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Department o f Political and Social Sciences
EUROPEAN UNIVERSITY INSTITUTE
R E C E I V E D
1 6 FEB. 1998
L I B R A R Y
THE INSTITUTIONAL BASES OF
CH ILE’S ECONOMIC ‘M IRACLE’
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Thesis submitted for assessment with
a view to obtaining the Degree o f Doctor of the
European University Institute
European University Institute
3 0001 0036 B669 0
EUROPEAN UNIVERSITY INSTITUTE
D epartm ent o f Political and Social SciencesTHE INSTITUTIONAL BASES OF
CHILE’S ECONOMIC ‘MIRACLE’
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r a g o o'Oynti o 'Thesis submitted for assessment with a view to obtaining the Degree of Doctor o f the
European University Institute
Examiningjury: *
Prof. Alan Angeli (Oxford University) Prof. Colin Crouch (EUI - Supervisor) Prof. Giandomenico Majone (EUI)
Prof. Luciano Pellicani (Università LUISS)
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Acknowledgments
This thesis is the result o f more than four years o f hard work, but it would have been impossible without the support and help I received from many people and friends. I would like to express here my infinite gratitude to all o f them
Several people in Chile encouraged me to undertaking this endeavor and then gave me their support for completing it: Eugenio Lahera, Jorge Chateau, Enrique Correa, Jorge Rosemblut, my friends Roberto Aceituno and Gustavo Poblete, my uncle Jorge Drago, and my parents, Mario and Maria Elena.
I would like also to thank the professors that gave me their advice and support during my studies and research years in Florence and who, when I found myself almost completely ‘lost1 in my thesis work, provided me with confidence and help for finding the way for continuing with my research. In particular, my initial supervisors, Go sta Esping Andersen and Giandomenico Majone, for their patience with my E n glish’ and vague initial ideas; and Prof. Yossi Shavit, whose door was always open for providing me with his comments, advice, support and friendship, and who spent many hours in reading and discussing my work, helping me to focus my research on some key and d e ar questions. Professors Robert Waldmann and Jaime Reis, o f the Economics and History Departments respectively, provided me with helpful comments and suggestions. Finally, an especial recognition is for Prof Colin Crouch, who accepted to become my supervisor in the middle o f my studies and guided me until completing my thesis, providing me with invaluable support, comments and useful criticisms during our long meetings at his office.
My work was greatly benefited by the comments, criticisms and suggestions I received from many visiting professors and researchers I met at the EUI: Thomas Heller, Jeffrey Williamson, Joseph La Palombara, José Maria Maravall, David Collier and Ruth Berins Collier, Xosé-Carlos Arias, Philippe Schmitter, and Luciano Pellicani. In addition, Profs. Marcello Carmagnani (Università di Torino), Carlos ‘Tito’ Winograd (DELTA), Carlo Trigilia (Università di Firenze), and Luciano Pellicani (Università LUISS di Roma), provided me with helpful comments after reading early drafts o f my thesis. Other people also helped me by making their work, data or research available for me: André Hofinan (ECLAC), Peter Evans (University o f California), Rachel Schurman (University o f California), Jorge Marshall (Banco Central de Chile), Barry Weingast (University o f Standford), Juan Eduardo Coeymans (Universidad Católica de Chile), and Fernando Lefort (Banco Central de Chile).
I thank Eugenio Lahera, Rolando Franco and John Durston, for receiving me during three months as visiting researcher at the Econom ic C om m ission fo r L atin A m erica and The
I am eternally thankful to Prof. Douglass C. North for inviting me to spend some weeks working with him and his colleagues at the Economics Department o f the Washington University o f St. Louis (Missouri). The comments, suggestions, and ideas I received from him, as well as from Professors Lee Benham and Jack Knight, were extremely useful and encouraging for my research. I wish also to thank Fanny Bait, Alexandra Benham, Charlie Leven, John & Mary Drobak, and Marco Castaneda, who contributed with their hospitality to make my stay in St. Louis unforgettable. During my stay in the US, I was also benefited by the kind invitation I received from Professors Alan Cafruny, Patrick Peters and Dennis Gilbert, for visiting Hamilton School (Clinton, NY) and giving a lecture about economic policy in Chile.
