Extractive Institutions Breed Inequality: A Colombian Example

In Why Nations Fail we discuss how Colombia today has extractive institutions. Colombia is not North Korea or Zimbabwe, but the concept of extractive institutions is useful precisely because it clarifies that even though the details of institutional arrangements dominated by elites — and their severity — vary across countries, they share common characteristics. In the book we focus on the inability or disinterest of the Colombian state to control large parts of the country. Instead, the state delegates this to local elites and paramilitary groups.

But how does this all influence economic outcomes, for example, wages and inequality?

Here’s an example of how. On August 21, 2009, unidentified persons arrived at the home of Gustavo Gómez, an employee at Nestlé-Comestibles la Rosa S.A. and a member of the Sinaltrainal trade union. They knocked on his door, and when he opened it they fired 10 shots at him. He died a few hours later. At the time of his murder, Sinaltrainal had just presented a set of demands to the company, Nestlé Purina PetCare de Colombia S.A.

The murder of Gustavo Gómez is unfortunately just the tip of the iceberg as is illustrated by a report just published by the International Trade Union Confederation.

The report begins:

Colombia is once again the most dangerous country in the world for trade unionists. Of the 76 people murdered for their trade union activities, not counting the workers killed during the Arab Spring, 29 lost their lives in Colombia.

There might be disagreement on whether or not the US labor movement is protecting over-paid workers as we discussed here, but most people recognize the right of workers to organize, protect their interests and prevent employer abuse. But not in Colombia. And in such an environment, it should be no surprise that workers are not able to protect their rights and bargain effectively, and this tends to reduce wages and increase inequality.

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