"Stagnation in Liberty" -- The Frei Program in Chile
Bodenheimer, Susanne
INTRODUCTION The NACLA staff feels that the following article (to be presented in two parts) is of particular relevance at this time. Eduardo Frei's and the Chilean Christian...
...the initial target of redistribution to 100,000 families would be met by around 1997 rather than by 1970...
...Although it has been acknowledged by such high functionaries as Frei's Finance Minister that the private sector has not "contributed the necessary dynamic, and its volume of saving has remained practically constant," 27 the Frei government has not taken sufficient responsibility for the gaps left by the private sector, particularly in basic industries where immediate profit returns are lower and private industrialists hesitant to invest...
...Certainly it appears that the Frei government-8made a political decision to satisfy nationalist agitation for greater Chilean participation in copper without incurring the wrath of the American companies or, ultimately, of Uncle Sam...
...Report by Sen...
...On the contrary, private banking interests have considerable control over the government's Banco Central, since only four out of eleven members of its board of directors are government representatives, the others coming from private banking and other vested economic interest groups...
...it has embarked upon a mixed" petrochemical enterprise in which a controlling interest of 70% is owned by America's favorite, the Dow Chemical Company...
...In education, both curriculum and tructure have been modified, educational opportunities for children and adults have been expanded, and more than 2,300 schools have been built since 1964...
...economically, however, it is doubtful that the Chilean government negotiated a good deal for itself...
...25 ff...
...As passed by the Congress in July, 1967, the law enables the state to expropriate not only abandoned or poorly developed lands (as had been the case under the 1962 Law), but all those belonging to a single owner exceeding 80 hectares of irrigated land in the fertile Central Valley or the equivalent...
...land had been given to slightly under 10,500 families-well below even the revised projected goals...
...55, 64...
...the government refused to follow this di&t e sa the grounds that it violated the copper contract...
...Whatever its merits, the educational reform has not altered the basic fact that education in Chile is not an instrument of social mobility for the disadvantaged...
...55 Griffin, p. 24...
...47 Reynolds, pp...
...52 No doubt this might have meant the loss of a substantial market for Chilean copper, but not a total catastrophe...
...57 CIAP, p. 63...
...Why did the Chilean government accept a deal on less than favorable terms-and after only seven weeks of negotiations...
...2 U.S...
...62 Frei, Cuarto Mensaje (1968...
...Although its function as a "development bank" gives CCRFO some say over the allocation of credits to private enterprise and theoretically some power in setting private investment priorities, in practice this power has not been exercised with the necessary degree of discrimination from the viewpoint of national development needs...
...4 7 One of Frei's first actions after coming to power was the negotiation of the "Chileanization" program in copper...
...Historically, Chilean economic development has been marked by extreme dependence upon this sector, owned and operated by foreigners and produced primarily for export...
...15 Eduardo Frei Montalva...
...APPLICATION TO MAIL AT SECOND CLASS POSTAGE RATES IS PENDING AT iiN YORK, N.Y.-3but feasible...
...Furthermore, nearly 50% of total copper earnings went to tg three American companies (the two mentioned directly above, and the Cerro Corporation...
...14 "U.S...
...One source cites the president of Kennecott as stating that taxes on El Teniente have fallen from 83% to 44...
...rather, as a number of studies have shown, 16 it has widened the gulf between the middle and lower classes and has increased the discrimination against the lower classes, particularly rural...
...This is not surprising, since many of the very industrialists seeking those credits are either on the board of CORFO or have some Less direct link to the state apparatus...
...57 In the first two years, the stabilization targets were nearly achieved: consumer prices rose 25.9% in 1965 58 and 17% in 1966...
...Subcommittee on Foreign Aid Expenditures...
...3 These extreme disparities in land tenure have prevented increased productivity: the "latifundistas" gained a sufficient income without introducing new techniques to improve productivity, and the 'miniSundistas" could not afford such innovations...
...On the other hand, given the lack of sufficient resources to finance these programs, their preponderance in the national budget, including tremendous expenditures for personnel to run them, contributes to a chronic budget deficit (considerably more than 400 million escudos in both 1966 and 1967), 19 with significant repercussions on the national economy...
...One study suggests that the Chilean negotiators were at a severe disadvantage: they were under pressure to treat the companies "fairly" and, for internal political reasons, to reach a rapid agreement, and, not being economists, were handicapped by insufficient economic advice...
...Sunkel, p. 136...
...12 Mimeographed press releases of the Partido Sociallsta...