I thank P ro f Alan Angell (Head o f the Latin American Centre, St. Antony’s College, Oxford University) for all his detailed comments, criticisms and suggestions to my work and the opportunity he gave me for visiting him in Oxford to talk about my thesis. I would like also to thank Prof. Rose Mary Thorp for the comments she gave me during my stay there.
It was very important for me the support, help and friendship I received ju st arriving in Florence from other students I met at Prof. Esping-Andersen’s Sem inar my friends Patrick McCarthy, Eva Anduiza, Monica Mendez, Karin Westerbeek, Harald Wydra, and Patrick Peters. Similarly, I will never forget the friendship and support my wife and I received from many neighbor students and their partners during the four years we lived in the “P ian d i
Mugnone community” . There we found some o f the best people in the world and w ho have
become some o f the best friends we have: Mariano & Yael Aguas and their daughter Malena, Julian Lindley-French, Patrick & Lisa McCarthy, Christian & Claudia Upper, Tessa Storey, Mimmo Monda & Ellen Vos, Carolina Castellano & Duccio Scotto, Axel &. Wenche Pedersen and la loro piccola Emilia, D orte Vem er and her kid Emile ‘il cacciatore’, Rory O’Connell, Marion Kohler, Angelica Popoviciu, our dear ‘Tovarich” Andrej Savkov, Katerina Pekarkova, Hans Jorg & Patrizia Trenz, Ivona Bencikova, Aedin Doris & Aidan Duffy, Vladimir & Irina Gradev, Frank & Isabelle Heinlein, Niraj & Sonal Nathwani, Benoit Guiguet, Jeroen Hinloopen, Anna-Maria Konsta, George & Vassia Kritikos, Cecile Aptel, Nina Spalti, Véronique Pujas, Sylvain Rivet, Fons & Christine Borgjgnon, and Christophe Vigneau. Other people at the EUI who delighted me with their friendship are Ken & Valeria Hulley, Greet Vermeylen, Mireia Creus, Joanne Caddy, Anne Caruette, Dan Oakey, Marcelo Oviedo & Deborah, Ivana Deheza, Sigrid & Lars Rossteutscher, Bob Danziger & Cristine, Aline Coudouel, Jacobien Rutgers, Dimitrios Sideris, Bauke Visser & Leonor Moral, Beata Ziorkiewicz, Joanna Szwajcowska, Susana Garcia, Luis & Marie-José Diez-Picazo, Ide Kearney & Ad Tervoort, Sandrine Labory, M onika Mommertz, M ette Zolner, James Dow, Henry Farrell, and Monique Cavallari. I
I must also recognize the help and support received from several people o f the EUI who made our life and w ork in Florence easier and cosier. Andreas Frijdal, Françoise Thau vin, Helen Lubertacci, Ursula Brose, Sylvie Pascucci, Nicky Owtram, Nicky Hargreaves, Jennifer Greenl eaves, Paola Massini, Gloria Peruzzi, Catherine Deeley, Beatrij De Hartoog,
Martine Peau, Huguette Gonelli, EIspeth Fehilly, Claudio, Darío, Alberto, Lúea, and Gianluca. An especial mention is for the secretaries o f the SPS Department, in particular Marie*Ange Catotti, Nancy Altobelli and Eva Breivik, who did their best for making bureaucratic things easier for me.
Eugenio Lahera, David & Lorena Decker, Patricio Navia, Sandra Reiter, and my brothers and sisters (Sebastián, Felipe, Paola, Claudia, and Giovanna) helped me to get some sources or books that were unavailable in Florence.
Mariano Aguas, Patrick Peters, Julian Lindley-French, Joan Ramón Roses, Yadira De Lara, and Christian Upper are some o f the friends who spent many hours o f their time in reading my drafts and providing me with helpful comments and suggestions. I have an infinite gratitude to my friend Patrick McCarthy who during all these years helped me with 'English* and revised the whole final version o f this thesis trying to correct my writing.
Finally, I have an special gratitude to three persons: Firstly, my friend Christian Upper, who several times read carefully the different versions o f the thesis and suggested many improvements during innumerable meetings and talks. His help with economics, his criticisms, ideas, together with his intellectual support, friendship and sense o f humor during all these years constitute, at least, a half o f all the best that could be found in this work. Secondly, my brother Felipe Drago and his wife Paula, who from the far South o f Latin America were permanently concerned with making all the practical and financial things easier for me, being always in touch ready for providing me with his help. And thirdly and above all, my beloved Cristina, for all your love, patience, tenderness and indefatigable support during all these years, keeping our home warm and cosy. The completion o f this endeavor initiated in 1993 is so much yours as mine.
