GOV 390L
ELVA ROCIO ALARCON
Professors: Dr. Henry and Dr. Boone
December 7, 1998
Conglomeration and the Effects of Radical Globalization in Chile and Colombia
By the 1970s, a new economic model called globalization became the dominant
world economic model. The goal was to consolidate one world with not
borders but free, competitive and transnational markets, regardless of the
unequal level of development between countries. For the third world, the
international pressures to implement the new economic model have been
different in time in accordance with the US and IMF interests. In addition,
each developing country has experienced its own process of adjustment since
the implementation of global trends has depended on specific political,
economic, and social variables that have been inherited and have shaped
unique characteristics for those countries. Indeed, comparing two Latin
American countries, Chile and Colombia, the processes of globalization have
been very different in time, political context, pace, dimensions, and
structure. Nevertheless, it has shaped a similar effect in both countries:
the permanence and enlargement of conglomerates or grupos económicos.
According to Leff (1978), they are large firms with multisectoral structure
that have diversified in order to expand horizontally their portfolio in
every sector of the economy but maintain centralized administrative and
financial controls (Fuentes 1997: 19).
Although globalization was not the origin of conglomeration, the focus of
this paper is on the role of those groups in the globalization process of
Chile and Colombia. The paper traces what seems to have been a three-stage
process of the extension of conglomeration in Chile ([1] very concentrated
within the financial system, [2] in crisis because of concentration, and
[III] less concentrated) and argues that Colombia now resembles Chile in
its first phase and goes toward a crisis. Thus, it raises the questions of
whether or not Colombia will experience the second and third phase of the
globalization process as Chile did despite the difference in regime type
under the reforms were implemented. Also, whether or not the enlargement of
conglomerates has become an intrinsic effect of the globalization process
in developing countries due to the uneven distribution of capital and the
clientelistic business-government relationship that exist in those
economies. Indeed, this study argues that because globalization has
strengthened conglomeration, one of the major effects of conglomeration
seems to be growing concentration of wealth.
1. The tradition of conglomerates
The dominance of "monopolistic business groups has persisted in most of the
Latin America countries, as in any other capitalist country, as the result
of a logic development in the capitalist system" (Silva 1977: 308). Before
global reforms, both Colombia and Chile had the tradition of grupos
económicos that formed under the willingness of the state. One of the main
differences that characterized conglomeration in Chile and Colombia is that
Chilean conglomerates were recognized by their capacity to diversify their
investments (Fuentes 1997: 28) while Colombian groups, although expanded
through a few sectors, remained very tied to the coffee production (Silva
1977: 45).
In Chile, business groups formed due to personal or family's fortunes that
came from the mining sector in the last century. In the earlier years,
they were foreigners or migrants (Fuentes 1997: 27). Also, there were some
bankers associated with import activities. The groups of enterprises
handled by John North and Robert Harvey constituted the first business
groups in Chile by 1889. Then, with the industrialization of the country,
governments from 1938 to 1958 supported the consolidation of private
enterprises and mixed economies. Luders called the Chilean governments
estados empresarios due to their protectionist policies, which favored
the private sector and sometimes resulted in the deviation of the state's
resources (Fuentes 1997: 28). At the end of 1960's, twenty economic groups
managed the Chilean economy, and the biggest three were the Grupo Edwards,
the Grupo Matte, y the Banco Hipotecario (BHC). However, with the election
of the socialist Salvador Allende as the president of Chile in 1964, those
economic groups were jeopardized since Allende's government drastically
modified the governmental policies to the private sector under the program
"the social property." The government began to take over private companies
and increase the participation of public enterprises in the economy.
Allende planned the elimination of the conglomerates, but it ended with the
stagnation of the economy in all the sectors because the most important
enterprises of Chile faced enormous difficulties (Frieden 1991: 149).
