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José Cademartori Chicago, March 20, 1999 I. INTRODUCTION
According to principal macroeconomic indexes, Chile completed a decade of notable dynamism in 1997. The rate of growth of the gross domestic product (GDP) fluctuated around 7% annually. Exports grew at an even higher rate. The proportion of gross investment ascended until reaching previously unheard-of levels. A constant oversupply of foreign currency, an increase in US dollar reserves and a revaluation of the Chilean peso (all phenomena that had not occurred since the Second World War) were all the results of a favorable but unstable commercial balance and the unprecedented entry of foreign capital. The fiscal budget increased with a continual surplus and inflation was reduced to single digit figures. It was labeled the "golden decade" and the international financial press cited Chile as a model worthy of imitation.
However, the majority of Chileans declare their unhappiness directly contradicting these figures. There is a general uneasiness because the benefits of "modernity" are concentrated in a small minority who have First World standards of living, while the general populace remains firmly ensconced in the Third World. Rapid wealth gain and unbridled consumerism have created a suitable environment for increasing corruption and delinquency. Many try to improve their situation through exhausting work routines. The quality of urban life is worsening, with a corresponding deterioration in family and community life. Chileans feature in world statistics with high indexes of mental and psychological disorders, at the same time with an increasing incidence of modern illnesses and their associated costs. There are shortages, delays and marked educational inequalities.
In spite of the high rate of growth obtained, the decade has not been exempt from constant imbalances due to external vulnerability and to internal contradictions of the neoliberal economic model. In July 1997, the Asian crisis erupted with a corresponding abrupt downturn in the economy a few months later. Exports and reserves decreased while the commercial deficit and External Debt both grew. As a consequence, domestic sales and production fell and unemployment increased. The country entered into recession with an uncertain and pessimistic environment pervading the nation.
In the golden decade, three factors favored Chilean economic growth: firstly, the boom of the Asian-Pacific economies; secondly, ecological restrictions in industrialized countries; and economic and political instability in many African and Latin American countries. The Asian locomotive was halted, environmental restrictions were enforced in Chile and new competing countries appeared in the commodities markets. The pillaging of natural resources has dramatically affected the fishing industry, one of the most dynamic export sectors. Currently the industry is effectively stagnant due to inclement climate change and the imposition of an obligatory closed fishing season for various species. Widespread destruction caused by the reduction of native forests to wood chips and contamination of the environment by the forestry industry are putting limitations on timber extraction. The big mining plants not only accelerate the depletion of mineral deposits but also devastate the scarce water sources in the northern zone whilst contaminating catchment areas, the coastline and subsurface aquifers. Frequent droughts have drastically reduced hydroelectric production and irrigated land available for export crops. The real estate free market has unleashed widespread land speculation, the wanton sprawling of cities and increased transport and land prices. The supply of energy has become dependent on foreign sources rendering the productive capacity of the country vulnerable. Copper provides nearly half of all dollar revenue and illustrates the fate of Chile’s raw materials: constant deterioration in purchase price in contrast with the prices of imported products. However, governmental policies promote the export of raw materials in growing quantities, without concern for the fact that they are non-renewable resources, nor paying attention to symptoms of world market saturation, clearly evident with years of advance warning of the collapse of the price of copper. ( 1)
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In addition to the problems in foreign markets can be added the negative effects of the free access of foreign investment. The Chilean Peso experienced a continual revaluation, encouraged by the Central Bank. Manufacturers experienced the paradox of exporting more yet receiving less income, with higher production costs due to internal inflation. The peso's increasing value did not correspond to a structural commercial surplus nor due to financial services, but to the overabundance of foreign capital, attracted by high interest rates, the lack of fiscal control and the high profitability in the bussiness arena. Foreign investors and Chilean debtors (for whom the appreciation of the Peso is convenient) are more important to the Chilean government and Central Bank than Chilean exporters and national producers who are harmed by such economic policies.
Chile is one of the few countries that stopped applying selective measures as regards imports. Import quotas and customs surcharges are not applied, nor is there any anti-dumping legislation. In spite of the considerable commercial deficit of 1997 and 1998, the authorities have proposed reducing the general tariff rate to the lowest levels in the continent in the near future. Importers have vigorously increased their participation in the internal market with the revaluation of the Peso and due to the low trade tariffs. However, the national manufacturing industry is virtually at a standstill. Between 1991 and 1997, the closure of numerous textile and clothing industries meant the loss of 20,000 jobs. In the case of the toy industry, in barely two decades multinationals such as Mattel have displaced domestic producers, capturing 75% of the internal market.
