Why Nations Fail: The Origins of Power, Prosperity, and Poverty (58 page)

By 1997 the paramilitaries, under the leadership of the Castaño brothers, had managed to form a national organization for paramilitaries called the Autodefensas Unidas de Colombia (the AUC—United Self-Defense Forces of Colombia). The AUC expanded into large parts of the country, particularly into the hot country, in the departments of Córdoba, Sucre, Magdalena, and César. By 2001 the AUC may have had as many as thirty thousand armed men at its disposal and was organized into different blocks. In Córdoba, the paramilitary Bloque Catatumbo was led by Salvatore Mancuso. As its power continued to grow, the AUC made a strategic decision to get involved in politics. Paramilitaries and politicians courted each other. Several of the leaders of the AUC organized a meeting with prominent politicians in the town of Santa Fé de Ralito in Córdoba. A joint document, a pact, calling
for the “refounding of the country” was issued and signed by leading members of the AUC, such as “Jorge 40” (the nickname for Rodrigo Tovar Pupo), Adolfo Paz (a nom de guerre for Diego Fernando “Don Berna” Murillo), and Diego Vecino (real name: Edwar Cobo Téllez), along with politicians, including national senators William Montes and Miguel de la Espriella. By this point the AUC was running large tracts of Colombia, and it was easy for them to fix who got elected in the 2002 elections for the Congress and Senate. For example, in the municipality of San Onofre, in Sucre, the election was arranged by the paramilitary leader Cadena (“chain”). One eyewitness described what happened as follows:

The threat seems to have worked: each candidate obtained forty thousand votes in the whole of Sucre. It is no surprise that the mayor of San Onofre signed the pact of Santa Fé de Ralito. Probably one-third of the congressmen and senators owed their election in 2002 to paramilitary support, and
Map 20
, which depicts the areas of Colombia under paramilitary control, shows how widespread their hold was. Salvatore Mancuso himself put it in an interview in the following way:

It is not difficult to imagine the effect of this extent of paramilitary control of politics and society on economic institutions and public policy. The expansion of the AUC was not a peaceful affair. The group not only fought against the FARC, but also murdered innocent civilians and terrorized and displaced hundreds of thousands of people from their homes. According to the Internal Displacement Monitoring Centre (IDMC) of the Norwegian Refugee Council, in early 2010 around 10 percent of Colombia’s population, nearly 4.5 million people, was internally displaced. The paramilitaries also, as Mancuso suggested, took over the government and all its functions, except that the taxes they collected were just expropriation for their own pockets. An extraordinary pact between the paramilitary leader Martín Llanos (real name: Héctor Germán Buitrago) and the mayors of the municipalities of Tauramena, Aguazul, Maní, Villanueva, Monterrey, and Sabanalarga, in the department of Casanare in eastern Colombia, lists the following rules to which the mayors had to adhere by order of the “Paramilitary Peasants of Casanare”:

Casanare is not a poor department. On the contrary, it has the highest level of per capita income of any Colombian department, because it has significant oil deposits, just the kind of resources that attract paramilitaries. In fact, once they gained power, the paramilitaries intensified their systematic expropriation of property. Mancuso himself reputedly accumulated $25 million worth of urban and rural property. Estimates of land expropriated in Colombia by paramilitaries are as high as 10 percent of all rural land.

Colombia is not a case of a failed state about to collapse. But it is
a state without sufficient centralization and with far-from-complete authority over all its territory. Though the state is able to provide security and public services in large urban areas such as Bogotá and Barranquilla, there are significant parts of the country where it provides few public services and almost no law and order. Instead, alternative groups and people, such as Mancuso, control politics and resources. In parts of the country, economic institutions function quite well, and there are high levels of human capital and entrepreneurial skill; in other parts the institutions are highly extractive, even failing to provide a minimal degree of state authority.

It might be hard to understand how a situation like this can sustain itself for decades, even centuries. But in fact, the situation has a logic of its own, as a type of vicious circle. Violence and the absence of centralized state institutions of this type enter into a symbiotic relationship with politicians running the functional parts of the society. The symbiotic relationship arises because national politicians exploit the lawlessness in peripheral parts of the country, while paramilitary groups are left to their own devices by the national government.

This pattern became particularly apparent in the 2000s. In 2002 the presidential election was won by Álvaro Uribe. Uribe had something in common with the Castaño brothers: his father had been killed by the FARC. Uribe ran a campaign repudiating the attempts of the previous administration to try to make peace with the FARC. In 2002 his vote share was 3 percentage points higher in areas with paramilitaries than without them. In 2006, when he was reelected, his vote share was 11 percentage points higher in such areas. If Mancuso and his partners could deliver the vote for Congress and the Senate, they could do so in presidential elections as well, particularly for a president strongly aligned with their worldview and likely to be lenient on them. As Jairo Angarita, Salvatore Mancuso’s deputy and the former leader of the AUC’s Sinú and San Jorge blocs, declared in September 2005, he was proud to work for the “reelection of the best president we have ever had.”