...3o In some cases, the benefits have been "extended" to established Chilean industrialists who join forces with foreign firms: to take only one example, Ralston-Purina has moved into the field of animal fodder in conjunction with the dwards family, possibly the most powerful economic "group" in Chile...
...29 Constantine Mengea, "Public Policy and Organized IBsiness in Chile: A Pr 'iminary Analysis," Journal of International Affairs, Vol...
...60 The Economist for Latin America, Feb...
...Cuarto Mesaj del Presidento de la Repiblica de Chile, May 21, 1968 (Santiago: DOsartamento de Publicaciones de la Presidencia, 1968...
...The Record in Agrarian Reform and Social Welfare Let us begin by assessing the record of Frei's "Revolucion en Libertad" in the two areas in which some reforms have been initiated and at least partially implemented: agriculture and social welfare...
...Independent evaluations of the program have mentioned the persistence of certain "latent" aspects of the old "fundo"' structure, and a tendency toward insensitive or paternalistic attitudes of CA personnel toward peasants, despite the fact that CRA was conceived as the "socio" or partner of the peasants...
...1 The Americanization of Bolivian Oil...
...Given Frei's initial objective of reducing inflation without sacrificing other developmental goals, what have been the effects of his actual stabilization efforts on the economy as a whole...
...Tenencia de la Tierra y Desarrollo Socio-Econ6mico del Sector Agricola1 ieimeogra.phed7...
...107-108...
...16-2for the peasants, establishment of community organizations for the urban slum-dwellers general income redistribution, a massive housing construction program, and universal education and health care...
...Today, four of Frei's six years in office are over, and, with parliamentary elections in larch, and a new Presidential election in 1970, the remaining two years are more likely to be years of consolidation than of significant innovation...
...10 Who Owns Peru's Oil Resources...
...It was frequently presented as a test case of the viability of a reformist, developmentalist model of peaceful change for all Latin America, as an answer to the clamorous advocates of revolution...
...These plans aroused such political opposition (including a number of violent strikes, to which the government responded by attempting to pass anti-strike legislation) that the final bill adjusting wages for 1967 was not passed until the end of May, 1968, and even then in greatly modified form...
...for while over 50% of Chilean copper was exported to the United States in the 1950's, 53 this declined to 36% in 1966 (60% going to Western Europe...
...Part I The 1964 Frei program of "Revolution in Liberty" articulated the basic structural changes advocated by the Alliance for Progress liberals in Washington...
...latifundia" (farms large enough to employ more than 12 people) constituted 6.9% of farm units, covering 81.3% of the farm area...
...The return to more conventional policies is evidenced by such measures as the lowering of public investment, the imposition of credit restrictions, a decline in construction (although public housing was originally a top priority), wage controls, and so on...
...Ernest Gruening, U.S...
...thus, in his words, "the agrarian reform is no ones enemy...
...33 Ricardo Lagos Escobar, La Conoentraci6n del Poder Econ6mico...
...The agricultural sector had become in recent years one of the principal obstacles to Chilean development-as evidenced by the fact that, although a net exporter of food before World War II, Chile today imports well over $100 million of foodstuffs annually...
...Even the U.S...
...In addition, under the present system, the state has had almost no control over the financial activities of the banks -activities which often respond to international financial conditions rather than to domestic needs, and which have often been to the detriment of the nation...
...49 Cited in Punto Final, October, 1967...
...Coming to power at a time when inflation had been galloping at about 40% for the two previous years, Frei proposed a policy of gradual stabilization under which price increases would not exceed 25% in 1965, 15% in 1966, 10% in 1967, and 5% in 1968: this was simultaneously to permit economic growth, redistribution of income in favor of wage earners, improvement of relative prices for agriculture, and maintenance of a flexible exchange policy...
...First, the tax structure has not been basically revised: as of 1966, fifty-five percent of all government current receipts came from regressive indirect (mainly sales) taxes and forty-one percent from direct taxes, including copper (the rest being receipts "from other sources...
...No doubt this transaction had great nationalistic significance, despite the fact that Braden would continue to administer El Teniente...
...21 According to CIAP (Alliance for Progress) figures, direct taxes excluding the copper tax actually declined slightly in 1966...
...Internationally it promised a policy independent of international power blocs, more power for the Latin nations in the InterAmerican System and the Alliance for Progress, good relations (without "solidarity") with Cuba, revision of military pacts, and promotion of world peace...
...30 Ibid., p. 352...