In Colombia, the predominance of an export-oriented economy based on
Coffee permitted the consolidation of regional elites and the organization
of committees that gradually were extending to a wide range of services in
1920s. Thus, the elites of the coffee economy saw the need to spread
dominant interests across commerce, finance, and industry, establishing a
multisectoral system, which remained in very close relationship with the
state. It cemented an oligarchic system in the economic structure of
Colombia, which has been basically dominated by the elites (Thorp and Duran
1997: 218-22). As a result, under this structure, Colombia experienced a
tremendous process of concentration of economic power in which the main
actors were the elite that lead the private sector and the state. The
formation of business groups varied. There were some groups whose head
inherited a fortune. Others were formed by the integration of capital of
several families, and a few expanded through the success of a single
company, bank or product such as coffee and to a lesser extent, sugar. By
the 1970's, the grupos económicos in Colombia, including foreign ones,
except in the coffee sector, not only controlled the main position at the
state's level, but also they manipulated the production of primary goods,
the credit and financial sector, and the commercialization of goods and
services (Silva 1977: 309). According to Silva, by December 31 of 1974,
ten financial groups, included three foreign groups led the Colombian
economy: Grupo Santodomingo, Suramericana, Banco de Bogotá, Cafetero, Gran
Colombiano, Postobon-Luz, Oligarquía Vallecaucana, Rockefeller (Banco de
Comercio), Morgan, and First National Bank (1977: 311).
2. Conglomeration as an effect of Globalization
Economically, Colombia resembles the same processes, which Chile has gone
through in earlier periods of time. Both countries experienced the same
radical process of globalization, but at different times: Chile in 1973 and
Colombia in 1990. Then, by 1980s, Chile was the Latin America country where
the crisis hit the most because with the predatory global reforms in the
1970's, "large portions of the economy were concentrated in oligopolistic
groups, and excessive borrowing left the balance sheets of many firms
precarious" (Frieden 1991: 168). It made the country more unstable. In
Colombia, the country also suffered a debt crisis in 1982, its neoliberal
policies in 1970's were very limited and did not cause the same impact as
in Chile. However, a new crisis has hit Colombia again since 1996, and the
radical neoliberalism implemented in 1990 has been to blame for it because
neoliberal reforms have produced greater concentration of wealth among the
grupos económicos.
Despite the difference in time, when the implementation of global reforms
took place in both countries, it determined the openness of the market and
the boom of foreign investments. Thus, some scholars have seen this factor
as the cause and the effect of the enlargement of domestic business groups
in both countries. As Maxfield points out, there is a belief that the
business sector has to accomplish two specific features in order to promote
competition within a new market that can be rapidly dominated by
international investors: concentration (referring to allocation of capital)
and conglomeration (referring to sectoral diversification) (1997: 47).
On the other hand, according to Vallejo Vélez, the enlargement of
conglomeration is seen as an alternative for domestic enterprises to
counter the concentration of capital in the hands of foreign investors
(1993: 64). With the elimination of the protectionist systems through the
openness of the markets and free competition, domestic companies were
dismantled of mechanisms, which could integrate them in the new atmosphere.
The boom of foreign investments on economic sectors in a program called
"internationalization" caused many difficulties to domestic companies,
especially small and medium organizations, which did not have the capacity
nor the infrastructure to compete with the same quality and quantity of
foreign products and services. Foreign companies have already adjusted
their structures to a competitive market. Domestic companies need to be big
enough and very diversified to maintain profitable revenues if they want to
prevent foreign companies from dominating the market in their own
territory. Therefore, micro and medium enterprises are able to survive if
they are taken over by larger ones. (Vallejo 1993: 63-69).
In both perspectives, governments "serve consciously or unconsciously to
encourage greater concentration" (Leff 1978 in Maxfield 1997: 46). Also
they allow the formation of huge conglomerates, quasi monopolies, in order
to modernize the productive apparatus without recognizing the lack of
corrective mechanisms for those endangered small and medium enterprises
(Vallejo 1993: 65).
In addition, some studies in Latin American countries assure that the
domestic private sector did not agree with global policies since it felt
threatened by international investors, and government had to deal with the
opposition of the domestic business groups that had always benefited from
protectionist policies. In Chile, traditional leaders of the business
community were hit by global policies, and mistrust invaded the structural
reform (Frieden 1991:157). Also under the view of Mahon, fixed exchange
rates, which the government used for freezing inflation, attracted foreign
investors, but with it, government ignored domestic interests (1996: 75).