TABLE OF CONTENTS
Introduction________________________________________________________________ 1
1. Chapter One — TH E IS S U E S __________________________________________ 8
1.1. The Problem: From Stagnationto ’Economic Miracle' ______________ 8 1.2. The Question___________________________________________________ 11 1.3. The Sourcesof Differential Growth Patterns - AN Overview_______ 14 1.3.1. The Theoretical Controversy________________________________ 23 1.3.2. The Research Approach____________________________________ 27 1.4. The Working Hypothesis:
Economic Changeand Institutional Changeinc h il e______________ 30 1.5. The Theoretical Approach______________________________________ 37 l .6. The Research Questions_________________________________________40 1.7. Interest rN the Chilean Ca s e____________________________________42 2
2. Chapter T w o— T H E EXPLANANDUM: EC O N O M IC PERFO RM A N C E
CHANGE IN C H IL E __________________________________ 43
2.1. Introduction _________________________________________________ 43 2.2. Introductorywordson "Economic Growth” _____________________ 43 2.3. A ’Numeric* Descriptionof Chile's Patternsof Economic Growth
overthe Period 1950*1995_______________________________________ 45 2.3.1. Distinguishing 'Sub-periods' and Partial Trends in Chile's Economic
Performance______________________________________________ 46 2.3.2. Chile's Performance Relative to Five Other Latin American Economies 50 2.4. Chile's Economic PerformanceDu r i n gthe "Goldenage" (1950-70)___54 2.5. Chile’s Economic PerformanceAf t e r the "Goldenage" (1970-95)____58
2.6. Conclusions___________________________________________________ 63
S J U L U i
The institutional bases o f Chile ’s economic ‘miracle' — Table o f Contents
3. C hapter Three — LO O K IN G F O R AN EX PLA N A TIO N : T H E O R IE S ON
T H E SOURCES O F D IFFER EN T IA L G R O W T H P A T T E R N S ____ 11
3.1. In t r o d u c t i o n _______ ____________________________________ 77 3.2. 'Economic* Explanationsof Economic Growthand Performance ___ 80
3.2.1. The Solow growth model____________________________________ 81 3.2.2. The'endogenous growth'model_______________________________ 82 3.2.3. Empirical approaches to growth in economics____________________ 83
3 .2.3.1. T h e 'G r o w th -a c c o u n tin g ' T ra d itio n _________________________________ 8 4 3 .2.3.2. T h e C r o s s -C o u n tr y R e g r e s s io n s A p p r o a c h _________________________ 8 6
3.2.4. Investment and growth______________________________________ 88 3.2.5. “Proximate" and "Ultimate" Sources or Causes of Growth__________ 91
3 .2 .5 .1. T h e lim ita tio n s o f th e ‘'p ro xim a te c a u s e s ’ a p p ro a c h to e x p la in in g
e c o n o m ic p e r fo r m a n c e p a t t e r n s ____________________________________ 91 3.2.5.2. T h e 'u ltim a te ' c a u s e s o f g r o w th ____________________________________ 9 4
3.3. *Non-economic* Explanationsof Economic Growthand Performance . 95 3.3.1. Socio-political factors and economic performance________________ 96
3 3 I. J. P o litic a l r e g im e ( d e m o c r a c y /a u to c r a c y )___________________________ 9 6 3 3.1.2. I n e q u a lity _________________________________________________________ 9 9 3 3 1.3. S o c io - P o litic a l in s ta b ility _________________________________________ 102 3.3.1.4. T h e lim ita tio n s o f th e ’s o c io -p o litic a l f a c t o r s ’ a p p ro a c h to e x p la in in g
e c o n o m ic p e r fo r m a n c e ____________________________________________ 103
3.3.2. Institutions and Economic Performance________________________ 108