...59 CEPAL, p. 86...
...These characteristics of the banking structure are symptomatic of more general problems in the relation between the state and the private industrial sector...
...Low productivity, in turn, has negatively-affected Chile's balance of payments (due to food imports), aggravated inflation by driving up food prices, and curtailed the purchasing power of the rural population (less than 8% of the rural population receives more than 65% of total rural income...
...69FOOTNOTES 1 Partido Dem6ocrta Cristiano, Chile (campaign publication) (Santiago: PDC, 1964...
...Few independent Chilean businessmen can compete with this combination of foreign and domestic corporate interests which enjoys, in addition, the special benefits granted to foreign investors...
...While overall housing construction has declined somewhat since 1965, low-income housing construction has been drastically curtailed...
...13 Foreign Banking in Peru...
...33 These same groups exercise considerable influence in political circles, and control almost all media of mass communication, thus stamping political information with their own distinct bias...
...20 Where Frei has Feared to Tread Thus the agrarian reform and the social welfare programs undertaken by the Frei regime have fallen short of the expectations initially aroused...
...27 Zaldivar speech, November, 1968...
...45 Although the earlier practice of bringing in Americans to fill second-level positions (supervisors, engineers, etc...
...Despite official declarations that a "proyecto de reforma bancaria" is under discussion, thus far no action has been taken...
...Comisi6n con6mica Para Amdrica Latina (CEPAL...
...ENAP, the state enterprise originally established for the exploitation of petroleum, for example, contracts out its construction, explorations, and even its sales to private interests, including foreign films...
...44 CEPAL, p. 93...
...Subscription price: $5 per year...
...The new Ley de Medicina Curativa is an expensive program which increases social security payments and improves medical, service for white-collar employees, without upgrading health care for the lower classes...
...above all, thee has been a change in the attitudes of the peasants involved, as they assume their new role as independent producers, conscious of their rights and responsibilities...
...1967 (Segunda Parts), (Santiago: CEPAL, 1968), p. 96 (hereafter referred to as CEPAL...
...65 public expenditures were cut by more than 500 million escudos...
...Power and the Dominican Republic...
...11 The government has also been accused of using the agrarian reform for political purposes (both in the sense of mobilizing peasant support for the PDC and of using certain loopholes in the law to avoid expropriating the land of Christian Democratic "latifundistas"), 12 but such possibly valid charges are to be expected from the political opposition parties...
...7 See summary of evaluation by United Nations Food and Agriculture Organization (UN-FAO), Comite InteramericanA del Desarrollo Agricola...
...Su Teoria...
...in addition to being politically necessary in Chile, they could be very important if undertaken in the context of other structural transformations...
...2 Insufficient productivity in the agricultural sector stems in large measure from the structure of land-ownership: as recently as 1966, subsistence farms or "minifundia" (employing two people or less) constituted 36.9% of farm units but covered only .2% of farm area...
...according to this revised schedule, at least 19,000 and possibly 27,000 families would have received land by the end of 1968...
...4 Gruening report, p. 5. 5 Cited in Comitd Interamericar de la Alianza pare el Progreso (CIAP), Domestic Efforts and the Needs for External Financing for the Development of Chile (Washington, D.C.: Organization of American StatT 1967), p. 127 (hereafter referred to as CIAP...
...but thus far they have done little to alter the basic socialeconomic structure...
...This was later revised to stipulate a minimum of 40,000 and an optimum of 60,000 families by 1970...
...Secondly, t rates on Eraden's share of the profits were substantially cut, were tax rates for he other companies, and it was agreed that their taxes would not be raised for at least 20 years...
...Since copper has been a major determinant of the Chilean economy, a brief background is necessary...
...63 Unemployment rates declined very slightly in the first half of 1967, although absolute unemployment rose slightly...
...41 Since 92% of largescale copper mining is marketed abroad, 42 the Chilean economy has become excessively dependent on world copper demand and prices...
...14-4In health, government expenses rose by 50% in Froi's first three years...
...has been somewhat reversed in recent years, major decisions are still made by profit-oriented foreigners...
...Excessive interest rates and the difficulty of procuring credit, coupled with certain privileges for large industrialists with ties to the banking sec--5tor (e.g., the right to borrow beyond their deposits and beyond the legal lending limit to any one person or corporation), have made it almost impossible for small enterprises to obtain credit...
