Chile: the balanced view : a recopilation of articles about the Allende years and after

Chile's industries to greater productivity since approximately 25-30 percen! ofthe country's industrial capacity was not being utilized.(14) As Vuskovic put it: .....the soothsayers who now predict inflationary tendencies... continue to think... that salary increases, expansion of credits, subsidizing of determined services, compensations to certain export products, etc... will lead to an uncontrolable inflation within the coming mon!hs. They have no understanding of what is really happening."(15) What was insufficiently recognized by Vuskovic were the longer term consequences of these policíes if they could not be carried through to completion. However, what the long run effects of the short term economic "prosperity': would be were not of as great a concern to the Unidad Popular as the immediatepolitical benefit to be derived from what ene observer described as the "poi itics of popular consumption."(16) The administration believed that the increased employment and purchasing power of the consumer brought about by the massive "income redistribution" financed through vast deficit spending and money creation would gain the Unidad Popular the time it needed to earn the allegiance and support of a majority of the Chilean electorate.(17) Given the chfef executive's vast discretionary power in the area of the Chilean economy, the Unidad Popular economic planners seemed to believe that they could control inflation, in spite of huge wage increases, through increased industrial outpul, by employing strict price controls, and refusing to devalue the escudo. The tables on the following pages illustrate that during approximately Allende's first year in office, these economic policiés of the Unidad Popular appeared extremely success– fui and seemed to offer proof of the strategy of Vuskovic. For example, as can be seen in Tables 1 through 6, industrial output increased steadily from March, 1971 until September, 1971 when it reached more than 25 percent overthe comparable month of September, 1970 (Table 6). Beginning in October, 1971, however, we see that the industrial output began to decline almost as rapidly as it had risen until by September, 1972 (one month priorto the general strike of October that almos! brought down the government), it went Ol:Jt of control. Looking at the consumer price index (Tables 10 through 12) the same pattern emerges of sudden improvement between October, 1970 and September, 1971 followed by an equally as sudden surge upwards. Even the most cursory examination of the remaining tables dealing with agricultural production (Tables 7 through 9), the domestic and international financial picture (Tables 13 through 17), and other areas of the Chi lean economy show the same pattern of gathering economic problems after the firsl year of Allende's rule. Why did the. economic pOlicy of Allende ullimalely fail? In the analysis to follow, two points seem to sland out above all olhers. First. Allende sacrificed economic policy lo polilical expediency. A number of non-Marxist economists who examined Vuskovic's policies predicted that Ihey would ultimately be counlerproduclive, and il is difficu~1 lo see. how the economic policy was designed with any other intention than to consolidate the, Unidad Popular's political position,(18) Unlike Frei who was willing to sacrifice immediate pOlitica! gains in the name of long range economic develop·ment. Allende and the Unidad Popular appeared too willing to do the opposite, Secondly, instead of basing their eCono– mic plans upon a comprehensive economic analysis of what the Chilean situation required. they based them largely upon polilic-ideological notions purportedly derived from Marxist-Leninist theory.(19) However, without a consolidated power base from which to (14)Professor Andrés Bianchi, a public lecture al Ihe Universíly 01 Texas al Austin, February 19, 1974. (15)The Chilean Economy Under (he Popular Uniry Government, p. 14. (16)Prolessor Rosenstein-Rodan, "Rehabilitating Ihe Post-Allende Economy 01 Chile." (17)See Tables 10 through 16 lor increases in the money supply. (18)Professor Rosenstein-Rodan, "Rehabíliting !he Post-Allende Economy 01 Chile"; and Andrés Bianchí, publíc lecture. Both 01 these men predicted tha! the Unidad Popular's plan 01 massive wage boosts, government delicít spending, and príce conlrols would ullimately becounterproductive lorthe Chílean economy. Rosenstein-Rodan was an advisor to the Freí gOllernmenl and is currently Dírector 01 Ihe Latin American Center 01 the Unillersity 01 Boston. Andrés Bianchí ís currently a lIísiting prolessor at Prínceton Uníllersity. (19)The government Fínance Minísterannounced in late1970thatthe policyol períooicallyoevalu1ng tneescuao 166