• TABLE OF CONTENTS
HIDE
 Title Page
 Frontispiece
 Half Title
 Front Matter
 The mission
 Preface
 Table of Contents
 List of Figures
 List of Tables
 The problem
 The program
 Index














Group Title: The basis of a development program for Colombia : report of a mission
Title: The basis of a development program for Colombia
CITATION PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00074144/00001
 Material Information
Title: The basis of a development program for Colombia report of a mission
Physical Description: xxxviii, 642 p. : maps (part col., 1 fold.) ; 25 cm.
Language: English
Creator: World Bank
Currie, Lauchlin Bernard
Publisher: s.n.
Place of Publication: Washington
Publication Date: 1950
 Subjects
Subject: Economic policy -- Colombia   ( lcsh )
Economic conditions -- Colombia -- 1918-1970   ( lcsh )
Genre: non-fiction   ( marcgt )
 Notes
Statement of Responsibility: headed by Lauchlin Currie and sponsored by the International Bank for Reconstruction and Development in collaboration with the Government of Colombia.
General Note: "IBRD special publication. Sales number: IBRD. 1950.2."
 Record Information
Bibliographic ID: UF00074144
Volume ID: VID00001
Source Institution: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: aleph - 001468748
oclc - 28523929
notis - AGY0427

Table of Contents
    Title Page
        Page iv
    Frontispiece
        Page v
        Page vi
    Half Title
        Page vii
        Page viii
    Front Matter
        Page ix
        Page x
        Page xi
        Page xii
    The mission
        Page xiii
        Page xiv
    Preface
        Page xv
        Page xvi
        Page xvii
        Page xviii
    Table of Contents
        Page xix
        Page xx
        Page xxi
        Page xxii
        Page xxiii
        Page xxiv
        Page xxv
        Page xxvi
        Page xxvii
        Page xxviii
        Page xxix
        Page xxx
        Page xxxi
    List of Figures
        Page xxxii
    List of Tables
        Page xxxii
        Page xxxiii
        Page xxxiv
        Page xxxv
        Page xxxvi
        Page xxxvii
        Page xxxviii
    The problem
        Page 1
        Page 2
        The country and the people
            Page 3
            Page 4
            Page 5
            Page 6
            Page 7
            Page 8
            Page 9
            Page 10
        Factors accounting for the standard of living
            Page 11
            Page 12
            Page 13
            Page 14
            Page 15
            Page 16
            Page 17
            Page 18
            Page 19
            Page 20
            Page 21
        National income and product
            Page 22
            Page 23
            Page 24
            Page 25
            Page 26
            Page 27
            Page 28
            Page 29
            Page 30
            Page 31
            Page 32
            Page 33
            Page 34
            Page 35
            Page 36
        Capital formation
            Page 37
            Page 38
            Page 39
            Page 40
            Page 41
            Page 42
            Page 43
            Page 44
            Page 45
            Page 46
            Page 47
            Page 48
            Page 49
            Page 50
            Page 51
            Page 52
            Page 53
            Page 54
            Page 55
            Page 56
            Page 57
            Page 58
            Page 59
            Page 60
        Agriculture
            Page 61
            Page 62
            Page 63
            Page 64
            Page 65
            Page 66
            Page 67
            Page 68
            Page 69
            Page 70
            Page 71
            Page 72
            Page 73
            Page 74
            Page 75
            Page 76
            Page 77
            Page 78
            Page 79
            Page 80
            Page 81
            Page 82
            Page 83
            Page 84
            Page 85
            Page 86
        Industry and fuels
            Page 87
            Page 88
            Page 89
            Page 90
            Page 91
            Page 92
            Page 93
            Page 94
            Page 95
            Page 96
            Page 97
            Page 98
            Page 99
        Surface transport
            Page 100
            Page 101
            Page 102
            Page 103
            Page 104
            Page 105
            Page 106
            Page 107
            Page 108
            Page 109
            Page 110
            Page 111
            Page 112
            Page 113
            Page 114
            Page 115
            Page 116
            Page 117
            Page 118
            Page 119
            Page 120
            Page 121
            Page 122
            Page 122a
            Page 122b
            Page 123
            Page 124
            Page 125
            Page 126
            Page 127
            Page 128
            Page 129
            Page 130
            Page 131
            Page 132
            Page 133
            Page 134
            Page 135
            Page 136
            Page 137
            Page 138
            Page 139
            Page 140
            Page 141
        Air transport
            Page 142
            Page 143
            Page 144
            Page 145
            Page 146
            Page 147
            Page 148
            Page 149
            Page 150
            Page 151
            Page 152
            Page 153
            Page 154
            Page 155
            Page 156
            Page 157
            Page 158
            Page 159
            Page 160
            Page 161
            Page 162
            Page 163
            Page 164
            Page 165
            Page 166
            Page 167
        Health and welfare
            Page 168
            Page 169
            Page 170
            Page 171
            Page 172
            Page 173
            Page 174
            Page 175
            Page 176
            Page 177
            Page 178
            Page 179
            Page 180
            Page 181
            Page 182
            Page 183
            Page 184
            Page 185
            Page 186
            Page 187
            Page 188
            Page 189
            Page 190
            Page 191
            Page 192
            Page 193
            Page 194
            Page 195
            Page 196
            Page 197
            Page 198
            Page 199
            Page 200
            Page 201
            Page 202
            Page 203
            Page 204
            Page 205
            Page 206
            Page 207
        Electric power and community facilities
            Page 208
            Page 209
            Page 210
            Page 211
            Page 212
            Page 213
            Page 214
            Page 215
            Page 216
            Page 217
            Page 218
            Page 219
            Page 220
            Page 221
            Page 222
            Page 223
            Page 224
            Page 225
            Page 226
            Page 227
            Page 228
            Page 229
            230-231
        Housing
            Page 232
            Page 233
            Page 234
            Page 235
            Page 236
            Page 237
            238-239
            Page 240
        Education and training
            Page 241
            Page 242
            Page 243
            Page 244
            Page 245
            Page 246
            Page 247
            Page 248
            Page 249
            Page 250
            Page 251
            Page 252
            Page 253
            Page 254
        Public finance
            Page 255
            Page 256
            Page 257
            Page 258
            Page 259
            Page 260
            Page 261
            Page 262
            Page 263
            Page 264
            Page 265
            Page 266
            Page 267
            Page 268
            Page 269
            Page 270
            Page 271
            Page 272
            Page 273
            Page 274
            Page 275
            Page 276
            Page 277
            Page 278
            Page 279
            Page 280
            Page 281
            Page 282
            Page 283
            Page 284
            Page 285
        Money, deficits, and inflation
            286-287
            Page 288
            Page 289
            Page 290
            Page 291
            Page 292
            Page 293
            Page 294
            Page 295
            Page 296
            Page 297
            Page 298
            Page 299
            Page 300
            Page 301
            Page 302
            Page 303
            Page 304
            Page 305
            Page 306
            Page 307
            Page 308
        The international economic position of Columbia
            Page 309
            Page 310
            Page 311
            Page 312
            Page 313
            Page 314
            Page 315
            Page 316
            Page 317
            Page 318
            Page 319
            Page 320
            Page 321
            Page 322
            Page 323
            Page 324
            Page 325
            Page 326
            Page 327
            Page 328
            Page 329
            Page 330
            Page 331
            Page 332
            Page 333
            Page 334
            Page 335
            Page 336
            Page 337
            Page 338
            Page 339
            Page 340
        Organization for planning and administration
            Page 341
            Page 342
            Page 343
            Page 344
            Page 345
            Page 346
            Page 347
            Page 348
            Page 349
            Page 350
    The program
        Page 351
        Page 352
        The nature of the program
            Page 353
            Page 354
            Page 355
            Page 356
            Page 357
            Page 358
            Page 359
        Agriculture
            Page 360
            Page 361
            Page 362
            Page 363
            Page 364
            Page 365
            Page 366
            Page 367
            Page 368
            Page 369
            Page 370
            Page 371
            Page 372
            Page 373
            Page 374
            Page 375
            Page 376
            Page 377
            Page 378
            Page 379
            Page 380
            Page 381
            Page 382
            Page 383
            Page 384
            Page 385
            Page 386
            Page 387
            Page 388
            Page 389
            Page 390
            Page 391
            Page 392
            Page 393
            Page 394
            Page 395
            Page 396
            Page 397
            Page 398
            Page 399
            Page 400
            Page 401
            Page 402
            Page 403
        Industry and fuels
            Page 404
            Page 405
            Page 406
            Page 407
            Page 408
            Page 409
            Page 410
            Page 411
            Page 412
            Page 413
            Page 414
            Page 415
            Page 416
            Page 417
            Page 418
            Page 419
            420-421
            Page 422
            Page 423
            Page 424
            Page 425
            Page 426
            Page 427
            Page 428
            Page 429
            Page 430
            Page 431
            Page 432
            Page 433
            Page 434
            Page 435
            Page 436
            Page 437
            Page 438
            Page 439
        Surface transport
            Page 440
            Page 441
            Page 442
            Page 443
            Page 444
            Page 445
            Page 446
            Page 447
            Page 448
            Page 449
            Page 450
            Page 451
            Page 452
            Page 453
            Page 454
            Page 455
            Page 456
            Page 457
            Page 458
            Page 459
            Page 460
            Page 461
            Page 462
            Page 463
            Page 464
            465-466
            Page 467
            Page 468
            Page 469
            Page 470
            Page 471
            Page 472
            Page 473
            Page 474
            Page 475
        Air transport
            Page 476
            Page 477
            Page 478
            Page 479
            Page 480
            Page 481
            Page 482
            Page 483
            Page 484
            Page 485
            Page 486
            Page 487
            488-489
            Page 490
            Page 491
        Health and welfare
            Page 492
            Page 493
            Page 494
            Page 495
            Page 496
            Page 497
            Page 498
            Page 499
            500-501
            Page 502
            Page 503
            Page 504
            Page 505
            Page 506
            Page 507
            Page 508
            Page 509
            Page 510
            Page 511
            512-513
        Electric power and community facilities
            Page 514
            Page 515
            Page 516
            Page 517
            Page 518
            Page 519
            Page 520
            Page 521
            Page 522
            Page 523
            Page 524
            Page 525
            Page 526
            Page 527
            Page 528
            Page 529
            Page 530
            Page 531
            Page 532
            Page 533
            Page 534
        Housing and building construction
            Page 535
            Page 536
            Page 537
            Page 538
            Page 539
            Page 540
            Page 541
            Page 542
        Education and training
            Page 543
            Page 544
            Page 545
            Page 546
            Page 547
            Page 548
            Page 549
        Fiscal policy
            Page 550
            Page 551
            Page 552
            Page 553
            Page 554
            Page 555
            Page 556
            Page 557
            Page 558
            Page 559
            Page 560
            Page 561
            Page 562
            Page 563
            Page 564
            Page 565
            Page 566
        Money, banking and capital markets
            Page 567
            Page 568
            Page 569
            Page 570
            Page 571
            Page 572
            Page 573
            Page 574
            Page 575
            Page 576
        Foreign trade and exhange
            Page 577
            Page 578
            Page 579
            Page 580
            Page 581
            Page 582
            Page 583
        Administrative reforms
            Page 584
            Page 585
            Page 586
            Page 587
            Page 588
            Page 589
            Page 590
            Page 591
            Page 592
        The overall program and its implementation
            Page 593
            Page 594
            Page 595
            Page 596
            Page 597
            Page 598
            Page 599
            Page 600
            Page 601
            Page 602
            Page 603
            Page 604
            Page 605
            Page 606
            Page 607
            Page 608
            Page 609
            Page 610
            Page 611
            Page 612
            Page 613
            Page 614
            Page 615
            Page 616
    Index
        Page 617
        Page 618
        Page 619
        Page 620
        Page 621
        Page 622
        Page 623
        Page 624
        Page 625
        Page 626
        Page 627
        Page 628
        Page 629
        Page 630
        Page 631
        Page 632
        Page 633
        Page 634
        Page 635
        Page 636
        Page 637
        Page 638
        Page 639
        Page 640
        Page 641
        Page 642
Full Text





The Basis of


A DEVELOPMENT PROGRAM FOR COLOMBIA





Report of a Mission

headed by
Lauchlin Currie

and sponsored by the
International Bank for Reconstruction and Development

in collaboration with
The Government of Colombia




International Bank for Reconstruction and Development
Washington, D. C.
1950






























































FIGURE 1


~
;:- b


f
:r;
i ...r
'
i
.e
r~.
1.





















































Price, U.S. $5.00

A Spanish translation of this Report is available
from the Banco de la Repuiblica, Bogota, Colombia


IBRD SPECIAL PUBLICATION

Sales Number: IBRD. 1950.2


















The

Comprehensive Report









INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT
WASHINGTON 25, D. .

OFFICE OF THE PRESIDENT


July 27, 1950




His Excellency
Senior Mariano Ospina Perez
President of the Republic
of Colombia

My dear Mr. President:
I take pleasure in transmitting to you herewith the Report of the
Mission to Colombia, headed by Dr. Lauchlin Currie, which was organ-
ized last year under the sponsorship of the International Bank for
Reconstruction and Development in cooperation with the Banco de la
Repfiblica. The Summary highlights the Mission's major conclusions
and recommendations, which are further explained and elaborated in
the Comprehensive Report.
In the opinion of the International Bank, the Report provides an
objective, unbiased analysis of Colombia's development potentialities
and problems by a competent group of independent experts. You will,
of course, recognize that the Bank has not had the opportunity to
consider fully the numerous recommendations contained in the Report
and therefore must regard them as matters for study and future
discussion with your Government rather than recommendations of
the Bank to your Government. At the same time, we believe their
analyses and recommendations are deserving of the most careful
and sympathetic consideration by the Government and people of
Colombia. This Report can be fully effective, however, only if it
serves as a basis and guide for the Colombian authorities themselves
to work out a sound, well-balanced development program, and as a
means of educating public opinion.
To this end we believe it is important that the Report be carefully
studied and discussed, from an objective, nonpolitical standpoint, to
assure that its major implications are fully understood and that it
can enlist broad support from the Colombian people. We are very
pleased that your Government, recognizing this need, has decided to









establish a nonpartisan Commission of outstanding citizens to study
the Report and make recommendations thereon to the Government.
We are gratified also that your Government is already taking active
measures in line with the Mission's recommendations to obtain expert
assistance in the vitally important task of effecting improvements in
governmental organization and administration.
The Bank will be greatly interested in the progress of the analysis
of the Mission's findings by the nonpartisan Commission. It is our
plan that the Bank's staff will undertake simultaneously an intensive
study of the Report so that we may be in a position at the appropriate
time to discuss with your government the program that emerges from
your studies and to consider possible ways in which the Bank can
help in the execution of Colombia's development program, through
technical and financial assistance or by other means.
It is my sincere hope that this Report may be of positive and lasting
benefit to the Republic of Colombia.

Sincerely yours,





Eugene R. Black






















x









INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT
WASHINGTON 25. D. C.




June 28, 1950


Mr. Eugene R. Black, President
International Bank for
Reconstruction and Development
Washington, D. C.

Dear Mr. Black:
I take pleasure in submitting herewith The Basis of a Develop-
ment Program for Colombia, prepared by a special mission of the
International Bank for Reconstruction and Development.
On behalf of the Mission, I should like to record our appreciation
of the arrangements made to facilitate our work in Colombia. Presi-
dent Mariano Ospina Perez evidenced great interest throughout and
gave freely of his time, as did members of his Cabinet. Dr. Luis-
Angel Arango, General Manager of the Banco de la Republica, our
host, left nothing undone to assist us. The help given us by the
technical staff furnished both by the Colombian Government and
the Banco de la Repuiblica under the direction of the Coordinator
General, Dr. Juan de Dios Ceballos, was invaluable. Names of the
technical advisers to whom we are indebted are listed below. I regret
that I cannot list by name the hundreds of officials and private
citizens of both political parties, as well as many foreigners, who
gave so freely of their time and knowledge in answering our thousands
of questions.
The physical arrangements provided by the Banco de la Republica
could not have been improved upon and the hospitality and cor-
diality we encountered on every hand were most heartening.
The translation of the Report was carried out under the supervi-
sion of Dr. Jaime C6rdoba, the Assistant Coordinator General, who
also has contributed many helpful suggestions on editing and drafting.
He was ably assisted by Dr. Jos6 Camacho-Lorenzana of the staff
of the Bank. Main responsibility for the editing devolved upon Miss
Ruth Aull.









I am most appreciative of the complete cooperation furnished the
Mission by the International Bank in making available helpful studies,
in furnishing technicians from its staff, and in supplying the needs
of the Mission in ways too numerous to list.
I am most grateful to the individual members of the Mission for
their enthusiasm and complete devotion to their tasks. I am par-
ticularly appreciative of the assistance afforded by those members
of the Mission who were on the staff of the Bank-Messrs. David L.
Gordon, Jacques Torfs and Gordon Grayson-and who, following
the return of the Mission, carried double burdens in working on the
Report as well as performing their regular duties. Names of Mission
members are appended.
I appreciate that the treatment could be considerably improved
by the expenditure of somewhat more time. However, in view of
the fact that action on certain projects is being delayed pending
the receipt of the Report, that considerable time has already elapsed
since our observations were made, and that the proposed arrange-
ments for study of the Report in Colombia will facilitate refinements
and other improvements, it appears that more would be lost than
gained by delaying further the submission of the Report.

Sincerely yours,





Lauchlin Currie










THE MISSION


LAUCHLIN CURRIE
Chief of Mission

GORDON GRAYSON
Assistant to Chief of Mission
(International Bank for Reconstruction and Development)


ROGER ANDERSON
(International Monetary Fund)
HAYWOOD R. FAISON
(Board of Engineers for Rivers and
Harbors, U. S. Department of
Defense)
CARL W. FLESHER

FREDERICK C. GILL
DAVID L. GORDON
(International Bank for Reconstruc-
tion and Development)
WILFRED JOHNS
JUAN ANTONIO MONTOYA
(Pan American Sanitary Bureau)
JOSEPH W. MOUNTAIN
(Assistant Surgeon General, U. S.
Public Health Service)
RICHARD A. MUSGRAVE
(University of Michigan, Depart-
ment of Economics)
RAYMOND C. SMITH
(U. S. Department of Agriculture)
JACQUES TORFS
(International Bank for Reconstruc-
tion and Development)
JOSEPH WHITE


Adviser on Foreign Exchange

Adviser on Highways and
Waterways


Adviser on Industry, Fuels and
Power
Adviser on Transportation
Adviser on Community Facilities


Assistant Adviser on Agriculture
Assistant Adviser on Health

Adviser on Health and Welfare


Adviser on
Banking


Finance and Money and


Adviser on Agriculture

Economist


Adviser on Railroads


ADDITIONAL CONSULTANTS


V. LEWIS BASSIE
(University of Illinois)
THE MARSHALL-MOORMAN
DEVELOPMENT COMPANY
New York


Consultant on National Accounts

Consultants on Petroleum Refineries


Editor: RUTH AULL
Secretary: DOROTHY SODERLUND










COLOMBIAN ADVISERS TO THE MISSION

JUAN DE Dios CEBALLOS
Coordinator General
(General Manager, Institute for Industrial Development)


JAIME F. CORDOBA
Assistant Coordinator General
(Banco de la Repfblica)


HECTOR ABAD GOMEZ

JORGE BOSHELL MANRIQUE

GUILLERMO CAMACHO GAMBA


MIGUEL FADUL

JOAQUIN FRANCO

JORGE FRANCO

AUGUSTO HANNABERGH

JORGE INFANTE

JORGE PENA POLO


JOAQUIN PRIETO


NORBERTO SOLANO LOZANO

LEONEL TORRES

CONCHA TRIANA

JORGE ZULUAGA


Ministry of Hygiene

Ministry of Hygiene

Administrative Council of the
National Railroads

Banco de la Repiblica

Ministry of Commerce and Industry

Banco de la Repiblica

Banco de la Repiblica

Ministry of Agriculture

National Council of Communica-
tions, Ministry of Public Works

National Steel Corporation of
Paz de Rio

Ministry of Education

Banco de la Repfblica

National Institute of Nutrition

Ministry of Agriculture









Preface


This Report is the outcome of nearly a year's work by an economic
Mission, organized by the International Bank for Reconstruction
and Development, which was assigned the task of working up the
framework for a comprehensive, integrated development program for
Colombia.
The Mission grew out of conversations late in 1948 between
Mr. John McCloy, then President of the Bank, and Dr. Emilio Toro,
a member of the Board of Executive Directors of the Bank. For
many reasons, it appeared that Colombia, Dr. Toro's native country,
was an admirable place to apply such a comprehensive approach. The
idea received an enthusiastic reception from President Mariano Ospina
Perez, and the Bank was invited by Colombia to send the proposed
mission. In May 1949, Dr. Lauchlin Currie was invited to act as
Chief of the Mission and to assist in its organization.
The Mission's terms of reference were very simple and yet very
broad. They were, in essence, to formulate a development program
designed to raise the standard of living of the Colombian people. To
fulfill this assignment the services of experts in many diverse fields
were required. The Mission included staff members of the Bank and
the International Monetary Fund, private consultants, and experts
nominated by the Food and Agriculture Organization and the Pan
American Sanitary Bureau. The first members of the Mission, ac-
companied by Mr. Robert L. Garner, the Vice President of the Inter-
national Bank, arrived in Bogota on July 11, 1949, and the last de-
parted November 5, 1949. Expenses of the Mission were borne partly
by the International Bank and partly by Colombia.
The Banco de la Repfiblica acted as co-sponsor of the Mission in
Colombia, and organized a staff of specialists to advise and assist the
Mission in its work there. It assumes no responsibility, however, for
our findings or recommendations. Final responsibility for both the
overall program and the specific recommendations rests on the Chief
of Mission, although, of course, all members of the Mission made
major contributions in their special fields and assisted in related fields.
As this was the first Mission of its kind sent out by the Inter-
national Bank, there was little precedent to draw on. We have inter-
preted our terms of reference as calling for a comprehensive and in-
ternally consistent program-so far as is possible with the time,
personnel and data available-rather than merely a series of discon-
nected recommendations. This has added to the difficulty and magni-









tude of the task in several respects. The relationships among various
sectors of the Colombian economy are very complex, and intensive
analysis of these relationships has been necessary to develop a con-
sistent picture. We have tried also to make our conclusions and
recommendations as specific and quantitative as possible. We realize
that this attempt may, in some cases, lay us open to criticism, for
definite proposals are inevitably more vulnerable than generalities,
and the statistical data with which we have had to work have some-
times been incomplete, unreliable or insufficiently detailed.

Nevertheless, we believe this rather ambitious and hazardous ap-
proach has proved its value. Its very difficulty and complexity have
perhaps led us to probe more deeply, to cross-check our results and
their implications more carefully, than we might otherwise have
felt necessary. We have been able thereby to correct some apparently
inaccurate information and assumptions and to fill in certain statistical
gaps. Moreover, the principle involved in this approach-that the
attack on the problem of poverty must be coordinated on many fronts,
all closely interdependent-is more important than any of our par-
ticular findings or recommendations. We have tried to illustrate the
dynamics of economic development through an analysis of national
accounts and of the processes which determine the volume of capital
formation and the direction of investment. An understanding of
these processes and an approximate estimate of the magnitudes in-
volved are essential to any satisfactory determination of develop-
ment priorities and the policies and measures required to carry them
out. We have undertaken in this Report to construct this necessary
framework as soundly as was possible with the materials at hand.
In the course of further study and experience over the period of the
proposed program, it will be possible to refine and fill out the statistical
data, and to make appropriate modifications in the specific measures
discussed.

