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Chile 1970–73: Economic Development and its International Setting pp 363–389Cite as

The Process of Transformation and the Role of International Cooperation: an Observer’s View

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Part of the book series: Institute of Social Studies ((ISDS,volume 4))

Abstract

The economic programme which contributed to the UP’s electoral victory was based on a prognosis which was widely shared by economists and by most political groups; it identified the problems of the Chilean economy as follows:

  1. (1)

    The rate of growth was slow, tending towards stagnation after the negative effects of import substitution became noticeable. It dropped from an annual average of 5.3% during the 1960–66 period to less than 3% during the last part of the 1970s.

  2. (2)

    Monopolization was increasing due to both import substitution and the increasing importance of foreign capital. These were interrelated and tended to reinforce each other, and in 1969 20% of the industrial enterprises’ capital was in foreign hands.1

  3. (3)

    The unemployment rate was constant — no less than 6% — while an increasingly large proportion of new jobs — about two thirds — were being created in the tertiary sector, which in 1970 absorbed 47% of the labour force.2

  4. (4)

    Incomes were highly concentrated: 79% of the families received 47% of the national income, 90.9% of the families 66.5%, and 2% of the families 12.5%.3

  5. (5)

    The rate of gross investment over GDP was constant — about 16% of GDP — and the public sector’s share was increasing, so that it came to contribute about 70% of the investments in production and infrastructure.4

  6. (6)

    The inflation rate was increasing.

  7. (7)

    Agriculture was still dominated by latifundia and by minifundia: in 1965 2% of the total number of properties (254,000) held 55% of Chile’s productive land while 80% was owned by 7.5% of the agricultural units. Consequently extensive cultivation prevailed and an increasing number of peasants were continuously pushed towards the urban areas, mainly Santiago which absorbed about 40% of the whole country’s population. The supply of agricultural produce was less than the demand, and this necessitated large imports.5

  8. (8)

    Except for food, imports of raw materials and capital goods increased as a result of the industrialization policy which in turn proved incapable of reducing the constraints resulting from the balance of payments situation.

  9. (9)

    Finally, compared to other Latin American countries, Chile had a relatively high level of economic and social development but also more definite signs of stagnation and dependence.

Our primary task is to do away with this constraining structure which only generates a deformed growth. Simultaneously we must build up our economy. S. Allende

Salvador Allende died not because he was a socialist, but because he was an incompetent. P.N. Rosenstein-Rodan, ‘Why Allende Failed’, Challenge (May–June 1974)

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Notes

  1. L. Pacheco, ‘La inversión extranjera y las corporaçiones internationales en el desarrollo de Chile’ [Foreign Investment and the International Corporations in the Development of Chile], in O. Munoz et al., Proceso a la industrializatión chilena [Chilean Industrialization on Trial] (Santiago de Chile, Editiones Nueva Universidad, 1972), p. 115, Table 2.

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  2. ODEPLAN, Antecedentes sobre el desarrollo chileno 1960–70 [Antecedents of Chilean Development from 1960 to 1970] (ODEPLAN, Series I, no. 1, Planes semestrales, Plan de la economía national 1971–76 [Half-Yearly Plans, Plan of the National Economy for 1971–76]) (Santiago de Chile, 1971), p. 62, Table 48.

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  3. These data are from Directión de Estadisticas y Censos [Office of Statistics and Census], Serie de investigaciones muestrales B.5 — Encuesta national sobre ingresos familiares [Series of Research Samples B.5 — National Survey of Family Incomes], March/June 1968 (Santiago de Chile, 1969), p. 15; they are also in ODEPLAN, Antecedentes sobre el desarrollo…, p. 16, Table 17. According to I. Heskia, Análisis estadístico de la distributión del ingreso personal en Chile en 1967 [Statistical Analysis of Personal Income Distribution in Chile in 1967] (Santiago de Chile, Universidad de Chile, 1970), income distribution in Chile at the end of the 1960s was as follows: Such a distribution can be compared with that of Brazil (1960), where 80% of the population obtained 38.5% of the national income; Argentina (1961), with 79% and 48% respectively; Columbia (1964), with 79% and 40% respectively; and Mexico (1963), with 91% and 60% respectively. W.R. Cline, Potential Effects of Income Redistribution on Economic Growth, Latin American Cases (New York, Praeger, 1972), Statistical Appendix A.

