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

Although the Marxist coalition aimed lo destroy the foreign miners, aristocratic lan– dlords, pioneer induslrialists and powerful bankers, only the middlemen accused in the 1971 economic analysis of receiving an income share "without contributing any effective service". This return to the contention that distribution and commercialization services are unproductive openly implied that income distribution was grossly inequitable-not only because commerce was earning quasi rents induced by inflation, protection or sectoral clashes, but, more importantly, because il earned any income al all. The immediate goal of such income redistribution indicated more than a condemnation of the middlemen's allegedly inadequate pursuit of the localion, quantily and time-transformation functions. It incorrectly implied, in consonance with Marxist and medieval theory, that there are no costs involved or benefits derived from changing the quantity, location and time dimensions of goods and services. REDUCTION OF THE MIDDLEMAN'S SHARE OF INCOME WAS PURSUED INDIRECTLY AND DIRECTLY Reduction ofthe middlemen's income share was pursued indirectly as well as directly. By fixing or controlling prices lo consumers and raising the cosls of production and labor in commercial enterprises, commercial profit margins were cut. Tolal commercial profits at Ihe retaillevel were not reduced correspondingly, during 1971 and the first half of 1972, as sales rose significantiy. This implied a major gain in the battle against inflation, an income redistribution to the consumer and no major loss -as yet- for the commercial community. More important in terms of present and forthcoming structural reform Was Ihe state's rising role as an intermediary, especially at the wholesale leve!. Old state-owned commer– cial firms were strengthened, new ones were created and prívate ones were purchased or absorbed. The government created the National Distribution Corporation (DINAC), the Agriculture Marketing Corporation (ECA), the National Poultry Firm (ENAVI) and the Natio– nal Corporation for Fuel (ENADI). Furthermore, the Chilean State Development Corporation purchased the brokerage houses of Duncan Fox, Gibbs, and Williamson Balfour and absorbed other firms. The government's policies had at least one major beneficial effect during 1971 and the first half of 1972. Industrial consumer-goods markets expanded appreciably as a conse– quence of critical inter-sectoral income redistribution, which was long overdue but was, nevertheless, short-lived. This involved primarily trade, but also banking, transport and some other services that, by earning inflationary quasi rents, had raised the prices of and reduced the market'for industrial goods. When trade markups were drastically reduced after 1970, indu5trial prices fell relative to the income of almost all other sectors. Most significantly, the price of trade services fell compared to most other prices. As the cost or price paid for performing the functions of quantity, location and time transformation was reduced, not only did the real income of all other sectors rise but, furthermore, sectors that had been previously affected most strongly by these intermediation costs, such as industry, experienced a real income increase. This positive effect on real demand and supply was more than offset by the negative effects mentioned earlier. But Allende unleashed torces that neither he nor anyone else would be able to control or co.ntain for years to come. The coalition between Allende's Marxist government and state-owned segments of various sectors had powerful ramifications that went beyond the immediate and already successful income redistribution and the destruction of direct foreign and national large– scale private capitalism. An elite' privileged class of bureaucrats and technocrats gained immediáte access to the whole government machinery. A direct coalition with and depen– dence of the Chilean state and state-owned segments upon the socialist states of Russia, China, Romania, Poland, East Germany and others, was forged in the process of consolida– ting and expanding the power of the Chilean state's segment of the economy and destro– ying and eliminating the private segment. Support provided under this open coalition 44