In April 2011, Milford Bateman, Juan Pablo Duran Ortiz and Kate Maclean wrote a Background Note for the Overseas Development Institute (ODI) entitled, ‘A post-Washington consensus approach to local economic development in Latin America? An example from Medellín, Colombia’.
This paper describes how Medellin as a city implemented what is called the ‘local development state’ model and through their research argues about its pitfalls and how the authors believe the efforts so far will not bring about substantial development in the city. I would like to summarise this paper and briefly review the rather controversial points the authors made.
They explained that Latin America, following the recommendations of the Washington Consensus for three decades, only saw subsequent policies fail to address the most pressing issues the nations were facing, such as endemic poverty, inequality and social exclusion. As a result, from the start of the 21st century, there was a clear movement towards the political left and the role of the state in development was given importance once again.
As a matter of fact, not only was the state as a whole re-evaluated, but a shift towards giving control to local authorities took place and the city of Medellin in Colombia is one of the most vivid examples of this new role for local government.
The authors’ argument in this paper, however, was that there is a need for significant adjustment to the local development projects that have been established in Medellin, because they believe that the focus on strengthening microenterprises has to be immediately shifted to SMEs, that microenterprise development is ‘detrimental’ and that it will not bring about sustainable progress in poverty and inequality reduction. To support their argument Bateman et al. conducted interview field visits and researched data collected in round-table discussions and case studies on microenterprises.
Medellin otherwise is known to be a pioneer of the local economic policy model and what its city government has achieved recently is known as local state activism, locally referred more frequently as social urbanism. This movement has been carried on from mayor to mayor but the historical and most recognised activist was the mayor who ran the city from 2003 to 2007, called Sergio Fajardo, now the governor of the Antioquia region where Medellin is located.
What has been put in practice in Medellin is the ‘local development state’ (LDS) model and Bateman recalled that there are records of success in implementing this model, such as in post-war northern Italy and southern Germany. In the case of Colombia, the shift towards local governance was a rather grandiose affair; in 1991 a constitutional reform took place and the government was heavily decentralised. They explained the four characteristics of the LDS model, which are financing through local state ownership of key entreprises, public ownership to create solidarity and build civic culture, cash grant programmes and the setting up of business support centres.
In the case of Medellin, the city cannot rely on taxes because of its mainly informal economy. However, it owns the national energy company, Empresas Publicas de Medellin, and uses 30% of its net annual profit in city administration. The creation of a revived civic culture is particularly crucial for a city like Medellin, which used to be referred to as the world’s ‘cocaine capital’, due to the intense narco-trafficking and domination of drug lords. So much so, at one point it was the most dangerous city in the world.
As a remedy, Mayor Fajardo dedicated himself to helping those at the bottom of the pyramid feel ownership of their city again, mainly through the creation of the public library system, where the most avant-garde architects constructed libraries in the poorest of the neighbourhoods, and the metrocable which is an economically-priced cable car that runs through the hills where many of the poor live. Moreover, the city government improved the national cash grant programme and called it Medellin Solidaria and also set up Centros de Desarrollo Empresarial Zonal (CEDEZOs) where business training is provided for microentrepreneurs.
The authors’ criticism is mainly about the focus on microentreprises because they do not believe that investing in them leads to development. They say microentrepreneurs will inevitably encounter a local demand block, because, for example, there may be only so many people in their area who will want to buy a cream dessert and if these entrepreneurs want to grow their business the competition is too fierce for them to get demand away from the bigger entreprises. Partially, Medellin seems to recognise this limitation and established Pro-Antioquia, a state-business partnership where closer collaboration with key local firms are evaluated for generating greater benefits at the local level.
The second criticism of the authors is an extension of their argument against microenterprises and how the informal sector in Medellin has grown significantly in the recent years, but because of the limitations CEDEZOs have in bringing these businesses beyond the one-to-one, neighbourhood level, they argue that the impact on poverty has been none if not negative. A microcredit scheme is offered to microentrepreneurs called Banco de las Oportunidades but the authors found that the interest rate was high and that the repayment period and the amount credited are too small to ensure any significant business growth.
Lastly, the authors cautioned on the gender factor in microenterprises and how these businesses are mainly driven by women. They said that in Colombia there is a high percentage of female-headed households and that it is clear that those who were able to make the transition from microenterprise to a more solid business are women who do not have caring responsibilities. For this, the authors suggested that the gender component and the local women’s circumstances should be more carefully examined when drawing up programmes to help the microentrepreneurs.
In all, the main message of the authors for Medellin is to concentrate on investing and supporting SMEs, rather than microenterprises. Regarding the already operational programmes, they recommend that, ‘the CEDEZOs should be freed from their mandate to help all who come forward with a business idea’, and to focus on provision of technical support. Furthermore, they identified the need for a more robust financial service that can satisfy the needs of SMEs rather than microenterprises and to better link the forty plus local institutions to support social enterprises such as cooperatives. Their last recommendation was to implement a local industrial policy to transfer skills and technologies from the large entreprises and universities to the top performing SMEs.
Reading through this paper, the impression is that the authors have a trickle-down approach to economic development and that, by default, see no value in the informal economy. It is clear that the authors have done previous research in Medellin and elsewhere in Latin America and for this they can be considered regional experts; and yet they do not seem to grasp the spirit of Medellin or that of its city government. Medellin is historically known in Colombia to be the birthplace of entrepreneurs and the programmes the mayors put in place work with those characteristics the local residents identify with the most.
One thing is clear; the objectives of the authors and of Medellin seem to be different. Development in locations such as Medellin, where the network of trust had broken down completely, due to drug wars and where social and territorial divides exist, it can’t be taken for granted that investing in the already established local entreprises will improve the quality of life of the poor. In fact, local economic development should be a sandwich model, where the authors’ recommendations on SMEs and what Medellin has already been executing at the bottom of the pyramid take place simultaneously and in parallel.
After all, assuring that as many microentrepreneurs as possible have basic business training will only help them to be more employable when established entreprises hire more workers. Certainly, there are budget constraints, but if Medellin were to follow the authors’ recommendations, it would be an incomplete process because waiting for the trickle-down effect will not lead to local development.