Colombia Embraces Globalization

Stephen DeAngelis

July 21, 2008

If you haven’t paid particularly close attention to events in Colombia over the past few years, you might be surprised about the current state of things there. Colombia is probably most famous over the past 50 years as being at the heart of the global cocaine trade and for the infamous Medellin drug cartel headed by Pablo Escobar. That has all changed according to Anthony Faiola [“Sustaining the Medellin Miracle,” Washington Post, 11 July 2008]. Faiola writes:

“This labyrinthine metropolis [Medellin] transformed over the course of a decade from a battlefield of drug lords, paramilitaries and leftist guerrillas into one of the safest, most dynamic cities in Latin America. Visionary inner-city renewal projects and a push to take back the lawless hillside slums by force deserve credit, but many here hail an unsung hero in Medellin’s urban miracle — globalization.”

Many Americans may think that the most important recent export from Medellin is hunky professional golfer Camilo Villegas, but they would be wrong.

“Exports surged in the 1990s as the United States granted temporary trade preferences to Colombia, allowing many of its products to enter the world’s largest market duty-free. They really took off after 2002, when Washington expanded that agreement to include Colombia’s all-important textile sector. Humming assembly lines making Ralph Lauren socks and Levi’s jeans sprang up across this picturesque Andean valley, creating tens of thousands of jobs and turning Medellin into a model of the curative power of liberalized trade.”

Faiola reports that the “curative power of liberalized trade” is not a “cure all” and does not continue to work without effort and constant adaptation. In a previous post [Looking for Jobs that Last], I focused on an article that described the challenges faced by Slovakia, a country that experienced an economic miracle similar that being described by Faiola in Colombia. Slovakia found out that as globalization continues to bring millions out of poverty it also increases global competition and changes the competitive landscape. Colombia, according to Faiola, is now learning that same lesson.

“The renaissance of a city … is entering a period of uncertainty that illustrates just how fragile such gains can be. The city’s export industry has begun to slip backward, officials here say. It happens as Colombia and many developing nations are struggling to maintain their edge in the increasingly competitive world of global trade. Inside the three sprawling factories of Crystal, a major textile maker here, the workforce doubled to 11,000 between 2001 to 2006 as the company’s U.S. sales surged. But following several local apparel makers, it has eliminated hundreds of jobs as contracts have dried up over the past 18 months. The weakening dollar, which has shed almost 40 percent of its value against the Colombian peso in two years, has made it even harder to compete with cheaper production costs in China, where officials in Beijing are managing the exchange rate, cushioning the dollar’s fall to help Chinese exporters. Since 2005, Colombia’s textile and apparel exports to the United States dived 30.8 percent while China’s soared by 44.3 percent. Colombia is also up against a resurgent global backlash to free trade — including in the United States, the country that had spent the past two decades cajoling Latin America to open its markets.”

A free trade agreement between the U.S. and Colombia, which would make the current trade preferences permanent while allowing most U.S. products to enter Colombia duty-free, is being held up in Congress (as well as being caught up in presidential politics). Nevertheless, Colombia has not been soured by globalization.

“Colombia remains a vocal proponent of free trade at a time when the loudest voices in the region are against it. In neighboring Venezuela, Colombia’s second-largest trading partner, President Hugo Chavez is shifting the country toward socialism, nationalizing industries and barring the doors to free trade. He has signaled Venezuela’s intent to pull out of a regional trading bloc that includes Colombia and has sharply reduced quotas on Colombian-made cars. In recent months, that decision has forced Sofasa, a leading automaker in Medellin, to reduce shifts and lay off 600 workers. Companies say doubts about Colombia’s future trading relationship with the United States have been a factor in a recent flow of jobs from Medellin into Central America, where a bloc of nations sealed a free trade agreement with the United States in 2006.”

It is almost unimaginable that the United States, a country that led the free world in its struggle to preserve democracy and free markets during the Cold War, is now expressing doubts about the benefits of the market economy. With a potentially new ideological battle brewing in South America, it may be time for the U.S. to remember the dark days of the Cold War when our relationships with Latin America included supporting tyrants with large sums of money and weapons. Chavez’s policies are already starting to lose their attraction in Venezuela. He has even publicly called on FARC revolutionaries fighting the Colombian government (a group he has supported both vocally and monetarily) to reconsider its fight. Helping Colombia demonstrate the value of globalization and free markets could ensure that ideological conflicts in Latin America are minimized in the future. Such an outcome is surely in America’s best interests. With economic conditions in the U.S. sliding in the wrong direction, however, it may be difficult to see the light at the end of the tunnel. Faiola provides a little history lesson on how Colombia got to where it is.