...First, according to the study made by an American economist, 48 Chile is paying $81.6 million plus 4% interest annually to buy half of an enterprise which, by its own previous assessment for tax purposes, was worth $65 million--or, at the very m6st, $119 million, taking into account expected future profits...
...on& economist has calculated, even with the higher copper price, a-nt financial L:-x-it oi the m Toniente deal i zero for Chile (as compared wit...
...Ruben Corvalln, "Dos Hombres, Dos Programas," Eroilla...
...thvsij, 1962), p. 81...
...Estudio Econ6mico de Am6rica Latina...
...22 Whatever miniscule changes may have taken place in one direction or the other, the tax structure today is basically no more progressive than in previous years...
...22 CIAP...
...these in turn respond to such exogenous political vicissitudes as war (price controls in the United States during World War II and the Korean War were extended to Chilean copper...
...9 Robert Kaufman, "The Chilean Political Right and Agrarian Reform: Resistance and Moderation," Institute for the Comparative Study of Political Systems, Political Study #2 (1967...
...19i , pp...
...5 Measured against these quantitative goals, the record in implementation has been disappointing...
...State intervention, to the extent that it exists, has come to favor large established industrialists who have, in addition to financial power, a higher degree of political influence with the government...
...Implementation has been severely limited by the inability or the unwillingness of the government to offend existing elite groups...
...68 One measure of the influence of industrialists has been Frei's increasing hostility to strikes, particularly in the public sector, and the relatively harsh means used to quell them in the past three years...
...45 Gruening report, p, 3. 46 Citod by Andr6 Gunder Frank, Capitalism and Underdevelopment in Latin America: historicall Studies of Chile and hraszil- 'w York: monthly Review Press...
...thus it has lost a large measure of control over the allocation of national resources and become nothing more than a state bank for the promotion of private enterprise...
...The value of the land is assessed by the agrarian reform agency, CCRA, with appeal procedures for contested appraisals...
...3 Solon Barraclough and Arthur Domike, "Agrarian Structure.in Seven Latin American Countries," and Economics, November, 1966, p. 395...
...Although legally empowered to make significant inroads upon the previously inviolable domain of the landed elite, the Frei government appears to have made the political decision not to confront that elite...
...Paradoxically, while promoting private industrial investment through the above mechanisms, the Frei government has simultaneously maintained a kind of dis-incentive to national incustrialists through its deliberate policy of granting special incentives to attract foreign investors: they are given complete liberty to send profits abroad...
...12 The Hickenlooper Amendment...
...Minimum contribution for 1-yr...
...from a social point of view, it could diminish whatever degree of solidarity might develop among peasants from their experience of working collectively and could in fact produce division conflicts of interest between peasants who have become small landholders and those who remain landless...
...A fourth and final factor which has hampered the government's ability to finance its development programs has been its copper policy...
...Latin America: Reform or Revolution (Greenwich, Conn.: Fawcett, 96), p. 215;_Gruening report, p. 6. 17 James Petras, Politics and Social Forces in Chilean Development (galleys of book to be published by Univrsity of California Press, February, 1969), pp...
...This is not to suggest that health, education, housing and other welfare programs should be abandoned...
...As a number of studies have shown, there exists in Chile a marked trend toward concentration, particularly in intermediate and capital goods industries where scale is technolog-ically necessary and which will become increasingly important in Chile's future stages of industrialization...
...Hispanic-American Historical Review, February, 1963, reprinted in Jame- Petras and Maurice Zeitlin (eds...
...43 the Vietnam war, on the other hand,-7has stimulated a rise in copper prices), and a 1967 strike in the American copper indu;try.44 This extreme vulnerability to external conditions is compounded by the fact that, as recently as 1966, 80% of production in that crucial sector was controlled by two American companies (Kennecott and Anaconda...
...35 moreover, studies have shown that the concentration of industrial capital in Chile has resulted in higher profits, which are provided largely by consumers in the form of rising prices...
...p. 50...
...63-64hereafter referred to as ICIRA...
...moreover, private banks are generally unwilling to make loans for more than one year...
...7 The principal reason for this slow progress has been the high cost of the program and the insufficiency of available funds to finance it...
...107-8...
...Not surprisingly, the net benefits to the companies are substantial, while nearly all of the additional costs are being borne by Chile...
...A more serious problem is that the apparent aim of the program, beyond the 'asentamiento" stage, is to divide up the land, rather than to create collective or cooperative units...
...Specifically, the difficulties in financing the agrarian and welfare programs can be traced to the absence of basic reforms in taxation, the banking and industrial structure, and copper-reforms which would have increased state financial resources, but would have entaile a more serious confrontation with entrenched interest groups...