The organization and presentation of the Report have posed cer-
tain other problems. It is addressed to several quite different audi-
ences: to Colombians, who know a great deal about their own country;
to foreigners, who know little; and to the general public as well as
technicians. It has been necessary, therefore, to include enough facts
and descriptive material to make the picture intelligible, yet not so
many as to make the Report unmanageable in size and boring to those
who are already well informed about many of the subjects discussed.
Further difficulties of presentation arose from the very wide range
of topics covered, some of them necessarily quite technical, and from
the number of different contributors.









In an attempt to meet these problems, we have prepared the Report
in two distinct forms. The Summary is designed for the general
reader who wishes to ascertain the highlights of the program but
has neither the time nor the interest to concern himself with detail.
More extensive descriptive material, technical analysis and explana-
tion of the recommendations are included in the Comprehensive
Report, which in turn is divided into two parts-first, a description
and diagnosis of economic conditions and problems in the various
fields discussed and. second, proposed measures for improvement and
estimates of financial and other requirements to carry them out. This
arrangement of the Comprehensive Report is designed to permit
purely descriptive material and most of the analysis to be kept sepa-
rate from our conclusions and recommendations. The reader may
then, if he wishes, consider the validity of the diagnosis quite apart
from the prescription or, alternatively, may rely on the summary
of the diagnosis contained in Chapter II and in the various chapters
of Part II and concentrate his attention on the recommendations.
Inevitably this results in some overlapping and repetition. Those
who wish to read together the diagnostic and prescriptive chapters
on one subject, such as agriculture, will be most conscious of this.

Some technical appendices, relating mostly to methodology or
presenting more detailed data of interest only to specialists, are not
printed but may be obtained on request from the International Bank
for Reconstruction and Development. These are listed in the Contents
for ready reference.

Despite the range of topics covered, the Summary and the Com-
prehensive Report do not pretend to contain a complete economic
description of Colombia. An effort was made to cover only those
aspects of the economy that appear to have direct bearing on the
standard of living and about which some recommendations could be
made. One unfortunate consequence, however, has been to discuss
mainly the weaknesses and shortcomings of the Colombian economy,
which may convey a false impression to the reader. It is not our
intention to assign either praise or blame, nor to make any com-
parisons with other countries unless they throw some light on
Colombia's problems. All the members of the Mission, although they
found need for improvement in many specific conditions and practices,
became intensely interested in and most enthusiastic over Colombia's
potentialities.

It is hoped that the entire Report will be regarded as a working
paper. It is intended to be provocative, to raise many problems and









to offer some suggestions for corrective action. It does not purport
to offer precise or ultimate solutions for any problems; such solutions
must derive from the experience and will and intelligence of the
Colombian people themselves. Our analyses and recommendations
will have fully served their purpose if they succeed in stimulating
Colombians to think in terms of the whole economy, to take advantage
of the experience of other countries and adapt that experience real-
istically to Colombian conditions, and on that basis to formulate a
sound and internally consistent program of development which will
enlist the broadest possible support.


xviii










CONTENTS

PART I- THE PROBLEM
Chapter Page
I. THE COUNTRY AND THE PEOPLE................................. 3
T he C country ............................................... ............. 3
T he P people .............................................. ............... 5
Standard of L iving................ ............... ............... 6

II. FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 11
What Determines the Standard of Living ................. 11
Productivity per Capita........................... 13
N natural R sources .................................... ..... .... 13
C ap ita l ............................... ........................................ 14
M anpow er ......................................... ............ 16
O organization .......................... .................. 16
International Economic Position............................ 18
Allocation of Production between Present and Future
C onsum ption ........................................ ......... 19
Distribution of Income and Consumption ............. 20

III. NATIONAL INCOME AND PRODUCT ................................ 22
Computation of National Accounts for Colombia.. *22
Growth of National Income.............................. ....... 25
Sources of National Income ................................ 29
Distribution of Personal Income ........................... 33

IV. CAPITAL FORMATION ................ .......... ........... 37
Structure of Capital Formation ................................. 38
Capital Formation and Imports ............................ 39
Capital Formation and End Use ......................... 41
Capital Formation and Types of Assets ................. 43
Importance of Construction Industry...................... 44
Public and Private Capital Formation ................... 44
Capital Formation and Gross National Product ... 46
Financial Aspects of Capital Formation................... 47
General Sources of Capital Formation.................... 49
Savings and Investment Institutions ..................... 51
Com m ercial Banks ................................ ......... 52
Caja Colombiana de Ahorros .................. ............ 52
Caja de Cridito Agrario, Industrial y Minero.. 53









Chapter Page
IV. CAPITAL FORMATION-(Continued)
Banco Central H ipotecario ................................... 55
Stock E change ................................... ...... ..... 55
Insurance Companies ......................................... 56
Industrial Development Institute ..................... 56
Institute de Cr6dito Territorial ........................ 57
Fondo de Fomento Municipal ............................. 58
Federation of Coffee Growers ...................... 59
Capital Yields and Interest Rates..................... ........ 59

V A GRICU LTU RE ........................................ ...... .............. 6 1
Land U se and Tenure .............. ............... ............ 61
Rural Population ........ ........................... ....... ... 64
Standard of Living ................................................ 65
Rural Education .................................. .... ...... 66
R ural H housing ........................................ .......... 68
Rural Health and Nutrition ................................. 69
Farming Systems and Production Problems.............. 69
Soils and Soil Conservation ................. ......... 72
Irrigation, Drainage and Water Utilization ......... 73
A agricultural Credit Facilities ....................................... 75
Prices and Marketing .......................................... 77
Storage .............................. ................ ........... 78
R ural Industries ........................................ .......... 79
T transportation ......................................... ......... 80
Governmental Policy and Programs ......................... 80
Agricultural Self-Sufficiency .................................. 82
The Cooperative Movement .................................... 83
T taxation ............................. .............................. 84
Agricultural Statistics .......................................... 85
Agricultural Research ..................................... 85

VI. INDUSTRY AND FUELS .............................. ........ 87
H historical Developm ent ........................................ .. 87
Current Position of Industry ............... .......... 87
Characteristics of Industry ..................................... 91
Transportation ................................................... 91
Raw Materials ................................... 91
Variation in Efficiency ......................................... 91
M anagem ent ........................................ .......... 92

xx









Chapter Page
VI. INDUSTRY AND FUELS--(Continued)
L im ited M markets ........................................ ......... 93
H handicap of Location................. ............ ............ 93
Capital and Credit ............................................ 94
Social Legislation ................................ ....... .. 95
Power for Industry ....................................... 95

VII. SURFACE TRANSPORT ..... ............. ......................... 100
Railways ............................... .... ............ 104
Description of Railway Systems ........................... 104
The Western System ................... .............. 106
The Eastern System ......................................... 106
The Isolated Lines ............................................ 106
Railroad Administration ..................................... 107
Management, Structure and Policies................. 107
Lack of Integration ................. .......... ... 108
Railroad O operations ............................... ............. 109
Maintenance of Way and Structures.................... 109
Equipm ent ............... ....................................... 110
O operating P practices ........ .......... ................. .......... 111
Productivity and Cost of Labor......................... 112
Railroad Service ............................. ....... ...... 114
H igh Costs and Rates ...................... ...... ....... 115
H highways .............................. ..... .............. 116
Maintenance of Highways................... ....... .... 118
Administration of the Highway Program .............. 118
Highway Operations ......... ............... 121
Highway Equipment ....................... .......... 124
Operating Costs and Rates ................. .................. 125
Port and Water Transport Facilities.......................... 127
Port Facilities ............................ .. .. .......... 127
Coastwise Transportation ................. ... ......... 131
Inland Waterway Transportation........................... 132
The M agdalena R iver....... ................................... 133
Canal del D ique................. ............... .... ..... ... 134
Equipment and Operations ............................ 134
Operating Costs and Rates .................... 135
P ipelines ..................................... ......... ..... ........... 138

V III. A IR TRANSPORT ................... ... ............ ....... 142
The Government and Air Transportation ................. 146









Chapter
VIII. AIR TRANSPORT-(Continued)
Aeronautica Civil ............................. ...........
Government Air Services................ ..............
A ir M ail Service....................................... ............
The Airline Route System ........................................
Rates and Regulation ............................ .....................
Passenger Fares ................. ................ .................
Air Cargo Rates....................................
Communications, Air Traffic Control, Navigation
and A airport System s..............................................
Air Traffic Control and Air-Ground Communi-
cation s .......................................... ....................
The Airport System............................. ...........
Flight Equipment ................... .................... .............
Operating Costs and Rates............................
Future Equipment Possibilities................................


IX. HEALTH AND WELFARE.............................. ...........
Physical Factors Affecting Health............................
Water Supply and Waste Disposal..........................
H housing ........................... ...............................
Milk and Food............................... .............
Insects and Rodents...................................................
H health S tatus ........................................ ...................
Life Expectancy ................... .................... ............
B irth R ate ..............................................................
Death Rate ...................................... ...............
Incidence of Illness............................ ............
M alaria ........................................ ... .............
Intestinal Infections ...................... ..........
T uberculosis ........................................ ... ...........
Venereal Diseases ...........................................
L ep ro sy .......................................... ..................
N nutrition ............................... ............. .... .... .
Health Facilities and Resources.................................
Public Health Services.......................... ...........
Hospitals, Clinics and Related Facilities ..............
Professional and Technical Personnel...................
Public W welfare ................................................. .............
Beneficencia ..................................... ...............
Social Security ........................................ .............

xxii


Page


146
148
149
150
153
153
154

156

156
158
162
164
167

168
168
169
169
170
170
171
171
171
173
177
179
179
181
181
182
183
184
184
192
195
202
203
206









Chapter Page
X. ELECTRIC POWER AND COMMU IITY FACILITIES............ 208
Need for Community Facilities............. .............. 209
Electric Power Facilities............................ .............. 210
General Use of Power .................................. 211
Water Supply and Sewerage ..................................... 215
Telephones ................................................. ............ 218
Schools, Hospitals, and Related Institutions ............ 219
Public Markets and Slaughterhouses ......................... 219
Other Services ............ ............................... 220
U utility Rates ................... .......................................... 222
Administration and Financing ................................ 224
Fondo de Fomento Municipal ............................... 226
Other National Government Aid .......................... 230

XI. HOUSING ................................................... 232
Housing Conditions ........................................... 233
Ability to Pay for Housing ................. ............. 234
Financing of H housing .................................................. 235
Institute de Credito Territorial ......................... 236
Federaci6n Nacional de Cafeteros.......................... 237
Other Forms of Housing Promotion ..................... 239

XII. EDUCATION AND TRAINING ....................... ............. 241
Primary Education ............................... ................. 242
Secondary Education .................................. ...... ..... 246
Normal School Education .......................................... 249
Vocational Education ................................. ............. 250
Industrial and Arts and Trades Training .............. 250
A agricultural Training ............................................. 251
Com m ercial Training ............................................. 252
H higher Education .................................................... 253
Expenditures for Education ................. ................. 253

X III. PUBLIC FINANCE ................. ............................ ............ 255
Revenues and Expenditures of the National Gov-
ernm ent ............. .. .............. ................. ........... 255
Expenditures ............................ ............ 255
General Revenue Structure .............................. 256
Distribution of the Tax Burden ............................ 259
Taxation and Capital Formation .............................. 264
Xxiii









Chapter Page
XIII. PUBLIC FINANCE-(Continued)
Tax A dm inistration ......................... ............. 265
Budget Legislation and Procedure........................ 267
Budget Presentation .......................... ........... .. 270
Revenues and Expenditures of Departments and
Municipalities ......................................... 270
Departments .................................... ............. 270
M municipalities .............................. ......... ......... 274
National and Departmental Aid............................ 278
Income from Municipal Property and Services 280
L ocal T axes ......................................... ................ 280
"V alorizacion" .................. ........... ....... ......... 281
The Public Debt ................ .................. ............... 282
N national D ebt ....................................... ...... ....... 282
D epartm ental D ebt ........................................ ... .... 284
M municipal D ebt ......................................................... 286

XIV. MONEY, DEFICITS AND INFLATION............................... 287
Causes of Inflationary Developments.......................... 287
Sources of Increase in Money Supply...................... 290
International A aspects ................................................ 293
Effects of Inflation.......................................... 294
M monetary and Credit Policy.......................................... 295
Structure of the Banking System ............................. 295
Central Banking Policy......................................... 296
Commercial Bank Policy......................................... 300
Fiscal Policy .......................................... 304
Growth of Public Expenditures............................. 304
Taxation and Deficits........................ ............ 305
Absorption of National Debt............................... 307

XV. THE INTERNATIONAL ECONOMIC POSITION OF
COLOMBIA ................................ .... .. ............. 309
International Transactions and the Balance of Pay-
ments ...................... ............ 309
Colombia's Terms of Trade ....................................... 317
International Indebtedness and Investment.............. 319
Exchange Rates and Exchange Controls ................... 324
Appraisal of the Exchange Control System............ 328
E xport Control ........................................ ............. 331
Contraband and the Black Market.............................. 332
xxiv









Chapter Page
XV. THE INTERNATIONAL ECONOMIC POSITION OF
COLOMBIA--( Continued)
Bilateral Agreements ................ ................ 333
General Appraisal of Colombia's International Eco-
nom ic Position .................... .. ............ ............ 335

XVI. ORGANIZATION FOR PLANNING AND ADMINISTRATION 341
Adequacy of Basic Data............................................. 341
Organization for Economic Planning ....................... 343
Organization for Administration .............................. 345
Public Personnel ................ .......................... ............ 347



PART II- THE PROGRAM

XVII. THE NATURE OF THE PROGRAM................................. 353
Objectives and Emphasis.......................... ............... 353
Need for a Comprehensive and Integrated Program 355
Further Underlying Considerations .......................... 357

XVIII. AGRICULTURE ...................................... ................ 360
Agricultural Planning and Production Goals............ 360
1955 Production Goals................ ............. 361
Targets in Specific Crops..................................... 367
Coffee ..... ....................... ..................... 367
Sugar Cane ................... ..................... ........... 370
Cereals, Roots, and Similar Crops ..................... 371
Corn ....... .................... ...... ........ 372
R ice .............. .... ..... ............................... 372
W heat .......... ........................ 373
B arley ............................................................ 374
Plitano, Yucca and Name................................. 375
"Export" Bananas ............................................. 375
Potatoes ................ ... ................................... 375
Cacao ................................ 377
C otton ............................................ ... ......... 378
Fique ..... .......................... 379
T tobacco .................. ........................... ..... .......... 380
B ean s ...................................................................... 38 0
Beef Cattle and Beef ............................................ 380
xxv










Chapter Page
XVIII. AGRICULTURE- (Continued)
H ogs and Pork............................ ......... .... 381
M ilk ... ........................... ............... 382
Sheep and Goats......................................... 382
Poultry and Eggs.............................. ... ....... .... 382
Home Vegetable Gardens.... ...................... ............. 382
Fisheries ........................................ 383
General Recommendations ................... ................ 383
Tax Inducements to Efficient Land Use............... 384
A agricultural Credit .................................. ........... 387
R ural E education .......................... .................. ...... 389
Irrigation, Drainage and Water Utilization............ 391
Soil Conservation ............................. ............ 393
Mechanization ....................................... 394
Fertilizers, Insecticides and Fungicides.................. 395
Marketing, Storage, Processing and Transporta-
tio n .......... ...................... .......................... .... 39 6
Research and Statistics............................................ 398
Rationalization of Agricultural Programs.............. 400
Estimated Cost of Program .......................................... 401

XIX. INDUSTRY AND FUELS.................................................. 404
Measures to Increase Efficiency and Reduce Prices 404
Transportation .................................... 404
R aw M materials ....................................... .............. 404
Worker Productivity ............................................. 404
Management ........................... ... ............. 405
Inventory Policy ..................................................... 406
Research and Standards ........................................ 406
Im portance of Industry................................................ 407
Volume of Consumption........................ ..................... 408
Desirable Expansion of Industry................................. 409
T ex tiles ...................................................................... 409
Shoes ....... ........................... 411
Alcoholic Beverages ............................ ................ 411
Cigarettes ............................................................... 411
Mineral Water and Soft Drinks.............................. 412
Sugar R efining ......................................... ....... 412
Salt ................................. ...... .............. 412
Fats and O ils..................... ..... ..................... 412
Leather ..................... ........ .. ................ 413
Glass Products .. ......................... ....... .......... 413


xxvi









Chapter Page
XIX. INDUSTRY AND FUELS-(Continued)
Rubber Tire Manufacture ................................. 413
Chem icals ............... ..... ..................................... 415
Building M materials ........................................ ...... ..... 415
Cement ................. ............ ............... 415
B rick and T ile ...................................... .. ......... 415
R oofing M material ................................. ........... 415
Lum ber .............. ...... .................................. 416
Forestry Products ............................................ 416
Iron and Steel ................ ................. ............... 417
Integrated Steel Plant ................................... 419
Estimated Costs of Construction ................... 421
Domestic Financing ................... ......... 422
Aid to Depressed Areas................................. 423
Estimated Profitability of Operations ...... .... 423
Additional Steel Fabricating Facilities............... 426
Petroleum Products ............................................ 428
Crude Oil Situation ......................................... 431
Refining Requirements ................. ................. 432
N itrogen Fertilizer ................................. .......... 434
C oa l ................................................. .. ............. 4 3 5
Electric Power ................ ..................................... 436
Estimate of Capital Needs ................. ......... ......... 436


XX. SURFACE TRANSPORT ................................................ 440
Railroads .................................. 441
Administrative Reorganization ................................... 441
Operating Practices and Equipment ....................... 442
Maintenance Practices and Shop Facilities ........... 445
Productivity of Labor.............................................. 447
Proposed Extensions and Changes of the Railroad
System ......................................... ....... .......... 448
Elimination of the Magdalena River Route Dis-
ability ..... ............................................. 448
Ibagu&-Armenia Railroad ................................ 453
Western Trunk Railroad-Bolivar Section........ 455
Buga-Buenaventura Cut-Off .............................. 456
Standardization of Gauge ......................... .... 457
Railroad Abandonments ................. ............. 458
P ipelines ............... ............. .............. ...... ... 459
Economic Utility and Cost of New Pipelines........ 459
Highways ............... ............. ......... 460
xxvii









Chapter Page
XX. SURFACE TRANSPORT-(Continued)
Measures to Increase Operating Efficiency............ 461
Highway Maintenance, Paving and Improve-
m ent ................................. .............. 461
Truck Operations .............................................. 463
Major Extensions of the Highway Network.......... 464
Cartagena-Medellin ........................................ 467
M edellin-B ogot ................................ ........ ...... 467
Bucaramanga-Santa Marta ............................... 467
Buga-Buenaventura .......................... ............. 467
Tumaco-Pasto .............................. .............. 467
M edellin-Turbo ....................................... ........ 467
Departmental Roads in Cundinamarca..................... 468
Water Transportation and Port Facilities.................. 468
Measures for Increasing Operating Efficiency...... 469
Operating and Labor Practices on the Magda-
lena River .................. ......................... ........ 469
Port Facilities .................................. ........... .... 470
Major River and Port Improvement Projects...... 471
O cean Shipping ............................... ..................... 473
Coastwise Shipping ............................................... 473
Estimated Capital Investment............................. 474

XXI. AIR TRANSPORT ..................................... ............. ... 476
Administrative Organization for Air Transportation 476
Regulatory and Other Functions............................. 479
Franchise Regulation ......................................... 479
Technical Regulation ....................................... 480
R ate R regulation ................................. ....... ...... 480
A ir M ail .............. .............................. ............ 481
Improvement of Aviation Facilities and Equipment.... 482
Communications and Control Systems .................. 482
Airports .................... ......... .................. 484
Flight E quipm ent .................................... ... ......... 487
Estimated Capital Requirements.............................. 490

XXII. H EALTH AND W ELFARE........................... .................... 492
The Public Health Structure....................... ............ 493
Sanitation and Other Protective Measures ................. 495
Personnel Requirements .......................................... 496
xxviii









Chapter Page
XXII. HEALTH AND WELFARE--(Continued)
Controlling Disease .......................... .............. 498
M alaria ......................... ....... ... ....... .............. 498
Infectious D diseases ................................. ....... ...... 499
Tuberculosis .................. ........................................ 499
V enereal D diseases .................................... ...... ..... 500
N nutrition .............................................................. 500
Leprosy ................................................................ 501
H health E education ................................................... 501
Public Welfare and Beneficencia................................ 502
Social Security ........................................ ................ 503
Hospitals and Related Institutions............................. 506
H health Centers ................. ....................................... 510
Estimated Cost of Program..................................... 513

XXIII. ELECTRIC POWER AND COMMUNITY FACILITIES............ 514
Electric Power ................................... ............. 514
Industrial D em and ................................. .................. 516
Non-Industrial Demand ......................................... 519
Character and Location of Facilities ........................ 520
Planning and Administration of Electric Power
P program s ..................................... ........... 521
O their F facilities ........................................ ............ 523
Water Supply and Sewerage................................ 523
W ater ......... ................ ....... .......... 523
Sewer System s .................................. .......... ... 525
Telephones ................................................ 526
Schools, Hospitals and Related Facilities .............. 527
Public Markets and Slaughterhouses ...................... 527
Street Paving, Cleaning, and Waste Collection...... 528
U utility R ates ........ ................. ............... ............ 529
Local Administrative Machinery.................................. 530
Assistance in Municipal Development............... .... 530
Estimated Capital Requirements ............................... 532

XXIV. HOUSING AND BUILDING CONSTRUCTION..................... 535
Financing of H ousing.......................... ............. ...... 536
R ural H housing ........................................................... 537
U rban H housing ........................................ ........... 538
Estimated Cost of Program ................ .................. 539
xxix









Chapter Page
XXV. EDUCATION AND TRAINING.......................... .......... 543
Primary Education ............................... .. ............ 543
Vocational Education ................................... ..... ...... 546
Industrial and Arts and Crafts Training................ 546
Agricultural Training ....................................... 547
Secondary and University Training.......................... 547
N orm al Schools ............................ ........... 548
Estimated Capital Requirements............................ .... 549

XXVI. FISCAL POLICY .......................................... 550
National Tax System....................... ...... ......... 551
Improvements in Tax Structure............................ 551
Improvements in Tax Administration.................... 555
Formulation and Presentation of National Budget.... 557
Budget Form ulation ................................................ 557
Budget Presentation ....................................... ... 560
Fiscal Situation of Departments and Municipalities 561
Rationalization of National-Local Financial Re-
lationships ................................ ................... 561
M municipal Taxes ................... ... ................... 565

XXVII. MONEY, BANKING AND CAPITAL MARKETS.................... 567
Volume of Commercial Bank Reserves.... ................... 567
M eans of Control .......................... ......... ................... 569
Determination of Banco de la Repfiblica Policy........ 571
Portfolio of Commercial Banks................................ 573
Open M market for Public Debt....................................... 574
Organization of Capital Markets.............................. 576
XXVIII. FOREIGN TRADE AND EXCHANGE................................... 577
Treatment of Foreign Capital...................................... 577
Bilateral Agreements ........................... ...... .... .. 580
Contraband and Smuggling........................................... 581
Desirable Changes in the Commodities Traded.......... 582

XXIX. ADMINISTRATIVE REFORMS ........................................... 584
The Executive Office of the President ....................... 585
Reorganization of the National Government ............. 589
Relations with Departments and Municipalities........ 590
P personnel ....................................................... 591
Economic Data and Studies ................................... 591


xxx









Chapter Page
XXX. THE OVERALL PROGRAM AND ITS IMPLEMENTATION.. 593
Magnitude and Composition of the Overall Program 593
The Program and Economic Stability..................... 595
National Income by Economic Sectors in 1953 Model 601
Projected Composition of National Accounts........... 601
Fiscal Aspects of the Overall Program........................ 604
The Program and Foreign Exchange Requirements 606
The Program and Physical Limitations ................... 608
Implementation of the Program .............................. 608
Broad Objectives of the Program .............................. 614