Nevertheless, due to the need for reviving the private sector after
socialist policies diminished it, the government rapidly focused on the
private sector demands. Domestic conglomerates agreed with the openness of
the market and the penetration of enormous foreign investments to the
Chilean economy.
In the same way, by 1990, the Colombian domestic conglomerates were
somewhat reluctant to globalization at the very beginning: "the government
encountered vigorous opposition by major economic groups in Colombia, as
well as manufacturing and industrial conglomerates" (Martz 1997: 269).
However, there is a sense that the Colombian government would not implement
any policy that could badly affect domestic economic groups because they
economically supported the state in many ways, including all the political
campaigns. In 1994, the Grupo Santodomingo and the Grupo Ardila Lulle gave
to official candidates, Andres Pastrana Arango and Ernesto Samper more than
US$500 million for their campaigns (El Espectador May 8, 1994: 5A) Also,
following the clientelistic tradition, the wave of privatization and
specific tax-exemption reforms, in which domestic conglomerates were
enormously privileged, demonstrated that domestic conglomerates were
previously pressing for a global reform (Semana, 1993, p 87).
2.1 Three-stage periods of conglomeration in Chile
2.1.1 First phase: Radical reform
By 1973, as Frieden expresses:
Chile was a highly polarized polity dominated by class conflict and
fundamental questions about whether capitalism would be preserved . . . The
business community and wide sections of the middle classes had been
traumatized by their brush with socialism . . . (1991: 150).
For these reasons, General Augusto Pinochet took control of the state in
1973, and in the military coup, president Allende died. Even though many of
the actions taken by the military government were political, most of the
reforms were substantially economic since the new regime had to deal with
the inheritance of runaway inflation, huge budget and payments deficits
(Frieden 1991: 150-152). The goals consisted in reinvigorating the private
sector and prevent the hazard of returning to socialism (1991: 152-53). In
order to achieve these reforms, by1975, Chile's economic policy became
dominated by a group of orthodox economists who had studied in the
University of Chicago: They were called the "Chicago Boys" and began a
radical global reform. It was a rapid and predatory process, changing
drastically the economic policies. Therefore, the new policymakers argued
that business groups needed an open market in order to join international
markets and allocate capital outside of Chile and alliances with foreign
investors in order to consolidate internal projects in Chile, sharing risks
and assets at the same time.
As policymakers permitted the expansion of business groups, "one
interesting result of the Chilean experience [in the first phase by 1975],
which largely subsumes the intersectoral distributional effects of Chilean
policies, was the rise of a series of conglomerates, the grupos" (Frieden
1997:165). Conglomerates saw the restructuring process under Pinochet's
government as the timing for dominating the entire market in every sector.
Also, they found an easier access to capital needed for their expansion by
buying financial institutions. Indeed, "Chilean conglomerates were
organized around financial institutions that captured domestic and
international savings, as did their flagship industrial companies"
(Maxfield 1997: 160). Moreover, Frieden describes the conglomerate's system
that the Chilean neoliberal reform shaped under the dictatorship thus:
. . . The typical grupo [conglomerate] was centered around a financial
institution. The Cruzzat-Larraín group, for example, controlled three of
Chile's ten largest private banks (Banco de Santiago, Banco Hipotecario de
Fomento Nacional, and Banco Colocadora Nacional de Valores) with 17.1
percent of total financial-system loans by 1982. The Vial/BHC group was
organized around Banco de Chile (Chile's largest bank [at that time]) and
included two other major financial institutions (Banco BCH and Morgan
Fiannsa) with a 1982 total of 24.9% of total loans. Grupo banks did much of
their lending to grupo firms… Groups also owned such smaller financial
institutions as insurance companies (1991: 166).
