Chile's economy has been beset by severe problems of unemployment, inflation, low investment rates, and slow growth. Pedro Vuskovic, Allende's Minister of Economy, analyzes these problems in terms of their structural roots in the concentration of wealth and income and outlines an economic policy for the Popular Unity that will solve the economic problems by attacking the structural roots.
Economist Vuskovic, while not a member of the Socialist or the Communist Party, is a key man in the Allende government. He was Director of the Economic Commission for Latin America's Economic Development Division until November 1969, when he moved to the University of Chile's Institute of Economics and Planning to head the group of economic experts who participated in drawing up the Popular Unity's Basic Program.
The document of the Central Bank of Chile that follows capsulizes the long-term economic goals of the Popular Unity government, as well as the short-term economic policy for 1971.
BASIC ASPECTS OF THE ECONOMIC AND FINANCIAL POLICY OF CHILE
From an advertisement in the New York Times, January 25, 1971.
BANCO CENTRAL DE CHILE
The economic policy of the Unidad Popular Government, in its fundamental approach, aims substantially at the replacement of the present economic structure with another one, which will allow the realization of a socialist and pluralistic society to begin. To attain this aim, the government will promptly start to develop the three major areas of ownership: state, mixed and private. The state area will be the prevailing one and will be made up of the existing state enterprises plus the ones that will be set up in the future, especially in certain sectors, such as basic resources, the large domestic and foreign monopolies, banking, foreign commerce and the fields that have strategic importance in the Nation's development. The mixed area will be made up of companies which combine private and state capital and which are to be administered and managed jointly. It will have a place mainly in the fields of manufacturing, fishing, mining and trade. In the private area will be left most of the existing companies set up as stock corporations, partnerships, and institutions having industrial or commercial private ownership. This general orientation will be complemented by an agricultural policy tied in to indicated transformations, the basic directives of which can be summarized as a deepening, widening and speeding up of the agrarian reform process; organized participation of the peasants both in the planning and realization of the agricultural reform and in the use and cultivation of the soil, looking mostly to the development of cooperative properties; changes in the commerce system through a wider intervention of the State in the intermediary field, and a strong democratization in the use of credit and in technical assistance—all this in order to strongly increase production and the productivity of this sector.
In these new conditions, the development of the Chilean economy will be guided through a system of planning with the participation of the various national sectors and (in the first place) of the workers. This will mean a change to a harmonic and balanced development of the economy from what has up to now been a cyclic and anarchistic evolution, with the resulting waste of human and material resources. The planned development, which will have as its main theme the transformation of the social relations of production prevailing today, will assure a rapid and decentralized economic growth. Within this framework it is possible for the first time, and in a real way, to solve the immediate problems of the great majorities; ensure monetary stability; defeat the great monopolies, and shift the fruits of progress to the large mass of the people, that is, to complete the tasks necessary to build a new economy and a new society.
The contradictions inherent in the present economic structure are an ever more powerful brake to our development and in the same measure, increasingly worsen the living conditions of the Chilean people. For this very reason the short-term economic policy of the Government has been conceived in order to face two orders of problems at the same time: the solution of the immediate problems, and the start of the structural changes. They both are aspects of the same unit and the Government will face them together in order to reach a solution in both fields.
Some of the most important aspects of the economic policy for 1971 are the following:
REACTIVATION OF THE ECONOMIC POLICY
The sudden rise in the levels of economic activity (which means increasing substantially the availability of goods and services) will be immediately beneficial to the growth potentials of the Chilean economy. Through it a number of programs will become reality, aiming at mobilization. Among them are to be emphasized the programs of lodging, public works, State enterprise investments and reactivation of industrial demand, widening of the agrarian reform and encouragement of exports; all this to result in a very significant increase in production.
INCOME REDISTRIBUTION POLICY
The poverty which is being experienced by large numbers of the Chilean population makes it urgent to act in several fields for the distribution of the national income in a more just manner. Finding more jobs and raising the income of the workers are two immediate objectives of the Government.
Three basic directives guide the wage policy of 1971:
1. To recover for all workers the real wage level prevailing on January 1, 1970, that is, adjust wages and salaries to reflect 100 per cent increase in the cost of living.
2. Give an adjustment of more than 100 per cent of the increase in living cost to the wages and salaries at the lowest end.
3. Start a process of equalization in the family allowance which, within the next few years, should produce a single family allowance.
However, the policy of readjustment and remuneration is placed within the framework of a much larger concept of the income and income redistribution policy, of which the above mentioned policy is only a part. Measures related to a policy of non-monetary income, of lodgings, salaries, recreation, etc. fit an overall vision which assures the fullest consideration of the welfare of the entire Chilean population.