INDEX

IN D EX ............... .................... .... ........... .............. 6 19


xxxi









FIGURES
1. Relief map of Colombia ............................... ......... Frontispiece
2. Colombia: principal surface transport routes...................... 101
3. Truck traffic flow, 1946..................... ................... Facing p. 122
4. Colombia: principal air transport routes ............................. 151
5. Organization of Ministry of Hygiene ....................................... 185
6. Functions of Ministry of Hygiene and other health agencies 186
7. Health organization and functions-Department of Nariiio 191
8. Colombia: present and recommended railroads and pipelines 451
9. Colombia: present and recommended highways ................... 466

TABLES
1. Gross national product and components, 1939-47.................. 26
2. National income at current and 1947 prices, 1939-47............ 27
3. Sources of national income, 1939, 1947................................ 30
4. Distribution of population and labor force, 1939, 1947............ 31
5. Relative importance of income sources in three countries.... 32
6. Distribution of the labor force, 1939, 1947............................ 33
7. Estimated distribution of personal income, 1947.................. 35
8. Gross capital formation, 1939-47................................ .......... 39
9. Gross capital formation by economic sectors, 1939, 1947...... 40
10. Relative importance of imports in various sectors of capital
formation, 1939, 1947............................................. 41
11. Gross capital formation by end use, 1947................. .......... 42
12. Gross capital formation by type of asset, 1939, 1947............... 43
13. Amount expended on construction in gross capital formation,
1939 and 1947.................. .. .... ... ............... 44
14. Public and private gross capital formation, 1939-47................ 45
15. Major items of public capital formation, 1947........................ 45
16. Gross capital formation compared with gross national prod-
uct, 1939-47 ................................ ........................................ 46
17. Budget for Colombian economy, 1947......................... ............ 50
18. Yields of securities traded at Stock Exchange of Bogoti,
194 1-49 .......................................................................... .. 59

xxxii









FIGURES
1. Relief map of Colombia ............................... ......... Frontispiece
2. Colombia: principal surface transport routes...................... 101
3. Truck traffic flow, 1946..................... ................... Facing p. 122
4. Colombia: principal air transport routes ............................. 151
5. Organization of Ministry of Hygiene ....................................... 185
6. Functions of Ministry of Hygiene and other health agencies 186
7. Health organization and functions-Department of Nariiio 191
8. Colombia: present and recommended railroads and pipelines 451
9. Colombia: present and recommended highways ................... 466

TABLES
1. Gross national product and components, 1939-47.................. 26
2. National income at current and 1947 prices, 1939-47............ 27
3. Sources of national income, 1939, 1947................................ 30
4. Distribution of population and labor force, 1939, 1947............ 31
5. Relative importance of income sources in three countries.... 32
6. Distribution of the labor force, 1939, 1947............................ 33
7. Estimated distribution of personal income, 1947.................. 35
8. Gross capital formation, 1939-47................................ .......... 39
9. Gross capital formation by economic sectors, 1939, 1947...... 40
10. Relative importance of imports in various sectors of capital
formation, 1939, 1947............................................. 41
11. Gross capital formation by end use, 1947................. .......... 42
12. Gross capital formation by type of asset, 1939, 1947............... 43
13. Amount expended on construction in gross capital formation,
1939 and 1947.................. .. .... ... ............... 44
14. Public and private gross capital formation, 1939-47................ 45
15. Major items of public capital formation, 1947........................ 45
16. Gross capital formation compared with gross national prod-
uct, 1939-47 ................................ ........................................ 46
17. Budget for Colombian economy, 1947......................... ............ 50
18. Yields of securities traded at Stock Exchange of Bogoti,
194 1-49 .......................................................................... .. 59

xxxii









Table Page
19. Components of value of production (ex factory) of all in-
dustrial production, 1944-45.................. ........................... 89
20. Domestic production as a percentage of consumption, 1947.... 90
21. Estimated total freight traffic volume by type of transpor-
tation, 1947 ............................... ........................ ................ 103
22. Estimated national and international traffic, 1947.................... 104
23. Railway network of Colombia............................................. 105
24. Employee productivity on Colombian railroads compared with
U S. Class I railroads, 1947....................................... ... 113
25. Financial operating results of National Railways, 1948 ......... 116
26. 1949 appropriations for national highways, Ministry of
P public W orks ................................................................... 119
27. Truck and bus registrations, 1946-48 .................................... 121
28. Truck traffic flow, 1946...................... ....... ................. 122
29. Typical motor truck rates for general merchandise, 1949...... 126
30. Annual volume of commerce through the principal seaports,
194 3-4 7 .................................... ..... ................. ................... 128
31. Average daily cargo in port of Buenaventura, 1948-49 ...... 130
32. Average daily cargo moving from Buenaventura, 1948-49 .. 131
33. Average annual coastwise freight movements, 1940-46 ......... 132
34. Average annual commercial inland waterway traffic, 1943-47 132
35. Average annual Magdalena River traffic, 1943-47.................. 133
36. Magdalena River public service fleet, 1941, 1948 ................. 134
37. "Comparative operating costs and statistics for sternwheel and
propeller-type vessels ................................ ............. ........ 136
38. Comparative transportation rates per ton for imports and
coffee exports, April, May, 1949.................................... 139
39. Estimated distribution of commercial air traffic, January-
June, 1949 ..... .............. ................. ........................ 143
40. Twenty major passenger revenue markets, July 1949............ 144
41. Twenty major freight-producing markets, July 1949........... 145
42. Avianca: estimated revenue per ton-kilometer-mail, passen-
ger, express and freight, 1945-49 .................... ............... 150
43. Passenger fares in twenty principal markets, 1938-49 ........... 153
44. Air freight traffic by commodity groups, July 1949................ 155
45. Average number of daily commercial airline landings and
takeoffs at principal airports, 1949................................... 158
46. Estimated average daily landings and takeoffs in localities
w ith duplicate airports, 1949............................... .................... 160
47. Estimated productive capacity of commercial airlines, Octo-
ber 1949 .......................... .. ........ .. ... ... .... 163
48. Estimated population of several American countries, 1900
and 1947 ..................... ................. ... ............ .... ...... 172


xxxiii









Table Page

49. Death rates of several American countries, 1938-46................ 174
50. Death rates by age groups for designated American coun-
tries for specified years............................................. .......... 175
51. Deaths and death rates for selected causes in designated
American countries ........................ .... .. ... ............... 176
52. Incidence of selected reported illnesses in Colombia, 1948 ..... 178
53. Number of deaths from all causes, from malaria, and rates
per 100,000, 1939-43............... ............................ .............. 180
54. Budget of the Ministry of Hygiene, 1947-49............................ 188
55. Personnel employed in the Ministry of Hygiene and under
contracts between Ministry, departments and municipalities 189
56. Number of beds available and required in general and allied
special hospitals ............................................... ................... 193
57. Total units and bed capacity of hospitals and related insti-
tutions ....................................... ........ .. ......... .. 194
58. Expenditures of public hospitals and institutions exclusive
of leprosaria ............................................ .......... ............. 195
59. Distribution of physicians according to population, interests
and location .............................................. ... ................. 197
60. Number of persons employed by selected departments and
municipalities, according to salary levels............................ 200
61. Number of employees according to type of position and sal-
ary levels, M ministry of H ygiene............................................ 201
62. Movement of personnel assisted in the establishments under
the General Junta Beneficencia of Cundinamarca, 1946...... 205
63. Estimated growth of various municipalities, 1938-50.............. 208
64. Estimated urban and rural population of municipalities, by
size of urban centers, 1950................................. ............... 209
65. Estimated public service generating facilities, by size of urban
centers served, 1950.............................................. .............. 211
66. Public service generating facilities, by departments, 1950...... 213
67. Water supply facilities by size of urban centers, autumn
of 1949 .................. ........... ....... ............ 215
68. Sewer facilities by size of urban centers, autumn of 1949.... 216
69. Telephones in service, by size of urban communities, 1946-48 218
70. Projected expenditures of various cities for street paving,
street cleaning and waste collection, 1949-54........................ 221
71. Rates for electricity in certain cities, 1949.................................. 223
72. Works completed and in progress under auspices of Fondo
de Fomento Municipal, December 31, 1948.......................... 228
73. Financial operations of Fondo de Fomento Municipal,
19 4 0 -4 9 .................................................................................. 2 2 9
74. Estimated number of buildings and dwellings, 1938 and
19 4 8 ....................................................................................... 2 3 2


xxxiv










Table Page

75. Investment in buildings by category, 1939 and 1947............ 233
76. Incom e levels, 1947, 1950.............................. ......... ........... 234
77. Average value of dwelling for various income groups............ 235
78. Cost and area of dwellings constructed by Coffee Federa-
tion, 1948 ........................... .. .. ... ..... .. ........ .. 238
79. Estimated number of children of primary school age com-
pared with enrollment in public schools, 1948.................. 242
80. Size and enrollment of public primary schools, by depart-
m ents, 1948 .................................... .... .................. 244
81. National primary school construction program for the fiscal
year 1948-49 ..................................................... ................ 245
82. Training of primary school teachers, 1946................................ 246
83. Monthly salaries of public primary school teachers, urban
an d ru ral, 1946 ........................................ ............................. 24 7
84. Secondary school enrollment by grade, 1946.......................... 248
85. Municipal, departmental and national expenditures-total
and for education, 1948............................................................ 254
86. Expenditures of national government, 1940-47...................... 256
87. Revenues of national government, 1940-47.............................. 259
88. Tax liabilities at selected salary levels................................. 260
89. Tax liabilities at selected levels of patrimony and profit in-
com e ..... ......... .. .. ......... ....... ............ ...... ............. 261
90. Distribution of income tax returns, 1947.............................. 263
91. Departmental expenditures, 1941-48....................... ............ 271
92. Per capital expenditures by departments, 1945-48.................. 272
93. Sources of departmental revenues, 1941-48............................ 273
94. Sources of municipal revenues, 1941, 1946 and 1948.............. 274
95. Municipal expenditures by departments, 1941, 1946 and 1948 275
96. Income and expenditures of principal municipalities, 1948...... 275
97. Revenues-of municipalities by size of revenues, 1946.............. 276
98. Number and monthly costs of municipal personnel by de-
partments and functional groups, 1948 ........................... 277
99. Public debt of Colombia, 1940-49................................. 283
100. Domestic debt of national government by types of issue,
May 1948 ................. ......... .. ................. .. 284
101. Domestic funded debt of departments by types of issue,
M ay 1949 ................................... ............ ..................... 28 5
102. Departmental funded debt, May 1949................................ 286
103. P rice indices, 1940-49................................................... .......... 288
104. Increases in money supply and prices, 1940-49.................. .... 289
105. Money supply, 1940-49.......................................... 291
106. Annual increase in money supply, 1941-49..................... .. ...... 292
107. Sources of money supply, 1941-49............................................ 292
108. Sources and uses of reserve funds, 1941-49............................. 298


XXXV









Table Page
109. Position of commercial banks, 1940-49.............................. .... 301
110. New loans granted by commercial banks, 1940-49................ 302
111. Public expenditures and gross national product, 1940-47........ 305
112. National budget summary, 1940-49...................................... 306
113. Colombia's exchange receipts and exchange authorizations,
1948 ................. ...................... .. .... .. ......... .. 310
114. Condensed statement of Colombia's balance of international
paym ents, 1938-49 ............................................... ............. 312
115. Percentage distribution of Colombia's exports by destina-
tion, 1938-48 ........................... ............ 313
116. Percentage distribution of Colombia's imports by source,
1938-48 .................... ....... .................... 313
117. Colombia's terms of trade, 1937-49.......................... ............ 318
118. Foreign capital invested in Colombia and registered with the
Office of Exchange Control, June 1947............................ 319
119. Colombia's external debt, 1949-50.......................... ............ 322
120. Contractual charges on Colombia's external public debt,
1950-70 ............................................... 323
121. Permanent national government personnel by functional
groups, 1948 ............ .. ............................ 348
122. Permanent national government personnel by salary scales,
19 4 8 .................................................................... ....... 34 8
123. Personnel of departmental governments by functional groups,
1948 ........................ ................... ........................ 349
124. Production goals and performance, 1945 and 1948, of five-
year plan for agricultural development............................... 361
125. Production trends indicated for various crops, 1938-48........ 362
126. Level of nutrition in Colombia compared with requirements,
1946 .... .............. ... ..... ..... ............. ................ .. 364
127. Suggested production targets for 1955, compared with pro-
duction if present trends are maintained .............................. 366
128. Trends in agricultural production, 1938-48, and "desirable"
and "practical" targets for 1955........................................ 368
129. Illustrative tax rates per thousand by income classification.... 385
130. Rate of growth per year in production and consumption of
refined products, 1937-47 .................................................. 428
131. Registrations and imports of automotive vehicles, 1938-49.... 429
132. Estimated demand for petroleum products, 1955 and 1960 430
133. Recommended investment in specific industries, 1951-55........ 437
134. Model projection of industrial capital formation, 1953........... 438
135. 1955 estimated cost per ton and per ton-kilometer for traffic
via proposed Ibagu6-Armenia railway............. .............. 455
136. Estimated capital requirements for major highway projects,
19 5 1-5 5 .. ....... ..................... ............ ............... .. ....... 4 6 5


XXXVi









Table Page
137. Capital investment in specified surface transport projects,
1951-55 ...... ..... .............. ..... .. ...... ......... ............... 475
138. Annual projected investment in surface transport, 1951-55.... 475
139. Estimated capital requirements, annual revenues and ex-
penses of the proposed Airport and Communications Cor-
poration ............... .................. .......... .......... ... ..... 478
140. Estimated capital requirements for air navigation equipment
program ................... ............................. 483
141. Air navigation equipment program-estimated annual oper-
ating and m maintenance costs ............................... ........ 483
142. Proposed government plan for construction and improvement
of national airports ........................... ...... ........ .......... 485
143. Capital investment in specified air transport projects, 1951-55 490
144. Annual projected investment in air transport, 1951-55 ....... 491
145. Number of beds available in 1948 and needed by 1955 in
general and special hospitals........................... ......... 508
146. Number of beds in 1948 and estimated number needed in
1955 by designated types of hospitals.............................. 509
147. Estimated number of required public health and Beneficencia
personnel and estimated annual expenditures for salaries
by 1955 .................................................. ...... .. ...... 512
148. Projection of electric power consumption, 1950-55................ 516
149. Projected power availability for industrial purposes, 1955.... 518
150. Sources of capital for self-liquidating and other community
facilities, 1950-55 ........................................... ................... 534
151. Number of dwellings in 1948 compared with estimated needs,
1950-55 .................................. .. ... ........... 535
152. Distribution of population and average cost of dwellings...... 540
153. Dwelling requirements, 1950-55...................... ............. 540
154. Total projected capital expenditures for dwellings and build-
ing construction program, 1951-55................................. 541
155. Estimated capital requirements for construction of additional
schools, 1951-55 ................... ... ............. .... ..... ......... 549
156. Projected investment program by end use, 1951-55 ............... 594
157. Projected investment program by end use, 1953 .................... 594
158. Percentage composition of capital investment, 1947, 1953.... 595
159. Model projection of gross national product, 1947-50-53........ 599
160. Comparison of projected and recommended patterns of capital
form ation in 19 53...................................................................... 600
161. Model projection of national income, 1947-53; employment,
productivity and price indices, 1939-53............................ 602
162. Model projection of national accounts, 1947-53........................ 603
163. Projected income and expenditures of segments of Colombian
economy y, 1953 ................... ......... ............. ........... 604
164. Model projection of Colombian budget, 1947-53...................... 605

xxxvii










APPENDICES*


A. National Accounts, including National Income and Capital Formation
by Jacques Torfs.
B. Nutrition, by Jacques Torfs.
C. Characteristics of Power Facilities of Principal Cities, by David L.
Gordon.
D. Water and Sewer Facilities, by Departments and in Various Cities,
by David L. Gordon.
E. Sources of Municipal Revenues, 1946, by David L. Gordon.

F. Public Finance, by Richard A. Musgrave.
G. Money and Credit, by Richard A. Musgrave.
H. Balance of International Payments, by Roger V. Anderson.
I. Multiple Rates of Exchange, Mid-1949, by Roger V. Anderson.

J. Statistical Bases for Trends and Projections, by Jacques Torfs.

























Available on request from the International Bank for Reconstruction' and Development.


xxxviii





















PART I


The Problem









CHAPTER I


The Country and the People


THE COUNTRY
The Colombian economy is one of the most interesting in the world.
The peculiar topography of the country, together with its position near
the Equator, permits a diversity of agricultural production customarily
found only in a country occupying the better part of a continent.
Indeed, the diversity is greater than that obtainable in the United
States and Canada combined. Climates of the inhabited zones range
from tropical at low altitudes to temperate at higher altitudes, per-
mitting the simultaneous growth within a comparatively few miles of
such diverse crops as bananas, coffee, potatoes and wheat. Moreover,
the proximity to the Equator results in little variation in seasons and
permits cultivation throughout the twelve months of the year. A study
of the relief map of Colombia is indispensable to an understanding of
the problems of the country.
While, however, the topography and climate are Colombia's great-
est elements of economic strength, they are at the same time the source
of the country's greatest economic problem, transportation. The
greater part of the western and inhabited part of the country is tri-
sected by three lofty and continuous mountain ranges which have
offered severe and, indeed, until comparatively recently, almost in-
superable barriers to the bulk movement of goods throughout the
country. Consequently, the same factors that permit diversity and
specialization in agricultural production impose obstacles to taking full
advantage on a national scale of this diversity. Moreover, the topog-
raphy and climate have up to now prevented the colonization of large
areas of the country to the east of the Andes, along the Pacific Coast
and in the lower Magdalena Valley.
One extremely significant consequence of the topography of the
country has been the emergence of four fairly distinct and separate
economic entities or trading zones, which center around (1) Tolima-
Huila and the high eastern plateaus, (2) the Atlantic Coastal region,
(3) Antioquia, and (4) the Pacific Coast departments. Each of these
zones includes lands and climates permitting a wide diversity of agri-
cultural production. Each has a metropolitan area whose food require-
ments are met very largely within the zone. Within each zone the
transport facilities permit considerable movement of agricultural com-
modities. Each of the zones has, on one or more of its sides, un-








4 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

developed lands of potential significance for the future. This self-
contained characteristic extends even in part to industry. Each of the
zones supplies all or part of its own requirements for cement, most
building materials, cotton textiles and beer. Curiously enough, each
zone contains coal. The goods that move across zonal lines are those
that can bear high transport costs and comprise mainly salt, sugar,
oil, imported and exported goods.
It is a temptation to think of Colombia as four separate countries
united politically, but that would be an oversimplification. Actually
the zones are not clear-cut and improvements in transportation will
permit greater specialization and more interzonal trade. The zonal ap-
proach, however, does facilitate the understanding and treatment of
Colombia's problems.
From a relatively small area, not too efficiently utilized, Colombia
produces not only food for its people but also some 5/2 million bags
of coffee for export which in turn largely pay for imports. Part of
the clothing requirements, as well as all of the shoes, beer and
tobacco needed by its inhabitants, is also supplied by the processing
of its agricultural products. In addition, Colombia has produced approx-
imately one-half billion barrels of oil in the last twenty-five years,
possesses enormous coal deposits, and great stands of accessible
tropical forests, and is particularly rich in actual and potential hydro-
electric resources.
The presently thickly settled parts of the country are relatively
small in area. The whole area east of the Andes, drained by the
headwaters of the Orinoco and the Amazon, is sparsely inhabited and
it is debatable whether it will in the foreseeable future support a large
increase in population. The same is true of the swamp lands in the
lower Magdalena Valley, the arid lands in the upper Magdalena Valley
and the very humid, tropical country along the Northern Pacific coast.
Moreover, it is doubtful whether a good living can ever be obtained
from many of the steep mountain slopes of the Cordillera Central and
other ranges now under cultivation. There are some promising new
areas, notably in the Sin6i and San Jorge valleys and the middle
Magdalena Valley below La Dorada, but the high price of valley land,
the extreme parcelization of the land of Narifio, the small farms creep-
ing up incredibly steep mountain sides, and the agitation for irrigation
projects are all warning signals that the growth of population is begin-
. ning to press on limited arable land resources. The relatively small
area of suitable arable land places limitations on possible future agri-
cultural expansion and new settlement for a population of 11 million
people, which is increasing at about 2 percent per annum.








THE COUNTRY AND THE PEOPLE


THE PEOPLE
Population in 1900 was estimated at 3,880,000. The last official
census in 1938 indicated a population of 8,700,000. Since the rate of
increase appears to be about 2.15 percent per annum, the 1950 popu-
lation is probably about 11,000,000, or an increase of some 186 percent
since the turn of the century. The official birth rate for 1946 was
33 per thousand and the death rate in the same year 15.6 per thousand.
Since there is good reason to believe that many births and deaths are
unreported, and the official birth and death rates are inconsistent with
population and population growth figures, a more reliable indication
of the birth and death rates is probably afforded by the figures for
some of the main cities. These show birth rates ranging from 31.4 in
Bogota to 41.7 in Medellin, and death rates of 19.3, 19.6 and 20.4 for
Manizales, Bogota and Medellin, respectively. A birth rate of around
39 per thousand is nearly double that of the United States, higher
than Venezuela or Chile, and only slightly below Mexico. A death
rate of around 20 is again approximately double that in the United
States and very close to the rates prevailing in Mexico, Chile and
Guatemala.
It is apparent from such high birth and death rates, and with the
known heavy infant mortality rates, that the expectation of life is
relatively short, probably being around 37 to 40 at birth. This may
be contrasted with an expectation of life in the United States of 66
years at birth. The population of Colombia is relatively youthful in
age composition. On the basis of the 1938 census, it appears that some
40 percent of the total population were under fourteen years of age,
and only 11 percent were over fifty years of age.
Excessively high birth and death rates and low expectation of life
not only have significance in terms of human well-being or happiness,
but also have economic implications. For example, adult males of
working age obviously have to care for more dependents, and acquired
skills are lost to the community after relatively short use.
The racial composition of the people derives from three main
stocks: European, Indian and Negro. There has, however, been a
considerable mixture of these stocks in the past four centuries. Accord-
ing to a recent authority,1 the percentage composition of the popula-
tion by races in 1852 and in 1942 was as follows:
1852 1942
Indian ............................ ......... ...... 13.8% 1.6%
Indian-W hite ...................... .......... ......... 44.5 46.0
N egro ........................................................................ 3.5 4.4
N egro-Indian/W hite ............................................ 17.6 22.0
W white ........................... ............. ..................... 20.6 26.0
1 Pablo Vila, Geografia de Colombia, 1945.








6 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Despite the rapid growth of industry, towns and cities, Colombia
is still predominantly rural. According to official estimates for 1948,
71 percent of the people lived on farms and in villages under 1500.
Again, according to the 1938 census, 40 percent of the people lived
in the hot or tropical districts, 36 percent in the moderate or temperate
zones, and 24 percent in the cool uplands.
Considerable attention will be devoted later in the Report to the
general problem of health.2 We may anticipate the findings there by
remarking that by and large the Colombians cannot be called a
healthy people, though they are better off in this respect than the
people of most underdeveloped countries. Not only are the death
rates excessively high, but the burden of illness, such as dysentery,
malaria and tuberculosis, is heavy. This again has economic as well
as welfare aspects.