Consequently, the major concentration of capital of the conglomerates into
the financial sector took place during the 1970's and at the beginning of
1980. At that time, the banks and the financial system reflected the German
model with business groups concentrated in banks. The concentration of
capital in a few banks that belonged to specific conglomerates was a
"credit-based system, in which a limited number of financial institutions
dominated the system" (Zysman 1983). The business groups grew impressively
due to their links to financial institutions, and they started a process of
accelerated growth. Consequently, the financial liberalization was
encouraged by the "Grupos" since they could have easier and cheaper access
to foreign funds through the banks they newly owned. Moreover, the groups
were very diversified, and they could counter losses in one sector with the
revenues of another. However, it generally damaged the domestic economy
(per capita GDP declined 16% and manufacturing output 21%) by 1982 (Frieden
1991: p 169).
2.1.2. The Crisis:
The concentration of capital among a narrow range of conglomerates,
especially within the financial system reached the climax, and "total
banking system loans had by 1981 reached 55% of GDP (Frieden 1991: 169). In
fact, by buying banks and other enterprises, conglomerates accumulated loan
portfolios that raised interest rates with "false demands [that were]
caused by rolling over debts of related firms" (Meredith Woo-Cumings 1996:
83). Moreover, other reasons produced more instability, and as Maxfield
summarizes, ". . .bad policy design and errors in the timing and sequencing
of the reforms, coupled with the impact of external shocks, clearly
affected the collapse of the Chilean economy in 1982" (1997: 63).
The crisis of 1982 hit not only Chile, but also all Latin America. However,
because of the radical reforms implemented since 1975, the country was more
vulnerable with higher external debt than Colombia and extremely high
claims on the private sector (see table 1). The greater vulnerability of
Chile to the debt crisis in Latin America in 1982 was produced by
inexperience in implementing global reforms and the difficulty in the
adjusting process. Although the boom of concentration of capital was one of
the major reasons of the crisis, even conglomerates were in danger as their
holding companies collapsed. "Danger signals abounded, especially
concerning the proliferation of grupo-bank loans to struggling grupo firms"
(Frieden 1991:169). As the conglomerates were hit, the government was
losing its legitimacy and the raise of protest of the all economic sector
threatened the Pinochet government.
The crisis produced serious effects in the Chilean economy. Unemployment
reached one of the highest levels in Chilean history (over 13%). Also,
crisis meant the collapse in copper prices, the lead Chilean product, and
the peso, the stop of capital inflows, the bankruptcy of private sector and
those banks, which had borrowed in dollars (Alarcón 1995: 203)." .
Moreover, the government decided to liberate exchange markets, so capital
flight reached the highest levels in 1982. As Mahon describes "it was an
expensive gesture. Because the central bank did not retire completely from
the floating market, it funded a great part of the outflow by drawing down
reserves, and in the same month, the government also took over several
failed banks" (1996: 76).
2.1.3. The period of stabilization: Less concentration but more
conglomerations
2.1.3.1. Under the authoritarian regime: "Due to the crisis, the "Chicago
Boys" lost credibility and were replaced by a more traditionalist economic
team in 1984" (EIU 1998-99: 13) in order to meet the expectations of the
traditional sectors, especially agriculture. Also, "the State began to
encourage the conglomerates to loosen ties with financial
institutions…"(Frieden, 1991, p 170).
Therefore, new policies to stabilize prices and promote domestic
production were implemented. In this stage, according to Silva, those
economists were less closely linked to specific conglomerates, but the
interaction between business associations and policy makers continued and
was strengthened. In 1985, the economic model was restored, and the goal
was to restart the process of globalization in a more gradual level. There
was a disbelief that the dictatorship could achieve credibility in the
economic structure since the crisis had determined that Pinochet's radical
policies did not work. However, Pinochet attained a more gradual period of
liberal reforms, and the business groups agreed in forming a more
collaborative environment for the successful of global policies. Thus,
dynamic of interaction between policymakers and business elite facilitated
a more flexible approach to "pragmatic neoliberalism" (Maxfield 1997:172).
In this new phase, the Chilean economy became an established system of
consultation between business and state institutions and engendered
impressive economic results such as higher GDP percentage of growth,
declining inflation, more equally domestic credit distribution, and higher
credibility in the banking system (see table 1). Conglomeration persisted
and extended, but new policies as well as the increase in the number of
conglomerates permitted less concentration around the financial system.
