larger prison population, there is a significantly higher total cost. There are costs involved in the trail, in the housing of individuals, and in general maintenance. There is a total cost of $92,521,475 USD per year for the prison system. Resources that could be allocated in a better way(Velez-Navarro, J. 2018).

The act of improving people in Colombia restricts and harms our basic human rights. The goals set forth have not been achieved, and the opposite effect may exist. There should still be individuals put into jail for drug trafficking but there must be an exception for the weakest links. There is a possible solution that has been implemented in Portugal which involves sending the weakest link an administrative fee rather than giving them a criminal record.

The Colombian government's anti drug strategy has failed. For 40 years they have attempted to eradicate crops, disband cartels, and destroy drugs(García, R. R., 2003). Attempts such as having special counts and drug rehabilitation programs have failed. In 2003, Colombia began the Plan Colombia policy where an emphasis on economic recovery was made. Additionally, an end of the guerilla war was sought by reaching peaceful agreements. This plan acknowledged the link between drugs and the national identity and sought to capitalize on this fact. Such a plan, an integral plan, must be made to have any hopes of decreasing Colombia's drug production. By reducing production by 50%, there will be a supply deficit of 270 pounds which causes more countries to become competitive in the production of cocaine.(García, R. R., 2003) Such an event will cause the informal part of the economy to dwindle and allow farmers to grow better crops. Peace between the guerrillas and the government is integral to peace and future prosperity.

Peace has been attempted to bring an end to this conflict. Betancur sought a peace agreement with the guerillas. The army opposed this, inflamed tensions and didn't reach an agreement. The Barco administration believed that Betancur offered the guerrillas abnormally generous conditions and as such declared they would have a more stout stance. Barco states that the guerrillas must give up their arms to have peace. Some peace was achieved, but two big groups, known as FARC and ELN, rejected this ultimatum. His successor, Gaviria was more open to negotiations. After polling the public's opinion, Gaviria ended the ministry to allow peace and representation for the cartels in government. Following another round of negotiations, tensions soured and total war ensued. After Samper came into office, Arango came into office with strong peace feelings. He started Plan Colombia which would make the start of a serious plan for peace(Gutierrez, F. 2003). This plan did not address several issues and slowly talk of peace broke down again because of the guerrilla's disinterest. In 2002, Uribe was elected and advanced peace talks with the paramilitaries. Both sides must agree on consequences for poor actions and be willing to lose some agenda items. Peace will only be achieved once there is a mutual understanding that both sides must compromise.

Conclusion

The prompt for this essay was to show how Colombia has tackled the issue of drug cartels within its borders. However, there is little to show with regards to progress against the cartels and the drug cartels. Attempts have been made to destroy the cartels by increased militarization, destroying thousands of hectares, and discussing peace. The scope of this issue has not yet truly been realized by the public and the government. Many individuals believe the cartels bring a net positive to the Colombian economy even after accounting for the negatives. Others believe the contraband market has serious effects on the exchange rate and are a crucial factor within the construction industry. In reality, Cartels cause decreases in investment, capital flight, human capital loss, as well as mass deforestation. These negatives are contradicted by a partly 2-5% benefit to GDP (García, R. R., 2003), and when all is considered the drug market has caused a stagnation of the economy as a whole. This reality is not cognizant in the average citizen and as such, cartels are seen as a necessary evil.

One of the attempts to deter individuals from participating in the drug trade has been to increase deterrence by increasing drug sentences. While a valid method for certain crimes, this only causes a revolving door of the weakest links in the drug enterprise. Other attempts have been considered such as increasing military presence to combat the guerrillas and their drug operations. This has been a major factor in increasing violence and a repeated end to discussions about peace.

There are systematic issues within the Colombian government that have slowly been introduced over the years. It has been shown that the passage of targeted policies depends significantly on the political power of the group behind it. Additionally, there has been an insufficient formal PMP which has led directly to an overemphasis on the informal policy process. Only groups with the most power have access to such connections and as such their wants are overemphasized in the policies passed. Increased segmentation of business groups has also led to less horizontal policies being passed. Such horizontal policies are the most beneficial to the economy as a whole, but there has been an overemphasis on targeted processes.

For over forty years Colombia has tried to pass meaningful regulation to stop the cartels from encroaching. This has repeatedly failed and, regardless of outside influence, there is only one feasible method to resolve this conflict. Peace must be achieved through peace talks between the FARC and the Colombian government. Such talks have been well documented in over five administrations but progress has not been made. Different presidents have had differing opinions and have attempted to achieve this reality in a variety of ways. They have failed due to miscommunication, non-unification of the government, and because of foreign influence. Both sides must be willing to concede some ground and eventually achieve the start of a true peace.

References

[1] García, R., 2003. Drug Trafficking and Its Impact on Colombia: An Economic Overview. Canadian Journal of Latin American and Caribbean Studies, 28(55-56), pp.277-304.

[2] Velez-Navarro, J. Taking Criminal Law Seriously: Toward Decriminalizing the Weakest Links of Drug Trafficking in Colombia. TEXAS HISPANIC JOURNAL OF LAW AND POLICY, 25:33, pp.33-50.

[3] Gutierrez, F. Institutionalizing Global Wars: State Transformations in Colombia, 1978-2002. Journal of International Affairs, Fall 2003, 57(1), pp.135-152.

[4] Eslava, M. and Meléndez, M., 2009. Politics, Policies and the Dynamics of Aggregate Productivity in Colombia. SSRN Electronic Journal,.