STANDARD OF LIVING
Since our main concern in this study is the development of a plan
to raise the standard of living, it is of considerable importance to
determine the facts relating to the present standard of living. Un-
fortunately, this is a difficult field in which to obtain a high degree of
precision. Only one or two carefully controlled spot studies have been
made and Colombia exhibits such diversity that it is unusually
hazardous to base generalizations on isolated studies. The only
recourse seems to be to present the results of such studies together
with impressions formed by the members of the Mission through very
extensive travels throughout Colombia, interviews, and studies of
available statistics.
One available study made in 1945 is of Tabio, a community about
thirty-five miles north of Bogoti on the savanna.3 This community is
probably somewhat above the average in income and level of living
for rural communities in Colombia. It has also been somewhat
influenced, particularly in migration, by its proximity to Bogota. It
contains about 29 square miles (74 square kilometers) and three-
fourths of this area lies in fairly level valley bottom with one-fourth
made up of steep mountain slopes. It contains a village or pueblo.
About 44 percent of the families are those of farm laborers with the
bulk of the rest being small proprietors and a few substantial land-
owners. Three percent of the population control one-half of the land.
The system of farming utilized is characterized by a lavish use of
labor. The plow, the wheel and animal pack have as yet entered only

2 See Chapter IX.
3 Tabio, A Study in Rural Social Organization, by T. Lynn Smith, Justo Diaz
Rodriguez and Luis Roberto Garcia, U. S. Department of Agriculture.








THE COUNTRY AND THE PEOPLE


incidentally into the farming operations of the municipio. Conse-
quently, the productivity per worker is low, which again is reflected
in a low standard of living. Most of the produce is consumed locally
and the community obviously furnishes little market for the products
of industry. According to the study, "the typical house in Tabio is a
two or three room affair of wattle and daub and covered with thatch.
Its floor is of bare earth and there were either no windows or merely
openings with no shutters, and the house is without ceiling. The
average home's furnishings and conveniences do not include electricity,
running water or any sanitary equipment." The stove is customarily
three stones on a bare floor or a pipeless little brick stove with iron
covering. About half the houses are seriously overcrowded, with four
and even six people to a room being common.
The family does not appear to be as strong a unit as is generally
assumed. Of 517 households visited for the study, less than three-
fifths were inhabited by families whose father was present in the home.
More than 7 percent were cases in which the household was headed
by a married woman whose husband was away permanently, 16 per-
cent were families broken by the death of one of the parents, and
nearly one-fifth were quasi-family groupings headed by an unmarried
man or woman.
In Tabio, educational institutions are still in their incipient stages.
Schools designed to fit the children for life in the community are still
to come. The boys of the municipio need instruction in agriculture.
Many of the girls spend their lives as domestic servants in Bogota.
In general, the authors of this report felt that educational institutions
designed to bring out the latent possibilities of the municipio's youth
were urgently needed.
A field investigation was made by the present Mission of the
standard of living of agricultural workers in the Armero-Guayabal
district in Tolima, which is more or less representative of conditions
prevailing throughout the middle Magdalena Valley from Huila to
Puerto Berrio, but above the average for the country.
The typical production unit of the Magdalena Valley is a large
hacienda producing cotton, rice, sesame and cattle. A typical agricul-
tural worker in the region studied is part of a family of six-father,
mother and four children under twelve. The family usually lives in
a small village and the father works on nearby haciendas. At harvest
time his work is supplemented by the work of the mother and any
children above seven. The income of such a family amounts to about
Ps.$1200 per year, assuming a full work year of 52 weeks for the
father, supplemented by the work of the mother and older children.








8 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Food, beverages and tobacco absorb almost all of this income leaving
only a bare minimum for clothing and utensils. This family lives in
a house costing Ps.$300 to Ps.$500. The floors are usually earthen
or very thin concrete, the walls are constructed of bamboo and mud,
and the roof is thatched with palm leaves weatherproofed with clay
or mud. The house is usually divided into two rooms, one for sitting
and the other for sleeping. There are generally no beds and a minimum
of chairs. The kitchen is situated in a straw hut behind the house
with cooking done over an open fire. Kitchen utensils are usually
earthenware. Toilet installations are limited to a wash basin and
privies are rudimentary and inadequate. In this region there is gen-
erally no water supply in either the rural communities or the haciendas.
Small sums are given the children and older people to carry the water
from nearby rivers.

There appears to be no deficiency in the diet so far as the number
of calories is concerned, nor in this region is there much evidence of
malnutrition, since an unusually abundant supply of meat is available
to balance the customary starchy diet of most country people in
Colombia. Less than 50 percent of the workers read or write, as
contrasted with Tabio, where the percentage of literacy was 60 percent.
The workers generally have very little schooling and what little they
have appears to be of small help in the practical problems of life.
Despite this lack of training, we found the workers interviewed to
have a higher cultural standard than might have been expected. They
were clean, courteous, with a good sense of humor and a very active
interest in political issues. The workers in the region live so closely to
the margin of subsistence that the occurrence of any of the ordinary
misfortunes of life, such as illness or death or lack of employment, is
likely to wipe out any accumulated savings they may have or to cause
them to go into debt. Credit facilities are extremely limited and it
requires unusual energy and foresight and determination to enable an
individual to better his position in life. At this level, the rungs of the
economic ladder are widely spaced and difficult to scale. From our
observation, the conditions of small freeholders and tenants in this
area do not differ significantly from those of workers.

There are considerable variations in levels and modes of living
throughout the country regions of Colombia. Coffee, for example, is
typically grown by a small freeholder. In 1938 it was estimated that
there were some 300,000 proprietors of coffee fincas. A typical coffee
finca is relatively small, containing about 3200 trees which at prices
prevailing in the middle of 1949 would yield its owner around Ps.$1200
a year, an income that would cover little more than the bare necessities








THE COUNTRY AND THE PEOPLE


of life. The coffee growers are considered to have a better than average
standard for the country.
On the other hand, the condition of the people in Boyac. and in
Narifio is considerably below the national average. The half million
odd people of Narifio are proprietors and their individual holdings
are so tiny and are farmed so primitively that a very low level of
living results. In 1946, the average income of people in these two
departments was well below that of the rural workers in Tolima and
Cundinamarca.
The workers in industry, commerce and transportation are some-
what better off than the country people. They receive a somewhat
higher money income, averaging Ps.$3.58 per day in 1948. In addition,
in some of the cities, they enjoy the benefits of certain municipal
services, such as light and water. Moreover, they receive other sub-
stantial benefits through the social laws, including severance pay and
medical care. Even for such workers, however, a substantial part of
their income goes for food. According to studies made in recent years
by the Contraloria General of working class budgets in five Colombian
cities, 57 to 66 percent of expenditures were devoted to this purpose.
This was doubtless partly due to the size of the families, as each
worker in the families studied was supporting four people on the
average.
There is also a relatively small group of majordomos, or managers,
and tractor drivers whose earnings are considerably above either the
workers, tenants or freeholders. No recent studies have been made
of the standard of living of the small but growing middle class of
Colombia, although it is obvious that their status is considerably
better than that of the workers. Finally, there are the large plantation
owners, industrialists, importers, bankers, etc., whose numbers are
still small but who have increased considerably in recent years.
It is estimated that in 1947, the earnings of corporations and indi-
vidual enterprises, owned by some 80,000 people, amounted to nearly
one-third of the national income.4 Official tax returns, which unques-
tionably understate incomes, indicated for 1947 that less than 8,000
taxpayers, or 9.5 percent of individuals filing returns, earned above
Ps.$10,000 but accounted for 56 percent of the reported incomes.
The relatively low standard of living of the majority of the people
in Colombia is further indicated by the per capital consumption of such
items as cotton textiles, electric power, and other elements entering
into the standard of living. For example, it has been estimated that

4 See Chapter III.








10 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

in 1938-1939, the energy consumed per day per capital from coal, oil
and electricity amounted to 1.5 horsepower in Colombia, 10.7 horse-
power in Chile and 37.6 horsepower in the United States.5
Despite the generally low standards of living, health and education
in absolute terms, it must be emphasized that real and substantial
progress has been made in the past twenty-five years. The production
of agricultural crops, including coffee, cotton, tobacco and sugar, has
increased very substantially; manufacturing output and imports of
both producer and consumer goods have likewise shown a great ex-
pansion. Great public works have been carried through, particularly
in road building. Considerable expansion in electric power production
has occurred and a tremendous amount of commercial and apartment
building has occurred in the leading cities. Much of this development
has been made possible through exports of coffee, petroleum and gold
during the past twenty years. Recorded imports, financed largely by
these products, aggregated Ps.$4.5 billion in the period 1924-1948.
Colombia has attained an economic status well up in the list of
underdeveloped countries of the world, and the showing becomes
especially favorable if the comparison is limited to countries in the
equatorial belt. Of even greater significance is the strong capacity
for growth that has been demonstrated. However, the gains from this
period of rapid development have been unequally diffused. At one end
of the scale, the returns to owners of capital have increased more
rapidly than returns to agriculturists and general industrial workers.
Other classes sharing in the gains have been the emerging middle class,
the skilled industrial and transport workers and a relatively small
group of people who operate the new agricultural machinery. The bulk
of the population has experienced some rise in the standard of living,
particularly in consumption of food, beer and tobacco, and in better
living quarters and community facilities, but the rise has been lower
than what might have followed from the economic development
already achieved.


5 Energy Resources of the World, U. S. Department of State, 1949, Table 42.









CHAPTER II


Factors Accounting for the Standard of Living

Considerable descriptive and analytical material will be presented
in this Report bearing on the central problem of the standard
of living of the Colombian people. It will be convenient at this point
to summarize in advance the main findings and to indicate how they
relate more specifically and definitely to the standard of living. It
is also perhaps advisable to reiterate here the schematic structure of
this Report. It is not our purpose to describe the economic system of
Colombia for the sake of description. Neither are we concerned to
balance the good points against the bad or to mingle praise with criti-
cism. We have sought at all times to keep before us the single object
of this study-to determine how the Colombian standard of living
might be raised. Consequently, the discussion deliberately and of
necessity has been concentrated on the weaknesses, the shortcomings,
the inefficiencies and the general organization and practices that con-
tribute to those weaknesses which it is felt can be improved or modified
in such a way as to raise the standard of living. In short, Part I
forms the basis for the recommendations of Part II.
Another word of explanation is perhaps in order. It is possible
to treat of the standard of living of a country on different levels of
discourse. One very basic level, for example, might concentrate on
such factors as race, culture and history; it might develop a theory
as to how it is that one people, inhabiting a rugged inhospitable
terrain, may achieve a higher standard than another people occupying
land richly endowed by nature. While a study conducted at such a
level would be both basic and fascinating, it would be likely to become
intertwined with matters of personal judgment and become philo-
sophical or merely historical in nature. The approach here, on the
contrary, is pragmatic. The concern is solely with matters of a much
more immediate and practical nature about which something can be
done within a relatively short period. This should not be taken to
mean that cultural factors are not felt to be of major importance
or that they have not been considered in connection with the framing
of recommendations. The point is rather that cultural factors by their
very nature are susceptible of little modification in short periods of
time.

WHAT DETERMINES THE STANDARD OF LIVING

The explanation of varying standards of living is the most funda-
mental and absorbing problem of economics. It is, therefore, sur-








12 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

prising that so little prior work has been done in this field in Colombia.
Indeed, the descriptive material on the standard of living itself of
different classes in different areas is extremely scanty. Recourse was
therefore had to a few spot studies, interpretations of overall statistics
compiled for other purposes, and general impressions derived by
Mission members in their travels, studies and interviews.
It should be pointed out that the standard of living is not a precise
concept susceptible of careful measurement. It corresponds roughly
to a state of well-being in an economic rather than a spiritual sense.
However, what constitutes well-being is a matter of judgment and
differs with different people, and at different times. Some people,
for example, will be reluctant to concede that the use of tobacco and
the consumption of alcoholic beverages are substantial elements of
a desirable standard of living. Most people, however, would so regard
them. Similarly, after a certain point is reached, the correspondence
between increased consumption of goods and services and an increased
sense of well-being becomes tenuous. When, however, we are dealing
with a people whose consumption is very low, this consideration need
not concern us unduly. In other words, we are on safe ground in
feeling that essential elements in a standard of living are the con-
sumption of food adequate for nutritional purposes, the enjoyment
of sufficiently good health to permit a sense of physical well-being,
the possession of adequate housing and clothing, and the opportunity
for some leisure and amusement. Beyond these basic things, different
people would place different emphasis upon additional types of con-
sumption. In this report, however, attention has been concentrated
on the possibility of increasing the per capital supply of the elements
basic in any living standard.
The conclusions presented in Chapter I need not be repeated here,
except to say that the standard of living of the bulk of the people,
in the terms just described, is distressingly low, particularly in view
of the inherent richness of the country. We are not here concerned
with the high standard of the well-to-do or the apparently tolerable
standard of living of the urban middle class, since their number is
relatively small, and they will in any case benefit from improvements
in the general level. In order to relate more precisely the discussion
presented in the following chapters to the low general standard of
living of the masses, it is perhaps desirable to set forth some very
elementary and yet basic factors determining any living standard.
Broadly speaking, therefore, the standard of living or economic
well-being of any people depends on (a) the productivity per capital;
(b) the distribution of the output of goods and services as between








FACTORS ACCOUNTING FOR THE STANDARD OF LIVING


consumers' and producers' goods; and (c) the distribution of income
and consumption among the people.

PRODUCTIVITY PER CPITA

Production per capital depends on the resources per capital, both
natural and man-made, the efficiency of workers, the age distribution
of the population or the proportion of the population of working age,
the efficiency with which production is organized, and the foreign
markets and terms of international trade. It is believed that virtually
all the important factors affecting productivity per head can be con-
veniently treated under these various headings. Unemployment is not
an important factor in Colombia.

Natural Resources
While the area of Colombia is great, the amount of readily access-
ible and good agricultural land in relation to the population is strictly
limited. The average size of farms is about two hectares, or five acres,
and even this average is affected by the inclusion of many large farms.
Fortunately, the climate and topography permit the economic utiliza-
tion of some steep hillside areas that could not be profitably cultivated
in northern climes. However, the area of level valley land suitable
for intensive crop cultivation is scarce in relation to the demand for
such land. Consequently, its value is so high as to keep it out of
the reach of poorer farmers.
We shall have frequent occasion to point out the anomaly that
this limited area of good level land is customarily not put to its most
economic use but, for various reasons, is devoted to beef cattle grazing.
Given, therefore, the present state of agricultural practices and certain
social customs that have arisen in connection with land owning, the
evidence is incontestable that population is pressing on land. Again,
given these factors, it appears that a continuance of population growth
at the present rate, or at an accelerated rate that might result from
better health conditions, would result in recourse to poorer land and
lower productivity after certain limited additional fertile areas have
been settled. It is true that with every additional mouth there is an
additional pair of hands. Unfortunately, however, when resources
are limited each additional pair of hands may not produce as much
as previous pairs.
On the other hand, with the application of known agricultural
techniques and the efficient utilization of land resources, the present
arable land area of Colombia would be consistent with a high standard
of living for the existing population. Under the present conditions,








14 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

which are spelled out at some length in the two following chapters,
the productivity of work in agriculture is so low that it takes nearly
63 percent of the working population to grow the food and provide
the agricultural raw materials and exports. Only 30 percent are
engaged in industry and service occupations, while 70 percent of the
population live in rural areas. In the United States, only 14 percent
of the gainfully employed are engaged in agriculture and 20 percent
live in the country. In order for additional goods and services of
all kinds to be produced in Colombia, it is necessary that a smaller
percentage of the population be engaged in agriculture and that more
people be engaged in the production of other things. This means, in
turn, that the productivity of each agricultural worker must be very
much greater than prevails today. Ways and means of achieving this
increased productivity are of foremost importance.
Of the natural resources in addition to land with which Colombia
has been richly endowed, only two, petroleum and gold, have been
utilized to any significant extent. Existing known reserves of petro-
leum, if carefully preserved and wisely utilized, should meet the
country's rapidly growing needs over a considerable period. More-
over, there is, of course, always the possibility that additional fields
may be discovered. Current imports of refined products can be largely
dispensed with when additional refinery capacity is provided.
To date, negligible use has been made of the country's great timber
resources, and very little of the apparently tremendous coal reserves.
Very little opportunity has been taken of the country's long coastline
to supplement the excessively starchy diet with fish protein. The
topography and climate of the country not only permit great diver-
sity in agricultural production but also provide considerable hydro-
electric potential. Thus in the basic sources of power-oil, coal and
hydroelectric potential-Colombia is fortunately situated.
While Colombia thus owes much to its topography, this same
topography has raised barriers to the development of the country.
In fact, even with good organization, transportation will always remain
relatively expensive, although advances in technology are reducing
the country's disadvantage in this respect. But perhaps the very
problems and obstacles raised by communications have stimulated
human ingenuity and may account for a level of activity and talents
higher than usually encountered in countries in the equatorial belt.

Capital
Despite the relatively high current rate of capital formation and
the considerable capital formation of the past, capital remains scarce
in relation to population and natural resources. Most Colombian labor








FACTORS ACCOUNTING FOR THE STANDARD OF LIVING


is unaided by power of any kind. The worker in industry proper, as
distinguished from handicraft establishments, has on the average the
use of 1.5 horsepower, which is low in comparison with industrially
advanced countries; this figure becomes even more striking when it
is remembered that industrial employment is still quite small in rela-
tion to other occupations. A very substantial part of the capital has
been employed in building railroads and highways and providing
for the rapid growth of cities. Another substantial portion has gone
into oil exploration and has been provided by foreign companies. A
surprisingly small portion of the capital has gone into electric power
installations and industrial and agricultural machinery.
The growing of food and the provision of shelter for most of the
people are still essentially manual operations with very little assistance
from capital. We shall have occasion to point out that for various
reasons a significant portion of capital flows into office and commercial
buildings, hotels and apartments, and higher class homes. While the
investment of capital in all these forms except the last yields high
monetary returns, it is doubtful whether this type of capital forma-
tion contributes in any significant way to raising the standard of
living of the people generally. There are other sectors of the economy
where the flow of capital, as determined by monetary returns, does
not appear to conform to the most urgent economic needs of the
community. For example, special factors in municipalities have
resulted in most inadequate capital investment in the provision of
basic municipal services such as water, light and power. Short- and
long-term credit for agriculture has been chronically scarce as has
also been capital for low cost housing. In industry, on the other
hand, the criterion of money returns has probably resulted in an
appropriate distribution of capital, keeping in mind that the demand
for goods is in part a reflection of the distribution of income. Con-
siderable capital is absorbed in the mere carrying of inventories,
which, for various reasons, are high relative to current production.

Finally, it may be pointed out that the mere investment of capital
in no way assures a proportionate increase in production or
productivity. Not only is it necessary that the capital be invested
in a field where there is urgent need for it, but also that the capital
be invested in appropriate form and, once invested, be managed
properly. Poor management can nullify the effect of good investment
just as improvements in management can enhance the productivity
of capital. For example, there is reason to believe that the country
is not reaping the full benefit of the relatively large capital sums
invested in transportation.








16 THE BASIS OF A DEVELOPMENT PROGRAM FOR COL9MBIA

Manpower
In many ways, a country's greatest resource is its manpower. A
strong, healthy, well educated, well trained, reliable and industrious
people have demonstrated again and again the possibility of achieving
a high standard of living in lands and areas not particularly favorably
endowed by nature. An outstanding example is afforded by Switzer-
land, which has almost no natural resources except water power and
scenery. Due partly to favorable location and historical circumstances,
but principally to the character and training of its people, it has
achieved an extraordinarily high standard of living.
Colombia's manpower resources, however, are far from reaching
these standards, though levels of human efficiency and ingenuity are
above those observed in most other countries in the tropical equatorial
belt. The low level of health shows itself not only in a short life
expectancy and a high ratio of dependents per worker, but also in
the strength, capacity and desire to work of the adult population. The
too frequent combination of unbalanced diets and debilitating chronic
diseases results in a diminution of physical strength and ambition.
When to these are added widespread illiteracy and little training of a
technical nature, it is not surprising that the productivity of labor
is relatively low. These conditions can, of course, be changed. The
Colombian worker possesses a quick and ready intelligence and has
shown a capacity to learn rapidly and to work efficiently when he is
properly trained and directed and enjoys an adequate diet and good
health. The problem is to make the transition-to get started on the
rungs of the ascending ladder.
The difficulty and magnitude of this task should not be minimized.
We encountered the defeatist attitude in the feeling that it is hopeless
to try to improve the lot of certain groups, as higher pay will only
result in less work. Fortunately, Colombia possesses a small but
highly educated and well trained professional and business class.
From the ranks of this class excellent leadership is available to
develop the country and enable it to realize its great potentialities.
The emerging middle class is still relatively small and is confined
mostly to a few cities. But with good leadership and training, the
Colombian worker can undoubtedly progress toward an ever higher
standard of living.

Organization
In addition to abundant natural resources, plentiful capital and
trained manpower, good organization is also necessary for high
productivity and a consequent high standard of living. The misuse








FACTORS ACCOUNTING FOR THE STANDARD OF LIVING


of land resources, for example, on which we lay much stress, is an
outstanding example of unsatisfactory \organization in agriculture.
Again, in the important field of transportation, it is apparent that
although Colombia has had to contend with certain natural difficulties,
faulty organization and administration also play a role in the high cost
of transportation and in the retarding effect this has had on the
economic growth of the country. Improvements in organization in
these fields would unquestionably yield high returns in increasing
productivity.
As a factor in the low standard of living, the inadequacy of
municipal services, particularly of water, sanitation, electric power
and light, is stressed. Although the adequate provision of such services
is undoubtedly a costly matter calling for considerable capital outlay,
both domestic and foreign, nevertheless the faulty organization of
municipal government must bear a substantial part of the blame for
the existing state of affairs. A similar observation is applicable to
the poor general state of health. Admittedly, the conquest of disease
and the achievement of a high standard of health are expensive. The
returns, however, are great, especially if the increased available
energy is utilized. A wise allocation of resources calls for much larger
expenditures in preventive medicine. This is a field where a major
continuous effort yields great returns. A smaller effort directed only
to the alleviation of suffering may be much costlier in the long run
and yet make no real improvement in the health of the people.
Improvements in the planning and organization of education would
also yield great returns. The present program appears to be making
very little progress either in reducing illiteracy or in providing a
higher standard of education and training for a significant portion of
the population. While this is partly a question of the allocation of
available resources among many competing needs, it is also in part
a question of organization and planning.
Planning and organization in the general fields of public adminis-
tration and fiscal, foreign exchange and monetary matters also need
improvement. Inadequate organization in government at all levels
contributes toward a poor allocation of resources and, in certain
economic fields, lower productivity than might otherwise be obtained.
While a substantial part of the inflation that has occurred since 1939
was probably unavoidable and arose from conditions beyond internal
control, part of it could have been avoided through the pursuit of
different policies. While the continuance of inflation over a period
of time doubtless resulted in higher profits and a higher aggregate
volume of saving than would otherwise have occurred, it also un-








18 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

questionably encouraged wasteful expenditures, created various dis-
tortions in the ecomonic community, and contributed to social unrest.
Moreover, the policy of permitting a greater fall in the internal pur-
chasing power of the peso than in its external purchasing power
resulted in recourse to a highly complicated and discretionary system
of exchange control. This in turn weakened the competitive structure
of the Colombian economy and led, in a certain degree, to misallocation
of resources and deterred the import of capital.
Throughout this Report, deficiencies and shortcomings in organi-
zation are stressed as improvements in this field are relatively costless
and yet yield high returns in increased productivity.