Although new business groups, domestic and international, were formed in
this phase, most of the companies entered in a tender process. Also, before
giving a concession, the state proved the liquidity of the potential owner
and did not allow credit. In the financial system, a second wave of
privatization started in a more gradual way by 1986. The legislation
provided special mechanisms that supervised the patrimony of private
investors and that controlled concentration of ownership by the
conglomerates (Alarcón 1995: 204). Also, it determined an important shift
in the concentration of conglomerates within the financial sector after the
crisis since the banks were prohibited to extend loans to companies within
the same financial/industrial conglomerate (Fuentes 1997: 78).
2.1.3.2. The transition to democracy: As Haggard and Kafman highlight,
Chile represents a case of non-crisis transition because of the recovery of
the economy under the authoritarian regime. Indeed, the dictatorship
created the economic atmosphere in order to facilitate the restoration of
the economy through the independence of the Central Bank. According to
Boylan, giving autonomy to the central bank was a response of the
Pinochet's predictions of giving up some power when he lost the plesbicite
and that democracy was inevitable (1998: 452). When Pinochet lost the
referendum, he realized that he would not govern indefinitely. Thus, he
pushed the independence of the Central Bank in order to preserve the
neoliberal economic strategies, even though economic priorities of the next
head of the government could be different (Boylan 1998: 455).
In fact, the strategy of Pinochet seemed to have worked since the following
democratic governments have continued with global policies. Patricio
Aytlwin was the "hero" of the country's transition from an authoritarian
regime to a liberal- democratic system. Aytlwin's period was characterized
by a market-oriented economy that determined the succession of Pinochet's
pragmatic neoliberalism. Then, Eduardo Frei, 1a Christian Democrat
president inaugurated the second democratic period in 1994. He has
continued with Aytlwin's work. Also, he promised emphasis on improvements
in education, infrastructure and production. Another initiative of Frei's
government has been a new mechanism for awarding public works contracts and
overhauling the civil service as part of an ongoing anti-corruption drive
(Country reports 1995: p 2). During the 1990's decade and under two periods
of democracy, Chilean economy seems to have reached a period of
consolidation within the global world (see table 1). Business groups have
maintained themselves in the new economic scheme, and they continue
expanding. In addition, scholars such as Fuentes and Alarcón say that the
new policies and the enormous number of conglomerates that perform in the
Chilean market undermines the concentration of capital and ownership of
financial institutions in one grupo económico. Even though there are some
business groups that own important networks of financial institutions
always tied to a larger bank such as the grupo Matte and the grupo Lucksic,
there are many groups whose main networks are tied to the industrial
sector, mining sector, forest industry, and ports (Fuentes: 1997: 150-160).
However, that there still are some conglomerates with ties to the financial
system questions the fact of less concentration in conglomerate-owned banks.
Currently, the "Superintendencia Bancaria" distinguishes 58 business
groups and subgroups among national and international enterprises. Those
conglomerates could be divided in four groups (Fuentes 1997: 47). They are:
(1) Traditional groups, which are the biggest and oldest ones. They are
very diversified and are truly linked to families such as Angelini, Matte,
and Luksic. (2) The emerging groups: they are those that resulted from the
purcharsed of enterprises of different kinds or management buy-out with the
support of foreign investors. Sigdo, Koppers, Pathfinder, Navieras,
Pizarreno belong to this group. (3) The renewed family groups: they have
been restructured after the crisis of 82 and are similar to the traditional
groups but smaller. (4) Lastly, the new groups, which resulted from the
formation of private enterprises in the second round of privatization after
the crisis of 1982 through the policies of institutional and popular
capitalism. They are Enersis, Cap, Soquimich, and others.
Among the major groups are: The Grupo Matte, the Grupo Angelini and the
Grupo Luksic. The grupo Matte of familiar tradition has important
investments in the forest industry, ports, hydroelectric companies,
pensions, and financial sector. Recently, the group experienced a
significant restructuring process within the financial system. The Banco
Bice and its firms were organized under the matrix: Bicercorp. The group
maintains associated with many foreign companies. The Grupo Angelini: It is
one of the most important conglomerates in Chile, and its estimate assets
reach US$2000 million. Mainly, its interests are distributed in the forest
industry, energy, fishing, and mining sectors, and in a very lesser extent
the financial system. Associated mostly with other domestic business
groups, Angelini shares ownership in several enterprises, especially in the
copper industry. Finally, with major interests in the food and drinks
industries, mining sector, and financial sector. The grupo Luksic
diversified after the crisis although represented a familiar tradition, and
currently it owns two of the top banks in Chile.
