Chile: The First Latin American Tiger?
Green, Duncan
The groundwork for Chile's impressive macroeconomic success was laid by the brutal social surgery carried out under Pinochet. The return to democracy has seen a move to "neoliberalism with...
...The return to democracy has seen a move to "neoliberalism with a human face," but the social and environmental costs of the model remain so severe that they undermine many of its gains...
...In Chile, the rise of the market has relied on dictatorship and repression...
...s the Chilean model sustainable...
...Any new pension scheme has a honeymoon period while it accumulates capital before having to start paying out pensions as its members start to retire...
...His newly elected successor, Eduardo Frei, has sworn to eradicate extreme poverty-currently affecting almost one in ten Chileans-by the end of the century...
...Government economists acknowledge the limitations of a purely natural resource-based model, and argue for a new kind of industrialization, based on natural resources and destined for export rather than import-substitution...
...Aylwin refused to negotiate while the 55,000 low-paid members of the National Federation of Health Workers were on strike...
...While the business courses are packed, in 1992 only three students graduated in math and four in physics from the University of Chile...
...Its supporters trumpet Chile as the first Latin American economic tiger, ready to take its place alongside the tigres asidticos of Taiwan, Singapore and South Korea...
...People use each other, spend less time with their family...
...As one author asked: "How many macadamia nuts or mangoes can North Americans be expected to eat, even at lower prices...
...Aylwin's other reason for caution was economic...
...Under Pinochet the farmers were bought out by banks and fruit-growers...
...In the ports, the fishmeal factories grind mackerel into animal fodder...
...She can only find work during the harvest and packing seasons, seven months of the year...
...Community leaders in Santiago's working-class poblaciones say family breakdowns are increasing, while opinion polls show the current crime wave to be the most widely condemned aspect of life under Aylwin...
...During this period, the AFPs have not only generated far higher returns for their members than the old schemes, but have been instrumental in increasing Chile's domestic savings rate to 21% of GDP, the highest in Latin America...
...Others, such as Chile's unique endowment of natural resources (copper, forests, excellent farmland and a 2,000-mile coastline, all in a country of only 14 million people), are just Chile's good fortune and the envy of others...
...Although the number of unionized workers increased by about a Vol XXVIII, No I JULY/AUGUST 1994 13 0 o 0 0 0 0 Vol XXVIII, No 1 JuLY/AUGusT 1994 13ANALYSIS / CHILE third to 700,000 in the first years of the Aylwin presidency, the Christian Democrats used their control over the trade-union leadership to keep a tight rein on labor...
...The first could be the Socialist Party, which may grow tired of playing second fiddle to the Christian Democrats in the governing coalition, first under Aylwin and now under Frei...
...The Chilean yuppies marvelling at the giant new Alto las Condes shopping mall seem well pleased...
...So far, President Frei has said nothing to suggest a change of direction...
...The scent emanates from several huge mounds of wood chip, silhouetted against the dockside floodlights...
...Last year, only 20% of its exports were manufactured goods...
...Roxana picks and packs kiwi fruit, peaches and apples for export, all grown on land that used to belong to peasant farmers growing food for Chileans...
...the highest rate of investment in Latin America, most of it financed by local savings...
...In 1993 the European Community responded to a bumper apple crop at home by virtually closing the doors to Chilean apples...
...As a result, Chile has been able to finance investment with its own resources, allowing it to impose restrictions on speculative foreign capital, something that other Latin American countries would not dare to do, given their desperation for foreign investment...
...It certainly seems more stable than other supposed neoliberal success stories such as Mexico and Argentina, which are both relying on massive inflows of fickle foreign investment to cover large trade deficits...
...the world market when it developed timber processing and paper machinery on the foundations of its forestry sector...
...you can't think five years ahead...
...the falling prices...
...In the longer term, they argue, the country should try and mimic Finland, which successfully found a niche in Copper miners, protesting wage cuts, m through Santiago in June, 1991...
...Pinochet's combination of b in neoliberal economic surgery over and the repression of dissent turned Chile from one of the most equitable societies in Latin America into one of its most unjust-by some reckonings second only to Brazil...
...In 1992 the poorest fifth of the population received just 4.5% of national income, exactly the same percentage as in 1987...
...Opened in September, 1993, the biggest mall in Latin America is a monument to the new Chile, a temple of consumerism set in the plushest of Santiago's suburbs...
...Taken over the whole 17 years of the dictatorship, the economy was far from being a success story, even in macroeconomic terms...
...There has been sharp growth in a few areas-wine exports have grown over 50% a year for the last five years...
...Chile, say the economists, should export wine, not grapes, and furniture instead of wood chips...