International Economic Position
Under the four main headings of natural resources, capital, man-
power and organization, all the factors affecting productivity might be
discussed. In Colombia's case, however, there appears to be something
gained by singling out two or three factors for separate discussion.
One of these revolves around the foreign market for Colombia's
products. Since any predominantly agricultural country is de-
pendent on foreign resources for a wide variety of manufactured
goods, both consumers' and producers', it is of the utmost importance
that it be able to export goods that command a ready market abroad,
particularly for dollars. In this, Colombia has been fortunate, especially
in recent years when the demand for coffee has been steadily increasing
and the price has been rising. To a much lesser degree, Colombia has
secured dollars from royalties on the export of petroleum, from the
expenditures of foreign petroleum companies in Colombia, and from
gold production. This relatively strong dollar position is of great
importance in making possible one of the fundamental conditions for
a rapid increase in industrial and agricultural production.
Over the longer term, it is true, the country is in a somewhat
vulnerable position because of the concentration in one export com-
modity. However, for the time being, it is possible for Colombia,
mainly through its coffee sales, to secure capital goods of all kinds
which can lead to an expansion of domestic production and thus can
reduce the necessity for certain imports in the future, and assist in
the development of new types of goods for export. In addition, its
exports make possible the importation of certain raw materials and a
wide variety of consumer goods.
Finally, the relatively low ratio of servicing charges on the foreign
debt to total exchange receipts, and the rapid rate of amortization of
the outstanding foreign debt, place Colombia in a position to increase








FACTORS ACCOUNTING FOR THE STANDARD OF LIVING


its borrowings abroad when it seems prudent to do so, and when its
economic position is definitely strengthened thereby. Despite the
shortage of capital and the consequent high return on capital, Colombia
has not attracted much foreign investment except in the petroleum
and gold mining fields. For various reasons, foreign capital, by and
large, has not found the climate congenial.


ALLOCATION OF PRODUCTION BETWEEN PRESENT AND
FUTURE CONSUMPTION

As stated earlier in this chapter, the standard of living depends
not only on what each worker produces but also on the division of
production as between consumers' and producers' goods. Production
may be very high but if most of it goes into capital goods that will
yield services some time in the future, or into military expenditures,
the current supply of consumers' goods, and hence the standard of
living, may be quite low.

Owing to the complexity of modern economic life, the essential
nature of the capital formation process is sometimes forgotten. Putting
aside foreign capital for the moment, the maintenance and addition
to the man-made capital equipment of Colombia involve a current
loss of real consumption to the community. The more people who
build dams, roads, power plants, factories and so forth, the fewer the
people who currently produce goods for current consumption. Similarly,
the more the proceeds of coffee growers' work are expended on im-
ported trucks and machinery, for example, the fewer are the possible
imports of foodstuffs and other consumers' goods.

The hope is, of course, that the production of more producers' goods
today will result in the production of more consumers' goods and
services tomorrow. This is generally the case if the right goods are
produced and are properly utilized. Nevertheless, the cost today to
the whole community of diverting labor from the production of con-
sumers' goods to producers' goods should never be ignored. When the
standard of living is as low as it is in Colombia, the decision to
divert labor from current to future production is a grave one and should
be based on sound and compelling grounds. To embark on a number
of major undertakings simultaneously may unduly postpone the period
when the returns from any or all compensate for present sacrifices.
Again, if a bad mistake is made, the whole community loses. A foreign
loan uneconomically applied or dissipated must be serviced and
repaid out of future production even though it may have in no way
increased that production.








20 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

These elementary observations are prompted by t&e thought that
the use of money often obscures real phenomena and, in a culture as
individualistic as that of Colombia, there is a tendency to overlook
the social implications of private acts.
The allocation of labor and resources as between the production of
consumers' goods and capital goods is determined partly by the action
of the Government in utilizing savings and taxes to invest in capital
undertakings and partly by the decisions of a relatively small group
of capitalists and bankers. In Colombia in recent years, it appears
that some 14 percent of the total value of all goods and services
produced were composed of capital goods. While this is a relatively
large proportion, a few percentage points less would have meant very
little additional current consumption for the bulk of the population.
Of more serious concern is the evidence that an unduly large propor-
tion of the absolute peso figure of capital formation is composed of
trade profits and transportation costs and represents less real goods
than might be assumed. Moreover, there are grounds for believing that
the addition to the capital equipment of the nation has not resulted in
as large an increase in the standard of living of the people as might
be expected or desired.

DISTRIBUTION OF INCOME AND CONSUMPTION
It is obvious that the standard of living of a country will be
affected by how equally the current production of consumers' goods
is distributed. This in turn depends in large part on the distribution
of income and the available evidence indicates that it is very unequal.
Despite attempts by the Government to raise wages, provide various
social benefits, and impose progressive taxation, the more or less
continuous process of inflation has resulted in abnormal returns to
the owners of capital. While much of this was saved, a portion went
into homes, cars, foreign travel and foreign education for the very
few. However, the total production of Colombia is so low in relation
to population that greater equality of income, while doubtless desir-
able, would not have measurably increased the standard of living for
the majority of the population.
This chapter is written in very general terms. The remainder of
Part I will spell out more specifically those factors in the low standard
of living which may be changed in a relatively short period. There
is no one simple explanation of the relatively low productivity per
capital. Many factors must be taken into consideration and conse-
quently the attack on the problem must be many sided. While the
standard of living is affected by the proportion of income saved and









FACTORS ACCOUNTING FOR THE STANDARD OF LIVING 21

the equality of distribution of income, the main determinant, however,
is productivity. This is emphasized because in some quarters there is
a tendency to exaggerate the importance of redistributing income as
a means of raising the standard of living. While gross and growing
inequality is undesirable, its correction should not be allowed to
divert attention away from efficiency or productivity. In the long
run, an increase in productivity is the only effective way of raising
the standard of living to any appreciable degree.









CHAPTER III


National Income and Product

A program for improving the economic position of a country, if it
is to be meaningful and significant, should be conducted in as quantita-
tive and specific terms as possible. Before we can make correct
decisions as to how much we shall spend and on what, we must have
the facts on our income, on what we are spending currently, and on
what we will probably have available for expenditures on capital goods
and consumer goods in the immediate future. Otherwise we can
neither determine the magnitude of the program nor priorities. The
only sure key to understanding the problem, let alone appraising pro-
posed solutions, therefore, is to put proposed programs in quantitative
terms and then assess the magnitude of the effort contemplated in the
appropriate context of background conditions and available resources.
In this and the following chapters we will attempt to determine
the national income, the sources from which it is derived, its distribu-
tion, and the volume of expenditures on consumer and capital goods.
National income figures give in summary form the total value of
goods and services, classified by the various groups participating in
the productive process at each of its various stages; and the gross
national product measures the total value of goods and services pro-
duced, classified into such important types of product as consumers
goods and services, capital formation, and Government expenditures.
In an underdeveloped country, national income statistics are important
not only as an indicator of the value of goods and services currently
available but also to indicate increases in productive efficiency. Hence,
when the gross national product is adjusted to eliminate the effects
of price changes and expressed in terms of total value per worker, it
becomes simply the broadest kind of measure of the average produc-
tivity of the labor force.

COMPUTATION OF NATIONAL ACCOUNTS FOR COLOMBIA

The national income and product accounts of Colombia have never
been studied in detail. An estimate made in 1940, by the National
Bureau of Economic Research (U.S.), set the national income at
Ps.$1,098 million in that year. Preliminary estimates by the staff
of the International Bank in March 1949, indicated that this figure
might have grown to Ps.$2,327 million in 1945. Conclusions based on
such fragmentary data, however, could easily be misleading. Though
a Colombian committee on national income, using the facilities of
the Banco de la Repfiblica, has currently undertaken a more thorough








NATIONAL INCOME AND PRODUCT


study of national income, it is doubtful that this investigation will
be completed before 1951. For purposes of this program, therefore,
the Mission had to make preliminary estimates of national accounts,
which obviously may require serious revision in the years to come.
The sources of data for this preliminary analysis were scanty and,
in general, unreliable. Although efforts were made to complete or
correct the official statistical series, it is by no means certain that
the results were satisfactory. Since more reliable estimates may not
be available until the statistical services of Colombia have been re-
organized and considerably strengthened, we wish at one and the
same time to indicate the provisional nature of the estimates and to
utilize them in drawing up and evaluating the scope of the proposed
program. Lack of many types of statistics normally going into
national income and product data made it necessary to approach the
compilation of national accounts from statistics on the volume and
value of production of goods and services, with such supplements
and adjustments as other available information indicated to be neces-
sary or desirable. Once a reasonable estimate of the total value of
production of various types of goods and services was obtained, it
became necessary to eliminate duplication by deducting raw material
and other values that had been counted at an earlier stage in the
productive process and thus segregating the "value added" by each
group of producers.
A discussion of the procedures used in making the statistical
estimates for each of the major economic fields is found in the
Appendix on national income.' By these methods, net national income
was computed for each of the years from 1939 through 1947. This
basic series provides the foundation upon which all the estimates
rest. It represents the net return to the owners of productive resources
participating in the productive process. Translation of net national
income into gross national product proved less difficult. Gross national
product is greater than national income because it includes not only
depreciation charges but also indirect taxes which are included in the
prices of goods but not in the incomes of the producers.
Once the size of the gross national product was determined, there
remained the problem of breaking it into its component parts. Most
difficult to estimate were consumers' expenditures. This is the largest
component, and one of the most useful and meaningful items in the
total of the national accounts, as it is the basic indicator of changes
in living standards. The level of consumption in this study has been
estimated by deduction of all other types of expenditures from gross

1 Appendix A.








24 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

national product (Government expenditures for goods and services,
gross capital formation, and net exports), thus obtaining consumption
expenditures as a residual item. This procedure was followed because
it appeared more feasible to obtain direct estimates of the capital
components of the gross national product than to attempt a direct
estimate of the volume of consumer expenditures.
For purposes of economic analysis it is not sufficient, however, to
have a breakdown of the gross national product into the various
component types of expenditure. It is also of interest to trace the
flow of income to various participants in the production of the gross
national product and to study the way in which this income was
disposed of. Of especial interest in this context is the way in which
income received in production is divided between saving and expendi-
ture on the part of business units and consumer households. Thus
a breakdown of the gross national product was also made by income
components. By deducting profits retained by business (and adding
transfer incomes, e.g., interest payments received from the Govern-
ment) we obtain personal income. By deducting income tax payntents
we obtain disposable income of individuals. Since consumption ex-
penditures had previously been determined in breaking down the gross
national product between various expenditure categories, personal
savings are then obtained by deducting the former from disposable
personal income.
The results of these computations are shown in Table 1. In
appraising the picture thus presented, the reader should keep in mind
that our judgment regarding the level of national income is on the
safest ground. However, the transition from national income to gross
national product does not involve a likelihood of large error. Next,
our estimates of the volume of capital formation are fairly well
founded as are those of government expenditures and foreign trade.
The estimates for consumption expenditures, being the residual item,
are naturally less reliable. Moving from national income to personal
income, considerable difficulties are involved in obtaining estimates
for retained earnings on the part of business. As there is no good
ground on which these can be separated from personal savings, the
figures for business savings must be considered as highly tentative.
Thus, our estimate of personal income is substantially less reliable
than our estimate of national income or gross national product. The
estimate of personal savings, being arrived at as a last residual, ranks
lowest in reliability. However, these figures do not appear unreason-
able on the basis of such independent estimates as it was possible
to obtain.








NATIONAL INCOME AND PRODUCT


GROWTH OF NATIONAL INCOME

Table 1 shows that the net national income rose sharply and almost
continuously from 1939 to 1947. From a level of about Ps.$1 billion
per year in the immediate prewar period, it rose to over Ps.$3 billion
in 1947. This more than threefold advance over this period reflects
the beginnings of the industrialization and modernization of the
country. A substantial part of this increase, however, was due to a
price rise rather than a growth of real output.
The 1947 national income of Ps.$3,239 million, though reflecting
the sharp advances during the war and postwar period, was still a
relatively low figure in comparison with other countries. It amounted
to about Ps.$308 per capital. Converting this to dollars at the 1947
exchange rate of Ps.$1.75 per dollar, the average income for the total
population of Colombia was approximately U.S.$176 per year. Com-
parative figures for selected countries follow:
U.S.$
P eru ........................................ ....... .............. ...... 98
Brazil ................ ...................... ..... ....... ........ 140
C olom bia ................................................ ................ 176
C while ....................... ........................ ................... 330
U united States ........................................... ................. 1400

Much'emphasis should not be placed on these comparative figures, as
they are obtained through conversion of local currency incomes into
dollars at official rates of exchange. There is likely to be real disparity
between estimated income of an underdeveloped country, where much
local production and consumption does not enter into domestic mar-
kets and even less into foreign trade, and the indicated incomes of
other countries. To obtain a sound comparison it would be necessary
to make estimates on the equivalent cost of living for each social
group in the various countries. Estimates of this kind are not avail-
able, but attempts to make allowance for such differences indicate
that the relative rank of Colombia among the nations listed above
would not be changed, though the total range between the top and
bottom of the scale would be less than those data suggest. Neverthe-
less, the basic conclusion derived from the table would be sustained.
Per capital income in Colombia is not far from the average for other
South American countries, but it still is low.
The fact that income is low is important for the future because,
in conjunction with the inherent wealth of the country, it indicates
the tremendous possibilities for growth as yet unexploited. The rapid
rate of growth in the past was due in part to the low starting point,
and there is still ample room for growth. Every economy at some











TABLE 1
GROSS NATIONAL PRODUCT AND COMPONENTS, 1939-1947
(millions)

1939 1940 1941 1942 1943 1944 1945 1946 1947
EXPENDITURE COMPONENTS ................ Ps.$1,236.0 Ps.$1,196.5 Ps.$1,239.2 Ps.$1,342.1 Ps.$1,525.1 Ps.$1,878.4 Ps.$2,366.6 Ps.$2,906.2 Ps.$3,673.8

Government expenditures on
goods and services, current ....... $ 97.0 $ 102.1 $ 88.1 $ 113.6 $ 139.9 $ 162.4 $ 154.3 $ 212.2 $ 269.4
Government expenditures on
goods and services, capital........ 50.8 66.5 65.0 81.0 78.5 76.7 97.7 130.8 165.0
Private gross capital formation.... 102.5 98.2 112.5 75.7 81.3 110.2 203.0 324.2 447.0
Net exports ().
(Net exports ...(+ ) .. ..... .. 47.0 20.0 36.0 +66.0 +72.0 +52.0 35.0 51.0 193.0
Net imports (-).............
Consumer expenditures ................. 1,032.7 949.7 1,009.6 1,005.8 1,153.4 1,477.1 1,946.6 2,290.0 2,985.4
INCOME COMPONENTS ........................... 1,236.0 1,196.5 1,239.2 1,342.1 1,525.1 1,878.4 2,366.6 2,906.2 3,673.8

Depreciation .................................... $ 38.1 $ 33.6 $ 33.7 $ 48.5 $ 37.5 $ 38.8 $ 87.1 $ 110.8 $ 128.5
-Indirect taxes and profits of gov-
ernment enterprises .................... 148.9 129.9 142.5 134.6 148.6 179.6 217.5 258.4 306.3

National income ........................... $1,049.0 $1,033.0 $1,063.0 $1,159.0 $1,339.0 $1,660.0 $2,062.0 $2,537.0 $3,239.0
+Transfer payments ......................... 14.6 21.7 18.4 23.9 28.8 26.2 38.5 39.0 42.0
-Retained earnings .......................... 10.0 20.0 20.0 20.0 20.0 50.0 50.0 140.0 150.0

Personal income ............................ $1,053.6 $1,034.7 $1,061.4 $1,162.9 $1,347.8 $1,636.2 $2,050.5 $2,436.0 $3,131.0
-Income taxes ............................... 21.6 24.3 24.7 33.2 49.1 55.3 67.1 87.6 130.1

Disposable income ........................ $1,032.0 $1,010.4 $1,036.7 $1,129.7 $1,298.7 $1,580.9 $1,983.4 $2,348.4 $3,000.9
-Consumer expenditures .................. 1,032.7 949.7 1,009.6 1,005.8 1,153.4 1,477.1 1,946.6 2,290.0 2,985.4
Personal savings ............................. -.7 60.7 27.1 123.9 145.3 103.8 36.8 58.4 15.5








NATIONAL INCOME AND PRODUCT


time or other reaches a point beyond which high rates of improvement
cannot be sustained; then, although the advance may continue, new
developments will yield proportionately less and less return. Whether
such a point may be reached by Colombia within a few years is diffi-
cult to determine. In the light of present facts, however, we see no
insuperable obstacles to carrying out a program postulating high rates
of increases in productivity and income.
The threefold increase from 1939 to 1947 reflects all the factors
affecting the value of production, monetary as well as real. A great
part of the increase was due to the inflation of prices during the war
and postwar years. Also important were increases in the working
force and in productivity, and it is the latter which is of particular
significance for the economy.
To analyze the advance in terms of real goods and services, it is
necessary to convert the national income into figures in terms of what
it would have been had the value of thfe peso, i.e., its internal purchas-
ing power, remained constant. Table 2 attempts an adjustment of
this kind, expressing earlier years in terms of 1947 values. While the
national income tripled in money terms, it approximately doubled as

TABLE 2
NATIONAL INCOME AT CURRENT AND 1947 PRICES, 1939 1947

National Income Cost of National Income
Current Prices Living Index at 1947 Prices
(millions) (1947=100) (millions)

1939........................... ............ Ps.$1,049 48.0 Ps.$2,185
1940.......................................... 1,033 46.5 2,222
1941................ ........................... 1,063 46.0 2,311
1942.................... ............ ..... 1,159 50.0 2,318
1943.............................. ...... 1,339 57.5 2,329
1944........... ......... ..................... 1,660 69.5 2,388
1945 ........................ ......... 2,062 77.0 2,678
1946........................ ................. 2,537 84.5 3,002
1947............................ ........ .... 3,239 100.0 3,239

measured by the cost of living index. To be sure, the cost of living
index is not the proper measure by which to adjust the national in-
come for changes in the value of money. The index of prices of all
commodities entering into the gross national product and weighted
properly might have moved differently from the cost of living index.
However, the cost of living index is the only one available. The
importance of rent expenditures in the cost of living index suggests
that it understates the actual price rise; on the other hand, the








THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA


importance of agricultural items in the cost of living indec might
suggest that it overstates the price rise. However this may be, use
of the cost of living index is the only feasible approach to obtaining
an estimate of real income. On this basis, it appears that national
income in constant prices rose by approximately 50 percent from 1939
to 1947.
If we wish to measure the increases in standard of living or in
productivity, further allowance must be made for the increase in
population and the coordinate expansion of the labor force. Over this
nine-year period, population increased approximately 18 percent and
the labor force grew at about the same rate. Hence, the advance in
total real income per capital, or in productivity per worker, was not
50 percent but only 27 percent.
An increase of 27 percent in real per capital income in nine years
is equivalent to a rate of increase of approximately 3 percent per
year.2 This relatively high rate of advance was made possible in part
by reason of the fact that it started from a very low level of industrial-
ization, so that any improvements in technique or additions of equip-
ment resulted in a drastic addition to real income. Thus, increases
in output, especially in industry, have exceeded rates which would
seem maximal in more developed countries, such as Western Europe
and the United States.
Countries like Colombia, where some parts of the population have
still remained technologically in the 16th Century (as in agriculture)
or in the 19th Century (as in industry), are able to make such rapid
strides because the limited availability of productive implements is in
great part responsible for the low levels of income. The introduction
of relatively small amounts of the newest types of capital equipment,
therefore, can produce tremendous surges of productivity. In this way,
the Colombian experience merely repeats the general course of indus-
trialization of the modern world, telescoped into a shorter period and
hence a more rapid rate of growth.
Use of newer and more productive types of equipment requires,
of course, a more highly trained and dependable working force. To
the necessary degree, an effective labor force had to be created in
Colombia and it appears, from the available information, that the
growth in the labor force was not only more than proportionate to
the increase in population, but gained in productivity as an effect of
a redistribution of population toward the centers of industry. As
will be shown below, labor shifted from activities-where productivity
2 The reader should keep in mind that this is not the same as a measure of change
in productivity per man-hour but reflects rather a shift in labor force from agricul-
ture to industry, or from less to more productive occupations.








NATIONAL INCOME AND PRODUCT


was extremely low and its growth almost nil, such as in certain types
of agriculture, to occupations where productivity was higher and its
growth from existing averages was tremendous, such as industries
and public utilities. While the population as a whole advanced at
a rate of about 2 percent per year, the population and labor force in
urban centers advanced much more rapidly by perhaps 3 or 3Y2 per-
cent per year.
Accompanying this shift were some improvements affecting the
efficiency of the individual worker-the beginnings of education and
health standards of the kind which the proposed program holds to
be essential. However, the fact that most of the population has re-
mained in occupations where productivity is low has undoubtedly
retarded the level of industrial productivity as a whole.

SOURCES OF NATIONAL INCOME
All sectors of the Colombian economy contributed to the increase
in national income. Table 3 shows the part that each productive
activity played in the advance, and the relative changes in the im-
portance of these activities from 1939 to 1947. These comparisons
are in current prices and do not allow for the fact that prices in some
areas, such as agriculture, advanced more rapidly than in others.
Considering, first, the major groupings of activity between rural
and urban, it may be seen that the rural advanced slightly less than
the threefold increase in total national income, whereas the urban
activities as a whole advanced at a slightly faster pace. As a result,
income from rural activities fell from 42.6 to 40.3 percent of the total,
and urban income rose correspondingly.
These major groupings conceal, of course, large differences in rates
of advance within each group. Income originating both from industry
and animal husbandry increased 312 percent from 1939 to 1947. In-
dustry's share of the total national income rose from 11.4 to 15.3
percent over this period, a change attributable both to real increases
in employment and to productivity upsurges. The share of animal
husbandry, on the other hand, increased from 7.0 percent to 9.4 percent,
but this reflected mainly speculative and inflationary increases in the
price of beef. Dairy production made almost as rapid an advance-
an increase of 308 percent-while its share of the total increased by
almost a third, from 2.2 to 2.9 percent. Others which advanced more
rapidly than the average were commerce, construction, government,
and services.
At the other extreme, mining increased only 75 percent, and its
share of the total dropped from 3.8 to 2.2 percent. Both handicrafts
and small agricultural industries also lagged substantially-the former









30 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA
TABLE 3
SOURCES OF NATIONAL INCOME, 1939, 1947

1939 1947 Percent
Increase
Million Percent Million Percent 1939 to
pesos of Total pesos of Total 1947

NATIONAL INCOME ........................ 1,049 100.0 3,239 100.0 209

Total "Rural" Activities ........... 448 42.6 1,308 40.3 192

Agricultural crop production 290 27.6 763 23.5 163
Animal husbandry .................. 74 7.0 305 9.4 312
Small agricultural industries 61 5.8 146 4.5 139
Dairy products ........................ 23 2.2 94 2.9 308

Total "Urban" Activities........ 601 57.4 1,931 59.7 221
M ining .................................... ... 40 3.8 70 2.2 75
Manufacturing industries ...... 120 11.4 494 15.3 312
Handicrafts .............................. 50 4.8 113 3.5 126
Construction ............................ 42 4.0 140 4.3 233
Transport .................... .......... 56 5.3 154 4.8 175
Commerce ............................... 145 13.8 497 15.3 243
Government ...... ....................... 61 5.8 200 6.2 228
Public utilities ....................... 13 1.2 29 0.9 123
Banking and finance............... 20 1.9 44 1.3 120
Services and others............... 54 5.2 190 5.9 252

dropped from 4.8 to 3.5 percent of the total and the latter from 5.8
to 4.5 percent. The relative inefficiency of these pursuits and the
weakening competitive position of their products suggest that this
downtrend will continue. Public utilities and finance lagged for reasons
peculiar to those activities. The share of agricultural crop production
also fell from 27.6 to 23.5 percent between 1939 and 1947. This decline
was apparently due not so much to relatively smaller increases in
agricultural prices as to a displacement of population from rural to
urban areas, which deterred the growth of employment in agriculture.
In addition, there was a slower rate of increase in productivity in
agriculture.
Further emphasis on the problem of the distribution of productive
effort is obtained by comparing national income originating in each
activity with the labor force engaged in that activity. The only data
available for a distribution of the population by activities are those
from the 1938 census. These data cannot be considered entirely re-
liable but, after some adjustment, provide a working estimate of the
actual distribution. Since many of the workers in agriculture, and to









NATIONAL INCOME AND PRODUCT


a lesser extent in handicrafts, are part-time family employees, adjust-
ment is necessary to reduce the estimates for each occupation to
numbers of equivalent full-time income earners. For present purposes,
the assumption was that the women and children under 15 of a family
are each equivalent to only about one-fifth of a full-time worker.:
Partial information on trends since 1939 provides estimates which
reasonably indicate the number of workers in the major groups of
activities, and the nature of the shifts in the labor force between 1939
and 1947. Table 4 shows the primary distribution of population and
labor force between rural and urban activities for the two years.