Chilean inflation has become chronic. It has been a permanent characteristic of the economy since the end of the past century, with very short periods of stability in the 20's and in 1960. The annual inflation rate during the last five years has been as follows:
1966 17 per cent
1967 22 per cent
1968 28 per cent
1969 29 per cent
1970 35 per cent
The Government trusts that it will be able to contain inflation with daring and also drastic measures which will affect several complementary fields. The measures affecting the following deserve particular mention:
Prices will be kept stable, if necessary, by means of State control. Such policy at the same time will decrease the profit margins of certain industries deriving from a monopolistic situation.
In relation to the availability of goods and services, improvement will be determined first of all by the effect that mobilization programs exert over the overall supply inasmuch as they will raise the economic activity level in general. The Government will employ all its capacity for stimulating and giving incentives to the producers in the sectors which have the slowest response or are subject to constriction and difficulties.
One of the main components of the cost structure of firms in almost all sectors is the type of exchange. We shall not return to the policy of periodic devaluations, much more so because the foreign trade forecasts and the favorable balance of trade would render it, as it was in the past, an autonomous inflationary pressure generating inflationary expectations. However, the Government will take all measures necessary for offsetting the negative effects which this decision may have on those firms which export a substantial part of their production or those which substitute these for imports.
The credit policy will aim at the opening of new ways of financial support in line with the priorities of the production sectors and their particular type of requirements, requesting at the same time that those firms which have utilized credit in large measure increase their own operating capital.
STRUCTURAL CHANGE POLICY
To initiate the process of structural transformation in the Chilean economy is not only a necessity bearing on the realization of the Government's program (on opening the gates for the strong release of the productive energies, on the substantial modification of the productive relations and on the start of the realization of the new society), but it is above all an unavoidable requirement for the realization of the program in 1971. Therefore it is important to start this process right now.
The transformation program will start with:
a) Nationalization of the foreign banks and state control of domestic private banks;
b) Nationalization of the large mineral operations;
c) Nationalization of some large monopolies in production and distribution;
d) Decisive advances in the Agricultural Reform;
e) Widening of the State's role in foreign trade.
CHILE: TOWARD THE BUILDING OF SOCIALISM
This analysis is a pre-election report to the Popular Unity on the proposed economic policy. Pedro Vuskovic was subsequently appointed Minister of Economy, Development, and Reconstruction in the Allende government and his ideas on economic policy were largely implemented. Made available and translated by Prensa Latina.
PEDRO VUSKOVIC BRAVO
Neither obsolete right-wing liberalism nor reformism has anything concrete to offer with respect to the way we can achieve independent, authentic, national development and destroy a structure that in its essence leads necessarily to increasing concentration of income and wealth and ever-deepening differences in economic levels and modes of life among the different sectors of the Chilean population. Under this structure, a growing proportion of the population is condemned to idleness, unemployment, and alienation, while the country's economy is increasingly turned over to foreign interests. For obvious reasons, prolongation of this system would inevitably bring about more and more dictatorial and repressive forms of government.
It is important to be totally aware of the nature and seriousness of present problems, of the extent to which they are an inevitable result of the present system, and therefore of the impossibility of solving them as long as the system is not profoundly modified. Starting from that comprehension, the strategy of economic and social development introduced by Popular Unity will be better understood, as will the basis of the measures planned to initiate the building of socialism in Chile. It will be equally understandable why this is the only program that responds to the genuine interests of the majority of the population and of Chile as a nation.
In general, those problems derive from the fact that the entire functioning of the economic system is now oriented to satisfy the consumer demands of a small sector of the population which controls the economic apparatus and deforms it to meet its own demands, to the detriment of the basic needs of the great majority of the population. The root of a series of interrelated problems can be found in this fact. These problems include: the growing instability and contradictions in which the system's incapacity manifests itself; the increasingly unjust distribution of income, with its consequences in terms of growing differentiations in the living conditions of the different strata of the population; the rapid increase in the concentration of property and means of production; and the already incredibly advanced surrender of the national economy to foreign capital.
The Insurmountable Instability Within the System
Some of the principal contradictions and instabilities that the present system is unable to overcome correspond to phenomena that the population perceives most directly, because they are problems that brutally affect broad sectors of our society.
