El ladrillo

Last updated

El ladrillo (English: The Brick) is a study considered the base of many of the economic policies followed by the military dictatorship that ruled Chile from 1973 to 1990. [1] El ladrillo was finished just a few weeks before the 1973 Chilean coup d'etat. This study became known to the public in 1992 when it was published by the Centro de Estudios Públicos, a think tank associated with the Chicago Boys, and with a prologue written by economist Sergio de Castro. Emilio Sanfuentes was the coordinator of the team of economists who researched the different topics. [1]

Contents

Introduction

El ladrillo is a collection of articles on economic policies that play a fundamental role in Chile's economic reform from 1973 to 1990. It is originated from private seminars held by a group of professional economists and scholars. From 1940 to 1969, while Chile was experiencing gradual social changes, including increasing election participation, population growth, education promotion, as well as a rise in national health levels, the country was also trapped in a dilemma of sluggish economic growth due to the low efficiency of the administration work and market mechanism. [2] With the purpose of lifting the economy to a track of steady, faster growth, and alleviating the tensions from the suffering lower class, the new administration, represented by Jorge Alessandri and Augusto Pinochet, supported a group of domestic professionals and economists to figure out a series of systematic economic policies. [3]

The story of the book can be traced back to 1956, when the University of Chicago agreed to train a selected group of alumni from la Universidad Católica in the field of economics, who later became known as the Chicago boys. [4] After graduation, they returned to Chile and set up courses for the country's most impactful entrepreneurs. This encounter between the two groups ultimately led to the economic reform of the country. Later when Jorge Alessandri became the principal candidate of the country's highest administrative officer, Sergio de Castro, Pablo Baraona and a group of scholars, along with industry elites, started to hold regular private seminars to debate and discuss the country's dilemma as well as respective solutions in various critical sectors of the economy. [5]

They aimed to convince the administration of the progressive ideas, whose goal it was to help the country out of economic stagnation and build long-term steady, strong growth later on. More specifically, the goals include the opening of the economy, [6] the elimination of monopolies, the liberation of the price system, the modification of the current tax system for a more neutral, fair and efficient one, the creation and formation of a capital market, the generation of a new pension system, the normalization of the national agricultural activities, and the protection of property rights, etc. [7] Besides, one feature of this collection that cannot be ignored is that under the support of the military regime, it put great emphasis on the coordination and coherence of policies in various sectors of the economy and made no compromise with a gentle and gradual reform.

Content

1. Diagnosis of the Country's Situation

From 1940 to 1970, Chile experienced a severe economic stagnation. Based on the utopian Marxist blueprint, the country took over huge monopolies and latifundia, redistributed the income to other parts of the society, and controlled the market price along with the interest rate. This plan slowed or reversed economic growth and caused other economic problems as well. [8]

One conspicuous characteristic of the country during that period was the centralization of authority. State power, and its abuse, permeated almost every aspect of society. [9] The intention of using government intervention to resolve economic problems resulted in reverse consequences and distorted the economy to one that was highly dependent on administrative control. The control over market prices and interest rates led to distorted concentration of productive resources in the informal black market and shortage of capital. [10] The industrial protectionism policy, with the purpose of substituting importation, created space for huge state-owned monopolies. However, under this trade policy, Chile still imported huge amounts of agricultural products due to prolonged stagnation in its agricultural production and an increasing population size. [11] These combined to crowd out the capital that could have been invested in high-technology manufacturing facilities and other factors that were critical to economic development. Trapped in this dilemma, Chilean companies survived by lobbying the government for favors and loopholes.

Another aspect of the stagnating economy was the high unemployment rate. Many young people could not find jobs. Behind the phenomenon was the invisibly high labor cost that is related to social insurance, pension reserves and regulated immobility in the labor market. [12] Besides, as the consequence of the government-intervention-oriented policy applied to poverty alleviation, the poor farmers became even more impoverished since the price of agricultural products (food) was restrained to a low level for both rich and poor. Therefore, such a policy essentially sacrificed the interests of the poor for those of the rich. [13] What is even worse was that the poverty alleviation policy based on the government's redistribution of income induced people into the mindset that individual efforts were of little use in comparison with government intervention. The inflation induced by the centralized economic plan also exacerbated the conflicts between capitalists and workers because of the diminishing purchase power of salaries.

The highly centralized system crushed economic development and fomented social conflict. It was this fundamental failure that opened the door to radical economic reform in the following years.