TABLE 4
DISTRIBUTION OF POPULATION AND LABOR FORCE, 1939, 1947
(000 omitted)

1939 1947
Equiva- Equiva-
Total lent Total lent
Popu- Total Full-time Popu- Total Full-time
lation Employed Workers lation Employed Workers
Total Colombia ............ 8,889 4,544 2,416 10,538 5,352 2,879
Total rural activities.... 6,109 3,380 1,527 7,019 3,880 1,755
Total other activities
(mostly urban)........ 2,780 1,164 889 3,519 1,472 1,124

In general, a movement can be observed from the country to the town.
In 1939, the rural sector included 69 percent of the population and
632 percent of the equivalent in full-time workers. This con-
trasts with a share in the national income of only 42.6 percent. By
1947, rural activities accounted for 66.6 percent of the population, 61
percent of equivalent full-time workers, and 40.3 percent of the national
income.
These data also bring out the relatively lower rates of return to
the agricultural labor force. In 1939, total income of Ps.$450 million
represented an average of Ps.$300 for the 1.5 million rural income
earners, compared with an average of Ps.$667 for urban income earners.
By 1947, the gap had widened a little further. The average for rural
workers was Ps.$745 as against Ps.$1,718 for urban workers, and the
ratio of urban to rural had risen from 222 to 231 percent.
The movement from farm to industries and other urban activities
was motivated both by existing higher wages and by the prospects of
faster increases in wage rates. The fact that these incentives were
operative was in itself a manifestation of the existence of a higher

3 The techniques of adjustment are discussed in Appendix A.









32 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

level of productivity in urban activities which in turn was attributable
mainly to a higher degree of mechanization. At the same time it left
more land available per agricultural worker. As shown in Chapter IV,
purchases of equipment, and other forms of capital formation between
1939-47, occurred mainly outside of the agricultural sector. Thus, the
relative advantage of urban activities became greater each year.
Comparison of the sources of national income with those for other
countries, however, emphasizes the underdevelopment of Colombia,
even at its present stage, and some of the major problems to be faced.
The relatively high proportion of income originating in rural activities
reflects the comparatively low level of industrialization. More than
four times as large a proportion of total income is obtained from
the rural sector as is obtained in the United States, and more than
two and one-half times as large a proportion as in Chile. Less than
one-half as much is obtained from manufacturing and mining as in
either the United States or Chile. Table 5 compares 1947 data for
Colombia and the United States with Chilean data for 1943, the latest
available.

TABLE 5
RELATIVE IMPORTANCE OF INCOME SOURCES IN THREE COUNTRIES

Percentage of National Income
Colombia USA Chile
(1947) (1947) (1943)

RURAL ACTIrrrIEs:
A agriculture .................... .................. ......
Animal husbandry .................................. 4.3 95 16.0
Small agricultural industries..................
Dairy products .................................... ..
URBAN ACTIVITIES:
Manufacturing industries ........................ 15.3 30.5 19.8
Handicrafts .......................... ................. 3.5 -
Construction ......................... ................ 4.3 4.3 2.0
Transport ........................ .... ............... 4.8 5.6 5.7
Public utilities ........................................... 0.9 2.7 1.4
Government ................... .............. 6.2 9.2 9.1
Commerce .................................... ................. 15.3 18.5 13.6
Banking ............................... .............. 1.3 8.21 4.0
Services and others............................. ....... 5.9 9.5 18.6
M ining .................................. ................ 2.2 2.0 9.8

Subtotal ............................... ................. 59.7 90.5 84.0


1 This figure includes finance, insurance and real estate.








NATIONAL INCOME AND PRODUCT


The distribution of the urban labor force in Colombia by activities
is shown in Table 6. The outstanding increase in industrial employ-
ment-almost 50 percent in nine years-is perhaps the most significant
indicator of economic development during this period. Closely related
to this are the relatively rapid increases in transportation and trade.
However, some urban activities showed little progress. For example,
the maintenance of an almost fixed number of Government employees
may have resulted from a desire on the part of the Government to re-
duce non-capital expenses to a minimum. In the case of construction,
it appears likely that increases in productivity were so large that

TABLE 6
DISTRIBUTION OF THE LABOR FORCE, 1939, 1947


Equivalent
Full-time Workers
1939 1947


Percent
Increase
1939 to 1947


(000 omitted)


GRAND TOTAL ........................................
Rural .................................................
Total Urban ......................................
M ining ........................ ............
Manufacturing industries ............
Handicrafts ......................................
Construction ...............................
Transport ........................................
Commerce ........................................
Government ....................................
Services ............................. ...........
Liberal professions ......................
Domestic services ..........................
Other .................................................


2,417
1,527
890
57.5
100
148
72.5
66.5
148
95
67
19.5
110


2,880 18.1
1,755 14.9
1,125 26.4
60 4.5
146 46.0
185 25.0
96 32.0
95 43.0
194 31.0
98 3.0
79 18.0
25 28.2
140 27.2
7 17.0


increased employment was not necessary. Improvements in technique
may also account partly for the lag in mining employment; but here
the limitation of resources and the fixed price of gold are special
factors affecting production and employment.

DISTRIBUTION OF PERSONAL INCOME

The general welfare of the population of any country depends not
only upon the total amount of income it is able to produce, but also
upon the distribution of that income among the various groups and
classes of the population. In every country there are wide disparities








THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA


in income. Some people, by reason of birth, position, or ability, are
able to command much larger incomes than the average, whereas
many others never rise above substandard incomes. The depressed
condition of the latter not only represents an undesirable social con-
dition, but affects the ability of the economy to advance. The relatively
low level of consumption possible for those with substandard incomes
acts as a drag upon the development of markets, and thereby retards
production and distribution throughout the economy.
Unfortunately, sound data on the distribution of income are not
available. The unreliability of income tax returns makes it difficult
even to estimate income distribution. The fact that separate returns
are made for corporations, the dividends of which are then deducted
from personal income declarations, and the fact that most Colombians,
except the richest, do not file any returns at all, defeat any attempt
to describe the distribution of the Colombian population by income
groups in a scientific manner. However, the Mission has made a very
tentative appraisal of income distribution for the year 1947.
Scattered estimates indicate that the incomes of small and medium
farmers, colonists, and agricultural workers amounted to slightly
less than Ps.$1.1 billion; the incomes of industrial workers and of
people working for themselves, mostly in handicrafts in urban com-
munities, added up to a similar total. The balance of over Ps. $900
million accrued to managers and large landowners or, more generally,
to the owner class, either directly or through corporations in which
they held shares. Holdings of shares in business enterprises are not
widely distributed and, in fact, holdings of assets of all kinds are
highly concentrated. Thus, the owners of individual enterprises and
the shareholders in corporations are either the same people or members
of the same families. For this reason corporation net profits can be
considered as income accruing to the high income groups.
Table 7 presents a tentative distribution of income among low,
middle and high income groups. The low income group, comprising
seven-eighths of the income earners, obtained less than 60 percent of
the total income; at the other extreme, less than one-fortieth of the
income earners commanded almost 30 percent of the total income. In
other words, almost 90. percent of the income earners received less
than the average income of Ps.$1,073, whereas 2Y2 percent of the
income earners received over ten times the average for the country
as a whole.









NATIONAL INCOME AND PRODUCT


TABLE 7
ESTIMATED DISTRIBUTION OF PERSONAL INCOME, 1947

Income Earners \ Personal Income Average
--------------------Average
Number Percent Million Percent Income
Income Groups (thousands) of total pesos of total per Earner

TOTAL ...................... 2,879 100.0 Ps.$3,089 100.0 Ps.$ 1,073.0
Low INCOMES
(Under Ps.$1,000) .......... 2,524 87.7 1,758 56.9 696.5
Rural ............................... 1,678 58.3 $1,010 32.7 $ 602.0
Urban .............................. 846 29.4 748 24.2 884.0
MIDDLE INCOMES
(Ps.$1,000-$2,000) ............ 280 9.7 408 13.2 $1,457.0
Rural ................................ 58 2.0 $ 83 2.6 $ 1,431.0
Urban ....................... 222 7.7 325 10.6 1,464.0
HIGH INCOMES
(Over Ps.$2,000) .............. 75 2.6 923 29.9 12,307.0
Rural ................................ 19 .7 $ 234 7.6 $12,316.0
U rban .............................. 56 1.9 689 22.3 12,304.0

Needless to say, there are wide variations within these classes.
At least 350 people earned more than Ps.$100,000 per year; other
incomes in the high income group were as low as Ps.$2,000. For
example, coffee growers with at least 3 hectares of land could attain
the national average income; but farmers in depressed agricultural
areas such as Atlantico, Bolivar, Magdalena, BoyacA and Narifio
earned less than Ps.$400 each. Since each income earner was in
turn supporting an average of four people, large groups of the popu-
lation had to survive on an average of only Ps.$100, which was
equivalent at the existing exchange rate to less than U.S.$58 per
year. Since our computation of national income includes the value
of all commodities produced by Colombian labor, whether or not they
actually left the household economy, this U.S.$58 includes not only
the returns from sales of goods but the total of human effort avail-
able for food, shelter, or clothing. The level of living in these de-
pressed areas is thus extremely low and it is therefore not surprising
that malnutrition and epidemics threaten constantly, that a very
high rate of infant mortality prevails, and that the most enterprising
inhabitants migrate to better lands or urban centers.
From these data, it is also clear that although sizable differences
exist between the earnings of the average rural and urban workers








36 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

(the spread being about 12 to 1), the major beneficiaries of the
differences in income yields are not the workers, but the corporations
and the owners or managers of personal enterprises. The estimated
income of Ps.$923 million accruing to the high income group was
the source of all income taxes and of most personal savings. The
available data indicate, however, that the disparities in income de-
creased slightly from 1939 to 1947.
The effects of these inequalities are reflected in the relative lagging
of consumption during this period: per capital consumption increased
only by 16 percent. Again, it may be pointed out that not all classes
of the population obtained an equal share of this increase. Although
it cannot be denied that both farmers and workers are better off now
than they were before the war, the advance did not manifest itself
in a striking improvement in the condition of the working classes.
One of the problems to be faced, as will be seen later in the discus-
sions of capital formation and the utilization of foreign exchange,4
lies in the relatively heavy expenditures for homes, automobiles, and
other luxury goods by the income groups obtaining incomes of a
size sufficient to permit nonessential expenditures.
Although these estimates indicate the existence of great social
inequalities, a middle class is making its appearance, and specialized
workers in both rural and urban communities are beginning to enjoy
incomes that definitely are above substandard levels.


4 See Chapters IV and XV.










CHAPTER IV


Capital Formation

Although the central objective of increasing productivity must be
worked for along many lines, it is evident that capital formation-
using this term in the narrow sense of plant, equipment and con-
struction expenditures-is one of its major means of implementation.
A positive program for capital formation will, therefore, be considered
in Part II, but it is important at the outset of our discussion to
obtain as clear a picture as possible of capital formation during recent
years. This is the purpose of the present chapter.
Capital formation, as usually defined in national income statistics,
includes expenditures on plant and equipment as well as on residential
and business construction, and changes in inventory holdings. It
excludes all investments in human resources, such as improved health
or education, and a large group of durable consumer goods, such as
automobiles, which are largely used for consumption. In an under-
developed economy, such as Colombia, there is apt to be an inter-
mingling of business and consumption uses of durable consumer
goods. Also, there is good reason to regard as capital formation
the acquisition of durable consumer goods which contribute to the
future productivity of the Colombian worker by rendering a con-
tinuous contribution to his standard of living. For this reason, major
items of durable consumer goods, such as automobiles, are included
in capital formation here. Changes in the value of business inven-
tories, however, are excluded.
The concept of capital formation as here used thus corresponds
generally to the usage of the term in American or British income
statistics with those important differences. As is usual, distinction
is made between gross and net capital formation, the difference being
equal to depreciation allowance.
The acquisition of capital goods is but one part of capital forma-
tion in the very basic sense of expenditures made to increase the
output per worker. In an underdeveloped economy, it is very doubt-
ful, indeed, whether it is the most important item. At some stage
of economic development, improvement of health and education may
well be prerequisite to, or at least may have to be developed con-
currently with, the accumulation of capital goods. The reader
should bear in mind, therefore, that on the one hand, estimates of
capital formation presented here include luxurious homes and pas-
senger automobiles, while, on the other hand, they exclude investments







38 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

in workers' health and education other than those represented by
expenditures on schools, hospitals and health centers. Hence, our
estimates of capital formation are not synonymous with expenditures
designed to increase productivity.
The estimates of capital formation involved serious difficulties.
A number of assumptions of varying degrees of validity had to be
made regarding the profit margins and internal transport costs on
imported equipment and domestically produced capital goods, re-
garding domestic production of capital goods and materials, and so
forth. The technical exposition of the methodology involved is avail-
able as Appendix A. It is of interest to note, however, that markups
and internal transport costs are estimated at 50 percent of the c.i.f.
price of imported equipment and at 25 percent of the cost of domes-
tically produced capital goods.


STRUCTURE OF CAPITAL FORMATION

While the overall picture of capital formation in Colombia is
available for the years from 1939 to 1947, 1939 and 1947 are the only
years for which a detailed set of estimates could be prepared. This
will permit a general comparison of developments in prewar and post-
war capital formation, although it must be kept in mind that 1947 was
abnormal in certain respects because of the resumption of large scale
imports which had been suspended during the war and because of
increased prices. However, the level of imports in 1948 and 1949
showed only a slight decline and in the current year (1950), it may
well return to the 1947 volume.

Table 8 shows that total capital formation practically quadrupled
from 1939 to 1947, rising from Ps.$153.5 million to Ps.$612.2 million.
Its growth was practically arrested during the war years when
imported equipment was difficult to secure. The rise was especially
marked in the immediate postwar years. Equipment's share in the
total rose from just under half to almost 55 percent from 1939 to
1947. This undoubtedly reflected both increased prices as well as
greater availability of imported equipment in 1947. In the period
as a whole, investment in building construction more than tripled
and its share in the total hovered around one-third. Investment in
labor costs, on the other hand, increased steadily in the prewar period,
dropped somewhat between 1942 and 1944, though not to the prewar
level, and dropped again in 1947 after reaching an all-time high in
1946. It likewise tripled in the period as a whole, but its share of the
total remained under one-fifth.








CAPITAL FORMATION


TABLE 8
GROSS CAPITAL FORMATION, 1939-1947

Delivered
Cost of Labor
Equipment1 Buildings2 Costs3 Total
(millions)
1939............................ Ps.$ 72.0 Ps.$ 50.1 Ps.$ 31.4 Ps.$153.5
1940............................ 70.3 46.5 47.9 164.7
1941............................ 74.4 51.4 51.7 177.5
1942........................... 21.3 55.0 80.4 156.7
1943................................ 44.6 52.4 62.8 159.8
1944............................ 66.5 64.6 57.8 186.9
1945............................ 102.1 118.2 80.4 300.7
1946............................ 183.1 156.0 115.9 455.0
1947............................ 332.0 170.0 110.2 612.2

1 This includes the delivered cost of capital and durable equipment, both imported
and locally produced. The costs of transportation and markups of importers, whole-
salers and distributors are covered. For a detailed statement of items included as capital
imports, see Appendix A.
2 Includes labor and material in all buildings-factories, commercial, residential and
governmental.
3 Cost of labor engaged in repairs of rolling equipment, construction teams on high-
ways, bridges, railroads, construction workers installing industrial equipment, and
agricultural labor opening new lands.

A more detailed view of capital formation in the years 1939 and
1947 is presented in Table 9. In industries and in public works, capi-
tal formation in the equipment category increased more than sixfold
from 1939 to 1947, while in the remaining sectors of the economy it
practically quadrupled. The increment to total capital formation in in-
dustries was likewise about sixfold, but the 1947 total in public works
was little more than three times the 1939 level because governmental
building did not keep pace with the increase in the equipment and
labor costs components of capital formation in public works. Total
capital formation in agriculture, transport, mining and construction
rose at practically the same rate as the equipment category in those
sectors because there was no great variation in the behavior of the
labor costs component. Total capital formation by residential building
increased more than three times, while in commercial building the
increment was more than fivefold. In 1947 public works amounted to
22 percent of the total.

Capital Formation and Imports
Imports play an extraordinarily important part in Colombian capi-
tal formation. Thus, out of a total capital formation of Ps.$612.2
million in 1947, about Ps.$222 million (after deduction of estimated








40 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

TABLE 9
GROSS CAPITAL FORMATION BY ECONOMIC SECTORS, 1939, 1947
(millions of pesos)

Equipment Buildings1 Labor Costs2 Total
Economic Sectors 1939 1947 1939 1947 1939 1947 1939 1947
Industries ....................... 13.8 87.3 1.1 7.5 1.4 8.8 16.3 103.6
Agriculture ................... 11.6 45.0 .... .... 3.7 11.5 15.3 56.5
Transport .................... 26.7 117.0 .... .... 10.4 32.0 37.1 149.0
M ining ........................ 5.0 19.8 .... .... .5 2.0 5.5 21.8
Construction ................. .9 6.0 .... .... .1 .6 1.0 6.6
Residential ............ .... .... 36.0 123.0 ... .... 36.0 123.0
Commercial ........... .... .... 2.9 17.2 .... .... 2.9 17.2
Public Works ............... 14.0 56.9 10.1 22.3 15.3 55.3 39.4 134.5
TOTAL ............ 72.0 332.0 50.1 170.0 31.4 110.2 153.5 612.2

1 Includes material and labor costs of buildings.
2 Labor costs involved in repairs of rolling equipment, installing industrial equip-
ment, construction teams on highways, bridges, railroads, and opening new lands for
agriculture.

increased markups and transport costs), or over one-third, was in the
form of imported goods and materials. These capital imports in turn
amounted to nearly one-third of total merchandise imports. If the
material and equipment component of gross capital formation is con-
sidered by itself, it appears that imports accounted for about 77 per-
cent of the total in that.year. Table 10 is designed to show the foreign
exchange costs of capital formation. It also shows that the relative
importance of imports has changed little between 1939 and 1947. The
importance of imports in the material and equipment component fluc-
tuates considerably in the various economic sectors. In building, where
a considerable part of the material was locally produced, e.g., cement,
brick, tile, etc., imports constituted little more than half of the ma-
terials needed. In sectors where equipment rather than material was
needed, imports were of much greater importance-in several sectors
from 90 to 100 percent of equipment required.

These data provide a striking demonstration of the strategic im-
portance of foreign trade to the future of the Colombian economy.
While rapid progress might be made in light manufacturing, especially
in consumer goods, with domestically produced equipment, it must
be expected that imports will remain the main source of capital equip-
ment for many years to come. The availability of foreign exchange
and a wise use of foreign exchange resources are therefore vital to the
country's economic development.








CAPITAL FORMATION


TABLE 10
RELATIVE IMPORTANCE OF IMPORTS IN VARIOUS SECTORS
OF CAPITAL FORMATION, 1939, 1947
(millions of pesos)
Gross Capital Percentage
Imports1 Formation Imported
Economic Sectors 1939 1947 1939 1947 1939 1947
Industries .................. Ps.$ 8.2 Ps.$ 54.9 Ps.$ 16.3 Ps.$103.6 50.3 53.0
Agriculture ................ 7.1 27.7 15.3 56.5 46.4 49.0
Transport .................... 16.2 71.6 37.1 149.0 43.7 48.0
Mining ........................ 3.3 13.2 5.5 21.8 60.0 60.5
Construction industry.. .6 4.0 1.0 6.6 60.0 60.6
Residential building.... 6.6 22.9 36.0 123.0 18.3 18.6
Commercial building. .5 3.2 2.9 17.2 17.2 18.6
Public works .............. 7.3 24.9 39.4 134.5 18.5 18.5
TOTAL .......... Ps.$49.8 Ps.$222.4 Ps.$153.5 Ps.$612.2 32.4 36.3

1 Cost of imports without internal markups and transport costs.

Capital Formation and End Use
The absolute and percentage distribution of capital formation by
end use is shown in Table 11. This presentation differs from that in
Tables 9 and 10 by the fact that public works are broken down and
distributed functionally. While for certain purposes it is useful to
present public works as a single entity, for other purposes it is more
interesting to analyze capital formation by economic end use.
The extreme importance of transport in capital formation be-
comes immediately apparent from an inspection of Table 11. In 1947,
total expenditures on transport amounted to about Ps.$200 million, or
one-third of all gross capital formation. The private sector of this
total was composed largely of imported transport equipment, vehicles
and materials. While transport equipment as here measured includes
passenger automobiles, car purchases which might be classified as
being wholly for luxury purposes amounted to hardly more than 10
percent of total transport equipment purchased. The bulk of the items
were in the form of cars providing essential passenger traffic and trucks
and railroad rolling stock. The 1947 figure may be somewhat abnormal
because it includes an unusually large volume of car imports.
These data support the emphasis placed throughout this Report
upon the importance of the transport problem in the economic life of
the country. While total outlays for improvement of transport have
been substantial, as indicated in the above figures, the planning of








42 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

transport facilities in the past has left much to be desired. Because of
this and the great importance of improvement in transportation to
economic development in Colombia, the Mission has given a good deal
of attention to transport improvements.
Next in importance to transport in this classification for 1947 was
residential construction, comprising Ps.$123 million, or 20 percent
of the total. While this represented a substantial share of total capi-
tal formation, residential construction during recent years was con-
centrated largely on higher priced homes and, as will be noted later
in Chapter XI, there remains an urgent need for the provision of
lower and middle class homes in Colombia.

TABLE 11
GRoss CAPITAL FORMATION BY END USE, 19471

Total Total Private Public Percentage
Investment Imports Investment Investment Distribution
(millions)
Industries ...................... Ps.$103.6 U.S.$ 27.5 Ps.$103.6 Ps.$ 16.9
Agriculture .................... 67.8 14.4 56.5 11.3 11.1
Transport ...................... 199.0 40.5 118.5 80.5 32.6
Mining ............................ 21.8 6.6 21.8 3.6
Construction trade ...... 6.6 2.0 6.6 1.1
Housing .......................... 123.0 11.5 123.0 20.0
Buildings (commercial
& Government) ........ 39.5 3.7 17.2 22.3 6.4
Municipal facilities &
power .......................... 50.9 4.7 50.9 8.3
TOTAL .............. Ps.$612.2 U.S.$110.9 Ps.$447.2 Ps.$165.0 100.0

1 This table differs from Tables 9 and 10 by the distribution of the public works
sector of capital formation into functional classes.