Among them are the unemployment problem, the incapacity of the present system to assure work opportunities for our working-age population, and the resultant high rate of overt unemployment manifest in official estimates. In greater Santiago alone there are 232,000 unemployed, representing 21.1 per cent of the labor force. In June 1969 the proportion was 19.3 per cent, and 17.3 per cent in June 1968. These data show the extraordinarily high level of unemployment and its tendency to increase. This problem has led to the phenomenon— not measured in official statistics—of underemployment and disguised unemployment, which means uncertainty and want for thousands of families and underutilization of the country's most valuable resource: the work capacity of its population. Women constitute less than a fourth of the working population receiving an income, with the aggravating circumstance that they generally find occupation in activities paying the lowest salaries. In an incredibly unbalanced economic structure hardly 18 per cent of the active population is engaged in more or less "modern" activities of reasonable productivity, which generate 54 per cent of the national income, while almost a fourth of the population is engaged in activities that from a technical viewpoint must be considered "primitive," generating less than 4 per cent of the gross national income.
It would be naive to believe that these dramatic employment problems depend upon whether or not the owners of enterprises receive more or fewer assurances by a given government. It is the system itself that is unable to raise the rate of capital accumulation to open the way for more occupational opportunities. It is the system itself that, by orienting available resources toward the expansion of activities that respond to the demands of luxury consumption by high-salaried sectors, precisely emphasizes activities involving lower labor utilization. For these and other basic reasons, this problem cannot be solved—on the contrary, it will steadily worsen—within the framework of the present capitalist system. Not even the imported formula of birth control, which is backed by so many millions of dollars, can solve the problem.
Another manifestation of the basic instability of the system is evident in the inflationary pressures that until now have been uncontainable. So far this year (1970), the rise shown by official figures already represents 32 per cent, although there are reasons to believe that the real magnitude of the phenomenon is underestimated. If this same intensity should hold, by the end of the year a figure of no less than 35 per cent would be reached. And the process repeats itself year after year, under governments more or less conservative or reformist, while the salaried population is obliged to fight periodic battles for adjustments that only apparently restore the buying power of their salaries.
As far as government action is concerned, what has been the outcome of every promise to eradicate inflation? In less than fifteen years, three so-called "stabilization" programs, each characterized by initial success at the cost of greater distortion of the national economy, have ended in total failure. These three successive programs each gave rise to the hope that previous experience would serve to make the new program more efficient, and each employed a more refined and sophisticated use of the apparatuses of monetary policy agreed on and provided by the International Monetary Fund. The three had two characteristics in common besides the one of failure: they refused to go to the root of the problem in order not to affect certain groups of national and foreign interests, and they contributed to the even greater impoverishment of broad sectors of the Chilean population.
There also exist the increasingly unmanageable conflicts between demands for expansion of investments and public expenditure, and the drying up of certain sources of fiscal income. In Chile so-called private initiative is not characterized by its creative capacity or by its drive to open the way for new sources of production and run risks. On the contrary—and despite the frequent demagogy of its representatives regarding private enterprise and "state ownership"—private initiative makes demands of the state not only to undertake works of infrastructure that facilitate private businesses, installation and operation, but also to underwrite new lines of production that private interests can eventually appropriate. . . .
The system needs a constant increase in both general investment and public expenditures, even if only as partial compensation for the growing concentration of income imposed by the system itself. The trouble lies in the fact that, at the same time, it becomes less able to finance them under the restriction inherent in the functioning of the system. So as not to affect the interests of the dominant groups of national and foreign capital, financing restrictions on the income of less favored strata of the population are imposed—and in the past few years particularly on the middle-class sectors—through greater taxes on consumer goods, transforming temporary taxes into permanent ones, increasing the contribution rates that those sectors cannot avoid. Once again the instabilities of the system are resolved by its effects on the majorities of the national population. In a short time, the same thing would happen no matter what accounting tricks are used. In all probability the budget for 1971, soon to be sent to Congress—supposing an activity level similar to this year's, a readjustment of wages equal to the probable increase of the cost of living, and a copper price of fifty-two cents per pound—will have an implicit deficit of no less than two billion escudos, which again raises the question as to who should carry the weight of that financing.
For a Popular Unity government, the need for substantial extension of public activity is implicit, to attend to the urgent needs of our development as well as imperious demands for improvement in the living conditions of the population. But these won't be the means . . . employed in the past to finance these activities.
