Historical Context: Chile
Timeline
A Brief History of Chile
Chile is a small country in South America, with a population of about 17.5 million. It is most known for being one of the most economically developed countries in Latin America, leading its peers in living standards, income per capita, homicide rates, economic stability and market openness among other factors. As a result of these factors, Chile is the only Latin American nation that belongs to the Organisation for Economic Coordination and Development (OECD). However, Chile’s economic stability and living standards have not always been the case, with a variety of social, geopolitical and economic factors influencing its history and development.
Although Chile is rich in history from its indigenous roots in the Mapuche people to its struggle for independence from Spanish colonialism, understanding a more recent history of Chile’s economic and social conditions in the past century will be most relevant for the goals of this paper. In the first half of the 20th century, Chile had just emerged from a century defined by colonialism and only experienced a decade or so of political instability in the 1920s to 30s. It was not until the 1960s, when political polarization between leftists and conservatives really began to create deep divides within the nation. After a decade of increasing polarization and partisan tension over President Eduardo Freis’ reforms, the 1970 election saw the appointment of the Americas’ first democratically elected Marxist President, Salvador Allende. Allende’s proposed reforms consisted of nationalizing major Chilean industries and improving the living standards of laborers, which met significant backlash from established conservatives in other branches of government. In addition, an economic depression struck the country in 1972, and Allende responded by nationalizing banks and profitable mines along with price freezes and wage increases. Upon nationalizing these industries and organizing the populace, unemployment decreased, and industrial output actually increased in response to the depression. However, the United States foreign intelligence community and the Richard Nixon administration had different plans for the country, which dramatically altered the future course of the small nation.
On September 11th, 1973, a military coup overthrew the Allende regime with the support of the United States. In his place, a conservative authoritarian military general Augusto Pinochet assumed power over the nation. In 1980, the Pinochet regime conducted a plebiscite to ratify a new constitution. The newly approved constitution significantly expanded the powers of the President and created some controversial institutions regarding national security. Most importantly, it cemented the Pinochet regime and guaranteed that a military-backed candidate would be up for another 8-year term as Chile’s President in 1988. In terms of economic policies, Pinochet is most known for heeding the influence of the “Chicago Boys” and passing sweeping market-oriented reforms that radically liberalized the economy. Some of these policies included eliminating trade tariffs, privatizing most state-owned industries, and stabilizing inflation. Aside from his sweeping changes to the economic organization of the nation, Pinochet is widely believed to be responsible for rampantly persecuting political opponents and the disappearance of more than 3,000 Chileans.
Due to the tumultuous and bloody cost of economic liberalization, the Pinochet regime and years following it saw significant economic growth and stability. However, this period of economic growth did not translate evenly across the populace as income inequality only worsened during this period. Despite this increasing trend in inequality levels, consistency of economic policies proposed by the Pinochet regime has contributed to Chile’s economic stable growth and openness since the 1980s. This economic stability has been a hallmark of Chile’s public image in the business world, making it an ideal site for foreign direct investment and trade.
However, increasing levels of income inequality and social unrest surrounding the issue portrays a different picture of the nation’s economic landscape. Research conducted by the OECD on the nation suggests that the nation needs to diversify its economy from its dependence on raw materials in order to see sustainable long-term growth. Building off of this notion, diversifying the nation’s economic activity would allow for more sectors of the population to be included in this long-term growth and help combat increasing economic inequality. In order to diversify its economy, multiple international institutions have suggested that the Chilean government invest in its nation’s capacity for innovation to keep up with global technological trends. Recognizing this need to maintain the competitiveness of Chile economy, the administration of President Ricardo Lagos started the High-Technology Investment Promotion Program in late 2000. The intent of the program was to promote foreign direct investment in high technology sectors, diversify the country’s industrial and export base, and increase opportunities for employment. An evaluation of the program conducted by the World Bank in 2010 found that $283 million had been invested in 47 distinct enterprises, but no evidence was found supporting increased research and development or employment opportunities as a result of the program. Given these demonstrated pitfalls, the Chilean government had to completely rethink their approach towards innovation policy and long-term economic development. In the next section, I provide a brief historical summary of Chile’s alternative approach, the Start-Up Chile program.
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