The third large share of capital formation in 1947 took place in
industry. Largely in the form of imported equipment, industry's
portion of capital formation increased sharply from 10.6 percent of
the total in 1939 to 17 percent of the total in 1947. This reflects the
rapid expansion of the industrial sector of the Colombian economy,
especially since the end of the war.
Agriculture accounted for 11 percent of the total, approximately
the same as in 1939. Capital formation in mining likewise appears to
have retained its relative position aggregating 3.6 percent of the
total.
The fact that only 8 percent of capital formation in 1947 took
place for the provision of municipal facilities and electric power plants








CAPITAL FORMATION 43

is surprising in view of the relatively rapid rate of growth of muni-
cipalities and the practically universal shortage of power. We will
have occasion to discuss this relatively lagging sector at considerable
length in later chapters.

Capital Formation and Types of Assets
Table 12 is a percentage breakdown of capital formation by equip-
ment, buildings and other types of assets. It shows that the pattern of
capital formation in 1947 was similar to that of 1939. In both years,
about 50 percent of capital formation went into equipment, about 30
percent into buildings, and some 20 percent into maintenance, land
improvement, and so forth. It is important in this connection to note
the heavy item of trade and transport costs which resulted in an almost
50 percent addition to the cost of equipment. While more competitive
conditions, especially in the import trade, should make it possible to
reduce the costs arising from trade markups, a large element of trans-
portation costs is a rather inevitable result of the country's topography.
In this respect, Colombia is at a disadvantage as compared with smaller
and more compact countries with closer proximity of population
centers to ocean ports.

TABLE 12
GROSS CAPITAL FORMATION BY TYPE OF ASSET, 1939. 1947
(percentage)

1939 1947

EQUIPMENT
Im ported ................................. ............. 26.7 31.1
Domestic .................... ..... ........... 5.6 6.0
Trade and transport................................ 14.8 17.1
T OTAL .............................................. 47.1 54.2
BUILDINGS
Im ported ..................... ................. ... 5.9 5.2
Domestic ..................... .... ....... ....... 5.1 5.1
Trade and transport.................................. 4.2 3.9-
L abor ........................................ ............ 17.3 13.6
TOTAL .................. ...................... 32.5 27.8
OTHER
Labor ............................ .................. 20.4 18.0
T OTAL .............................................. 100.0 100.0

1 Includes maintenance, installation, land improvements.








44 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Importance of Construction Industry
In Table 9, the absorption of new capital equipment into the con-
struction industry was considered and found small. However, as shown
in Table 13, all construction activity, including public works, was a
most important source of capital formation. As shown in that table,
nearly one-half of total gross capital formation was in construction,
including buildings, highways, railroad construction, etc. The lower
part of the table shows the distribution of total construction according
to the most important items. It appears that for 1947 buildings of
various kinds comprised 60 percent of total construction, with highway
construction and maintenance, 15 percent of the total, as the next
most important item.

TABLE 13
AMOUNT EXPENDED ON CONSTRUCTION IN GROSS CAPITAL FORMATION,
1939 AND 1947
(millions of pesos)

1939 1947
Construc- Construc-
tion Other Total tion Other Total
Imported material ..... 14.6 35.2 49.8 52.2 170.0 222.2
Local material ........... 12.5 6.6 19.1 51.5 16.0 67.5
Trade and transport.. 10.4 18.7 29.1 39.0 89.0 128.0
Labor ........................... 41.8 13.5 55.3 139.5 54.8 194.3
Total.......... 79.3 74.0 153.3 282.2 329.8 612.0

MAJOR ITEMS OF CONSTRUCTION: 19.9 1947
Housing-urban .................................... 19.1 66.3
rural ...................... ............ 16.9 56.7
Offices, schools, churches............................ 14.0 47.0
Railroads ................................ .............. ..... 2.7 10.6
Rivers and ports............................. ........... 1.8 5.0
Irrigation and drainage............ ................ 5.9 11.3
Water and sewers, hydroelectric plants. 6.9 50.9
H ighw ays ................................... ......... ... 12.0 34.4
Total......................... ........ ..... 79.3 2822
Public and Private Capital Formation
Table 14 presents a breakdown of capital formation by public and
private origin. For 1947 the public share in capital formation amounted
to little more than one-fourth, as against about one-third in 1939.
The declining public share does not reflect an absolute decline in
public capital formation in peso terms but a much sharper increase
in the rate of private, compared with public, capital formation. This








CAPITAL FORMATION 45

TABLE 14
PUBLIC AND PRIVATE GROSS CAPITAL FORMATION, 1939-1947

Year Public ___Private
Amount Per- Amount Per- Total
(millions) centage (millions) centage (millions)
1939...................... Ps.$ 50.9 33.1 Ps.$102.6 66.9 Ps.$153.5
1940...................... 66.5 40.4 98.2 59.6 164.7
1941...................... 65.0 36.6 112.5 63.4 177.5
1942...................... 81.0 51.7 75.7 48.3 156.7
1943...................... 78.5 49.1 81.3 50.9 159.8
1944...................... 76.7 41.0 110.2 59.0 186.9
1945...................... 97.7 32.5 203.0 67.5 300.7
1946...................... 130.8 28.7 324.2 71.3 455.0
1947...................... 165.1 27.0 ; 447.1 73.0 612.2

suggests that government expenditures have followed rather than led
the expansion in economic activity during the last decade, an im-
pression borne out by the more detailed analysis of public finance in
Chapter XIII. As shown by Table 15, in 1947 about one-half of public
capital formation was in the form of transportation facilities of various
kinds, especially highways and railroads, with agricultural improve-
ments amounting to about 7 percent of the total. In 1947 less than
one-half of public capital formation originated from the National
Government, the estimated departmental and municipal shares being
about 15 percent and 35 percent, respectively.

TABLE 15
MAJOR ITEMS OF PUBLIC CAPITAL FORMATION, 1947

Construction, Equipment and Maintenance
(millions)
HIGHWAYS
National ...................................... ........................................ Ps.$ 38.3
D epartm ental ... ...................................................................9.3
RAILROADS
N national ............................................. ............... 22.3
D epartm mental ................................................ ........................... 5.6
BUILDINGS
N national .......................................................................... .......... .. ... 9.0
D epartm ental .......................... ........................................ ... 8.3
AGRICULTURAL IMPROVEMENTS
N national ......................................... ............. 8.1
D epartm ental .................................... .................................. 3.2
PORTS AND RIVERS......................... ................................ 5.0
H YDROELECTRIC PLANTS .................................................. ................ 7.0
M UNICIPAL DEVELOPMENT .................................. ................ 48.9
G RAND T OTAL ............................................................. Ps.$165.0








46 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Capital Formation and Gross National Product
As shown in Table 16, capital formation in 1939 amounted to about
12 percent of the gross national product. During the prewar years it
increased steadily, but in the war period the relative importance of
capital formation declined until it reached the nine-year low of 9.9
percent in 1944. After the war the proportion of the gross national
product going into capital formation rose steadily until in 1947 it
reached a peak of 16.7 percent of the total. These rates compare
favorably with those of most underdeveloped countries and, as shown
in the preceding chapter, they have accompanied about a doubling of
the country's real income over the last decade. Unquestionably, the

TABLE 16
GROSS CAPITAL FORMATION COMPARED WITH GROSS NATIONAL PRODUCT,
1939-1947

Gross Capital
Formation as
Gross National Gross Capital Percentage of Gross
Product Formation National Product
(millions)
1939.............................. Ps.$1236.0 Ps.$153.3 12.4
1940............................. ........ 1196.5 164.7 13.8
1941..................... ......... 1239.2 177.5 14.3
1942................... ........... 1342.1 156.7 11.7
1943.................... ........ 1525.1 159.8 10.5
1944.............................. 1878.4 186.9 9.9
1945.......................... 2366.6 300.7 12.7
1946 ................. .......... 2906.2 455.0 15.7
1947.................................. 3673.8 612.0 16.7
high rate of capital formation in the postwar period was caused in part
by Colombia's favorable international trade position. The procurement
of modern equipment in Colombia is directly dependent upon the avail-
ability of foreign exchange resources and the prices at which equip-
ment can be bought in the foreign market. In the immediate postwar
years, such exchange resources were relatively ample, due to the
wartime lack of imports. Moreover, availability of exchange resources
was combined with a rising level of domestic income and prices which,
proceeding more rapidly than the price rise abroad, increased the
profitability of importing capital into Colombia.
While the rate of capital formation is relatively high, it must be
admitted that in absolute terms the figure is low. Of the Ps.$612
million figure for 1947, an exceptional year, at least Ps.$128 million
represented markups and transport costs. The c.i.f. cost of imported
equipment in both the industrial and agricultural fields amounted only
to Ps.$81 million, or U.S.$46 million.








CAPITAL FORMATION


If the addition to the Colombian capital stock were largely in the
form of domestically produced items, an estimate could be made of
the portion of Colombian resources going into the production of capi-
tal goods. But, as we have seen, the domestic output of capital goods
is small and limited mainly to construction labor, transportation, and
the installation of imported equipment. New equipment as such is
obtained almost wholly from imports and this is made possible by
the diversion of domestic labor and resources into the production of
export commodities, mainly coffee. Assuming that one-third of the
labor force engaged in agriculture produces coffee and that 50 percent
of the coffee production is utilized to produce foreign exchange used
in the import of capital goods, approximately 250,000 people are
employed indirectly in the production of imported capital goods. This
compares with a total of about 150,000 people employed in industrial
production proper and this latter group produces about six times the
value of imported capital equipment. This illustrates a basic difficulty
involved in the growth of underdeveloped countries. In order to
achieve industrial development and a concomitant increase in produc-
tivity, imports of equipment are needed. In order to obtain these
imports, the country must export agricultural products. Yet the agri-
cultural sector lags in economic development and thus an inordinately
large fraction of the country's labor force is tied up in providing for
a relatively small volume of capital imports.
The answer to the problem cannot be found in early development
of heavy industries at home. Among many other difficulties that
would arise, it is evident that the domestic market for most products
is still too small to warrant such development. Nor can the answer
be. found in reduced emphasis on capital imports. On the contrary,
modernization of agriculture, as well as industry, is essential for a
rising standard of living in Colombia. The only means of solving the
dilemma, therefore, lies in assuring the most efficient use of capital
resources. This implies a balanced development of both the industrial
and agricultural sectors of the economy. By increasing the efficiency
of agriculture, it will be possible to release manpower from the agri-
cultural sector for industry and it will then be possible to increase
industrial output by the reduced real cost of manpower, as well as
equipment.

FINANCIAL ASPECTS OF CAPITAL FORMATION
Capital formation contributes to the country's development by
raising productivity through the provision of more and better equip-
ment. However, the production of additional capital goods will come
about only if the means of finance are provided; and the way in which








48 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

capital formation is financed will have important bearing upon the
pattern of real capital formation.
To the extent that resources are absorbed in the process of capital
formation (either directly or via the country's foreign trade), these
resources are not available for the production of goods currently
consumed. Just as part of the resources are thus diverted into the
making of capital goods, part of the community's effective demand or
expenditure is being directed into the purchase of such goods rather
than items of current consumption. A simple way of picturing this
process is to think of people's savings (i.e., the part of their income
not spent on consumption) as being used to buy the capital goods
which are currently produced.
But this is an oversimplification. To be sure, yesterday's money
income set aside as savings is an important source for the financing
of today's investment, but these two magnitudes need by no means
be equal. Today's investment may not only draw on savings out of
yesterday's income but it may be financed as well by resort to new
bank credit or by drawing on balances which previously had been
unused. Thus, today's investment may well exceed the community's
savings out of yesterday's income; and if this occurs, total expendi-
tures of today will exceed those of yesterday. In a situation where
resources are fully employed, this increase in expenditure cannot call
forth a rise in total output but can only result in inflation. Investment
based on new credit creation and the activation of idle balances in
this way permits a larger fraction of real resources to be used for
capital formation than is indicated by the share of the income which
people had intended to set aside for savings: people will spend on
consumption the amount of pesos which they had intended to spend
in this fashion, but they will find that prices have risen and that the
intended outlay is purchasing less real goods and services than they
had expected. In a period in which intended savings fall short of
the volume of capital formation, the remainder is thus made up by
"forced saving" (lesser real value of current consumption) brought
about by a rise in prices.
The preceding exposition of the process of capital formation by
inflation may seem somewhat theoretical to the reader, but it is by no
means an academic matter for Colombia. Capital formation during
recent years has been based to a considerable extent on this very
mechanism. Also, it must be understood clearly in order to realize








CAPITAL FORMATION


that a high rate of future capital formation will be compatible with
price stability only if people are willing to undertake an equally high
rate of saving out of their current incomes and if the community as
a whole is willing to impose higher taxes. This will be considered in
some detail in Chapter XXX, where the outlines of a future program
of capital formation are presented. But it should be made clear at the
outset that the origin and level of savings are of twofold importance
to the process of capital formation: the distribution of savings by
types of savers will not only have considerable bearing upon the kind
of .capital formation undertaken, but the rate at which individuals and
businesses save will also determine the volume of total capital forma-
tion which can be undertaken without inflation.

General Sources of Capital Formation
Available data do not permit us to obtain a complete picture of
the resources of financing upon which the process of capital formation
in Colombia has been based. It is possible, however, to derive some
information in this regard from the national income data presented in
Chapter III.

In Table 17, the gross national product data for 1947 are rearranged
to show for various sectors of the economy the amount of expendi-
tures made, the sources of funds available out of current income for
the financing of such expenditures and the difference between the
two-the amount of saving (excess of current income over expendi-
tures) or the amount of the dis-saving (excess of current expenditures
over income). For purposes of this table, the economy is broken
down into four sectors: consumer, business, foreign trade and govern-
ment. The income of consumers in 1947 amounted to Ps.$3000.9
million. Since consumer expenditures were only Ps.$2985.4 million,
consumer savings equaled Ps.$15.5 million. Current receipts avail-
able to the business sector here include retained earnings and deprecia-
tion charges and in 1947 equaled Ps.$278.5 million. Business
expenditures for capital purposes, on the other hand (including new as
well as replacement investment), equaled Ps.$447 million. Thus re-
mains an excess of expenditure over receipts of Ps.$168.5 million.1
Expenditures of minus Ps.$193 million shown for the foreign trade
sector are equal to net imports, which represent net receipts from

1 Following a convention applied in this type of presentation of national income
accounts, all expenditures on residential construction are included in the business
sector.








50 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

other sectors of the economy rather than payments to them.2 The
income shown for the governmental sector is equal to current tax
receipts of National, departmental and local governments which in
1947 amounted to Ps.$436.4 million. Total expenditures of these
governments amounted to Ps.$476.4 million, thus leaving a deficit
of Ps.$40 million.3


TABLE 17
BUDGET FOR COLOMBIAN ECONOMY, 19471

Sectors Income Expenditures Savings
(millions)
Consumer ........... ............... Ps.$3,000.9 Ps.$2,985.4 Ps.$+ 15.5
Business3 ................................................ 278.5 447.0 168.5
Foreign trade4 ...................................... .... 193.0 + 193.0
Governments ....................................... 436.4 476.4 40.0
Adjustment6 ........................... 42.0 42.0
Total Gross National Product.......... Ps.$3,673.8 Ps.$3,673.8 Ps.$ 0

1 All data derived from Table 1, Chapter III.
2 Income equals personal income after taxes. Expenditures equal consumer
expenditures.
3 Income equals retained earnings plus depreciation charges. Expenditures equal
gross private capital formation.
4 Expenditures equal net exports.
5 Income equals tax receipts minus deficit of government enterprises. Expenditures
equal total goods and service expenditures plus domestic transfer expenditures.
Transfers abroad are excluded. Deficit equals deficit minus transfers abroad.
6 Equals domestic transfer expenditures. This must be deducted since it is not a
factor income or a product expenditure.

The total of expenditures by all sectors equals the total of current
income of all sectors, and both these totals equal the economy's gross
national product for that year. Since there is an equality between
aggregate receipts and expenditures for all sectors combined, it follows
that any excess of savings by any one sector is offset by an excess of
expenditures in another sector. While the balance shown in this table
is implicit in the nature of the national accounts, this arrangement of

2 Net imports are given a negative sign because aggregate expenditures by others
include imported goods and this portion must be deducted in order to obtain the gross
national product; since net imports equal the excess of goods received from abroad
over and above domestically produced goods sent abroad, they are not a component of
the economy's domestic output for that year. In the third column of Table 17, finally,
these net imports are treated as savings-that is to say, they constitute a leakage from
the domestic income stream; expenditures on excess imports are not balanced by a
demand for domestic output and thus are equivalent to savings in this sense of
the term.
3 This does not include expenditures and receipts of government enterprises.








CAPITAL FORMATION


the data permits us to obtain some impressions regarding the financial
side of capital formation. As the table shows, business expenditures,
or gross private capital formation, in 1947 amounted to Ps.$447 million.
At the same time, funds available out of business income during that
year amounted to only Ps.$278.5 million. However, in addition there
were Ps.$15.5 million available out of personal savings. This points
up two characteristics of capital formation in Colombia.
First, it is striking how small a part of the total is provided by
what may be described as personal savings. In appraising this item,
it must be recalled that the estimate for personal savings is highly
conjectural. Since little direct information is available, it has been
arrived at largely as a residual item. It may well be possible, there-
fore, that some amount shown here as retained earnings of business
should be allocated instead to personal saving. The fact that changes
in inventories are not included in business expenditures may tend to
overstatement of consumers' expenditures and understatement of their
savings. Nevertheless, all available evidence indicates that personal
savings in Colombia are low. The bulk of savings out of current income
are supplied by retained business earnings and reserves of various
kinds.
Secondly, it appears that private domestic investment was con-
siderably larger than the total of funds available out of current income.
In other words, approximately one-third of private domestic invest-
ment depends on external financing. There was also a deficit in Gov-
ernment accounts. On the other hand, Table 17 indicates that the
inflationary tendencies of domestic capital formation and Government
financing were offset in part by the presence of a high level of imports.
Because of the availability of an additional supply of goods not
produced at home, the inflationary impact of excessive domestic ex-
penditures may have been lessened but, at the same time, availability
of imports may have stimulated domestic investment and thus
aggravated inflation.

Savings and Investment Institutions
The following brief view of the financial structure of the Colombian
capital market reveals a very uneven distribution of funds among
various uses. There is an ample supply of short-term credit for com-
mercial and industrial purposes, but great scarcity of short-term credit
in agriculture. Again there is a relatively ample supply of funds for
long-term investment in high-cost housing but the supply of credit
for middle- and low-cost housing is wholly insufficient, if existent at all.
While long-term funds are available in substantial amounts to estab-








THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA


lished companies which may plow back their profits, or to wealthy
individuals who may reinvest their earnings, it is very difficult for the
outsider to secure capital from the market. The credit standing of the
Government, finally, as reflected by the reluctance to hold public debt,
is low. Thus, present channeling of capital results in a tendency
toward overdevelopment in certain areas and neglect in others. In
the absence of outright Government direction of capital flow, a
broadening of the Colombian capital market is essential so that a
better distribution of funds may be brought about by the market
mechanism itself.
Commercial Banks. The role of commercial banks in the Colombian
economy is discussed at some length in Chapter XIV and, therefore,
is dealt with briefly here. As is pointed out below, Colombian banks
provide an ample amount of funds to industry and trade. However,
their participation in providing for agricultural credit is slight. In
1948 agricultural loans accounted for only 5 percent of new loans
granted, as against 40 percent for commerce; in addition, little contri-
bution is made on the part of commercial banks to the provision of
funds for long-term investment. While one of the traditional functions
of the commercial banking system is to provide 'short-term credit, it
appears that the supply of the latter has been too ample relative to the
supply of other funds.
Caja Colombiana de Ahorros. Over 80 percent of the Colombian
savings deposits are held with Caja Colombiana de Ahorros because
the privilege of other banking institutions to carry savings deposits is
severely restricted.4 At the close of 1949, these amounted to Ps.$77.2
million as against Ps.$18.5 million held by other institutions. The
capital of the Caja is owned by the Government and the board of
directors is composed and appointed in a way rather similar to that of
the Banco de la Repfiblica. It is linked administratively with the
Caja de Cr6dito Agrario in that both institutions share the same board
of directors and manager. Investments in the Caja Colombiana de
Ahorros are almost entirely in public, and very largely national, debt.
Interest paid on common savings deposits is 3 percent and interest
paid on deposits held on two-year term is 4 percent.
The increase in savings deposits from 1939 to 1940 amounted to
Ps.$2 million. During the war years, the annual rate of increase was
considerably larger, reaching Ps.$20 million in 1943-44. The increase
from 1948-49 amounted to Ps.$9 million. Two-thirds of the deposits
4 Savings deposits outside the Caja Colombiana de Ahorros are concentrated
almost wholly in the Banco de Colombia and until recently no new savings departments
could be opened. However, by recent decree (March 1950) commercial banks are
permitted to open and expand savings departments.








CAPITAL FORMATION


were in accounts of over Ps.$1,000 and holdings were concentrated
heavily in the departments of Cundinamarca and Antioquia, with
about one-third of the total in the city of Bogoti.
It is evident from these figures that the annual supply of funds
from savings deposits is of small magnitude, especially if it is con-
sidered that inflation during recent years made for a relatively high
rate of increase in incomes. This again reflects the fact that personal
savings are small and are largely derived from the higher income
groups and hence are not likely to be invested in savings deposits. As
noted in Chapter III, more than one-fourth of the total income in 1947
went to the top 1/40th of the nation's income recipients; at the same
time, this small fraction of total income recipients provided perhaps as
much as three-fourths or more of total savings. With rising incomes
and the development of a stronger middle class, the savings pattern
may be expected to change so that savings banks should become an
increasingly important link in the process of capital formation.
At the end of 1948, out of total Caja Colombiana de Ahorros assets
of Ps.$107.8 million, about Ps.$58 million were held in the form of
National Government bonds, including Ps.$10 million of Cr6dito
Agrario, Ps.$4 million of Cr6dito Territorial, and Ps.$44 million of
other National Government obligations. Thus, the Caja acted as an
intermediary in the financing of other public credit institutions, as
well as a source of funds for meeting the Government's general needs
in covering current deficits.
Notwithstanding earnings on Government securities of well above
7 percent, the return paid on saving deposits is but 3 percent. This
is explained to some extent by the high cost of maintaining a wide-
spread network of branch offices which in many small localities are
not profitable on their own account. It may be considered whether
the cost of the Caja Colombiana de Ahorros might not be reduced by
sharing services with the Caja de Cr6dito Agrario. Also, use of a postal
savings system might be considered through which the Caja Colombi-
ana de Ahorros facilities might be made available to small communities.
Caja de Cridito Agrario, Industrial y Minero. The Caja de Cr6dito
Agrario is a major source of agricultural credit and in that connection
is discussed in more detail in Chapter V. Like the Caja Colombiana de
Ahorros, it is a governmental institution and controlled by the same
board of directors and manager. At the close of 1949, the total funds
of the Caja de Cr6dito Agrario amounted to Ps.$161 million. Of this
total, two-thirds were derived from the issue of bonds and one-third
from capital subscription. While the capital is held largely by the
Government, Caja de Credito Agrario bonds are held by the Caja








54 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

Colombiana de Ahorros and, mostly on the basis of compulsory hold-
ing requirements, by commercial banks, insurance companies and
others.
The Caja de Cr6dito Agrario uses its funds to provide agricultural
credit on terms ranging from six months to twelve years with interest
rates ranging from 6 to 7'2 percent. Loans to any one borrower are
limited to Ps.$25,000 for short-term, and to Ps.$50,000 for long-term.
Cattle raisers with assets in excess of Ps.$200,000 are ineligible for
loans from the Caja de Cridito Agrario.
The Caja has fourteen branch offices in the different departments
and a large number of local offices in which, in addition to its own
business, are handled savings deposits for the Caja Colombiana de
Ahorros. Like the Caja Colombiana de Ahorros, it is subject to high
operating costs. In 1948, about 25 percent of the funds were loaned
out in amounts of less than Ps.$500, and 80 percent in amounts of
less than Ps.$5,000. Only 2 percent of the funds were loaned out in
amounts exceeding Ps.$50,000. In terms of crops, the largest share-
about 30 percent-of the loans granted went into cattle; coffee was
the next most important item with 16 percent. Much the larger part
of the loans was made to owners, only 30 percent of the total going
to tenants, settlers, and others.5
Total loans granted by the Caja de Cr6dito Agrario showed a steady
increase during recent years, but the funds available were by no means
sufficient to meet the needs of Colombian agriculture. Thus in 1948,
less than Ps.$100 million of loans were available to finance agricul-
tural production valued at over Ps.$1.2 billion, and equipment and
other agricultural improvements. The problem here is how to obtain
additional funds needed to provide more adequate working capital as
well as longer-term loans for mechanization of agriculture and the
purchase of small farms. To some extent, it might be possible to
meet this need by securing greater participation in agricultural credit
on the part of commercial banks, especially in the short-term field
and for larger loans. In this way, some Caja de Cr6dito Agrario funds
might be freed for use in the smaller and longer-term loan field. But
even if this were done, there remains a need for substantially expanded
capital resources of the Caja de Cr6dito Agrario. Pending the develop-
ment of an open market for Caja de Credito Agrario bonds, this
remains a budgetary problem and one which in view of the importance
of agricultural improvement needs to be given high priority.