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  4. G. Martner, ‘Los aspectos económicos del Gobierno de Allende, problemas y perspectivas’ [The Economic Aspects of the Allende Government, Problems and Perspectives], Nueva Economia [New Economy] (Sept.–Dec. 1971), 25.

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  5. S. Barraclough and A. Affonso, ‘Diagnostico de la reforma agraria chilena’ [Prognosis of Chilean Agrarian Reform], Cuadernos de la Realidad Nacional. Revista del Centro de Estudios de la Realidad Nacional (Universidad Católica de Chile) (CEREN) [Notebooks on the National Reality. Review of the Center for Studies of National Reality (Catholic University of Chile)] (April 1973), 21; C. Kay and P. Winn, ‘La reforma agraria en el Gobierno de la Unidad Popular’ [Agrarian Reform and the UP Government], Sociedad y desarrollo [Society and Development], 3 (July–Sept. 1973), 5.

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  6. During the electoral campaign this convergence was exploited by the PDC to create and defend its ‘revolutionary and popular’ image: J.E. Garcés, La pugna político por la presidencia en Chile [The Political Struggle for the Presidency in Chile] (Santiago de Chile, Editorial Universitaria, 1971), p. 102.

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  7. ‘In the general elections of 1968, more than 70% of Chileans voted for parties, programmes and candidates which proclaimed their opposition to capitalism and to traditional structures and favoured more or less advanced socialization forms.’ Since its origin the ?DC had declared itself anti-capitalist and the 1969 platform included ‘the substitution of capitalism by the organized workers’. See R. Tomić, ‘Reflexiones sobre el golpe de estado en Chile’ [Reflections on the Coup d’état in Chile], IDS Bulletin (Oct. 1975), 291.

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  8. The PDC’s programme contemplated ‘banking reform aimed at the nationalization of the whole system of banks and insurances’.

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  9. P. Vuskovic, ‘El Gobierno Popular y el Area Privada’ [The Popular Government and the Private Area], Nueva Economia [New Economy] (Sept.–Dec. 1971; this is a speech made in Dec. 1971), 14. O. Millas, ‘Hay que ganar la batalla en el terreno de la economía’ [The Struggle Must Be Won on the Economic Battlefield, Revista de la Universidad Technica del Estado [Review of the State Technical University] (Nov. 1972–Feb. 1973), 20.

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  10. The share of wages in domestic income rose from 54.9% in 1970 to 61.6% in 1971 and returned to 54.5% in 1972: Taller de Coyunctura [Economic Workshop], Comentarios sobre la situación económica [Statement on the Economic Situation], No. 8 (Santiago de Chile, Universidad de Chile, Sept. 1973), p. 218. The data for 1970 are accepted by A. Foxley in his recent work entitled Estrategias de desarrollo y modelos de planificación [Development Strategies and Planning Models] (Mexico City, Fondo Cultura Economica, 1975) in which he wrote that ‘the percentage of wages in domestic income grew from 51.5% in 1960 to 55% in 1970’ (p. 83). Yet Foxley and O. Muñoz (‘Income Redistribution, Economic Growth and Social Structure: the Case of Chile’, Oxford Bulletin of Economics and Statistics (Feb. 1974), 28), using nonspecified ODEPLAN data, put the 1971 increase of the wage and salary earners’ share at from 55% to 66%.

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  11. International Development Bank, Annual Report 1974 (Washington, D.C.), Table I-1, p. 4. Similar data for the GDP growth rate, namely 8.3% in 1971, 2.1% in 1972 and 4.1% in 1973, are presented in the United Nations, Economic Survey of Latin America, 1973 (New York, 1975), Table 100, p. 169.

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  12. D. Seers, ‘A Theory of Inflation and Growth in Under-Developed Economies Based on the Experience of Latin America’, Oxford Economic Papers (June 1962), 190–193.

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  13. L.B. Pearson, et al., Partners in Development. Report of the Commission on International Development (New York, London, Praeger, 1969), p. 256.

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  14. L.B. Pearson, et al., Partners in Development…, p. 7: ‘Change is, itself, intrinsically disruptive’.

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  15. ‘If allowance is made for inflation, there was an actual decline in tax revenue in 1971.’ See P.E. Sigmund, ‘Chile, Two Years of “Popular Unity”’, Problems of Communism (Sept.–Oct. 1972), 49.