Finally, . . . there are the instabilities and contradictions that lay bare the present functioning of the system in the external relationships of trade and movement of capital. . . . The interested groups enforce a policy of importing equipment, intermediate products, parts, and accessories that reinforces the expansion and functioning of a structure intended for the production of luxuries. . . . Notwithstanding the extraordinary prices of copper, which represented an important amount of additional income, the country's external commitments have continued to increase to such an extent that the financial load prevents the design and execution of a more rational and independent foreign-trade policy. What this could mean for the future is reflected in the CORFO's calculations, according to which the amortization and interest consignments during the following six years—1971-76—would add up to over 1.4 billion. In the years 1971 and 1972 alone these disbursements would represent $285 and $283 million respectively, which, added to approximately $150 million annually of profits and another $120 million on repatriation of foreign-enterprise capital—without taking into consideration fraudulent plight of capital—would come to the enormous amount of $550 million annually of transfers abroad over the next two years; in other words, approximately half the value of our present exports.
Thus the system succumbs, a victim of its own contradictions in procuring through foreign debt the resources that it is incapable of mobilizing internally.
The Distribution of Income and the Living Conditions of the Population
Another area in which the present basic problems are situated is the increasingly unjust distribution of income and its effects, as a growing differentiation factor, on the living standards of different strata of the Chilean population.
A recent study supplies data to determine the extraordinary dimension that this problem has attained. The study shows that half of the lower-income-bracket population received only 17 per cent of the total income. The wealthiest 5 per cent of this population appropriates over 27 per cent of the income, which represents a per-capita income equal to almost thirty-eight times the per-capita income of 10 per cent of the poorer families; what's more, 10 per cent of the national income is concentrated in the wealthiest 1 per cent, which represents a rate equal to sixty-nine times that of 10 per cent of the lower-income-bracket sector. Twenty per cent of the needier families receive less than 4 per cent of the income, which means that they receive an average remuneration equivalent to scarcely half of the minimum worker's wage. Within the agricultural camp, 1 per cent of agriculture's beneficiaries in the upper-income bracket receive seventy times more than the 10 per cent of the lower-income bracket. . . .
The productivity differences and anarchy in the national wage system determine that very pronounced differences exist even within each socioeconomic category. . . .
Such income inequality explains the high degree of economic differentiation into which Chilean society has fallen, at the bottom of which is found that growing proportion of population that is marginal not only in terms of income and access to social and cultural services, but in general in all forms of life. . . .
The entire system has been functioning toward the minority higher-income-bracket sector. The new industrial initiatives and service expansions are aimed at their consumption demands, and the system's scarce dynamism ends up depending on the increase of that consumption. On the other hand, the basic needs of the majority of the population go unattended, and even the public services hold little meaning for the marginal strata; children whose minimum living demands have not been attended to cannot take advantage of educational services, nor do health services prove efficient for an insufficiently fed population. . . . 
The Significance of the Popular Unity Program
The system has come to this, and it is from the starting point of the accumulated problems that decisions and choices must be made. Because of its intrinsic nature and because it has already been tried and found wanting in capacity, any possibility of a reformist strategy has been discarded. The only other alternative is, on the one hand, to secure and strengthen the general growth pattern that has been taking place, with its many negative consequences for the living conditions of the population and the possibility of obtaining an independent national development; or else to drastically modify the system and determine a substantially different development strategy.
Despite the intensity of the contradictions it has unleashed, it would be wrong to believe that the growth pattern—characterized as monopolistic and dependent capitalism—has exhausted all its possibilities. But the facts show that its continuation assumes as a prerequisite the accentuation of its character even more, at the cost of even greater concentration and foreign control. It is from that concentration that more dynamism can be derived, which would increase in some measure the rates of capital formation, the growth rhythm, and occupation levels. Its inevitable counterpart would be the increase of alienation and social and economic differentiation, which would in turn have to find their own counterparts in the political field, in terms of even more dictatorial and repressive forms.
Against this choice—certainly undesirable from the viewpoint of the interests of the great majority of the population and of Chile as a nation—is the solution outlined by the Popular Unity Basic Program. In essence, it attempts to change the system profoundly, starting from drastic modifications in the concentration of property and in the distribution of income. It attempts also to determine a development strategy that signifies a reorientation of the productive endeavor toward the basic needs of the population, not assigning new resources to production of luxury commodities and even reconverting already installed capacity to other ends; toward the objective of rapidly raising the productivity of the more backward economic sectors, dirninishing sectorial and regional disparities; and toward new development determined by very selective criteria of capital commodity production, basic consumption, and certain export products. The economic system will cease to operate in favor of the demands of the small sectors of high income brackets, reorienting itself to overcome deficits in the basis components of the living cost of the great majority of the population— food, housing, clothing, collective mobilization, education, and health services—as well as to lay the material foundation for an independent national development.