5 The Banco Agricola Hipotecario, previously entrusted with the provision of
agricultural mortgage credit, is being liquidated and taken over by the Caja de
Cr6dito Agrario.








CAPITAL FORMATION


Banco Central Hipotecario. The third major credit institution is
the Banco Central Hipotecario. While the Government participates
in the direction of the Banco Central Hipotecario, four of the seven
board members are appointed as representatives of commercial banks
and only one is appointed by the Government; the remaining two
directors are appointed by the Banco de la Repiblica and by private
shareholders, respectively. The capital of the Banco Central Hipote-
cario at the close of 1949 amounted to Ps.$15 million and total assets
stood at Ps.$119 million. Other sources of funds were from the sale
of bonds in the market-at rates of 6 and 7 percent-and to some
extent, especially in 1948, from Banco de la Repfblica credit.
The major use of Banco Central Hipotecario funds is for mortgage
loans, which at the close of 1949 amounted to about two-thirds of
total assets. Its loans are made at 8 to 9 percent, or 2 percent above
the bond rates paid by the Banco Central Hipotecario, with gradual
amortization over a twenty-year period. Loans are extended up to
50 percent of the property value. Also, the bank makes loans to
municipalities which are made under the condition that it be given
administration of the collateral, a technique which has interesting
possibilities for providing more substantial funds to meet the needs
of municipalities.
While the Banco Central Hipotecario provides a fairly adequate
supply of mortgage funds for high cost housing, it makes little contri-
bution to medium, and no contribution to lower, cost housing. Thus
the only institution which is in a position effectively to raise funds
in the open market and to make longer-term loans in adequate amounts
Sis one which apparently makes social importance secondary to other
investment needs. However, the success of the Banco Central Hipote-
cario in operating profitably and in being capable of raising its own
funds without compulsory holding requirements is important in the
development of a broader and more inclusive capital market.

Stock Exchange. The stock exchange of Bogota, the only Colom-
bian stock exchange, is a private corporation supervised by the
Superintendent of Banks. The number of companies registered at
the stock exchange increased from 49 in 1939 to 94 in 1949, and capital
and legal reserves of registered corporations in the same period rose
from Ps.$140 million to Ps.$600 million. However, only a relatively
small part of this expansion, hardly more than 20 percent, was brought
about through the issuance of new shares. Much the larger part was
obtained through the retention of earnings. Moreover, the volume of
transactions is highly concentrated in a small number of companies.
In the first half of 1949, for instance, the six most active companies








56 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

accounted for 80 percent of the total transactions; Bavaria alone
accounted for 50 percent and Coltejer for about 25 percent.
While the stock exchange has been an increasingly important
element in the Colombian capital market, it has not occupied the
central position of stock exchanges in more developed countries. In
particular, the stock exchange in Colombia does not provide access
to the capital market for new companies which are not yet fully
recognized by the public. People who wish to initiate new ventures
must rely almost entirely on funds obtained through the retention of
profits in their own businesses or through personal contact from
friends. As a result, it is difficult to launch a new venture without
direct personal access to capital-a condition which is not conducive
to the development of a competitive and progressive business struc-
ture. In this area, too, there is evident need for developing a more
open capital market.
Insurance Companies. Even though small in absolute amounts, the
importance of insurance as a source of funds has rapidly grown during
recent years. The net premium payments in 1939 amounted to Ps.$3.5
million and climbed to Ps.$23 million in 1948. Total investments of
insurance companies rose from Ps.$36 million in 1946 to Ps.$45 million
in 1947 and Ps.$57 million in 1948. Thus the annual amount of funds
becoming available is somewhat above that provided through growth
of savings deposits. Unlike the Caja Colombiana de Ahorros, insur-
ance companies have distributed their funds widely between public
and private investments of various kinds. In 1948, holdings of
Government bonds were increased by Ps.$2.2 million, while private
investment and loans rose by Ps.$10 million. The latter amount
included industrial bonds and stocks and a large item of loans to
policyholders. In order to assess the contribution of insurance to
available funds, this latter amount totalling Ps.$4 million must be
deducted from net premium payments.
Industrial Development Institute. The Institute for Industrial De-
velopment is a corporation established in 1940. The purpose of the
Institute is to initiate industrial development in areas not easily
accessible to private enterprise. The board of directors includes
Government representatives and two members named by the board
of the Banco Central Hipotecario. The capital of the Institute in
June 1948 amounted to Ps.$6 million, one-half of which was subscribed
for by the Government. In addition, the Institute had issued over
Ps.$6 million in bonds, these bonds being absorbed by the Banco de la
Reptiblica in the Stabilization Fund. Further bond issues up to
Ps.$50 million are authorized but attempts to place such issues out-
side the Government have not been successful.








CAPITAL FORMATION


The Institute to date has not been able, therefore, to undertake
industrial development on a large scale. The Institute has undertaken
development projects in a rather wide number of fields, some of which
have been successful while others have not. Nevertheless, remarkable
achievements have been made with a small amount of capital. Failures
in most cases were due to technological rather than financial difficul-
ties. A chemical product enterprise, a tanning extract plant, a woolen
yarn factory, a lumber enterprise, a window pane plant, a fique plant,
a small steel plant in Medellin, a rubber tire plant, a naval construc-
tion yard, an edible oil plant, a fishing enterprise, a soda ash plant,
and a hotel were sponsored successfully by the Institute, while
plants and enterprises producing or processing sugar, food, milk,
yeast, minerals, fats, sulphur, chlorine, zinc, alkaloids and fertilizers
had to be liquidated.
It should be said, however, that the speculative nature of such
enterprises was known to the managers of the Development Institute
when they were initiated and that they were launched only because
their production was expected to replace imported goods made unavail-
able by shortages. The major endeavor of the Institute in the past
years has been the organization of the Paz de Rio Steel Mill Corpo-
ration analyzed in Chapter XIX.
Institute de Credito Territorial. The general function of the
Institute de Cridito Territorial is to develop the construction of houses
for farmers and agricultural workers and to develop low-cost urban
housing. The board of directors of the Instituto de Cr6dito Territorial
includes three Government representatives, three representatives of
various business organizations, one employee and one employer
representative. The Instituto de Cr6dito Territorial assets have grown
rapidly from Ps.$7.8 million in 1945 to Ps.$45.8 million in 1948; about
three-fifths were accounted for by increased capital provided through
the Government and two-fifths by the issuance of 3 percent bonds.
The latter were placed with individuals and businesses under a law
which required income tax payers to invest 5 percent of their income
over Ps.$10,000 in such bonds.6 The bonds may then be sold in the
market, but only at a substantial loss.
The Instituto de Cr6dito Territorial is authorized to make 30-year
mortgage loans for farmers, the value of whose property does not
exceed Ps.$30,000. Also, the Instituto may make loans to support
departmental or municipal housing projects, housing cooperatives
for farmers or construction of rural houses to be rented to farm
6 According to Decree No. 4051, issued December 20, 1949, the proceeds are now
to be split between the Instituto de Cr&dito Territorial and the Paz de Rio Steel
Mill Project.








THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA


workers. Amounts to be loaned are to be proportionate to the value
of the farm property. Similar provision may be made for the support
of urban houses; only persons whose property does not exceed Ps.
$30,000 are eligible. All the loans, urban or rural, require a first
mortgage collateral and adequate income prospects to assure mort-
gage payments.
Up to 1948, mortgage payments made by the Insituto de Cr6dito
Territorial amounted to Ps.$8 million only, with other investments,
including land purchases and loans to municipalities, nearly three
times this amount. During 1949, the amount of loans was developed
but total assets were then divided between loans and investments at
a rate of two to three. In such lending as has occurred, the Instituto
appears to have concentrated its activities on relatively costly homes
for well-to-do-farmers. Little headway has been made in provid-
ing credit for low-cost housing, rural or urban, or in providing for
such housing on a rental basis. Since the Instituto has been made
the special beneficiary of forced investment under the income tax law
and has thus obtained relatively large funds, it is unfortunate that
more progress has not been made in achieving its objectives. A
more specific formulation of the functions of the In stituto de Cridito
Territorial directed toward the low-cost housing field may be neces-
sary.

Fondo de Fomento Municipal. The Municipal Development Fund
is in effect not an institution of the capital market but is concerned
with allocation of budget receipts through various public policies.
It need not, therefore, be considered at length here. The Fund obtains
its revenues from a number of earmarked excises imposed by the
National Government, with a total yield of Ps.$10 million in 1948.
The Fund is attached to the Ministry of Finance and administered
by a Directive Committee composed of the Ministers of Finance,
Education, Industry and Commerce, Labor, Hygiene and Public
Works. Of the proceeds, 15 percent is assigned to the city of Bogota,
80 percent is assigned to departments on a per capital basis, and the
rest is distributed among departments in equal shares. The payments
are made in support of new water facilities, sewers, schools, etc.,
the contribution of the Fund being determined in most cases in the
form of a matching percentage grant. While the revenues of the
Fund have been wholly inadequate to meet municipal investment
needs, the operation of the Fund is most important as an attempt
at systematizing the allocation of national subsidies to municipal
and departmental investment, a problem which will be considered
more fully in Chapter X.









CAPITAL FORMATION


Federation of Coffee Growers. The Federation of Coffee Growers
has engaged in providing certain social improvements for the benefit
of coffee growers. These improvements are financed out of revenues
obtained from a special 6 per thousand tax on coffee exports and are
allotted to departments in proportion to their share in total coffee
exports. The services include water and soil improvements, as well
as inexpensive rural housing projects. The total annual budget
amounted to about Ps.$3 million in 1947 and it appears that this sum
is invested with a high degree of efficiency.


CAPITAL YIELDS AND INTEREST RATES
In an underdeveloped economy where capital is scarce and the
productivity of additions to capital equipment are high, it stands to
reason that the cost of capital as measured by interest rates or share
yields should be high as well. Within certain limits, this is a necessary
means of putting the scarce supply of capital to the most essential uses.
The structure of share yields, bond yields, and loan rates at com-
mercial banks is shown in Table 18, but the picture there represented
needs careful interpretation. While the share yields are bona fide


TABLE 18
YIELDS OF SECURITIES TRADED AT STOCK EXCHANGE OF BOGOTA, 1941-1949

19411 19451 19492

(Percent)
SHARE YIELDS
Beer- Bavaria ................. .... ............ 9.39 7.10 15.92
Textiles- Coltejer ........ ...................... 9.79 10.55
Real Estate-La Urbana.......................... 10.47 15.48
Cement-Cemento Diamante ................... 9.67 6.20 11.37
Commercial Banks-Banco de Colombia 10.06 9.96 13.14
BOND YIELDS
National-Dinu, 6% (1971)..................... 6.65 6.67
National-Denal, 6% (1972)...................... 6.60 6.45 6.37
Antioquia (1950) .......................................... 8.46 7.22 7.36
Caldas (1951/56) ......................................... 7.84 7.22 9.24
Banco Central Hipotecario.......................... 6.01 5.93 8.55
LOAN RATES
Commercial Banks, 90-day loans.............. 4 4 4
Commercial Banks, 120-day loans............ 6 6 6
Banco Central Hipotecario, Mortgage
Loans ................... .............................. 9
Rate paid on Savings Deposits.................. 3
Caja de Credito Agrario, 6 months........ 6
Caja de Cr6dito Agrario, long-term........ 72

1 December 31.
2 August 31.








60 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

yields obtained in the market, bond yields cannot be interpreted thus,
since only a relatively small part of the public debt held outside public
institutions is held on a voluntary basis. If there were no holding
requirements,7 probably discounts would be more substantial and
yields considerably higher. At the other end of the scale, the profit-
ability of many ventures is substantially higher than indicated by
the share yield of large corporations, which are more or less "safe"
investments. In part, this greater profitability of some ventures is
reflected in higher profit rates but primarily it is realized in the form
of capital gains accruing as a by-product of the inflation process.
Loan rates at banks are relatively low and have not been raised
for many years. The supply of funds thus is considerably short of
what could be loaned at those rates. The same applies to agricultural
loans, although here the problem is not one of adjusting the rates
to the available supply of funds, but rather of increasing the available
supply so that the market can be serviced at a lower rate. Mortgage
money, as provided by the Banco Central Hipotecario, carries a
charge of 9 percent and yet there is an excess demand for funds at
this price. In the low-cost housing field, money is not available at
9 percent but, even if it were, this rate would be too high to permit
a low-cost housing program. Thus the maladjustment in the capital
market appears to be primarily due to maldistribution of funds avail-
able for various purposes, rather than to inordinately high rates of
interest in certain areas.


7 For a discussion of these requirements, see Chapter XIII.










CHAPTER V


Agriculture

Agriculture is the most important segment of Colombia's economy.
This is true in a double sense. First, some two-thirds of the people
live in rural areas and are supported by agriculture, and many urban
dwellers indirectly receive their income from financing, handling or
processing agricultural commodities. Second, coffee is the main sup-
port of Colombia's international trade, and finances the import of the
many manufactured products and capital goods needed by the country's
expanding economy.
To understand Colombian agriculture, it is important to keep in
mind the extreme range of climatic conditions, and the fact that in
any one place the main difference between the seasons is the amount
of rainfall. The mountain ranges are responsible for the variations in
both temperatures and rainfall and they divide agriculture into many
small "islands," with communication between them both difficult and
costly. The range of climatic and soil conditions provides the physical
base for raising a great variety of agricultural products, which can
afford healthful and interesting diets and various fibers for clothing
and industrial uses. But other factors intervene to keep levels of
living generally low in both rural and urban areas. One of the most
urgent requisites for higher living standards is increased productivity
in agriculture, not only to produce more of the essential agricultural
products but also to obtain this production with a smaller percentage
of the total population so that additional labor will be available for
other pursuits important to higher living standards.

LAD USE AND TENURE
The amount of land in forests is estimated at from 50 to about 70
percent of the total land area.1 The forests usually consist of mixed
species of trees, including mangrove swamps along the Pacific and
Caribbean Coasts, mixed tropical forests and jungles up to about
5,000 feet, and temperate zone trees above this elevation. The non-
forested areas are used either for the cultivation of crops, which
occupy 2 percent of the land area and vary with the altitude, or for
pastures which are found in the rich level valleys, on the plateaus and
mountains above the range of cultivated crops.

I The United States Tariff Commission in Agricultural, Pastoral and Forest In-
dustries in Colombia, Washington, D. C., 1945, estimated about 50 percent. Dr. Ruiz
Landa, Professor of Horticulture and Forestry of the Facultad de Agronomia, Mede-
llin, in a communication in October 1949, estimated about 72 percent.








62 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

The major crops are coffee, sugar cane, corn, potatoes, rice, wheat,
yucca, and plitano. Wheat, potatoes and barley are the principal
commercial crops raised at elevations above 7,000 or 8,000 feet, along
with corn and beans. Lands on the mountain slopes at medium eleva-
tions are used principally for coffee, corn, beans, yucca, platano (the
cooking banana), some citrus fruits, sugar cane for panela (brown
leaf sugar) production, and fique for fiber. Rice, sugar cane, cotton,
sesame, cacao, tobacco, and a few citrus fruits for home use, are the
principal crops at elevations from about 500 to 3,300 feet, including
the valley of the Cauca River, the upper Magdalena Valley and some
other areas. Bananas are raised for export in a small area near the
Caribbean Coast. Beef is the principal livestock product, and much
less attention is paid to the production of dairy products, pork,
mutton and wool. Cattle are raised almost entirely on pasture, the
corn and small grain crops being used in the main for direct human
consumption.
According to official estimates for 1948, crops occupied about 2j/3
million hectares while 43 million hectares were devoted to pasture.2
The farms average about 2 hectares of cultivated land. This average
includes some very large sugar cane, rice and cotton haciendas, so
the acreage on most farms is considerably less. Most coffee farms
are small; 87 percent have less than 5,000 trees and the average is
around 3,000 on about 3 hectares, with some additional land for sub-
sistence crops. However, a little more than half of the coffee trees
in Colombia are found on the remaining 13 percent of the farms.3
Cattle haciendas generally have little or no cultivated land and as a
rule are large-scale operations. The mountain ranges and their inter-
vening valleys, which together cover only about two-fifths of the
nation's geographic area, furnish the homes and livelihood for 95 per-
cent or more of the population. Little is known definitely of the soils
or other characteristics of the sparsely settled grassy plains and
forested areas east of the Eastern Cordilleras that might influence the
future development of agriculture there. The small occupied areas of
this region are used mainly for cattle grazing, with some crops near
the Eastern Cordilleras.
In the more heavily populated portion of the country, land use
follows an unusual pattern. As a rule, the fertile, level valleys are
used mostly for grazing, while the steep mountain slopes are cultivated.
The poorer lands in the mountains are overpopulated in relation to land
resources, and much of the level land (except for areas planted to rice,
2 Producci6n Agropecuaria de Colombia, Estimado para 1948, Divisi6n de Econo-
mia Rural, Ministerio de Agricultura y Ganaderia, September 1949.
3 Boletin Extraordinaria No. 5, Afio II, Vol. 1, Federaci6n Nacional de Cafeteros
de Colombia, February 1933.








AGRICULTURE


sugar cane, and cotton) is in pasture, a use in which a given acreage
furnishes a living to comparatively few families. Fear of malaria and
other diseases in the lowlands, as well as the difficulty of getting
land for farming in the valleys and on the plateaus, may contribute
to the density of population in the mountains. At any rate, the cattle
fatten on the plains while the people often have to struggle for a bare
existence in the hills.
Even though the returns from pasturing are often very substantial,
such use of the land is not the best possible. But the compensations
appear to outweigh economic considerations in the minds of the owners
of the large cattle haciendas. Moreover, these pasture lands, which
are taxed at a very low level, make secure investments. Even
though the owner may live in a distant city and not supervise the
operation closely, a good cattle ranch has nearly always enabled the
owner to live very well. Great landed estates are also the rule in the
promising new agricultural areas, such as the Sinfi region. Cases
were cited to the Mission of land sold at Ps.$1200 per hectare which
was assessed for tax purposes at Ps.$200 to Ps.$300 per hectare, but
which actually yielded Ps.$180 per hectare in rent.
Some large-scale farms, particularly producers of sugar cane and
rice, appear to be quite efficient and to have gained high labor
productivity through the use of considerable mechanized equipment.
It must be recognized, however, that these farms also have the effect
of denying landless families, or families with too little land to make
a satisfactory living, access to land. Many large-scale farms that may
,be considered efficient in economic terms are not providing adequate
living standards for the families who live or work on them. For
example, it would be quite unusual if the returns from a large farm,
occupied by the owner and 24 workers (25 farm families altogether),
were providing more than two or three of the families with enough
income to be significant purchasing units or to maintain satisfactory
levels of living. On the other hand, in many areas (for example,
Narifio, Santander and Boyaci) the problem of "minifundia," or ex-
cessive parcelization of the land into uneconomic patches, prevents
efficient land use. Large numbers of farm families are trying to eke
out an existence on too little land, often on slopes of 50 or even 100
percent (45 degrees) or more. As a result, they exploit the land very
severely, adding to erosion and other problems, and even so are not
able to make a decent living. This pattern of land use is one of the
most important causes of low labor productivity in agriculture and of
resulting widespread poverty in rural areas.
There are some indications that land policy is changing at the
present time. In 1948, the Institute for Parcelization and Colonization








64 THE BASIS OF A DEVELOPMENT PROGRAM FOR COLOMBIA

of Land was established by the Government. Its purpose is to give to
farm families without land, or with too little to make a decent living,
special assistance in obtaining land through credit and other means.
The Institute assists these families in settling either on public land
or on parcels of large farms that the Institute buys and subdivides.
Since this program has barely started, it is too early to know with
certainty whether it will effect a major change in land policy. So
far it has received such small financial support that it is a purely
nominal program. On the other hand, it may indicate a change in
public opinion, and a trend in Government land policy toward en-
couragement of farm units large enough to maintain a family.

RuxAL POPULATION
If we exclude housewives, domestic servants, and indefinite cate-
gories from the 3,300,000 rural people classified by the 1938 Census,
there were in that year about 1,767,000 economically active persons4
on the 700,000 farms and in villages under 1,500. Out of this number
it is roughly estimated that one-third were owner-operators and
managers of various types; one-sixth were tenants, sharecroppers and
squatters; and the remainder, or about half, were hired workers.
Assuming that this situation has not changed materially, the propor-
tion of tenants is relatively low and of hired workers quite high as
compared with more developed countries.
In 1948 the population living on farms and in villages under 1,500
was estimated at something over 7 million, with about 4 million
economically active.5 Apparently some migration of population from
farms to cities has occurred and is still occurring. A recent estimate
shows a small net migration of 350,000 persons from farm to city
during the seven years from 1938 to 1945.6 The study of Tabio, a
rural community near Bogota, gives evidence of this trend. After
analyzing population movements, the authors of the report conclude:

"In spite of a relatively high birth rate and considerable natural
increase, the population of Tabio has been stable for some forty
years. Migration is carrying off all the increase and may be
taking some of the original stock as well. The males in the
productive ages are leaving for Bogota and for areas of new
settlement in Caldas, El Valle, and Tolima; the girls are going
4 The economically active include farm operators and managers of various types,
including owner-operators, tenants, sharecroppers, squatters, and several categories
of hired workers.
5 This figure for the economically active was submitted in a communication of
October 4, 1949, from the Division of Rural Economics, University of Agriculture.
6Miguel Fadul, of the National Income Committee of the Banco de la Repfiblica,
in correspondence with the Secci6n de Censos Nacionales in February, 1949.




University of Florida Home Page
© 2004 - 2010 University of Florida George A. Smathers Libraries.
All rights reserved.

Acceptable Use, Copyright, and Disclaimer Statement
Last updated October 10, 2010 - - mvs