“On the eastern outskirts of Medellin, the emerald foothills of the Andes give way to acres of blinding color. Expansive greenhouses filled with blooming purple pompons, yellow chrysanthemums and white lilies carpet the dark earth. This is how Colombia’s export revolution began — with flowers. In 1991, with Medellin’s ghettos convulsing in cocaine wars and leftist guerrillas infiltrating the city, the U.S. government extended a lifeline to Colombia and other Andean countries plagued by drug violence. It granted them renewable ‘trade preferences,’ providing local manufacturers the right to sell their wares in the United States without paying tariffs. It gave Colombian flower exporters the competitive edge they needed to dominate the U.S. market. Today, Colombian flowers make up roughly 90 percent of all those sold in the United States. Here, it created jobs — jobs that some analysts argue are the kind that U.S. workers should be willing to give up in the era of globalization. These labor intensive and minimum wage jobs in the United States are often filled by undocumented immigrants, but in this region, they provide a lifeline for rural people. Many of the U.S. companies in California and Texas that once grew flowers adapted and evolved into suppliers and distributors of flowers grown here, where a single stem can be planted, irrigated, trimmed, cut and packaged for about $1.”

As I noted in the post about Slovakia, countries that want to benefit from globalization must reconcile themselves to the reality that it fragments supply chains and sends jobs in all directions. U.S. floral companies that transformed themselves from being growers into suppliers and distributors understood the process and prospered as a result. In almost every sector, companies that will survive globalization are those that understand how to get in front of the money associated with supply chains. As those supply chains evolve, so must companies.

 

The jobs created in Medellin provided people a way out of poverty as well as a stake in the future. Cooperating with the government the people were able to regain control of their city. At one time, Medellin’s streets seemed to flow with blood. Now they are safer and quieter than the streets of Washington, D.C. The transformation required both security and development. Faiola continues:

“A combination of factors produced that change. President Alvaro Uribe, Medellin’s native son, came to power in 2002, shifting from Andres Pastrana’s policy of dialogue to one of force. The Colombian military and local police stormed the most violent barrios of Medellin in armored vehicles and helicopters. In other neighborhoods, calm came as the drug gang headed by the notorious paramilitary leader Diego Fernando Murillo finally overpowered its rivals. Murillo was extradited to the United States with 12 other paramilitary chiefs in May. Around the same time, Sergio Fajardo, a mathematician with Bee Gees hair, became Medellin’s mayor and launched his own campaign to renew the city. He rolled out social programs while building schools, police stations and ‘library parks’ celebrated for their architecture. Two cable cars systems were constructed, linking some of Medellin’s toughest and most isolated slums with the city’s expanding metro system. If those efforts became the bricks of Medellin’s house of change, globalization was the mortar that helped keep them together, officials say.”

I have long argued that security and development must go hand-in-hand for progress to be made. Medellin provides an excellent case study about how that can be done. The next challenge for Medellin and other successful emerging market regions is how to hold on to the gains they have made.

“Some of those gains [in Medellin] are slipping away. Over the past two years, Ralph Lauren closed a regional office in Medellin and one major jeans factory shut its doors, dismissing 2,500 workers. Crystal has shed 1,000 jobs — or 10 percent of its workforce. Other textile makers have been forced to do the same, with the industry losing an estimated 10,000 jobs in total. As in many developing countries with manufacturing-based export industries, one huge problem is China. Colombia’s average textile wage of $1.42 an hour is about double similar wages in China. Many here argue that the United States and Europe must pressure China more to revalue its currency, something Beijing has resisted. They are also pressing for a formal free trade agreement with the United States. An agreement would make permanent the duty-free access for most Colombian exports to the United States , while also granting U.S. products reciprocal status in Colombia t for the first time. The current preference agreement is subject to regular reviews and renewals by Congress. A vote in March approved those preferences through December, when a new vote will be required to extend them. The uncertainty, officials here say, is costing jobs and money. … Although strongly backed by the Bush administration, an a free-trade pact with Colombia — as well as other pending agreements with South Korea and Panama — have been blocked by Democrats. Some are calling for a review of all future free trade agreements to assess their impact on U.S. workers.”

Hopefully, cooler and wiser heads will prevail in Washington. America’s best interests rely on a world that is both stable and growing economically. Colombian leaders have become true believers in free markets and keeping them in the fold is important both economically and for security reasons.