...This link between the state and the large corporation tends, in turn, to counteract one of the main theoretical advantages of the private enterprise system: free competition...
...Thus the state has become in effect an instrument of the most powerful private economic interests and is prevented from making independently the necessary decisions for development...
...50 In fact, as te above-mert...
...59 In 1967, however, prices rose 21.6% 60 and in the first half of 1968 alone, almost 20...
...34 Although it is argued that monopoly is necessary for efficiency in certain industries, in the absence of competition, monopolies frequently become less efficient...
...53 Pinto, p. 173...
...23 Junta Nacional del PDC, Proposiciones psra una Accin Political en el Periodo 1a-70 de una Via No-Caitalista d earrollo - (Sntiago PDC, July...
...Economically, subdivision of the land will hinder maximum efficiency and productivity...
...67 External pressure for orthodox anti-inflationary policies has come principally from the International Monetary Fund (IMF) and creditor nations whose loans are contingent upon compliance with flF recommendations...
...64 beginning in 1967, the government has followed a more conservative fiscal policy of limiting the increase in public spending to 5% (as compared with the cumulative average rate of 20% from 1964 to 1967...
...It is significant that the copper bill was finally passed with the support of the Rightist parties in Congress (which have never been known for their excessive nationalism)-indicating that it was not perceived as much of a threat to the existing economic structure nor as a precedent for nationalizations in the future...
...28 Sunkel, p. 135...
...Frederick Pike...
...54 Calculated from figures in Statistical Profile, p. 51...
...52 Griffin, pp...
...for the establishment of new industries using mainly national primary resources, they are exempted from paying any taxes for the first ten years of their investment...
...10 Nevertheless, difficulties have arisen on some "asentimientos" where, peasants complain, CRA officials behave much like their old "patrdi," arbitrarily firing peasants who make certain demands, who belong to the wrong political party, and so on...
...In recent years, foreign exchange remittances for profits and depreciation by foreign investors have exceeded their investment contribution to Chile (by $81 million in 1966 and by 64 million in the first half of 1967 alone...
...37 Lgos Escobar...
...subscription: $5 In This Issue: "Stagnation in Liberty" -- The Frei Program in Chile...
...6 Corporaci6n de la Reform Agraria (CCRA) figures (mimeographed...
...Without going into the historical details of the Chilean industrialization process, it is important to understand why this potentially dynamic sector has stagnated (industrial growth was only 2% during 1967 25 and industrial exports fell 28%) 26 and why it has failed to generate resources which could be utilized by the state for development...
...3 9 Whatever may be the short-run merits of foreign investment (in bringing dollars into the country), the long-range effect is to deprive Chile of vitally-needed foreign exchange and financial resources for development...
...in practice, however, his stabilization policies have not differed greatly from previous ones...
...19 Senator Alberto BIltra, quoted in E1 Reportero, July, 1968, p. 8. 20 Petras...
...A second area where reform has been notable for its absence is banking...
...13 Speech by Finance Minister Andr6s Zaldivar, November, 1968, sunarized in Corporaci6n de la Producci6n (CCRFO), Economic Notes #35...
...56 Controlling Inflation: A New Approach...
...61 Although the national product has risen 19% since 1964, 62 per capita production dropped 1.3% in 1967...
...1968...
...The difficulty of financing the reform, as will be seen, stems from independent factors...
...32 Dale Johnson, Industrialization, Social Mobility...
...120-121, 134135...
...it only becomes positive in the context of the Chileanization ano opoer expansion program as a whole...
...for the establishment of new industries or export industries, they are guaranteed that taxes will not be raised nor new taxes applied...
...51 Cited in Petras, p. 74...
...After an initial three-year "asentimiento" stage, during which the peasant is "trained" to become a landowner and producer, the land is to be divided up among the peasants, who will be given 30 years to repay the tax-assessed value of their land...
...36 Excessive concentration, which in countries like Chile cannot be curbed through traditional anti-trust legislation (industrialization in Chile mainly involves heavy industry which demands large-scale operations), 37 hardly stimulates competition by small businessmen...
...18 Figures of the Oficina de Planificaci6n Nacional (ODEPIAN), mimeographed...
...Thus it is appropriate to examine to what extent the performance of the Frei government has fulfilled,on the one hand, the expectations of its supporters in Washington and in Chile's exclusive Club de la Uni6n, and, on the other hand, the promises made to the Chilean masses in 1964...
