Hoo-ray for Chile! (Obama/Pelosi/Reid, Please Take Note)

Outside of South America, I would be willing to bet that most people think of Chile as just another developing, “third-world” country with a handful of (relatively) wealthy people lording it over the peons. And, a few years ago, that would have been a fairly accurate description. Inflation was skyrocketing, the people were dirt poor and many (most?) of them unemployed — sort of like pre-quake Haiti.

Map of Chile (general)

Map of Chile

But, surprise! Last month, Chile became the first South American country asked to join the Organization for Economic Cooperation and Development (OECD), consisting of the (now) 31 wealthiest and most stable economies of the world. Chile has also now moved into the Top 5 in the Cato Institute’s ‘Index of Economic Freedom’, outranking even the U.S. [Note: The U.S. ranks a close 6th, not #17 as Glenn Beck (who got it from an IBD editorial) mistakenly reported a few weeks ago.]

What happened?

In the mid-1960s, center-left President Eduardo Frei Montalva initiated widespread social & economic reforms, focusing on housing, education, and agriculture. But, due to ever-increasing resistance from the political Left AND Right, Frei was only able to achieve some of his goals, while his country fell into an economic depression. When Socialist Salvador Allende took office in 1970, Marxist policies including nationalization and collectivization were instituted, resulting in decreased worker productivity, price freezes & wage increases, withdrawal of bank deposits, and runaway inflation. Then, in 1973 the U.S. assisted in a military coup by General Augusto Pinochet. Pinochet turned out to be a brutal dictator of an oppressive regime. But,…

If one good thing can be said about Pinochet, it is that he recognized the failures of socialist economics and he resolved to do something about it. Pinochet gave de facto control of the Chilean economy to the “Chicago boys”, a group of 10 economists who had studied the theories of John Locke (not the one on Lost), F.A. Hayek, & Milton Friedman at the University of Chicago. Beginning in the late 1970’s, they were authorized to begin implementing a long-term plan based on free-market principles — not an easy thing to do in a corrupt regime, under a dictator’s rule (even with his OK), and surrounded by similarly “difficult” neighbors. Chile began deregulating markets, opening up trade and courting agreements with multiple countries around the world. The economy was de-politicized and bureaucratic red tape was eliminated (well… somewhat). They cut taxes and removed wage & price controls. A balanced budget was instituted and private property once more respected. Eventually, the rule of law took root, as well, thereby greatly improving the safety and freedoms of the Chilean people.

The past two decades since Pinochet was defeated in 1988 have seen several left-wing presidents, but they have pretty-much stayed the course — while expanding government-sponsored social services, as well — and Chile’s economic growth has continued. Once a “closed” economy dominated by labor unions, Chile is now one of the most open economies in the world. Foreign trade with the Americas, Asia, and Europe brings in tens of billions of dollars to the Chilean economy. Chief exports include copper, wood products, fresh fruit, seafood, and wine. Many government-run enterprises have been sold off. (Some, like copper giant CODELCO, are still owned by the state, and there remains one government-owned bank.) Foreign investments, banking reform, increased personal and corporate savings, and the privatization of pension plans have all contributed to strengthening Chile’s financial stability. Poverty rates have dropped by more than half, and Chile’s per capita GDP has risen from $1300 (1980) to $15,000.

In addition to terrific economic growth, Chile now gets high scores for political & civil liberties, democratic governance, safety & security, etc., by groups like Freedom House and the Legatum Institute.

Chile's new President-elect Pinera

Chile's new President-elect Pinera

Following closely on the heels of its induction into the OECD, Chile’s people elected self-made billionaire Sebastian Pinera as their new president. Pinera is the first truly conservative leader Chile has had in decades. The current global financial woes have affected Chile, with unemployment inching up and a “contracted” economy, but the government has been able to dip into reserves from its copper revenues. With Pinera’s great personal success in media, sports, & airlines, some think he can bring even more financial & economic wisdom into the government, guiding Chile out of its current slowdown. The president-elect has vowed to be an “entrepreneurial president”, working to improve efficiency in the government by cutting red tape and demanding bureaucratic accountability, encourage private investment (e.g., partially privatizing CODELCO), revise employment law, make the business environment more attractive for local start-ups. Oh, and he’s got some ideas about fighting crime, too. (Do they include a cape & cowl, I wonder?) In short, he wants to make Chile “the best country in the world.”

So, obviously Chile’s economy still has problems. (Most countries do, especially these days.) There is room for improvement. But, it is still inspiring to see the amazing progress this once-impoverished and bankrupt nation has made in just 30 years. It is a case study of how Marxist theories and policies simply don’t work, whereas free-market capitalism and conservative policies bring people out of poverty, giving many (not just an elitist few) the opportunity to become quite wealthy, and improving the standards of living for all who participate. Or, as one expert on Latin American politics & economics, Andres Martinez of the New America Foundation, put it:

If trends continue, Chile will soon be considered one of those rare countries that has graduated out of the developing world, according to plenty of living-standard indices. The country is also the poster child for those who believe globalization and free trade can lift living standards, as Chile’s economic course has long been anchored in its free-trade agreement with the U.S. and its dynamic export sector. It also stands out among South American countries in that its governing socialists have pragmatically been the ones embracing this pro-business, market-oriented economy.”

I’ll support this kind of growth and progress over Leftie “hope and change” every time.

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