Transcript Barrett, Chile and Venezuela

Chile and Venezuela
Business Elites, the State and
Economic Change in Chile
-Eduardo Silva

State-Business Relationship
 No policy design, no matter how correct will elicit the
desired response from capitalists.
 If relationship is too “cozy” the result will be collusion
and corruption.
 “Interaction between business people and state
officials is crucial for investment and production
because it influences private sectors confidence to
commit resources.”
Three Periods of
Chilean Political and
Economic History
Radical Neoliberalism (1975-1982)
Pragmatic Neoliberalism (1983-1988)
Networks in Democratic Chile (19901994)
Radical Neoliberalism (1975-1982)


Radical Neoliberalism came after the overthrow
of the socialist Salvador Allende in 1973.
Chiles military government implemented a
neoclassical economic restructuring program in
which policy makers replaced state intervention
with market incentives.
 This
was done because policymakers believed that
the market allocated resources better than
bureaucrats.

Policies
 Draconian
economic stabilization programs (shock
therapy).
 Rapid, thorough liberalization of capital markets,
prices and trade with little regard for their effects on
industrial and agricultural sectors.
 Fixed exchange rate in 1979.
 Privatization of health insurance and pensions.
Economic Change During Period
External debt rose from $5.8 billion to
$15.7 billion.
 Industry’s share of Gross National Product
declined from 24.6% to 21%.
 Share of agriculture dropped from 8.2% to
7.5%.
 Economic depression was result in 1982

 GDP
shrank by 14%.
 Unemployment was between 25% and 30%.

Neoliberal Economic Results
 Damaging
Policies
 “Highly autonomous state over insulated
ideology rigid technocrats with organic links to
a narrow range of business interests
operating outside the confines of business
peak associations.”
 Harmful policies are too skewed for healthy
economic growth.

Pinochet
 Gave
ministers unconditional backing
Shielded them from unpopular reaction to
economic policies.
 Policy makers had links to international
conglomerates which resulted in privileged access
to policy makers.
 Policy makers known as “Chicago Boys” because
a number of them attended the University of
Chicago.

Pragmatic Neoliberalism (19831988)

Economy began to recover in 1984
 Policy
makers in financial institutions still
preferred neutral policy instruments.
 Acknowledged that state also had duty to
intervene in market

To stabilize prices and boost domestic production.
Real exchange rate remained high.
 Interest rates were reasonable.
 Agriculture and mining activities were protected from
unfair external competition as well as incentives to
export.




CPC and Industrialist association threatened to
join political unless economic policy change.
Pinochet got rid of the “Chicago Boys”.
Interaction between more adaptable
policymakers and a much broader spectrum of
business interests.
 The
result was a more flexible approach to policy
making that gave rise to pragmatic neoliberalism.
 Policy orientation in which the market provides
signals for allocation of resources.
Networks in Democratic Chile
(1990-1994)

Concertacion de Partidos por la Democracia.
 Promised
not to tamper with the general economic
model-pragmatic neoliberalism.
 Paid more attention to social equity than did the
military government.
 Authorities and Capitalists


Policy makers set up an agenda for incremental changes.
Businesses set up commissions to review issues.

Policy makers review reports before making decisions.
The Chilean Case in
Light of the East Asian
Experience

Karl Fields-states that played an important
role in shaping the economy, carried out
aggressive industrial policies, and in some
cases favored enterprise.
 To
promote efficiency, bureaucrats attach
performance criteria to industrial subsidies.
In Chile, negotiation with encompassing
peak associations functions better for
processes of neoliberal reform than the
dealings with multisectoral conglomerates.
 In Asia, beaurocrats engaged in the design
and implementation of industrial policy
dealt directly with such conglomerates.

Chile and the East Asian Cases


Chile took a liberal path to economic development, while
a number of East Asian countries have opted for
industrial policies that require more direct state
intervention in the economy.
Business community learned how to communicate with
policy makers.


Business organizations developed technical expertise in their
research departments in order to speak a common technical
language with professional technocratic policymakers.
Before this communication, government officials tended to ignore
business leaders because they were seen as defending
parochial interests in ignorance of wider economic
consequences.
Relationship of top policy
makers to business elites.
 Bureaucrats
should be highly autonomous from
pressure groups in order to formulate industrial policy
but not isolated from contact with the nations largest
conglomerates on intersectional encompassing
business associations.
 Contact with multisectoral conglomerates provides a
window into policy design that cuts across economic
sectors.
 Furnishes potential allies in policy implementationfirms with investment capacity that can shift resources
more easily than companies dependent on the health
of a single economic sector.
Historical View of BusinessState Relations: Columbia,
Peru, and Venezuela
Compared.
Columbia



Example of where the nature of the export
economy explains the generation of rather
successful institutional development.
Developed Coffee Federation of Columbia.
Coffee became increasingly important.
 Rapid
expansion of warehousing, financing and
services.
 Ability to command political influence was crucial.
 The role of coffee in business of ports and financial
institutions was also crucial.
Reasons for Success

Absence of foreigners in production.
 Exports


were locally controlled.
The regional diffusion of coffee, plus its
production characteristics and its local control,
led to remarkably wide stimulus to
industrialization, the consolidation of a number
regional centers of industry an with that
consolidation, regional elites.
Small, stable, oligarcical political system in
which the members spoke freely to one another.
Venezuela

Mono-Economy
 Abundance
and fast growth of the source of
foreign exchange over several decades,
driven by foreign investment that for many
years was seen as completely essential.
Industrial sector grew, despite the 1939
Treaty of Commercial Reciprocity with the
United State, which committed Venezuela
to forgoing tariffs on 50% of imports in
return for quota access for oil to the United
States market.
 Abundance of oil allowed Chile to operate
using oil as a bargaining tool.

1970’s Oil Boom

Result
 Explosion
of fiscal revenue.
 Pronounced overvaluation.
 Profound political economy effects.
 The availability of funds led to an explosion of state
organizations.
 Power of the executive grew with the concentration of
revenue, and parties and congress were weakend.
Peru
Export history dominated by a diversity of
products and has been fast growing in
expansion periods of the world economy.
 Private sector dealt with foreigners in
Peru.

 Foreign
capital built railroads, provided the
know-how and the contacts marketing and
technological improvement
Trouble in Peru
•
Fear of mass mobilization lead to initiative changes.
•
•
•
1930 and 1945-1948
The Peruvian model broke down in the 1960’s when a period of
easy supply-side expansion came to an end and the next stage
of expansion demanded more in terms of entrepreneurship and
management than the system could provide.
The politics of the model broke down with growing discontent
with the oligarchic system and the division of the spoils.
•
The result of this change was a change from a low-level relationship
between business and government into a strong and antagonistic
relationship.
Discussion Questions
1. In the case of Chile, what were some of
the downfalls of the radical neoliberalism?
2.Can you compare or contrast the Chilean
models to those of the East Asian nations?
3.Columbia and Venezuela both had one
main export, coffee and oil, do you think a
nation can prosper when the nations
economy is based on one chief export?