...14 ICOPS Election Schedule for Latin America...
...38 CCRFO, Incentivos Para el Desarrollo Econ6mico (Santiago: CRFO, October 1967 39 CAP, pp...
...Socially it guaranteed unionization and strike rights for workers, substantial redistribution of land The NACLA NEWSLETTER is published ten times a year by the North American Congress on Latin America...
...May 20 and May 27, 1964...
...Having changed over the years "from a pioneering promoter of basic industry to a traditional banking institution strongly influenced by private interests," 28 CRFO has sold out its controlling interest in a number of basic industries it initially established...
...v.e ;ta .u...
...p. 57...
...Louis: Washington University, Social Science Institute, 1968), p. 138...
...1 Most important, these very basic changes were to be achieved without curtailing individual human liberties...
...In general, as one American study has shown, "without question...the business association has been given far more representation than other economic groups" 2 9-to say nothing of their informal connections with the executive and legislative branches of government, their drafting of legislation on policy matters affecting them, etc...
...21 Percentages computed from figures given in Frei's Third Annual Message, May 1967, cited in Chilean Embassy's Statistical Profile of Chile (Washington, D.C., 1967...
...quo ante...
...Senate, Committee on Government Operations...
...136-7...
...34 Ibid., p. 166...
...and interviews...
...Ninety to ninety-nine percent of the compensation for expropriated lands is based on five, twenty-five and thirty-year bonds, rather than cash payments...
...The analysis is also of timely importance as background to the upcoming March senatorial elections in Chile and as an indicator of what kinds of reforms might be promulgated by the Social Christians in Venezuela under the leadership of recently-elected President Rafael Caldera...
...12, 138...
...Economically, the PDC called for greatly expanded government planning for national development (without abolishing private property), a more equitable tax structure and more efficient tax collection, banking reforms to strengthen the role of the Banco Central, elimination of unemployment, thorough agrarian reform, "Chileanization" of the crucial copper industry and expanded copper production, incentives for export industries, new markets (including Socialist countries) for Chilean exports, and regulation to favor essential imports-to mention only the highlights...
...89, 7. 48 Keith Griffin, "An Analysis of the Copper Expansion Programme in Chile" (unpublished...
...As one peasant remarked sarcastically, "Perhaps they in CRA] are too busy talking to the landowners...
...In the absence of those transformations, however, piecemeal social welfare programs have become an organizational instrument for coopting the political representatives of the middle and organized working classes, and undercutting demands for basic structural change...
...and so on...
...Reaidad Chilena (Santiago: Editorial del Paico, 1961), p. 165...
...GNP per capita growth was 2.7% in 1965 and 4.3% in 1966, but fell to .4% in 196j...
...46-51...
...Aside from the agrarian program, the Frei government has introduced other social reforms...
...6 Given the long-range objective of redistributing land to Chile's 350,000 landless peasant families, completion of the program at the present pace would take at the very least 100 years...
...9 As one CORA official explained to me, it is much more "prudent" to extend agricultural credit as a production incentive to "'latifundistas" than to expropriate their land...
...10027...
...24 Ibid., p. 44 The second part of this article will deal with the role of U.S...
...31 Ricardo Lagos Esacobar, La Industr, en Chile: Antecedentes Estructuralea (Santiago: Institut de o Eono Universidad de Chile, 1966), pp...
...17 Moreover, basic inequalities in income distribution (according to 1965 figures of ODEPIAN, the National Planning Office, 29% of the population earns 4.1%, while the upper 4.5% of the population earns about 40% of the income) 18 have not been and are not likely to be altered by these social welfare programs...
...Private bank interest rates have risen from 14% when Frei came to power to nearly 17...
...51 Whatever may be the situation while copper prices remain high, there can be no doubt that Chile would have gained much more by nationalizing the companies' holdings and compensating them on terms at least as beneficial to Chile as to the companies...
...Qualitatively, peasant health, education, and use of human and natural resources have been improved in the areas affected by the reform...
...The board of directors of CORFO's Agriculture Department, for example, is composed of six representatives of the Sociedad Nacional de Agricultura (an association of the largest landowners), as compared with four representatives of the goverment...
...35 Lagos Escobar, a Concentraci6n, p. 71...
...66 in 1967, the government attempted to limit wage and salary increases, first by a "forced savings" plan (according to which employees and employers would each contribute 5% of wages at considerably less than 100% of the rise in consumer prices...