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  16. In the middle of 1972 35.5% of productive agricultural land was in the reformed sector. See Barraclough and Affonso, ‘Diagnostico de la reforma agraria chilena’, 2.

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  17. Pearson, et al., Partners in Development…, 62.

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  18. J. Faúndez, ‘The Chilean Road to Socialism’, The Political Quarterly (July–Sept. 1975), 316–317.

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  19. S. Ramos, Chile: una economía de transición? [Chile, A Transition Economy?] (Santiago de Chile, Editorial Prensa Latinoamericano, 1972), 225: ‘It has not been possible to establish drastic changes in the functioning of the APS.’ But as ‘the left [had obtained] access to the country’s top office before equivalent power transfers had taken place at other levels…in such a situation, a continuous emphasis on legality was not just one possible option for a left-wing government; it was a condition for survival’: V. Wallis, ‘Imperialism and the “Via Chilena”’, Latin American Perspectives, 2 (1974), 50.

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  20. A. Salgado D., ‘Scope and Limitations of the Economic Policy of the Popular Government’, Vierteljahresberichte [Quarterly Reports] (Dec. 1974), 363.

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  21. U. Müller-Plantenberg and F. Hinkellamert, ‘Condiciones y consecuencias de una politica de redistribución de ingreses’ [Conditions and Consequences of an Income Redistribution Policy], Cuadernos de la Realidad National… (CEREN) (March 1973).

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  22. ‘…given rapid inflation of the kind that has taken place in Chile, it is very difficult, if not virtually impossible, to expect an increase in saving on the part of the wage and salary earners who would normally be in a position to save’. Foxley and Munoz, ‘Income Redistribution…’, 24.

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  23. Data on capital formation are somewhat contradictory: a Taller de Coyunctura, Comentarios…, No. 3 (July 1972), p. 192. b Taller de Coyunctura, Comentarios…, No. 4 (Jan. 1973), p. 146. c Taller de Coyunctura, Comentarios…, No. 8, p. 161. d Foxley and Munoz, ‘Income Distribution…’, p. 24. e Universidad de Chile, Facultad de Economia Politica [University of Chile, Department of Political Economy], La economía chilena en 1972 [The Chilean Economy in 1972] (Santiago de Chile, 1973), p. 384. f Universidad de Chile, Facultad de Economía Política, La economia chilena…, p. 382, Table IV-11.

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  24. Müller-Plantenberg and Hinkellamert, ‘Condiciones y consecuencias…’, 225 and 227.

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  25. Salgado,’ scope and Limitations…’, 379.

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  26. In 1970 capital goods constituted only 1.8% of the gross value of domestic industrial production.

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  27. D.C. Davy, ‘Foreign Aid, Government Consumption, Saving and Growth in Less-Developed Countries’, Economic Journal (Sept. 1975), 60. Given the low propensity to save in Chile during 1972 and 1973, it is possible that once aid was discontinued the growth rate fell below what it would have been without any aid at all.

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  28. ODEPLAN, Antecedentes sobre el desarrollo…, Table 19, p. 27.

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  29. Universidad de Chile, Facultad de Economia Politica, La economía chilena…, p. 342.

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  30. Taller de Coyunctura, Comentarios…, No. 4, Table 6, p. 151.

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  31. Taller de Coyunctura, Comentarios…, No. 8, Table 8, p. 167.

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  32. Foxley and Muñoz, ‘Income Redistribution…’, 23-24.

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  33. See note 10.

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  34. Foxley, Estrategias de desarrollo…, pp. 114-115.

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  35. Foxley, Estrategias de desarrollo…, p. 88.

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  36. ‘The Allende government is blamed for its failure to make adequate preparations (such as arming the workers), on the assumption that it had enjoyed complete freedom to carry out whatever steps were called for.… In fact, the government’s conciliatory strategy can very well be accounted for without assuming either betrayal (i.e. secret loyalty to the bourgeoisie) or naiveté (i.e. illusions that the bourgeoisie might be ‘won over’). Part of the problem…was the need to ‘buy time’, in order that real popular mobilization might catch up with the level of purely electoral support which had been built around the issue of imperialism.’ Wallis, ‘Imperialism…’, 53-54.

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  37. S. Sideri, ‘International Trade and Economic Power’, in J. Tinbergen (ed), Towards a New World Economy (Rotterdam, Rotterdam University Press, 1972), pp. 345–394.