2. Specific Policies

2.1 The policy to decentralize state planning

As the country has a monarchical tradition, Chilean people used to severely depend on state laws and regulations to resolve problems. [14] However, such an atmosphere has no good for economic development because individual efforts were ignored and the government faced huge information cost to enact concrete policies for different production sectors. Therefore, the policy aims to define the border of the administrative power and give production sectors full autonomy of management. The market's role to allocate resources is emphasized and governments are only suggested to provide a proper global planning for the economy. Besides, development of intermediary agencies and simplification of the judiciary are also encouraged to reduce both the administrative and transaction costs. [15]

2.2 Looser policy for foreign trade

The past foreign trade policy to restrict flow of production resources to the exportation sector actually led to degradation of agricultural production and loss of opportunity to enter the global market. [16] To resolve such problems, a policy lift restrictions on exchange rate is needed to activate the exportation. Moreover, it is also important to maintain a certain amount of foreign exchange reserves to stabilize people's expectations, thereby stimulating investment in export industries. Other measures, including replacing the import ban with tariffs and consumption taxes, providing subsidies, and long- and short-term loans to exporters to resist the strong foreign competitors at first, are also needed to establish a mechanism to encourage exportation. [17]

2.3 Price policy

Another important aspect of the reform is to lift the unreasonable controls on price. On the other hand, as a transitional policy, a price protection on critical industries is needed to implement the transformation. After the transitional period, an efficient price control in monopolistic industries [18] should be implemented. Also, it is important to decompose monopoly companies, especially the state-owned monopoly companies, thereby promoting market competition. [19]

2.4 Fiscal and monetary policy

The monetary policy should ensure proper currency liquidity, which is conducive to commodity transactions, and have stabilizing prices, full employment, and maintaining high economic growth as its aims. On the other hand, a good policy should well control the fiscal deficit, especially the deficit of state-owned enterprises, so as to prevent inflation. While inflation is aimed to be controlled, a proper increase in price should be allowed to offset the loss of firms. Furthermore, to reduce fiscal expenditure, it is recommended to moderate the salary for the public sectors, and reduce financial support for state-owned enterprises. Also, establishing new standardized taxes and seeking external loans are suggested to relieve inflationary pressures. [20]

2.5 Other policies

Other policies include building a free capital market, privatizing the system of provision, social security, and public health, [21] etc. While the reform encompasses multiple dimensions, the most important thing, according to the suggestions, is to implement the most radical and thorough reforms from the start so as to stabilize people's expectations and strengthen their confidence in the reform.

Related Research Articles

Chicago Boys Chilean economists and political advisors

The Chicago Boys were a group of Chilean economists prominent around the 1970s and 1980s, the majority of whom were educated at the Department of Economics of the University of Chicago under Milton Friedman and Arnold Harberger, or at its affiliate in the economics department at the Pontifical Catholic University of Chile. After they finished their studies and returned to Latin America, they adopted positions in numerous South American governments including, prominently, the military dictatorship of Chile (1973–1990), as economic advisors. Many of them reached the highest positions within those governments. While the Heritage Foundation credits them with transforming Chile into Latin America's best performing economy and one of the world's most business-friendly jurisdictions, critics point to drastic increases in unemployment that can be attributed to counter-inflation policies implemented on their advice. Ronald Reagan and Margaret Thatcher were influenced by Chile's policies and economic reforms.

<span class="mw-page-title-main">Miracle of Chile</span> Reorientation of the Chilean economy

The "Miracle of Chile" was a term used by economist Milton Friedman to describe the reorientation of the Chilean economy in the 1980s and the effects of the economic policies applied by a large group of Chilean economists who collectively came to be known as the Chicago Boys, having studied at the University of Chicago where Friedman taught. He said the "Chilean economy did very well, but more importantly, in the end the central government, the military junta, was replaced by a democratic society. So the really important thing about the Chilean business is that free markets did work their way in bringing about a free society." The junta to which Friedman refers was a military government that came to power in a 1973 coup d'état, which came to an end in 1990 after a democratic 1988 plebiscite removed Augusto Pinochet from the presidency.

<span class="mw-page-title-main">Mapuche language</span> Language isolate spoken in Chile and Argentina by the Mapuche people

Mapuche is an Araucanian language related to Huilliche spoken in south-central Chile and west central Argentina by the Mapuche people. It is also spelled Mapuzugun and Mapudungu. It was formerly known as Araucanian, the name given to the Mapuche by the Spaniards; the Mapuche avoid it as a remnant of Spanish colonialism.