The results of the Chilean primary export strategy can be appreciated in the following figures: after 24 years of spectacular increases in the physical volume exported, Chilean participation in terms of "value" in world trade has decreased from 0.44% in 1970 to 0.27% in 1994. Conversely, Asian countries such as South Korea, Indonesia and Thailand, that had a smaller market share all achieved increases between five to eight times higher than Chile (2). The explanation is simple: the Asians export more technologically advanced products, while Chile is being stripped of its natural resources.
Prior to 1973, Chile had more social equity and a lower productive capacity than in current times. Poverty was no higher than 17% of the total population. In the nineties, the percentage of people classed as "poor" has diminished with respect to the eighties. But, in 1996 it was still affecting 3,3 million inhabitants or 25% of the population, with a tendency to increase due to the economic crisis. Up until 1997, salaries and wages increased in real terms, the minimum wage was increased and unemployment decreased. Access to housing became easier, minimum pensions were reinstated and social spending increased. However, between 1991 and 1996 the participation of the "poor" in the national distribution (in this case the first quintile of the low income group) fell with a similar pattern occurring in the remaining "modest" sector (constituting up to 60 % of the population) (3). It seems clear that efforts concerning public social expenditure are clearly insufficient, being unable to counteract the rigid mechanisms of the economic model that leads to the concentration of wealth.
According to the World Bank, Chile is one of the 7 countries with the worst income distribution amongst 65 studied: a minority of 20% belonging to the upper class, receive 62% of the income. In Latin America, only Brazil has a worse record. The degrees of inequality in Chile are higher than in the Asian "Tigers" of similar economic level and dynamism (4). Half a million inhabitants receive as much as the total income received by 10 million of their fellow inhabitants. As a consequence, the average yearly per capita income of 5,400 US dollars does not represent real situation as 70 percent of the population earns less than this amount.
The brutal inequality in the final distribution of income begins at the company level. There is evidence that the earnings and rapid capitalization enjoyed by company directors and owners are not shared by workers. The proportion that wage earners receive is clearly below countries with a higher or similar level of development and is lower than prior to 1973. While the "operating surplus" of companies rises steeply above the increase of the GDP, the opposite happens with regards to workersÕ earnings. Nor is the notable increase in productivity in the nineties distributed equally. The delay of wage and salary adjustments in relation to productivity is demonstrated by comparisons between labor costs and the productivity of skilled work in Chile and the United States. It follows that, contrary to the neoliberal school of thought, productivity alone can not explain differences in salary levels between the two countries. In a general sense, the organizational strength or otherwise of workersÕ unions and the comparative power of the employers are decisive elements. In fact, the Chilean Labor Code introduced by the Dictatorship still prevails, which eliminated a majority of the rights and benefits obtained by workers in previously democratic times.
A notorious lag is observed in the evolution of the denominated "minimum wage" which governs directly or indirectly the earnings of a quarter of Chilean workers, many of whom have to work 12 hours a day in order to earn this amount. Since 1990, it has been increased annually by law, but, it is such a slow recovery that only recently in 1997 has the minimum wage topped the previous highest level. On the other hand, when considering the effective cost of a family shopping cart of basic products, the value fixed by law covers only 50% of family necessities ( 4).
A process of wealth concentration was initiated from the beginning of the Dictatorship. In the following two decades it was accentuated, especially in the higher echelons. The assets of the three main financial holdings, Angellini, Luksic and Matte, that were in 1973 of the order of 650 million dollars multiplied to 7,700 million dollars in 1996. In the post-dictatorship period, capital accumulation of the major national economic groups has increased at a faster rate than the GDP (5).
If we refer to the national market as a whole, some 7,300 companies of a total of 480,000 (or less than 2% of the total) concentrated 76% of all sales (6). Official calculations show that between 1990 and 1993, the market share of micro, small and medium businesses diminished. In the most diverse markets and as a result of competition, new monopolies or oligopolies are forming, as is shown in recent cases in the following sectors: transport, communications, electricity, retail trade, the financial system and pensions. The Superintendence of Corporate Companies has recognized the existence of fifteen Conglomerates. Accusations of monopoly practices and abuses by controlling groups of shareholders against small shareholders proliferate. However, public powers refuse to impose an effective anti-monopolies legislation. On the contrary, they eliminate regulations and authorize the concentration of economic power through privatizations and mergers.
