The not-so "miraculous" Chile (with William and David)

Is the Chilean economy really a “miracle?”  Does it warrant the position to be seen as an example for other countries around the world, and in particular Argentina?  Chile is considered one of the most developed nations in Latin America, with one of the healthiest economies.  The country has also witnessed dramatic economic growth within the past twenty years.  Chile’s upturn in economic “success” began with the authoritative Chilean dictator, Augusto Pinochet.  He implemented a bevy of radical economic reforms during his reign that completely shifted and overturned the current Chilean economic system.  The purple-caped leader was all about free-markets, free trade, privatization, and deregulation.  He privatized anything and everything (that is, removing state control of these industries and services and placed them in the hand of private companies) from mining operations, factories and industrial sectors, and even the social security pension system.  He championed foreign direct investment and developed free trade agreements (including an especially strong one with the United States).  This was the new Chilean Model, based on the orthodox pillars of fiscal austerity, unilateral trade openness, and privatization, and non-orthodox pillars of anti-cyclical investment and short-term capital controls (i.e. money that flows out of Chile is penalized more heavily). 

So, with all this success, it can be easy to see why people celebrate and applaud Chile.  The effects of Pinochet’s reforms were not, however, noticed until after he left office in the midst of a strong economic recession.  On a purely economic consideration, Chile has done very well on the surface.  Chile’s economy is far advanced from other Latin American countries. For example, in the period from 1985 to 1996, Chile’s annual growth per capita real income was on average 7 percent.  There are many other praising points for the miracle.  For example, the economic growth since the mid-1980s has grown about 6 percent, the per capita income has increased for about 16 million Chileans to about $7000, and only 18.7 percent of the population lives under poverty.  In comparison, Argentina has undergone one of the most drastic economic crises in recent years and is in desperate need of a plan to prevent such an occurrence from ever happening again.  Now, one would look at these few statistics and think, sure, Chile is doing splendidly, and Argentina would do well to take lessons from Chile’s situation.  However, there are more specific and underlying details that need to be examined, and will most likely put a bad taste your mouth.  Chile’s miracle isn’t all that it’s cracked up to be, and does not apply to Argentina’s reality.

The reality of Chile’s present situation is not so much the success or “miracle” that others would say, but rather an unequal and one-track economy, an unsatisfactory society, and a relatively ineffective political system that cannot do much to turn the country around.  Chile’s economy is not the shining model for other Latin American countries that critics laud it as.  On a good point, Chile’s poverty has seen about a 50% reduction between the years of 1990 and 2003, with 38.6% poor and indigent in 1990 and 18.8% poor and indigent in 2003.  Despite this, Chile’s Gini Coefficient has remained the same in both years, at around .63.  This information is astounding to hear about one of the most prosperous countries of Latin America, that it is also one of the most skewed in terms of income distribution, second behind Brazil.  This means that the rich and the poor got richer in this time period, and the distribution remained about the same.  And, to tell the truth, Chile may not see its present success continued for very long.  Chile for the longest time has been dependent on one main export: copper.  Most of its economy is based around the copper mining industry and has subsequently not encouraged the research into high-tech products that would cement its place as a world economic powerhouse.  Instead, it imports all such products.  Ultimately, Chile might find that its dependence on copper might not be enough in the next couple of years.  Chile’s economy may look great on the surface, but it has underlying difficulties that tarnish its sheen of greatness. 

Looking beyond the economy of Chile, several social problems become apparent.  In polls taken of Chilean citizens, there is a trend of dissatisfaction with basic needs across all levels of society.  This dissatisfaction is fairly well deserved; recently problems have cropped up concerning Chile’s privatized pension program.  Many workers who have just reached retirement age are the first to find out that the program’s benefits pale in comparison to the government’s system, despite the lauded benefits of the privatized system.  This is a growing problem for the Chilean society, and one that needs to be addressed quickly.  Another problem that grates on society is skewed government spending internally.  Looking at two different municipalities in Santiago of San RamĂłn and Vitacura, Vitacura is significantly better off than San RamĂłn.  However, more money is going to Vitacura.  This unequal distribution of government spending also grates on society and contributes to the trend of dissatisfaction of most Chileans.