...The danger for his successor is that, as memories of the dictatorship fade, different sectors will become more willing to rock the boat...
...The family bakes in summer and freezes in winter...
...Above all, the dictatorship had turned Chile into an export-oriented economy...
...Now they are casual laborers on their old lands...
...It did nothing, however, to challenge the underlying freemarket model which relies on the "flexible" labor practices established under the dictatorship, such as subcontracting, short-term contracts, piece-work and management's right to hire and fire almost at will...
...If you've got money, you can get an education and health care...
...These wealthiest were the only people who experienced a real increase in their income between 1969 and 1988...
...But in the long term, the Chilean model's Achilles' heel is that, underneath all the hype, Chile's recent success has been based on the old developing-country recipe of exporting raw materials...
...Chile's neoliberal success has been built on past repression and current hardship...
...Pinochet had to forget his neoliberal aversion to the state and bail out the banking sector the following year by temporarily renationalizing it...
...One of the least publicized and perhaps most positive aspects of the Pinochet legacy is Chile's success in solving Latin America's historic inability to generate domestic savings...
...In the end, the ceiling on such a rapacious model is the land itself...
...Money is everything here now...
...The minimum wage was drastically reduced and casualization, in any case, rendered it meaningless in large sectors of the economy...
...The Chilean elite vastly increased its wealth under Pinochet, and then did even better during the Aylwin boom...
...In Mexico and Argentina, the influx of foreign investment has included both direct investment lured in by privatization programs, and a growing component of portfolio investment attracted by high interest rates and rich pickings on the local stock markets...
...Pinochet's bloody repression of the trade-union movement played an essential part in the process...
...Pinochet remains head of the armed forces and a jealous defender of his legacy...
...It depends on whom you ask...
...Aylwin's success has been based on an unprecedented level of political consensus, in part a reaction to the horrors of military rule, and in part the result of fast growth which has been able to keep almost everyone happy without raising divisive issues of inequality and redistribution...
...But Chile's macroeconomic success under Aylwin has only been possible because of the brutal social and economic surgery carried out under Pinochet...
...low inflation...
...According to press reports, suicides have increased threefold between 1970 and 1991, and the number of alcoholics has quadrupled in the last 30 years...
...Each pile contains the remnants of a different species of Chilean tree, hauled from the country's dwindling native forest...
...The few permanent jobs all go to men, she explains...
...The banks promptly went on a borrowing spree and then collapsed in 1981 in a private-sector version of the debt crisis...
...Over the course of his presidency, per-capita GDP grew by almost a fifth, exports by 14%, and investment rose from under 19% of GDP to an impressive 27%, unmatched anywhere except by the Asian tigers...
...A jungle of savage beasts, where he who can kill the one next to him kills him...
...The repression isn't physical anymore, it's economic-feeding your family, educating your child," says Maria Pefia, who works in a fishmeal factory...
...In purely material terms, even the poorest Chileans have become less poor since the restoration of democratic rule, but the loss of job security and the dismantling of the welfare state have exacted a heavy human price...
...the next in line for a freetrade agreement with the United States...
...Furthermore, if Chile succeeds in its efforts to join NAFTA, the government may find that any attempt to encourage fledgling Chilean industries becomes illegal under clauses requiring equal treatment of local and foreign investment...
...On the beaches, the black strings of pelillo seaweed lie drying, before being sent to Duncan Green is a researcher at the Latin America Bureau, London...
...Despite growing poverty and inequality, the dictatorship cut per-capita social spending by a fifth over the course of the Pinochet years...
...Two enormous recessions in 1975 and 1982, followed by periods of high-speed growth, averaged out at a miserly annual percapita growth rate of less than 1% from 1973 to 1989...
...They work you like a slave here, squeeze you dry, and then throw you out," says Roxana, a smartly dressed 30-year-old ting two non-traditional export crops: seaweed rber (below...
...Globally, however, agricultural products are the most sluggish backwater of the world economy...
...woman...
...Outside the middle-class enclaves, however, the flaws in the model start to appear...
...Disputes over the skewed distribution of wealth will probably emerge if the Chilean boom runs into trouble, and there are already signs of a slow-down...
...In the same year, in a sign of the limits to its export drive, Chile ran up a $1 billion trade deficit after years of surplus, reflecting sharp price declines in a number of key exports...
...The experiment is now being repeated elsewhere...
...The first boom, which ran from 1977 until 1981, foundered as the "Chicago Boys"free-market zealots placed in charge of the Chilean economyderegulated private banks...