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  38. M.J.D. Hopkins and H. Scolnik, ‘Basic Needs, Growth and Redistribution: A Quantitative Approach’, ILO Working Papers, 29 (Dec. 1975). This paper uses the Bariloche model.

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  39. Foxley and Muñoz, ‘Income Redistribution…’, 29.

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  40. Hopkins and Scolnik, ‘Basic Needs…’, 5.

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  41. Foxley and Muñoz, ‘Income Redistribution…’, 29-30.

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  42. Wallis, ‘Imperialism…’, 51.

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  43. N. Georgescu-Roegen, O estrangulamento-inflaçáo estrutural e o crescimento económico’ [Structural Strangulation-inflation and Economic Growth], Revista Brasileira de Economía [Brazilian Review of Economics] (March 1968).

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  44. N. Georgescu-Roegen,’ O impasse de inflaçáo estrutural e o desenvolvimento equilibrade’ [The Impasse of Structural Inflation and Equilibrated Development], Revista Brasileira de Economía (July–Sept. 1972), 134.

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  45. G.M. Meier, ‘Foreign Aid: Economic Aspects’, International Encyclopedia of the Social Sciences (London, MacMillan, 1968), vol. 5, p. 521.

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  46. As the growth rate in underdeveloped countries has increased since World War II at the record level of 5% per annum, it has been concluded that ‘an important contribution to this overall rate of progress has been the flow of resources from the developed countries in the form of foreign aid’. C.R. Frank Jr., ‘Debt and Terms of Aid’, in C.R. Frank Jr., J. Bhagwati, R. d’A. Shaw, H.B. Malmgren, Assisting Developing Countries (New York, Praeger, 1972), p. 5.

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  47. Meier, ‘Foreign Aid: Economic Aspects’, p. 527.

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  48. H.B. Chenery and A.M. Strout, ‘Foreign Assistance and Economic Development’, The American Economic Review (Sept. 1966).

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  49. Bhagwati et al., Assisting Developing Countries, p. 163.

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  50. Bhagwati et al., Assisting Developing Countries, p. 186.

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  51. G. Liska, ‘Foreign Aid: Political Aspects’, International Encyclopedia of the Social Sciences, vol. 5, pp. 516 and 519.

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  52. Meier, ‘Foreign Aid: Economic Aspects’, p. 527.

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  53. J. White, The Politics of Foreign Aid (London, The Bodley Head), pp. 131–132.

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  54. OECD, DAC, 1970 Report (Paris, 1970), Table 19, pp. 194-195, and 1971 Report, Table 16, pp. 186-187. The U.S. ‘aid programs of loans’ totalled $301.3 million during the 1961-69 period, representing 20% of all U.S. aid to Latin America for that period and reaching $152 per capita, the highest in Latin America, followed by Panama and the Dominican Republic wth $115 each. The cumulative and authorized distribution of resources by AID to Chile amounted to $541.1 million in 1969. See OAS, CIAP, United States Cooperation with Latin America (CIAP/438 Corr. 2, Washington, D.C., 8 January 1971), Tables IV-6, IV-11 and p. IV-47.

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  55. The World Bank, Annual Report 1972 (Washington, D.C.) Table 6, pp. 82-83, and Annual Report 1975, Table 5, pp. 92-93, and Table 6, pp. 94-95.

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  56. The World Bank, Annual Report 1974, Table IIM9, p. 111.

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  57. O. Muñoz, La crisis del desarrollo económico chileno, caracteristicas principales [The Crisis of Chilean Economic Development, Principal Characteristics] (CEPLAN No. 16, Santiago de Chile), p. 12.

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  58. UNCTAD, Major Issues Arising from the Transfer of Technology, A Case Study of Chile (TD/B/AC11/20; 17 May 1974), pp. 4, 5 and Table 16, p. 35.

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  59. OECD, DAC, 1975 Report (Paris, 1975), Table 28, pp. 234-235.

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  60. Pacheco, ‘La inversión extranjera…’, p. 120.

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  61. Pacheco, ‘La inversión extranjera…’, pp. 129-130.

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  62. S. Bitar, La presencia de la empresa extranjera en la industria chilena (CEPLAN No. 21, Santiago de Chile, November 1972), pp. 26–27.

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  63. OECD, DAC, Stock of Private Direct Investment by DAC Countries in Developing Countries, End 1967 (Paris, 1972), and UNCTAD, Major Issues…, p. 4, footnote 5.