Hernán Neira is a Chilean writer, philosopher and university professor.

Economic history of Chile Timeline of the economics of Chile

The economy of Chile has shifted substantially over time from the heterogeneous economies of the diverse indigenous peoples to an early husbandry-oriented economy and finally to one of raw material export and a large service sector. Chile's recent economic history (1973–) has been the focus of an extensive debate from which neoliberalism acquired its modern meaning.

Languages of Chile

Spanish is the de facto official and administrative language of Chile. Spoken by 99.3% of the population in the form of Chilean Spanish, as well as Andean Spanish and Chilean Catalan, Spanish in Chile also receives the title of "castellano." Although an officially recognized Hispanic language does not exist at the governmental level, the Constitution itself- as well as all official documents- is written in this language.

Álvaro Saieh Bendeck is a Chilean academic, economist, and businessman. He is the chairman of CorpGroup, one of Chile's largest conglomerates.

Claudio Véliz is an economic historian, sociologist and author from Chile, who has held numerous academic posts in various institutions of higher learning including La Trobe University (Australia), Harvard and Boston University.

Crisis of 1982 Economic crisis in Chile

The Crisis of 1982 was a major economic crisis suffered in Chile during the military government of Chile (1973–1990). Chile's GDP fell 14.3%, and unemployment rose to 23.7%.

Sergio de Castro (economist) Chilean economist

Sergio de Castro Spikula is a Chilean economist who served the military junta headed by Augusto Pinochet as economy and finance minister. De Castro was one of the Chicago boys, trained in economics at the University of Chicago. Sergio de Castro is one of the authors of the influential text known as El ladrillo, writing its prologue.

Fernando Zúñiga is a Chilean-born Swiss linguist at the University of Bern, where he holds the chair of General Linguistics and works in the fields of linguistic typology and indigenous languages of the Americas, especially Mapudungun and Algonquian languages.

Great Depression in Chile

The Great Depression that begun 1929 was felt strongly in Chile from 1930 to 1932. Saltpetre and copper exports collapsed. The World Economic Survey of the League of Nations declared Chile the worst affected nation by the depression. Such economic devastation worsened Chile’s economic prosperity, highlighted particularly in 1932 that exemplifies a rapid fall in exports, imports, GDP and the value of industrial production from pre-depression levels. Chiles exports dropped from US $279m in 1929 to US $35m in 1932, which in real terms corresponds to 1/6 of export level in 1929. In accordance to this time period, Chile’s imports fell from US $197m in 1929 to US $26m in 1932. Similarly, real GDP dropped from 100 in 1929 to 67 in 1932, contributed by the fall of the value of production from 100 in 1929 to 77 in 1932 alongside a rapid decrease in the average annual production that reached the equivalent to one quarter of 1929 levels in December of 1932. Alongside a decrease in employment in the mining sector, in terms of GDP and productive activity, mining dropped to 26.3 in 1932 from 1929 levels of 100.

Ricardo Ffrench-Davis Chilean economist (born 1936)

Ricardo Ffrench-Davis is a Chilean economist. He is Professor of the Department of Economics and the Instituto de Estudios Internacionales at the University of Chile. Along with a few other Chilean students, Ffrench-Davis got the chance to study at the University of Chicago in the 1960s. He earned his Ph.D. in Economics from the University of Chicago in 1971. Although the students were later named Chicago Boys, Professor Ffrench-Davis was a critic of the neo-liberal policies implemented in Chile by the Pinochet dictatorship. Two of the papers that summarize his critical arguments are "The monetarist experiment in Chile: a critical survey" published, in French, English, German, Portuguese and Spanish; and “Economic development and equity in Chile: legacies and challenges in the return to democracy", published in French, English, Italian and Spanish.

Centro de Estudios Públicos Chilean think tank

Centro de Estudios Públicos (CEP) is a non-profit Chilean think tank founded in 1980. Its stated mission is to “contribute to the development of a free and democratic society” through: 1) the analysis and dissemination of philosophical, political, social and economic problems of interest to Chilean society; 2) the study, discussion and design of public policies; and 3) the promotion of institutions that support and enable the existence of a constitutional and democratic order. CEP contributes to the public debate through its seminars, the policy brief Puntos de Referencia, the journal, Estudios Públicos which has appeared continuously since 1980, the publication of books and various research studies, as well as social surveys, which have been conducted since 1987. CEP has become a household name for political, academic, and intellectual debate.