Chilean legislation concerning foreign investment has become one of the most permissive in the world. There are no quantitative limits or investment restrictions and the origin of investment funds is not investigated. Any piece of Chilean territory can be acquired even border areas. Nor is the legislation oriented to the transfer of technologies or employment creation. According to a still valid Decree Law of Pinochet, any mineral deposits can be transferred to foreign capital as a "full concession" for an "indefinite and irrevocable period that cannot be modified". This obligates the government to pay even for unexploited reserves in the event of expropriation. According to various lawyers, this decree violates the Constitution which states that subsurface mineral wealth belongs to the State in "absolute, exclusive, non-transferable and imprescriptible ownership."
In Chile, there is foreign capital from all over the world, with 50 of the 80 largest companies of the country belonging to multinationals (7). Such companies have obtained the concession to the richest deposits of copper, molybdenum, lithium, gold and silver, appropriated virgin forests, huge pine and eucalyptus plantations, agricultural and cattle-raising lands and electric power plants. They dominate timber, fruit and vegetable exports, control electronic, established and mobile communications, have penetrated both the public and cable television market; they dictate the market rules in the music, cinema, video and book industries and occupy growing positions of importance in banks, pension funds and insurance companies. There are numerous commercial enterprises that render a payment to such transnationals for the use of their franchises. The trade in such franchises can be illustrated citing the case of McDonald's which without risking any capital whatsoever captures 18% of gross sales for the use of its trademark and technical supervision.
Multinationals' financial investments include bonds issued by national economic groups, stock certificates of Chilean companies and foreign investment funds. Considering the various existing forms, a preliminary calculation of the total invested by transnational capital in Chile produces the figure of 60,000 million dollars, corresponding to 33 % of all existing assets and to 100% of the annual GDP (8).
A proportion of the net earnings that multinational capital takes out of Chile consists of the remittance of interests and profits to the exterior, totaling 1,088 million dollars in 1994 and 1,600 million dollars in 1996. These figures are equivalent to the total income of two and a half million Chileans classed as "poor". It is also important to add to this money being re-invested in the country. Yet another portion of multinationalsÕ earnings comes from imports and the payment of royalties and the like.
The earnings of North American multinationals in Chile have been extraordinary according to Institutional Finance of Washington, Salomon Brothers and the U.S Department of Commerce. In a few years, profitability has exceeded 30% over net worth, more than double the world level and triple the average in Latin America. (9)
The Concertation has weakened instead of strengthening "the guiding role of the State" during its two mandates, contrary to the promises made in the first Concertation government program. As such, the privatizations begun by Pinochet continued, with mineral deposits, shipping, air and rail transport companies all being put up for sale. Private investment was authorized in potable water supply, ports, freeways, airports, tunnels and underground parking lots. Similar privatization attempts are being made with hospitals, public schools and prisons and with the introduction of a user-pays policy for central city zones. However, each new privatization awakens resistance, for example, an intense public discussion recently delayed the decision made concerning the privatization of state sanitation companies and ports. Sale procedures that have signified substantial losses for the state net worth are questioned. There is disillusionment amongst workers that changed their compensation funds for stocks of unstable value. In addition, there is opposition to massive reductions of personnel and the loss of social benefits that new industry owners impose. Strikes as well as protests result, as recently seen due to the rise in freeway tolls and the increase in rates for public services. Mergers, shady business deals and the fight for control among the hegemonic groups occur behind the minority shareholders' backs. The recent electricity supply crisis revealed the machinations of the privatized companies and the inadequacy of the overseeing institutions, to the detriment of both farmers and consumers.
Concerning taxation, the 1990-1994 Aylwin government raised the value added tax from 16% to 18%, which affects all of the most popular basic consumer items. The current Frei government increased taxes on gasoline, cigarettes, official seals and stamps and establishing other contributions for the middle and lower classes. For instance, the denominated "shared financing" which consists of a semi-voluntary payment by parents and guardians towards schoolsÕ operating budgets necessitated by government shortfalls in funding. Another example is the municipal contribution paid by modest home owners for refuse collection. In comparison, the highest income tax rates were lowered under the pretext of "the encouragement of savings" signifying a loss for the Treasury of 150 million dollars annually. Taxes on commercial patents, brands and foreign consultancies were also lowered. Overall, the introduced reforms tended to create a more unjust and regressive tax system and hence the distribution of income amongst the rich and poor. In addition, amounts lost due to tax evasion are higher than the Public Health budget, with thousands of well-off taxpayers hiding their true income being protected by a law that shields the confidentiality of their income declarations.