3.3.2.1. W e b e r a n d th e o r ig in s o f th e in s titu tio n a l a p p ro a c h to e c o n o m ic l i f e . 1 0 9 3.3.2.2. T h e s ta te - c e n tr ic a p p r o a c h to e c o n o m ic p e r fo r m a n c e _______________/ 1 4 3.3 2.3. T h e n e w in s titu tio n a l a p p r o a c h to c o u n tr ie s 'e c o n o m ic p e r fo r m a n c e _ 1 2 4 3 .3.2.4. In stitu tio n s, p r o p e r ty rig h ts, a n d e c o n o m ic p e r f o r m a n c e ___________131
3.4. Concludingremarksandtentativeexploratoryhypotheses______ 137
3.4.1. Hypotheses suggested by the State-centric approach_____________ 137 3.4.2. Hypotheses suggested by the Institutional approach______________ 138
u
The institutional bases o f Chile'5economic *miracle * — Table o f Contents
4. C hapter F o u r— TH E EXPLANATORY A PPRO A CH : G O V ERN M EN T D ISC R E TIO N A R Y A U TH O RITY(D A), PO LICY R E G IM E S,
& E C O N O M IC PERFO RM A N CE ______________________ 139
4.1. INTRODUCTION__________________________________________________13 9
4.2. Institutionsand Economic Performance: GovernmentDiscretionary AU TH O R ITY (DA) A S A F A C T O R U N D E R M IN IN G C O U N T R IE S ' E C O N O M IC
Performance__________________________________________________141 4.2.1. Institutions and the 'Sources' of W ealth_______________________ 141
4 .2 .1.1. T h e 's o u r c e s ' o f w ea lth fr o m th e p o in ts o f v ie w o f th e in d iv id u a l
a n d o f s o c i e t y ___________________________________________________ ¡41 4.2. J. 2 . The c o n flic tin g n a tu re o f th e s t a t e ______________________________145 4 .2 .1 .3 . In s titu tio n s a n d th e r is e o f th e m o d e m ca p ita listic
e c o n o m ic s y s t e m _______________________________________________ 149 4.2.1.4. 'P o litic a l' a n d 'e c o n o m ic ' e x c h a n g e a s a so u r c e o f e c o n o m ic g a in s _ 155 4.2.1.5. In stitu tio n s, In cen tives a n d O p p o r tu n itie s _________________________ 16 0
4.2.2. 'Political Exchange' and Discretionary Authority (DA) __________ 162
4 .2.2.1. The c o n c e p t o f'D is c r e tio n a r y A u th o r ity ’ ( D A ) ______________________ 164 4 .2.2.2. The p r o b le m s a risin g fr o m d is c r e tio n a r y a u t h o r i t y ________________ 166
42 2 2.1. Policy discretion versus p o lic y rules the 'time-consistency*problem. 166 42 2.2.2. Discretionary authority, credibility, and institutions _ _ _ _ _ _ _ ¡71 4 2 2 2 5. Discretionary authority, influence costs, and
redistributive pressures 175
4.2.2.3. D is c r e tio n a r y a u thority, c a p ita l a c c u m u la tio n , a n d e c o n o m ic g r o w th 178 4 .2.2.3. The le g a l o rd er, th e re stra in t o f d isc re tio n , a n d e c o n o m ic
p e r fo r m a n c e _____________________________________________________ 181 4 .2 2.5. D is c r e tio n a r y a u th o rity a n d 'a r b itr a r in e s s '_____________________ ¡8 5
4.2.3. Operationalizing Discretionary Authority (D A )_________________ _ 188
4.2.3.1. 'V e rtic a l' a n d 'H o r iz o n ta l' D A ____________________________________ 188 4.2.3.2. M e a s u r in g d is c r e t i o n _____________________________________________193
4.3. POLICY REGIMES ______________________________________________ 196
4.3.1. The Issue of Continuity and Change in Economic Policy and
Institutions_________________________________________ _____ 196 4.3.2. The Concepts of 'Policy Regime* and 'Policy Regime Shift ’________ 199 4.4. Policy Regimesand Economic Performance ______________________202 4.5. The Hypothesis________________________________________________203
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The institutional bases o f Chile’s economic *miracle' — Table o f Contents
5. C hapter F ive— EC O N O M IC PO L IC Y & IN STITU TIO N S IN C H IL E
(1950-70)____________________________________________ 205
