Saturday, February 18, 2012

Business, Trade and Social Inequality

The Business and Trade committees focused on business and trade’s impact on inequality. Colombia has the second highest level of income inequality in Latin America with a Gini Coefficient of 0.587 in 2009. Business and trade serve as a way to decrease the income inequality by providing more opportunities for Colombian citizens. Colombia is currently working on several policies to reduce income inequality including increasing financial access for households and enterprises, redistributing royalties, and worker protection.
The informal economy in Colombia employs 52.2% of the nation. Standardizing the informal economy will allow for ease in doing business, equitable social security benefit distribution, and the ability to monitor labor abuses. The standardization of the informal economy can also lead to the creation of small and medium enterprises (SME).
One great benefit for becoming a SME is the ability to apply for microfinance loans. In 2009, over US$300 billion was loaned to small businesses. A majority of these businesses would not be able to secure a loan at a traditional bank due to a lack of collateral. Microfinance steps into the gap to transition citizens from the informal economy to SMEs and to lessen the gap between rich and poor by offering more people the opportunity to start enterprises. Finally, microfinance has led to a reduction in coca farming in rural areas.
Trade also has a large impact on the Colombian economy. The US-Colombia Free Trade Act (FTA) was signed in November 2006 and ratified by the US Congress in October 2011. This act serves to continue trade preferences established under the 1991 Andean Trade Promotion and Drug Eradication Act.  The FTA will allow over 80% of U.S. exports of consumer and industrial products to Colombia to enter duty free. It also focuses on environmental protection and the protection of Colombian labor rights.
Business and trade policy has impacted inequality in various ways. Two examples of these influences can be found in oil royalties and in the floriculture industry. The oil and mining industries use fees and taxes (known as royalties) to promote social, regional and intergenerational equality. This distribution is based upon population, poverty, efficiency and inequality indexes. Due to prior corruption and mismanagement of funds, in 2010, approximately 80% of royalty’s revenues from the oil and coal sectors went to only nine of the country’s 32 departments. The Santos government has combatted this corruption by creating a General Royalties System (GRS) to ensure equitable division of goods. This step will ensure that poorer regions of the nation have more capital to combat inequality.
Another example of inequality due to business and trade can be found in the floriculture industry. Colombia is the second largest exporter of cut flowers after the Netherlands. In 2006, Colombia exported a total of 223.2 million kg of cut flowers valued at $960.5 million. This was approximately 4.24% of Columbia’s total exports, making cut flowers its fourth largest export. The cut-flower industry is the largest employer of women in the Bogotá region and in 2005 the industry provided 111,000 direct jobs through farming and 94,000 auxiliary jobs through transportation. In order to meet this large demand for flowers, workers are required to work long hours and are oftentimes exposed to unsafe working conditions.
A study done by the Colombian National Institute of Health in 1990 found that flower workers had a higher rate of miscarriage, premature birth and babies born with congenital effects. Workers also face low pay and repetitive stress industries. To combat these dismal circumstances, many have begun to organize unions including UntraFlores. UntraFlores is a collection of unions that fight for recognition, good contracts and a right to safety. Policy suggestions for the future include the provision of safety gear, maternity leave for pregnant workers and national safety standards for the flower industry.
Our presentation was also strengthened by Alejandro Ossa from Proexport, an organization that is designed to attract Foreign Direct Investment in Colombia. During his address, Mr. Ossa discussed the many gains of the Colombian economy and the future gains to be made in health tourism, chocolate production, shrimp farming and cosmetics, amongst other fields.

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