10790 - Families, Roads, Social Clubs, and Cartels: Investment and the coordination in the Production of Sugar in Colombia, 1900-2000

Family capitalism, managerial capitalism and market competition have been pointed out as alternative forms to coordinate efficiently economic activity. Why do firms engage in all forms of coordination of economic activity if just one is enough to allocate efficiently economic activity? In this paper consider a case study that illuminates the advantages all these different organizational forms, used at the same time, have in promoting long term growth. Colombia is today one of the largest exporters of sugar and exhibits the highest physical productivity worldwide. Sugar refining is a capital intensive process that generates highly concentrated homogenous good market and frequent price wars. Not only price wars are frequent, but sugar’s price is one of the most volatile international commodity prices. Thus, sugar refining exhibits high sunk costs and uncertainty, a complicated combination for investment decisions. In Colombia the sector exhibits substantial stability in market structure, prices and investment growth. Why is Colombia’s sugar refining industry a high investment and high stability industry in a world of sunk costs and uncertainty? I argue that coordination between sugar producing firms reduces the disincentives to investment of sunk costs under uncertainty. Coordination in such a highly volatile environment is achieved by use of different forms to organize economic activity.

Keywords: Sugar industry, Regional economic development, Business history, innovation.

Author: Zuluaga Jimenez, Julio Cesar (Universidad de los Andes, Colombia / Kolumbien)


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