New Internationalist

Model Miracle

Issue 246

new internationalist
issue 246 - August 1993

Model miracle
The Chilean economy is cruising at high speed, fuelled by multinational investment.
But where is it headed and who’s on board? Lake Sagaris reports.

In northern Chile the world’s driest desert holds some of its richest mineral deposits. The town of El Salvador sits in the middle of this desert 1,000 kilometres north of Santiago, half-way between the Pacific and the Andes mountains. Wide streets lined by boxy houses surround a central square with a few basic shops, a church and some offices. El Salvador is a company town and the company it belongs to is Codelco, the state-owned copper corporation. If it weren’t for Codelco, El Salvador would be a ghost town.

Barely 20 years ago copper was at the heart of a vigorous debate about foreign control of Chile’s small national economy. Historically, Chile has depended heavily on mineral exports, mined by foreign corporations. A century ago the nitrates mines fed small company towns whose workers were virtual slaves. When the market collapsed after World War One the towns emptied, a desolate warning of the dangers of dependency.

Chile then scrambled from sinking nitrates onto a copper lifeboat. According to San Diego State University economist Brian Loveman, American ownership of Chilean copper during World War Two may have saved the US $500 million as prices were kept artificially low to feed America’s war production.

Chilean politicians of all stripes eyed huge profits made by the US mining companies with growing disgust. Finally in the late 1960s the Christian Democratic government bought into major copper holdings. Two years later a unanimous vote in Congress nationalized the industry. American mining companies like Anaconda and other US corporations like ITT reacted violently to the move and worked to deepen the national crisis that culminated in the 1973 coup and the military dictatorship which followed.

Today the loud voices criticizing foreign multinationals have been muted. Even the Chilean ‘Left’ has learned to live happily with overseas investment, which last year topped a billion dollars. The US is still the largest investor, but in recent years Canada and Japan have also become big players, especially in the mining sector. With good reason: mines with names like ‘Cloth of Gold’ and ‘The Indian’ can sometimes pay back millions of dollars of investment in as little as five years.

The main reason there’s so little criticism of multinationals in Chile today is that the economy is booming. In fact the World Bank and other proselytizers of the export-driven, ‘neo-liberal’ economy tout Chile as proof the model works. Driving southward from Santiago the harsh rectangles of skyscrapers give way to acres of apples, plums and grapes. Sparkling new packing plants, their driveways bordered with rosebushes, line the highway. In the foreground the familiar logos of Dole, Unifrutti and other food companies flash by. Chilean fruit now fills supermarket produce sections from Montreal to Monterrey. Massive growth in exports has made fruit a symbol of Chile’s success.

In the midst of widespread recession the Chilean economy grew an extraordinary ten per cent in 1992; unemployment has fallen to less than five per cent and real wages have risen steadily for the past three years. Inflation is under control and foreign trade is now worth half the country’s gross domestic product.

A multinational success story? Not quite. The Chilean economy has gone through roller-coaster ups and downs since 1973 as wholesale support for the free-market policies of American economist Milton Friedman turned Chile into the world’s largest social laboratory.

In the early 1980s, when authorities reduced customs barriers, imports rose astronomically. The economy boomed, then just as suddenly took a screaming nosedive. Companies started to fold. Wages plunged and one out of three workers went jobless. The Gross National Product dropped an excruciating 14 per cent. So the military ‘modernized’, reducing trade-union bargaining rights and slicing social service and education budgets to the bone. As the private sector developed luxury clinics, public hospitals couldn’t afford to wash walls, keep toilets running or provide sheets. Freed of wage constraints and with plenty of help from the public purse, corporations slowly began to re-invest.

Too late for the military. Resistance became public protest and in 1988 voters finally tossed out the wily old General in a plebiscite. The economic ‘miracle’ which Pinochet expected to carry him to victory hadn’t clicked in time.

Pedro Saenz of the UN’s Economic Commission for Latin America and the Caribbean agrees that Chile is far from being the open, free-market economy that enthusiasts describe. The state, he argues, has a central role in the Chilean economy – the government still owns the country’s largest copper mines. And it’s those government revenues that have provided the economic space for the private sector to work.

‘During the 1980s copper contributed between five and ten per cent of the gross national product,’ notes Saenz. ‘That income helped the government increase social welfare spending and helped the model work. This new equilibrium between the public and private sectors makes Chile very special in Latin America.’

By 1994 the number of poor who live in overcrowded, often flimsy, wooden shacks and eat mostly bread and tea will have dropped from five million to four million, according to the non-governmental organization Programa de Economía del Trabajo (PET). But Chile is a long way from past norms.

In fact wealth is more concentrated than ever in Chile. In 1968 the poorest fifth of the population earned only eight per cent of total income while the richest pulled in nearly 45 per cent. Today the poorest fifth of the population’s share has dropped to just four per cent while the wealthiest fifth gets over half.

‘This model doesn’t consider the problem of equality,’ says Jaime Ruiz Tagle, the economist who heads PET. ‘Strong intervention by the state is necessary to make sure we have a safer, saner society.’

Although the new government of Patricio Aylwin has made some improvements (a recent tax reform increased spending on social services by 40 per cent over three years), the military regime created a political system in which elected authorities have limited power.

A fixed 10 per cent of the state-owned copper agency’s sales goes directly to the armed forces. And the electoral system ensures that, with one third of the vote, the parties who supported the military hold close to half the seats in Congress.

Manfred Max Neef, winner of the alternative Nobel prize for economics, and one of the few to criticize the free hand given to foreign investors, warns that Chile’s integration into world markets has created a dangerous dependency. ‘We’ve already lost our self-sufficiency for food. On the best pastures in Chile farmers are all growing eucalyptus because it’s more “profitable” according to market signs. But market signs are only valid in the short term and eucalyptus plantations are irreversible.’

But it’s what goes on inside those sparkling new fruit-packing plants that reveals the system’s most serious flaws. There, and in the orchards that supply them, an estimated 500,000 temporary workers – mostly women – work 12 to 16-hour days, six or seven days a week, on short-term contracts that last as little as a week.

Because they work eight months at most, employers and authorities consider them like ‘housewives or students who work during holidays’, says community organizer Bernardo Reyes, who works with the fruit handlers. ‘It’s hard for them to recognize themselves as workers. Their jobs have only existed for eight years: they have no identity within our society.’

The military government virtually destroyed a highly organized union movement. Today only 15 per cent of workers are protected by collective bargaining. And unions have few resources to organize workers in the burgeoning fruit industry. Nor is the government overly concerned. Reyes cites the example of a labour ministry official who does consulting for 14 of the companies whose compliance he’s supposed to enforce.

Meanwhile the enthusiasm for investment by multinationals may even be threatening the state-owned copper company, Codelco. A new generation of managers is increasingly convinced that the company must be privatized to survive. State administration is too inefficient, they argue, and the unions too powerful to allow changes.

Lake Sagaris is a freelance writer, poet and a long-time resident of Chile.

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