...69 Ibid., pp...
...In resorting to orthodox anti-inflation measures, the Frei government has paid less attention to correcting long-range structural imbalances through substantial tax reform (to make possible a reduction in the public deficit without inflationary Central ank borrowing), rationalization of the inefficient social security system, banking reforms, more flexible export sector, etc...
...15 These and other expenditures for social welfare make Chile a model Alliance for Progress country -- on the surface, at least...
...Obstacles to Change in Latin Amrica (N.Y.: Oxford University Press, 195) pp...
...0 T-e Economist for tn America, Feb...
...La Industria, pp...
...In fact, the government had made certain concessions to vested agricultural interests in the agrarian reform law itself, in order to secure Rightist support for the 1966 copper bill...
...These tendencies, taken in conjunction with their deleterious effects, highlight a fundamental contradiction of the development effort within the capitalist framework: namely that the structure of privilege and concentration which is and will be generated by "free enterprise" will deny the state the power to make independently the national decisions basi6 to development, and the control over resources necessary for those decisions, thus frustrating development...
...68 Ibid., p. 106-7...
...According to CRA figures, as of June, 1968, 655 farms had been expropriated, covering a total of 1.25 million hectares (of which about 1.09 million or 87% were dry land and only 13% irrigated...
...and Class Formation in Chile (St...
...135-6...
...8 CIAP, p. 128...
...16 Osvaldo Sunkel, "Change and Frustration in Chile, in Claudio Veliz' (ed...
...The foregoing aspects of Frei's economic policy must also be seen from the perspective of the problem which has conditioned everything else: inflation...
...moreover, such foreign and "mixed" enterprises restrict government control over the stream of profits out of Chile...
...This is largely because the low income groups which should presumably be the beneficiaries of social welfare programs are precisely those which in Chile are unorganized and therefore least able to apply political pressures...
...The program has been very costly (approximately 60,000 escudos, 1965 value, per family), 8 largely because 87% of the land thus far expropriated has been unirrigated and generally lacking in capital infrastructure, thus requiring substantial investment to be made productive...
...they were unable even to get an appointment with higher CCRA officials in Santiago...
...Despite the authority granted under the law to expropriate all but 80 hectares of irrigated landholdings, the government has opted for the line of least political resistance by concentrating on abandoned and poorly developed lands...
...Aspects of Class Relations in Chile, 1850-1960...
...67 Enrique Sierra, Politicas de Estabilizaci6n: La Experiencia Chilena en el Decenio 156-1966 (preliminary version, mimeographed...
...58 Ibid., p. 64...
...14 United Nations...
...O Since the three companies have rot reinvested copper earnings in Chilean industries other than copper, the copper enclave has not proved to be a stimulant of rapid growth in the Chilean economy as a whole...
...Copper still constitutes between 60% and 70% of Chilean exports 40 and provides 80% of all export earnings...
...65 CIAP, p. 77...
...32 The structure of concentration and privilege is not only built into the main industries, but extends across industrial, financial and commercial lines...
...10, February 1969 Published ten times a year by the North American Congress on Latin America at 160 Claremont Avenue, New York, N.Y...
...13 government spending on education increased 66% between 1964 and 1967...
...66 The Economist for Latin America, April 19, 1968, p. 12...
...Furthermore, tax collection procedures have not been regulated sufficiently to ensure government collection of all taxes authorized even under existing tax laws...
...10 See evaluation by UN-FAO, Instituto de Capacitaci6n E Investigaci6n en Reform Agraria (ICIRA), Evaluaci6n Preliminar de los Asentamientos de la Reforma Apraria de Chile (S ntigo: United Nations 9), p-p...
...56 Kaufan, pp...
...30 State agencies have also promoted private interests through subcontracts...
...utilization of copper for the war in Vietnam, it is possible that the United States would have had to buy some Chilean copper, even that contaminated by nationalization...
...Very generally, it provided for the purchase by Chile of 51% of the El Teniente mine, owned by Braden Company (a subsidiary of Kennecott) for $81.6 million and of 25% of two smaller mines, and additional investment by both Chile and the companies to nearly double annual copper production by 1970...
...Unlike his immediate predecessors, Frei initially took the structuralist position that inflation should be curbed gradually, through structural reforms, and without stringent monetary controls...
...63 The Economist for Latin America, May 3, 1968, p. 10...
...p. 10...
...Foreign Aid in Action: A Case Study (Washington, D.C.: Government Printing Office, 9), p. 4 (hereafter referred to as Gruening report...