Compounding both problems and causing problems of its own for the country is the ineffectiveness of Chile’s political system.  Chile has a binomial electoral system in which there are two legislative seats per district and a required 66% of the votes in order to obtain both seats.  After severe gerrymandering, the political parties of Chile have formed into two coalitions: ConcertaciĂłn, the leftist coalition, and Alianza, the rightist coalition.  This causes very unstable ideological alignments and disillusionment with the entire electoral process.  ConcertaciĂłn parties have won the past four presidential elections, mainly because the Alianza parties cannot solve their own internal problems and put up a good campaign against ConcertaciĂłn.  This means that the same parties are running the country almost completely unopposed, and are able to do continue the same policies that may or may not be working.  Chile elected President Bachelet in 2006, hoping that she would bring about a renewal and a better policy, but the crisis that marked the first year of her term has only strengthened the disenchantment with the government seen in many Chilean citizens.  More and more, Chilean citizens are deciding not to vote in elections, especially the young people.  The young people, who have more radical views, decide to protest instead of voting.  The people who vote are significantly richer and more conservative, and the parties cater to them, promoting policies of little to no change.  This is the reason of the inflexibility of Chilean politics; that the young people who can affect change for the better do not vote and increase the illegitimacy and ineffectiveness of the government.  Chilean politics are ineffective and illegitimate in a time when change is absolutely necessary to reinvigorate Chile.

Argentina’s economy, being highly varied and developed, would not do well to adopt policies of a Chilean “model” that is based on one main export and hoping that liberal trade agreements will encourage private sector investment.  Granted that Chile is not eligible for foreign aid, they would do well to put a focus on developing their high-tech sector and value-added products.  Argentina realized this would help them, and implemented technological growth.  Their success can be seen in the example of INVAP, a company originally based on nuclear power plants, but since has grown to other fields such as radiomedicine and satellite technology.  Not only have they done well for supplying Argentina’s needs, but other countries (like Peru, Egypt and Australia) have turned to INVAP for developing their own nuclear research. 

The late 90’s in Chile saw a decline in their growth and success they had been enjoying.  The price of copper fell so sharply between 1995 and 2002 that money coming in for copper exports actually declined over this period even while material being exported increased by 85%.  This shows how dependency on one main export, especially a basic product, can be detrimental when that product doesn’t fare well in the international market.  Economic boom turned to stagnation in 1997, when average per capita income rose by 0.7% per year between 1998 and 2002, while unemployment stayed above 9% through 2003. Export growth, which many view as the heart of the Chilean "miracle", stagnated; total exports only rose from $17 billion in 1997 to $17.4 billion in 2002.

Argentina had their years of economic prosperity, followed by a vicious downward spiral culminating in December of 2001, when their top economic advisor Cavallo froze bank accounts and people took to the streets.  Since then, Argentines have been slowly rebuilding and recovering.  Chile seems to be the little brother of Argentina, coming along after and implementing policies they saw working in Argentina which may not be the best.  Privatization, though initially leading to increased foreign investment, has been shown to cause some problems in the long run.  Riots broke out recently in Buenos Aires when train lines were halted, and the people demanded a return to state-run trains.  Chile’s privatization of social security is beginning to show its weakness, as the first group of retirees to emerge from this era is realizing they don’t have as much money as they thought.  As good as the choice to switch to private social security initially appeared, the fees and general economic stagnation combine to leave the older generation wondering what happened to their money. 

Chile, then, is not the shining beacon to light the way for other Latin American countries, including Argentina.  The underlying economic, social, and political situation is just as problematic, if not more so, as any other country in Latin America.  Chile’s situation does not even apply to Argentina’s reality.  In this light, Argentina would do well to search for a model for success that does not have the problems that Chile faces.