We count on positive factors for this, such as those derived from the very ample margins of productive capacity that the present system is unable to take advantage of and starting from which, freed from the bonds of monopolistic control and foreign interest, a substantial increase in the activity levels of Chile's economy can be obtained in a short time. The first efforts, consequently, will be aimed at this goal.
For such a substantial reorientation, we cannot rely upon the traditional tools of economic policy. Another type of guidance is required to assure the necessary changes to apply that strategy and once and for all face the chronic problems of unemployment, inflationary pressures, and fiscal unbalance that place an overwhelming tax burden on the moderate-income sectors. It is the role that corresponds to what the Popular Unity Basic Program has defined as the "area of social ownership," which will constitute a dominant sector in the economy, starting from the enterprises that at present are state owned, from the nationalization of the enterprises that operate in the exploitation of the country's basic resources —the great copper, iron, and salt mines—and from expropriated enterprises, especially in the manufacturing, distribution, and finance sectors.
The constitution of that area of state control does not represent, therefore, a decision responding exclusively to political motivations; rather, it becomes the hub of an entirely new kind of economic policy. The surplus volume that will then be produced will be of great magnitude and consequently will represent the indispensable material foundation to raise the capital accumulation rate, without appealing to foreign financing or foreign capital. Aside from its quantitative importance, there is the possibility of deciding—without thinking of interests other than those of the country and the majority of the population—on channeling of those surplus goods in terms of both the ends they will serve and the combination of productive factors utilized. Therefore there is the possibility of expanding activities that will rapidly absorb unemployment and lay the foundation for the eradication of underemployment, which constitutes the only truly efficient way to solve this problem, destined to be one of the most urgent tasks of the popular government. And there is also the possibility of assuring that efforts will immediately be turned toward the sectors of commodity production and the supply of services essential to the rapid improvement of housing and other related services, especially in the marginal areas of the urban centers.
Public control of the greater part of the productive apparatus and marketing will at the same time lay the foundations necessary to end inflation. . . . Only a rational policy of production and supply will achieve the elimination of all monopolistic manipulation of prices and the effective control of any speculative aim.
Finally, the surplus derived from the social property area will open the way for a new financing of public-spending expansion. The enormous profits sent abroad by foreign enterprises today and the resources that great monopolistic enterprises appropriate through diverse methods will take the place of new taxes that would affect the lower-income-bracket sectors. It has been proved beyond any doubt that this cannot be achieved through indirect mechanisms; it must be done through the direct incorporation of these activities into a state-controlled economic sector.
In short, we are dealing with a new concept of national economic development that redetermines its objectives to suit authentically national interests and the great majority of the population. It assumes drastic modifications of the traditional growth pattern, putting a stop to the growing foreign control and to the concentration of property and income. It means new guidelines that will achieve the balance of progress of the country's different regions and the different sectors of economic activity. It means the only effective choice to overcome tensions and problems —such as unemployment, inflationary pressures, public financing—that the present system has not been able to solve. And it assumes economic policies fundamentally different from those in the past, essentially leaning on the public control of a social-property area.
It is understandable that a program of this nature should constitute the basic political commitments of the parties, movements, and independent forces that make up Popular Unity, and that it should find the endorsement and backing of both urban and rural salaried employees and of the most diverse sectors of Chile's population. All these have been suffering the consequences of the present economic system, in which the concentration process has been affecting expanding interests. For example there are the minority small businessmen, the small and middle-class industrialists, enslaved by the growing concentration in great enterprises and the increasing degree of production monopolization. The improvement of the relative position of the middle-class strata constituted by employees from public and private sectors, who benefited due to a relative deterioration of the position of manual workers, now finds unsurpassable limits. While foreign and national interest groups—which today receive the benefits of concentration—are not affected, they see themselves facing even greater tax pressures, and other mechanisms that in the past facilitated their promotion become less efficient. The minority sector of workers having access to higher production activities—where, despite the surplus appropriated by enterprise owners, they can obtain considerably higher wages than the general average—find it increasingly difficult to defend their actual income levels, faced with the growing rates of unemployment and marginalization seen in the rest of the working population.
There are, therefore, objective links of solidarity among all those sectors which ascertain the political feasibility of the substantial changes proposed by the program, as well as their active mobilization to make them a reality in a popular government that recognizes beforehand—as expressly stated in the program—that "the revolutionary transformations that the country needs can only become a reality if the Chilean people are in power and exercise it actually and effectively."
1. Vuskovic continues with an analysis of economic concentration in different sectors—see Chapters 24 and 25 on this question—and increasing foreign investment—see Chapters 1 and 5.
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