...23, 1968, p. 11...
...Politically, the Partido Democrata Cristiano (PDC) envisaged a number of constitutional reforms, designed to strengthen executive power, separate public officials from special private economic interests, broaden suffrage, and define the rights to a job, a decent salary, education, etc., as basic human rights...
...E ven where interlocking arrangements have not been formalized, there is often a kind of de facto extension of privilege, e.g., the special credit arrangements granted by big banking interests to big industrial interests...
...Initially the government planned to redistribute land to 100,000 peasant families by 1970--a goal which was, according to UN-FAO (United Nations Food and Agriculture Organization) officials, ambitious NACLA NEWSLETTER Vol II, No...
...64 CEPAL, p. 92...
...61 CEPAL, p. 87...
...Without these structural changes, any stabilization gains are likely to be temporary and reversible, and to have recessionary repercussions on the economy...
...Department of Commerce reported that under the new agreement, while increasing gross receipts from increased production, Chile suffers a 16% reduction in earnings per ton of copper produced...
...55 ore important, it is no coincidence that the chief negotiator, Rail Saez, was known to have good international connections and, formerly one of the nine "wise men" of the Alliance for Progress, to inspire great confidence in Washington...
...24 Any reform of the banking system would have to begin by strengthening state control over its own agency and subsequently subordinating commercial bank activities to Banco Central regulations...
...11 ICIRA...
...Eduardo Frei's and the Chilean Christian Democrats' "Revolution in Liberty:" now entering its fifth year, has been held up in diverse academic, governmental and corporate sectors as a model for reform in Latin America...
...p. 43 41 Gruening report, p. 3. 42 Clark W. Reynolds, Development Problems of an Export Economy: The Historical and Developmental Relaonshi of the Coper Industry to the Econom of Chile ierkeley: University of California, Berkeley, ?h.D...
...49 Thirdly, in return for the companies' additional investment to expand production (which, for Braden, involves little more than reinvestment of Chilean government payments to Braden for the 51% share), it was agreed that $100,000 of profits from the rising price of copper was to be automatically turned over to the companies...
...39-40...
...This compares with 56% in indirect and 39% in direct taxes in 1964 (before Frei took over), indicating that not much has changed since then...
...The article below details the bankruptcy of this model...
...T9 7 P...
...erty" within the PDC and the Chilean left...
...the main internal orthodox pressure has come from the big business sector which, after the first year, could not be persuaded to cooperate in voluntarily limiting price increases...
...XX 2, 1966, p. 350...
...aid in stabilizing the reformist solution in Chile and the political repercussions of the "Revolution in Lib26 CEPAL, p. 91...
...54 Furthermore, due to political difficulties in other copper supplying nations such as Zambia and Rhodesia and to increasing U.S...
...4 To deal with this problem, the Frei government enacted, despite initial and continuing opposition from the Right, a genuine agrarian reform law--one of the very few in Latin America...
...44- 5 . 40 Ibid...
...36 Johnson, p. 139...
...23, 1968, p. 12...
...In February, 1968, the Chilean Congress approved a measure stipulating that all income obtained from the rise in copper prices above 29" per pound in large-scale mining should go to Chile...
...To the extent that Frei's initial efforts encountered resistance among industrialists after 1965, he came to fall back upon more traditional stabilization policies by 1967...
...One group of peasants I interviewed had gone to Santiago to demand reinstatement, after being "fired" by local CORA officials...
...December 10, 1968...
...The principal mechanism of the agrarian reform is the "asentamiento," a temporary compact between CRA and the peasants who live and work collectively on the expropriated farm...
...Rather than playing a direct role in industry, the Frei government, like its predecessors, has preferred to work through agencies such as the Corporacidn de Fomento de la Producci6n (CORFO), which channel public funds into the profit-oriented private sector...
...One economic "supergroup"-an interlocking directorate of many economic "'groups"-Icontrols 22.4% of all corporations, which accounts for 70.6% of all corporate capital...
...43 Ibid., p. 90...
...In addition, these monopolistic tendencies in industry have preserved the regressive structure of income distribution, so that in effect the lower classes have paid the price of industrialization and of upward mobility for the middle classes (i.e., income redistribution at the lowest levels has been sacrificed...
...31 (Four percent of the corporations in Chile currently control about 60% of all corporation capital...
...11 Letter from Ambassador Irving Florman...
Vol. 2 • February 1969 • No. 10