...He is currently working on Silent Revolution, a book on the neoliberal transformation of Latin America, to be published in early 1995 by LAB/Monthly Review Press...
...The armed forces also declared itself the only group in Chile exempt from joining the new private pension funds...
...Both countries are exacerbating their trade problems by running highly overvalued currencies to hold down inflation...
...Aylwin inherited an economy primed for growth, but with muchincreased inequality...
...Any serious attempt to redistribute wealth would have led to political and economic warfare with the Chilean elite, a slump in investment, and a swift end to neoliberal growth...
...To date, however, the Chilean government has failed to shake off its neoliberal inferiority complex, believing that the state can only harm the economy by stepping in to protect and nurture this process...
...In comparison, Chile has so far been a model of prudence, running government and trade surpluses until a large trade deficit appeared in 1993...
...Such is the jungle of...economic life...
...That is reality...
...The figures are eloquent: economic growth of nearly 6% in 1993, and over 10% in 1992, making Chile the third fastest growing economy in the world that year...
...above) The Aylwin government corrected some of the worst abuses of the Pinochet labor code...
...He chose to avoid redistribution, and bank on growth to reduce poverty-everyone kept the same proportional slice of the pie, but the pie got steadily bigger...
...Growth in 1993 was 5.7%, down from an unsustainable 10.4% in 1992, arch and is forecast to reach only 4% this year...
...The reform replaced the ramshackle state pension schemes with private pension funds (AFPs), and made membership compulsory for all workers entering the labor force from 1983, obliging them to contribute a minimum of 10% of their salaries...
...According to a recent World Health Organization survey, over half of all visits to the publichealth system involve psychological ailments, mainly depression...
...Roxana's house is a wooden hut with a tin roof, a few sticks of furniture, no heating, and no glass in the windows...
...Most Latin American governments would be delighted with such a rate, but once the pie stops growing, Chile's poor might become more dissatisfied with the tiny slice they have been allocated by Pinochet and Aylwin...
...The military as an institution also showed some aversion to its own free-market medicine...
...He also bequeathed a Congress with a built in majority for the Right designed to block radical reform or any attempt to call the military to account for any of the 3,000 political killings under the dictatorship...
...All these products will be shipped overseas as part of the Chilean export boom, a vast enterprise which has turned the country into the fastest-growing economy in Latin America and a showcase for neoliberalism's "silent revolution" in the region...
...The Economist is impressed, but what about the Chileans...
...Average wages in 1989 were still 8% lower than in 1970...
...Successful developing countries get into computers, not kiwi fruit, yet the Chilean government shows a massive indifference to the country's technological base...
...Peru introduced a similar system in 1991, and Argentina is now following suit...
...In the deforested hills around Puerto Montt, the fished-out shorelines of the South, and the chemical-ridden fields of the fruit belt, even Chile's abundant ecosystem is starting to protest, and some of the results are horrific...
...Foreign investors complain about the new government's insistence on retaining tighter controls on foreign capital than almost any other Latin American country...
...The numbers living in poverty-defined as those in households with an income of less than twice the cost of a minimum food basket-had risen from 20% to 40% of the population, and the richest 20% of the population had increased their share of total consumption from 45% in 1969 to 60% in 1989...
...But critics argue that without a coherent industrial policy, the leap to broader resource-based industrialization will never happen...
...Moreover, even on its own terms, the model is flawed in its dependence on raw materials, and the government's aversion to taking a real role in directing the economy...
...Now, however, alarm bells are ringing since there is not much left to privatize-especially in Argentina-and speculative investment can leave as easily as it enters...
...The Chilean elite has prospered the last decade...
...I feel real anxiety about the future," she adds...
...C asualization" is central to Chile's eco"nomic "miracle," and has accelerated since the end of the dictatorship...
...If he hadn't killed all those people, the economy wouldn't be where it is today," says Luz Santibafiez, who spent seven years in exile in Scotland and now runs her own clothes workshop in Santiago...
...Granted, products have diversified from the days when copper made up 80% of Chilean exports-it now accounts for around 40%with dynamic new "non-traditional" sectors in fruit, forestry and fisheries...
...They can chuck us out at any time...
...This latest twist to the old commodity-export story is already showing signs of coming to an unhappy ending...
...Moreover, the Chilean economy is doing better now under a democracy than during the Pinochet dictatorship...
...Along the southern coast, the wire-mesh tanks of innumerable salmon farms dot the picturesque fjords and inlets...
...The main vehicle has been the NACLA REPORT ON THE AMERICAS 14ANALYSIS / CHILE radical pension-fund reform introduced in 1980...
...The increased stress and individualism have also affected Chile's traditionally strong and caring community life...
