By any conventional measure, Colombia is a success story. Between President Álvaro Uribe’s elections in 2002 and 2008, GDP soared by 260 percent and the murder rate dropped by nearly half. This was ascribed in large part to his democratic security policies. With the assistance of billions of dollars in U.S. military aid, those policies rendered the Fuerzas Armadas Revolucionarias de Colombia (FARC) guerrillas, who had emerged in the 1990s as one of the largest narcotics trafficking groups, nearly defunct as a military force.
Yet these figures belie a darker tale. Greater security and economic growth have arrived, but the profits from four decades of narcotics trading have subverted the free market and distorted social and economic growth in a manner that is little acknowledged and still less understood.
Alberto, a quiet, crusty, old-school Paisa (the nickname for someone from the Antioquia region), first approached me 10 years ago. On that occasion, after a lifetime methodically building up a small trading business into a national food processing, packaging and distribution company with annual earnings of $20 million, Alberto had a decision to make: Should he sell? Alberto wished to have his sons pick up where he—and his father before him—had left off.
But what worried Alberto was the emergence of a competitor, owned by a family previously unknown to Medellín’s mainstream business community. Within the time of a year or so, in defiance of all conventional financial and commercial realities, they had grabbed as much market share as he had gained in 30 years. Alberto soon learned that the new competitor was overpaying its suppliers and undercharging clients; had left a trail of false documents about shareholders; had reported inventory that could not support its reported sales; and had received mysterious third-party capital injections, apparently oblivious to the company’s lowly profits and high debt-to-equity ratio.
Having witnessed the bombings and killings by the old Medellín cartel, Alberto held no illusions about the fate of those who presented an obstacle to the drug gangs. Indeed, he had often reflected that in accepting the traffickers’ money and silencing the bombs, Antioquia—and Colombia—had become a safer and more prosperous place. Rather than place his sons in the potential gunsights of a money laundering rival, Alberto sold. And his sons later left Colombia for the U.S., their country the poorer for losing their training, talent, experience—and the business ethics inherited from their father.
The story illustrates a tragic truth about the impact of the narcotics trade. When the principal objective of a business is to legitimize drug proceeds rather than to make a profit, and it can depend upon enormous supplies of credit and fresh capital, the ensuing price distortions can undermine an entire sector and destroy legitimate companies…