During most of Chile's history, from 1500 to the present, mining has been an important economic activity. 16th century mining was oriented towards the exploitation of gold placer deposits using encomienda labour. After a period of decline in the 17th century mining resurged in the 18th and early 19th century this time revolving chiefly around silver. In the 1870s silver mining declined sharply. Chile took over the highly lucrative saltpetre mining districts of Peru and Bolivia in the War of the Pacific (1879–83). In the first half of the 20th century copper mining overshadowed the declining saltpetre mining.

Julieta Kirkwood Chilean sociologist, political scientist, university professor and feminist activist

María Julieta Kirkwood Bañados was a Chilean sociologist, political scientist, university professor and feminist activist. She is considered one of the founders and impellers of the Chilean feminist movement in the 1980s. She is considered the forerunner of Gender studies in Chile.

History of agriculture in Chile

Agriculture in Chile has a long history dating back to the Pre-Hispanic period. Indigenous peoples practised varying types of agriculture, from the oases of the Atacama Desert to as far south as the Guaitecas Archipelago. Potato was the staple food in the populous Mapuche lands. Llama and chilihueque herding was practised by various indigenous groups.

[Chile] is rich in pastures and cultivated fields, in which all kind of animals and plants can be breed or grown, there is plenty of very beautiful wood for making houses, and plenty of firewood, and rich gold mines, and all land is full of them...

<span class="mw-page-title-main">Hugo Herrera (Chilean philosopher)</span> Chilean politician


Hugo Eduardo Herrera Arellano is a Chilean lawyer, philosopher and scholar dedicated to the Philosophy of Right. Known as the theoretician of the Chilean "social right-wing", Herrera works as a professor at the Schools of Law of the Diego Portales University (UDP) and the University of Valparaíso (UV).

Charaña agreement

The Charaña Accord, also known as the Hug of Charaña or the Act of Charaña, is the name given to an unrealized treaty that was discussed between the dictators of Bolivia and Chile, Hugo Banzer and Augusto Pinochet respectively. These discussions took place mostly on the Bolivian train station of Charaña on February 8, 1975, and included the brief reestablishment of diplomatic relations between the two nations which had been severed on 1962 because of the Atacama border dispute which was to be solved via a Chilean proposal for the exchange of territories between Bolivia and Chile, with the former receiving a corridor to the Pacific Ocean which would provide it with access to the sea and Chile receiving an equivalent amount of territory from Bolivia along its border with Chile.

The inflation in Chile has been a significant issue in the economy of Chile in the 20th century. In the 2020s it surfaced as an economic problem again during the second presidency of Sebastián Piñera and continues beyond it. This inflation has been attributed to a series of private pension fund withdrawals allowed by the Congress of Chile in response to the economic hardships of the COVID-19 pandemic in Chile. Besides this, food prices are held by the Food and Agriculture Organization to have increased as consequence of the 2022 Russian invasion of Ukraine.

References

Sergio, De Castro (1992). El Ladrillo: bases de la política económica del gobierno militar chileno. Santiago De Chile: Centro de Estudios Públicos.

  1. 1 2 (in Spanish) La transformación económica de chilena entre 1973-2003 . Memoria Chilena.
  2. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 15. ISBN   956-7015-07-4.
  3. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. pp. 7–10. ISBN   956-7015-07-4.
  4. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 9. ISBN   956-7015-07-4.
  5. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 9-10. ISBN   956-7015-07-4.
  6. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 22. ISBN   956-7015-07-4.
  7. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 23. ISBN   956-7015-07-4.
  8. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 28-29. ISBN   956-7015-07-4.
  9. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 29-34. ISBN   956-7015-07-4.
  10. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 33. ISBN   956-7015-07-4.
  11. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 36-37. ISBN   956-7015-07-4.
  12. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 34-35. ISBN   956-7015-07-4.
  13. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 37-38. ISBN   956-7015-07-4.
  14. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 58. ISBN   956-7015-07-4.
  15. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 62-72. ISBN   956-7015-07-4.
  16. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 73-74. ISBN   956-7015-07-4.
  17. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 75-86. ISBN   956-7015-07-4.
  18. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 101-102. ISBN   956-7015-07-4.
  19. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 87-90. ISBN   956-7015-07-4.
  20. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 91-102. ISBN   956-7015-07-4.
  21. ↑ Sergio, De Castro (1992). El Ladrillo. Santiago de Chile: Centro de Estudios Públicos. p. 103-139. ISBN   956-7015-07-4.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.