Once elected, the paramilitary senators and congressmen voted for what Uribe wanted, in particular changing the constitution so that he
could be reelected in 2006, which had not been allowed at the time of his first election, in 2002. In exchange, President Uribe delivered a highly lenient law that allowed the paramilitaries to demobilize. Demobilization did not mean the end of paramilitarism, simply its institutionalization in large parts of Colombia and the Colombian state, which the paramilitaries had taken over and were allowed to keep.

In Colombia many aspects of economic and political institutions have become more inclusive over time. But certain major extractive elements remain. Lawlessness and insecure property rights are endemic in large swaths of the country, and this is a consequence of the lack of control by the national state in many parts of the country, and the particular form of lack of state centralization in Colombia. But this state of affairs is not an inevitable outcome. It is itself a consequence of dynamics mirroring the vicious circle: political institutions in Colombia do not generate incentives for politicians to provide public services and law and order in much of the country and do not put enough constraints on them to prevent them from entering into implicit or explicit deals with paramilitaries and thugs.

Argentina was in the grip of an economic crisis in late 2001. For three years, income had been falling, unemployment had been rising, and the country had accumulated a massive international debt. The policies leading to this situation were adopted after 1989 by the government of Carlos Menem, to stop hyperinflation and stabilize the economy. For a time they were successful.

In 1991 Menem tied the Argentine peso to the U.S. dollar. One peso was equal to one dollar by law. There was to be no change in the exchange rate. End of story. Well, almost. To convince people that the government really meant to stick to the law, it persuaded people to open bank accounts in U.S. dollars. Dollars could be used in the shops of the capital city of Buenos Aires and withdrawn from cash machines all over the city. This policy may have helped stabilize the economy, but it had one big drawback. It made Argentine exports
very expensive and foreign imports very cheap. Exports dribbled to a halt; imports gushed in. The only way to pay for them was to borrow. It was an unsustainable situation. As more people began worrying about the sustainability of the peso, they put more of their wealth into dollar accounts at banks. After all, if the government ripped up the law and devalued the peso, they would be safe with dollar accounts, right? They were right to be worried about the peso. But they were too optimistic about their dollars.

On December 1, 2001, the government froze all bank accounts, initially for ninety days. Only a small amount of cash was allowed for withdrawal on a weekly basis. First it was 250 pesos, still worth $250; then 300 pesos. But this was allowed to be withdrawn only from peso accounts. Nobody was allowed to withdraw money from their dollar accounts, unless they agreed to convert the dollars into pesos. Nobody wanted to do so. Argentines dubbed this situation El Corralito, “the Little Corral”: depositors were hemmed into a corral like cows, with nowhere to go. In January the devaluation was finally enacted, and instead of there being one peso for one dollar, there were soon four pesos for one dollar. This should have been a vindication of those who thought that they should put their savings in dollars. But it wasn’t, because the government then forcibly converted all the dollar bank accounts into pesos, but at the old one-for-one exchange rate. Someone who had had $1,000 saved suddenly found himself with only $250. The government had expropriated three-quarters of people’s savings.

For economists, Argentina is a perplexing country. To illustrate how difficult it was to understand Argentina, the Nobel Prize–winning economist Simon Kuznets once famously remarked that there were four sorts of countries: developed, underdeveloped, Japan, and Argentina. Kuznets thought so because, around the time of the First World War, Argentina was one of the richest countries in the world. It then began a steady decline relative to the other rich countries in Western Europe and North America, which turned, in the 1970s and ’80s, into an absolute decline. On the surface of it, Argentina’s economic performance is puzzling, but the reasons for its decline become
clearer when looked at through the lens of inclusive and extractive institutions.

It is true that before 1914, Argentina experienced around fifty years of economic growth, but this was a classic case of growth under extractive institutions. Argentina was then ruled by a narrow elite heavily invested in the agricultural export economy. The economy grew by exporting beef, hides, and grain in the middle of a boom in the world prices of these commodities. Like all such experiences of growth under extractive institutions, it involved no creative destruction and no innovation. And it was not sustainable. Around the time of the First World War, mounting political instability and armed revolts induced the Argentine elites to try to broaden the political system, but this led to the mobilization of forces they could not control, and in 1930 came the first military coup. Between then and 1983, Argentina oscillated backward and forward between dictatorship and democracy and between various extractive institutions. There was mass repression under military rule, which peaked in the 1970s with at least nine thousand people and probably far more being illegally executed. Hundreds of thousands were imprisoned and tortured.

During the periods of civilian rule there were elections—a democracy of sorts. But the political system was far from inclusive. Since the rise of Perón in the 1940s, democratic Argentina has been dominated by the political party he created, the Partido Justicialista, usually just called the Perónist Party. The Perónists won elections thanks to a huge political machine, which succeeded by buying votes, dispensing patronage, and engaging in corruption, including government contracts and jobs in exchange for political support. In a sense this was a democracy, but it was not pluralistic. Power was highly concentrated in the Perónist Party, which faced few constraints on what it could do, at least in the period when the military restrained from throwing it from power. As we saw earlier (
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–
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), if the Supreme Court challenged a policy, so much the worse for the Supreme Court.