In short, the starting of global processes was considered negative since
the concentration of capital in conglomerates tied to the financial system
was to blame for worsening the crisis. As a result, during the period of
global stabilization, more controlled and gradual policies within a global
structure promoted less concentration of capital, especially in terms of
bank's ownership. However, the conglomerates survived the crisis and then
recovered, even some new ones formed under the third phase of this changing
process. Indeed, it could be said that Chile has achieved a successful
economic performance along with the enlargement of business groups.
2.2. Colombia: resembling Chile in the first stage
The only case in Latin America where the regime type and economic reform
seem to have been very connected is Chile, where the authoritarian regime
imposed the neoliberal model, and the model continued after the change to
democracy. Chile was marked with drastic changes in the economic structure
under the socialist and authoritarian regimes before going to democracy.
In Colombia, there was not a regime type that could be directly connected
to adoption of neoliberal macroeconomic policies. It has liberalized under
democratic regimes. Also, since the radical reform took place in 1990,
significant economic changes have not been implemented by the successors of
Cesar Gaviria. Colombia is still in the period of radical neoliberalism
with similar characteristics to the first phase of Chilean globalization
such as the enlargement of conglomerates tied to a concentrated ownership
in the financial system. One financial group -Sarmiento Angulo- owns 25% of
the banks. 65% of the banks are distributed among the state and the other
three important business groups -Santodomingo, Sindicato Antioqueño, and
Ardila Lulle. The rest, 10% of the financial system, is in the hands of
new foreign investors different from those international conglomerates of
the 1970's (Vallejo 1995: 183).
The ideas of liberalization in Colombia began in the 1970's as in Chile.
The Carlos Lleras Restrepo administration was characterized by accelerating
improvements in economic management and invigorating export subsidies. This
government set the basis for the stability of the private sector, and
within it, the constitution of domestic and international business groups
(Thoumi 1995: 55). However, very clientelistic government administrations
followed Restrepo, and they went back and forth between proteccionist and
liberal policies depending on the economic model, which was appropriate
either in terms of facilitating rent-seeking with domestic conglomerates or
of attracting foreign investors (Silva Colmenares 1997: 250). Then, under
the government of Belisario Betancur, the debt crisis hit Colombia, as in
most Latin American countries, and the government was obligated to
nationalize banks and implemented strongly protectionist policies once
again. From 1985 to 1990, the business groups restructured and became
monopolies in a specific sector among the drink industry, brewing sector,
textiles, sugar industry. They did not participate in a market led by
another conglomerate. For this reason, according to scholars, the economic
problems were attributed to the lack of competition, to a highly regulated
but very clientelistic government, and to the low level of international
trade (Bustelo 1987: 56). At that time, governments were in favor of
globalization but the old constitution hindered the idea of global markets.
After a referendum and the ratification of a new constitution, the
government of the "neoliberal" leader Cesar Gaviria determined the
beginning of global reforms in Colombia. "Early in 1990 the government
began a comprehensive market liberalization program aimed at modernizing
the economy, in what is likely to be the most radical policy change of the
last fifty years" (Thoumi 1995: 57).
In addition, the new constitution of 1991 empowered the "neoliberal idea,"
decentralizing the state functions through interdependent institutions,
giving autonomy to the Central Bank, lowering barriers of exchange, and
establishing new international agreements (Executive summary 1996:10).
During the Gaviria period, a reduced number of conglomerates began to
expand and diversify their portfolio, and the liberalization of the
financial system allowed the reprivatization of the banks as well as the
independence of the Central Bank attracted the groups' interests. Moreover,
because none microeconomic policy was internally implemented in order to
counter the process of globalization called apertura, larger industries
began to merge smaller and medium ones in every sector of the economy.