Under pressure from the rightwing and business people, the Concertation constantly limits public investments and social spending. On the other hand, it gives in to demands from private companies for subsidies. Exporters do not pay value added tax; the most powerful forestry companies finance half of their plantations using government contributions; a similar amount is received by landowners for investments in the extraction of underground waters and for imported inputs. Private educational institutions also benefit from subsidies as well as private healthcare companies. Even General Motors receives a subsidy for the assembly of utility vehicles in a northern border zone. Business people can discount the costs of training, non-distributed profits and the purchase of new-issue stocks from their taxes. Subsidies for thousands of millions of dollars were granted to the most powerful banking groups in the eighties in order to compensate them for bankruptcy collapses. While worshippers of the free market justify subsidies when large private interests are concerned, they reject them for consumers, small business owners or to public services. Another taboo area is the budget of the Chilean Armed Forces which according to the "Comisi—n Económica Para América Latina (CEPAL)* are among the most expensive in the continent in relation to GDP. In addition to a series of privileges, the Armed Forces receive annually 10% of the sales of the state "Corporación del Cobre (CODELCO)** with which a sophisticated arms program is financed.
In summary, the Chilean economic model represents the degradation of Chile’s natural resources. It promotes a greater national dependence on foreign interests, is weakened in the face of recurrent financial crises symptomatic of globalization, and generates a segregation of society and intolerable inequalities. Justifiably, it has been described as predatory, dependent and excluding, but it also condemns Chileans to defenselessness. According to its prescriptions, we do not have to avoid nor counteract the effects of external upheavals but passively resist them and sacrifice ourselves for the sake of maintaining the system, though be it at unjustified social and human cost.
Political stability is being affected by social conflicts and the old and new contradictions that are appearing. The detention of Pinochet has revealed serious pending human rights problems. Teachers, doctors, students, intellectuals, environmentalists, indigenous peoples, farmers, the regions, the unions, one after the other, they express their dissatisfaction with the prevailing economic model. Surveys reveal a growing rejection of the presidential administration and a weakening of the ruling Concertation. The majority of Chileans want an end to military paternalism and a change of the pinochetista Constitution.
The neoliberal discourse presents the suppression of the economic and social functions of the nation-state as an irreversible global tendency, a symbol of modernity and of new areas of freedom. According to the Heritage Foundation Chile, Chile is "the most free country in Latin America." Yet the extensive application of the Chilean model demonstrates on the contrary that repressive and authoritarian institutions prevail. There has been a regression to archaic forms of exploitation, with areas of popular participation being taken away from civilian society, with citizen rights and freedoms being restricted. Real power ("the powers that be") is in the hands of the transnationals and the monopolies that dominate the media, finance electoral campaigns and exercise a decisive influence on governments, and political and military hierarchies. Baldly stated, neoliberalism is incompatible with democracy.
The response to neoliberalism necessarily concerns the recovery of political power for citizens and for the majority. What is needed is a new state that is democratic, transparent and controlled, but at the same time with the necessary resources and attributes to defend the nation and its popular classes. In addition, one that promotes its cultures threatened by neoliberal globalization and that organizes the economy at the service of all citizens and not only a minority.
(1) Orlando Caputo. "La sobreproducción de cobre creada por Chile". Discussion document. University Arcis-CETES, November,1996 (2) María Pilar Campero and Patricio Meller. "Perspectiva comparativa de los modelos exportadores, asíatico y chileno". CIEPLAN, May, 1996 (3) Instituto Nacional de Estadísticas (The National Institute of Statistics). "Encuesta Suplementaria de Ingresos". IV Quarter,1996. (4) Jos´ Cademartori. Chile, "El Modelo Neoliberal", p. 53. CESOC-ICAL, 1998 (5) Luis Riffo and Francisco Ruiz. "Una evolución de la concentración empresarial en Chile Editorial CESOC", 1997. See also the studies of Fernando Dahse and Hugo Fazio on the subject. (6) "Corporación de Fomento a la Producción, PYME. Un desafío a la modenización productiva", p. 4 and 11, 1994. (7) Patricio Rozas and Gustavo Marín. "El Mapa de la Extrema Riqueza, Diez Años Después". CESOC, 1988. (8) José Cademartori. op.. cit, p. 68. (9) Orlando Caputo and Claudio Lara. "Inversión Extranjera Directa en la Economía Chilena. Universidad Arcis, 1995. * the Economic Comission for Latin America
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