...True friendship is difficult now...
...When asked about the high bankruptcy rate, Pinochet's colleague in the junta, Admiral Jos6 Toribio Merino, replied: "Let fall those who must fall...
...All they talk about is money, things...
...By law 10% of Codelco revenues-currently around $190 million a year-goes to the armed forces...
...The Rancagua figure is three times the national average, leading invesVol XXVIII, No 1 JuLY/AUGusT 1994 15ANALYSIS / CHILE tigators to blame the tragedies on the indiscriminate use of pesticides on the farms...
...By competing with European producers, they have triggered a bout of First-World protectionism...
...In the short term the trickle-down strategy produced results unparalleled anywhere else in the region...
...BY DUNCAN GREEN It hits you from hundreds of yards away, the rich sweet smell of fermenting wood floating through the crisp air of a Chilean night...
...In the fruit farms near Santiago, life is hard...
...Aylwin had good reasons for putting continuity before change, and an excellent alibi in the old patriarch himself...
...Dwarfing the wooden houses and shops of the southern port of Puerto Montt, the mounds steam gently as they await loading onto the Japanese ship which rides at anchor in the bay...
...A labor force once accustomed to secure, unionized jobs has been turned into a collection of anxious individualists...
...By 1990 it was able to present incoming President Patricio Aylwin with a fairly stable platform for an economic take-off...
...AFPs currently manage capital of $13 billion, equivalent to one third of Chile's GDP...
...The Chilean experience may contain some lessons for other developing countries grappling with the market, but it is certainly not the neoliberal nirvana painted by its supporters...
...Relationships are changing," says Betty Bizamar, a 26-year-old tradeunion leader...
...indeed copper revenues subsidized the State during the restructuring of the 1980s...
...Aylwin picked up the ball and ran with it...
...In late 1993, during the height of the election campaign, the government was both able and willing to face down a rare strike by health-care workers...
...Wages are only just getting back to the levels of 25 years ago, while around 40% Santa Maria Manquehue, an affluent subur Santiago...
...Despite the rhetoric, Chile is a long way from being a pure neoliberal showcase...
...Don't-rock-theboatism became the hallmark of the Aylwin presidency...
...In the Aconcagua Valley near Santiago, growers are hacking down hectares of kiwi-fruit trees because of a world glut...
...General Pinochet showed his own double standards towards the free market by insisting that the Chilean Copper Corporation (Codelco) remain in state hands...
...The military espoused a particularly brutal form of economic Darwinism...
...Chile's apple growers have suffered a different kind of setback...
...Emerging from recession in the mid-1980s, however, the government adopted a more pragmatic 12NACIA REPORT ON THE AMERICAS NACIA REPORT ON THE AMERICAS 12ANALYSIS / CHILE approach, concentrating on balancing the books and promoting exports and investment...
...The return to democracy has seen a move to "neoliberalism with a human face," but the social and environmental costs of the model remain severe...
...Growth lifted perhaps as many as a million Chileans out of poverty during the Aylwin years...
...In the window of the World Book Harves Center, Pinochet's memoirs and lu share pride of place with Martha Stewart's Gardening Month by Month, the perfect Christmas presents in the new Chile...
...Some aspects of the Chilean experience could usefully be copied elsewhere, notably the creation of a local capital market, the tradition of honest government (which long preceded Pinochet), and a concern with avoiding large fiscal or trade deficits and excessive openness to foreign speculators...
...of the workforce is now estimated to be operating in the dirty, dangerous and unregulated world of the informal economy...
...In the Regional Hospital of Rancagua in the lakes region of Southern Chile, investigations show that of the 90 babies born with a range of neural tube defects in the first nine months of 1993, every one was the child of a temporary worker on the fruit farms...
...a government which runs a fiscal surplus of nearly a billion dollars a year...
...Up to now the response has been that of a hamster on a treadmill, as the Chilean economy churns out ever greater quantities of raw materials to try and compensate for In the deforested hills around Puerto Montt, the fished-out shorelines of the South, and the chemical-ridden fields of the fruit belt, even Chile's abundant ecosystem is starting to protest...
...The mall has three floors of gleaming boutiques in cream and gold, a vaulted glass roof, palm trees, silent escalators and musak...
...Japan for processing into food preservative...
...As more and more developing countries leap aboard the bandwagon, the increased competition floods the market...
...You have to be a Quixote to be a union leader these days...
...Aylwin's team of economic technocrats was convinced that Pinochet's legacy of a compliant labor force and a self-exploiting sweatshop economy was essential to the Chilean boom and could not be touched...
Vol. 28 • July 1994 • No. 1