Therefore, the small farmers and industries were devastated, small
businesses were closed, specially in the agricultural sector, in which
products such as rice, coffee, cotton, etc were cultivated by small
industries (Dinero December 1994: 36). It caused the stagnation of
traditional sectors such as agriculture, mining, and fishing, and their
percentage of GDP growth decline from 5.83% in 1990 to -1.84% in 1992 and
to just 2.03% in 1994(Banco de La República 1995). Only big industries and
those that belonged to the network of the grupos económicos were able to
compete and adjust to the new scheme.
As a result, the traditional business groups are no longer distinguished by
the monopoly of one sector, and they are entering the markets of each other
and those dominated by foreign investments. Also, they are coming to
internationalize their enterprises and compete outside of the country,
although not at the same level as Chile. Under the Gaviria government, the
radical globalization actually benefited business groups the most. The
creation of Cerveza Leona in 1992 by the Ardila Lulle group, the
acquisitions of media, airlines, telecommunications companies by the
Santodomingo and Sindicato Antioqueño groups, and the growth of the
Sarmiento Angulo group within the financial system demonstrated the
benefits of reforms and foreign investments for the enlargement of
conglomerates (Latin Trade November, 1997).
In sum, the radical globalization process (apertura) started to benefit
only those enterprises that were capable of competing with the boom of
foreign goods and services since foreign conglomerates such as the Spanish
group of Banco Santander and others led by Jaime Gilinsky and Jackie
Bibliowicz entered the Colombian market with a lot of power (Dinero
December 1998). As a result, global policies were "perceived by a large
proportion of the population as benefiting small groups rather than society
at large" (Thoumi 1995: 89).
This issue encouraged the population to elect a more "socialist-planner"
president who promised a counterpart reform in the agrarian sector, new
employment, more social welfare, and new controls and regulations in the
economic system that could balance the devastating period of Gaviria's
government (Executive summary 1997: 1). However, Samper government was one
of the worst administrations of the second half of the century as a result
of his link with drug traffickers.
The legitimacy of the outgoing administration [Samper's] was undermined
almost from the start of its term in 1994 because of a drug-related
corruption scandal involving allegations that President Ernesto Samper's
campaign was partly funded by massive contributions from the Cali
drug-trafficking cartel. The low standing and poor performance of the
Samper government galvanized leftist guerrillas, damaged business
confidence, strained relations with the US and dented Colombia's reputation
for sound economic management. (EIU report 1998: 6).
Therefore, Samper, whose campaign was also economically supported by the
grupos económicos, was obligated to continue with the globalization
process, and his social program did not work. Furthermore, because of the
international image of the country was affected by the links of the
president with drug traffickers, Sampers was not able to control the boom
of foreign investments. Rather his policies attempted to make the economic
system more attractive to foreign investors (EIU 1997-98: 26). As a result,
another period of liberalization, privatization, and deregulation
determined more concentration of wealth in the hands of conglomerates and
diminished the role of the State. The US$1.470 million of GDP in 1996,
three of the four major economic groups received 545 million, more than the
third part of the GDP (Yepes, A 1998: 1).
Surprisingly, the four biggest grupos económicos are the only ones that
have continued growing despite the economic recession. Also, with the
openness of the market, they have reached a place among the most powerful
and richest conglomerates of the world (Semana May 6, 1997: 32). They
control the entire economy since they owned the most important companies in
every sector of the economy. In 1996, a year in which the GDP only reached
2%, the major four business groups increased their revenues 27% (from $13.5
billion in 1995 to $17 billion in 1996 in Colombian pesos) (Semana May 6,
1997: 36).
The major conglomerates in Colombia are: the Grupo Santodomingo, the Grupo
Ardilla Lulle, the Grupo Sarmiento Angulo and the Sindicato Antioqueño.
The Grupo Santodomingo is considered the biggest and the oldest
conglomerates in the country that has passed generation by generation
through the family Santodomingo. The group's portfolio includes more than
150 companies with profits for the first nine months of last year totaling
US$130million, an increase of 23% in dollar term over the same period for
1996. Also, it was the first group that passed the barrier of US$500
million in revenues. Among the most important companies of the Grupo
Santodomingo are Celumovil, Bavaria, Cromos, Avianca, Caracol Radio, and
Caracol Television. Santo Domingo owns just a few financial institutions,
especially insurance companies (Latin Trade November, 1997).