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  64. Bitar, ‘La presencia…’, p. 31. At the end of the 1960s, for twenty-two enterprises whose capital was far more than 50% foreign, 41% of the funds used were national.

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  65. ‘…the main objective of foreign assistance, as of many of the tools of foreign policy, is to produce the kind of political and economic environment in the world in which the United States can best pursue its own social goals’. H.B. Chenery, in K.S. Griffin and J.L. Enos, ‘Foreign Assistance: Objectives and Consequences’, Economic Development and Cultural Change (April 1970), 313.

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  68. Bitar, ‘La presencia…’, p. 35. ‘On average for 1966–69, net imports of machinery and equipment, normally of the technology-intensive type, constituted around one-third of gross capital promotion and more than four-fifths of the capital formation in the machinery and equipment sector’: UNCTAD, Major Issues…, p. 47.

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  69. UNCTAD, Major Issues…, p. 5.

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  70. O. Muñoz, ‘Conocimiento industrial, estructura del consumo y distribución del ingreso’, [Industrial Know-how, Consumption Structure and Income Distribution], in Foxley and Muñoz, ‘Income Redistribution…’, 17.

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  71. The official foreign assistance received by Chile during 1968-70 was $14.00 per person, the highest in Latin America with the exception of Guyana. UN, ECLA, Latin America and the International Development Strategy (Part Two, E/CN. 12/947/Add. 1, 7 February 1973), Table 12, p. 186.

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  72. ‘Given the willingness of Chilean authorities to cooperate in the resolution of outstanding bilateral problems of debt and compensation, the efforts underway to regularise Chile’s international financial obligations and the serious Chilean stabilisation effort, reactivation of the A.J.D. loan programme is proposed for FY 1975.’ This was stated in the AID presentation of its plan to Congress, published in Inter-American Economic Affairs (Summer 1974), 89. Only military assistance was maintained; during the 1970–74 period the U.S. Government granted Chile $44.5 million in military aid, which doubled the amount given in previous years.

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  73. ‘The typical means to assure B’s continuous dependence on A…is the ‘monopolisation of needed rewards’ which A can achieve by: (i) maintaining B’s resources always lower than necessary for B to obtain the wanted rewards; (ii) restricting B’s access to alternative sources of supply for its rewards; e.g. by avoiding competition among various A’s.’ Sideri, ‘International Trade and Economic Power’, p. 351.

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  74. The suggestion that foreign aid, and foreign capital, has ‘to enable and to embolden a country to set out on the path of unbalanced growth’ was made long ago by A.O. Hirschman in The Strategy of Economic Development (New Haven, Yale University Press, 1961), p. 205, but it clearly did not include the socio-political imbalances which necessarily accompany a process of egalitarian development.

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  75. Chenery and Strout, ‘Foreign Assistance and Economic Development’, 697.

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  76. Meier, ‘Foreign Aid: Economic Aspects’, p. 256.

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  77. S.P. Huntington, ‘Foreign Aid for What and for Whom’, Foreign Policy (Winter 1970–71), 175–177.

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  78. This view is not fully shared by R.E. Feinberg, who believes that ‘many UP leaders were not fully aware of how crucial the role of foreign finance was in Chile’s trade relations. Also, they may have underestimated the degree of interconnectedness of the U.S. business community. It was known, for example, that many of the major New York banks had helped finance the copper expansion of the Frei period; less known were the interlocking relations between Anaconda and Chase Manhattan, between Kennecott and Morgan Guaranty. Certainly the UP hoped that these relationships would not be determinant in deciding these banks’ policy towards Chile. The UP underestimated the degree of class solidarity existing among their external foes, just as they underestimated the resilience, unity and determination of their internal enemies.’ ‘Dependency and the Defeat of Allende’, Latin-American Perspectives (Summer 1974), 34.

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  79. Le monde diplomatique [The Diplomatic World] (October 1973).

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  81. IMF, The World Bank, Direction of Trade, 1970–74 (Washington, D.C.), p. 106. Imports from the United States declined from 32% in 1970 to 17% and 22% in 1972 and 1973 respectively.

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Sideri, S. (1979). The Process of Transformation and the Role of International Cooperation: an Observer’s View. In: Sideri, S. (eds) Chile 1970–73: Economic Development and its International Setting. Institute of Social Studies, vol 4. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-8902-6_10

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