The Sindicato Antioqueño, which formed in one of the most important
Colombian regions, Antioquia, obtained a surplus of $608.601 million in
Colombian Pesos by 1996. The Sindicato is the second strongest conglomerate
within the financial sector since this group achieved the alliance of the
two biggest and most important financial institutions: Banco Industrial
Colombiano and Conavi. Moreover, the Sindicato owns eight insurance
companies that include the biggest one, Suramericana de Seguros, which in
the 1970 used to be another conglomerate, by itself. The concrete and food
industries represent other important revenues for the Sindicato (Semana May
6, 1997: 33).
Luis Carlos Sarmiento is the newest business group formed in Colombia, and
it is the most favored by the globalization process since its consolidation
has been within the banking system. Due to the fact that its activities are
centered in the financial sector, this group reached a growth rate of 150%
in 1996. The profit of this group only in the financial sector was $269,927
million in Colombian pesos. It means an increase of 83% in accordance with
the revenues of 1995. Its participation in the media sector, cellular
telephony and Pensions funds is also significant (Semana May 6,1997: 34)
The Grupo Ardila Lule leads the market of drinks and has expanded through
history in the sugar industry and textiles. Its performance in 1996 did not
reach the levels of the other groups. However, the increasing penetration
in the beer industry has brought a lot of revenues to this conglomerate.
Its assets increased 12% during 1996 (Semana May 6,1997: 34).
The four groups mentioned above are very diversified and own partially or
totally the main industries, media, and companies of good and services.
However, their ties to the financial system reflect the German Model. The
HHI does not show a high degree of concentration (see table 2), but the
major four groups owned more than 60% of the banks (Vallejo 1995: 186). For
these reasons, Vallejo affirms that with this structure, it is easy that
the four most important business groups, decide to play a cooperative game
in order to maintain the statu quo, and foreign investors remain content
with extraordinary revenues without pushing for competition (1995: 184).
3. Conclusions
Two important differences are highlighted between the conglomerates in
Colombia and the conglomerates in Chile: the associative character and the
numbers of them. In Chile, there are 58 conglomerates in which 15 are the
most important (Fuentes 1997: 27) while in Colombia, there are no more than
15 groups in which 4 are far in the top (Semana, May 6,1997: p32).
Furthermore, Chile has constructed a solid relationship with international
groups and most of the Chilean groups share the ownership with foreign
conglomerates. It has permitted the internationalization of Chilean
conglomerates, which are increasingly investing on other countries (Fuentes
1997: 32). On the contrary, Colombian conglomerates are still in the
process of building this solid relationship with international groups, and
they have just started to associate with international groups for taking
off internal projects in Colombia, especially in media, cellular telephony,
and banking system (Vallejo 1995: 184).
In short, the implementation of global policies in both Colombia and Chile
has caused the enlargement of conglomerates or grupos económicos. These
processes were implemented under different political systems: Chile under
dictatorship and Colombia under democracy and in different times: Chile in
1973 and Colombia 1990. However, the role of conglomerates has been similar
in the first phase of global reforms. After a process of three stages,
Chile has reached a period of economic consolidation under democracy.
Currently, conglomerates continue to play an important role, but more
regulatory policies and the great number of existing conglomerates have
prevented more concentration of the groups in the financial system.
On the other hand, Colombia is still in the first phase. There has been
growing concentration of wealth in a narrow range of conglomerates, which
dominates the banking system, even though the country suffers the recession
of the traditional sectors of the economy. As a result, Colombian economy
has started to present similar features of instability as Chile in 1982,
and the country could be hit by an economic crisis soon. However, the facts
that Colombia has experienced all the changes under democratic regimes and
the governments have continued with radical global reforms make the future
of the Colombian economy uncertain. Colombia could not reach the Chilean
third phase since there is no hazard of losing the power as the
dictatorship faced in Chile. Finally, there is not desire of the state to
implement more gradual policies since governments would loose the support
of domestic and international conglomerates.
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