5.1. In t r o d u c t io n 205
5.2. The" Es t a d o De s a r r o l u s t a y Em p r e s a r i o" andthe ISI Strategy 208 5.2.1. Historical Background: The Origins of the ISI Strategy and the Adoption
of the 'E s ta d o D e s a r r o l l i s t a v E m p r e s a r i o ' Model 210 1 5.2.2. The Rise of the "Developmentalist and Entrepreneurial State" 219 ¡
5.2.3. Macroeconomic Performance 1950-1970 225
5.2.3.1. In v e s tm e n t a n d p r o d u c tiv ity 2 2 6
5.2.3.2. In fla tio n 2 3 0
5.2.4. Concluding Remarks 232
5.3. Th e In s t it u t io n a l a n d Po l i t i c a l Se t t in g 234
5.3.1. The Political Setting 235
5.3.2. Political Competition and Clientelism 244
5.3.3. The "Developmentalist and Entrepreneurial State" and the
Representation o f Private Interests 250
5.4. Th e Ec o n o m ic Po l i c i e s o f t h e " De v e l o p m e x t a u s t a n d En t r e p r e n e u r i a l
St a t e" 261
5.4.1. Foreign Trade Policy 263
5.4.2. Fiscal and Monetary Policy 272
5 .4 .2 .1. P u b lic E x p e n d itu r e 27 3 5.4.2.2. P u b lic R e v e n u e a n d T a xa tio n 2 7 7 S.4.2.3. M o n e ta r y a n d C re d it P o lic y 2 8 4 5.4.2.4. ‘A n n -In fla tio n a r y * P o lic y 286 5 4.2 4 t The stagnation o f agriculture a n d inflation 289 5 4.2 4 2. The "entrepreneurial a n d developm ental state0 a n d inflation ____ 293
5.4.3. Prices, Wages, and Social Security Policy 299
5 .4 .3 .1. P ric e s a n d I n te r e s t R a te P o lic y 3 0 0 5.4.2.2. W a g es a n d S o c ia l S e c u r ity P o lic y 301
5.4 3 2.1. Wages a n d Salaries 301
5.4.3 2 2. S o cia l Security Policy 305
5.5. Co n c l u s io n s 313
The institutional bases o f C hile’s economic 4miracle ’ — Table o f Contents
6. C hapter S ix — E C O N O M IC PO LIC Y & IN STITU TIO N S IN C H IL E
(
1975-
95) _______________________________________
_3186.1. INTRODUCTION_________________________________________________ 318
6.2. The Economyin 1973 ___________________________________________321 6.3. The Early Economic Policyand Policy Measuresofthe Military
Government 1973- 1975________________________________________ 326 6.3.1. The Brick*______________________________________________ 329 6.3.2. The First Policy Measures: Price Liberalization, Currency Devaluation,
Exchange-rate unification, and the restoration of Property Rights___ 332
6 .3 .2 .1 . P r ic e L ib e r a liz a tio n _____________________________________________ 3 3 3 6 .3 .2 .2 . E x c h a n g e -R a te P o l i c y ___________________________________________ 3 3 5 6 .3 .2 .3 . R e s to r in g P ro p e rty R i g h t s ________________________________________3 3 6 6 .3 .2 .4 . E a r ly e c o n o m ic -p o lic y d e b a te w ith in th e m ilita r y g o v e r n m e n t ______ 3 3 7 6 .3 .2 .5 . O th e r e c o n o m ic p o lic y m e a su re s d u r in g th e ¡ 9 7 3 -1 9 7 5 p e r i o d ____ 341 6 .3 .2 .6 . E c o n o m ic p e rfo r m a n c e d u r in g ¡ 9 7 3 -1 9 7 5 a n d
th e " r a d ic a l p o l i c y - s h i f t __________________________________________ 3 4 4
6.4. The Shifttowardsa New Policy Regime*. 1975 andafterwards______ 348 6.4.1. The ’Shock Therapy* Program and the Policy (and Institutional) Shift _ 348 6.4.2. Foreign Trade Policy______________________________________359
6.4.2. /. T rade L ib e r a liz a tio n _____________________________________________ 3 5 9 6 .4.2.2. E x p o r t P r o m o tio n ________________________________________________ 368 6 4.2.3. E x c h a n g e -R a te P o l i c y ___________________________________________ 3 7 9
6.4.3. Fiscal and Monetary Policy_________________________________ 382
6 .4.3.1. P u b lic E x p e n d itu r e s ______________________________________________383 6.4.3.2. T he c h a n g e s in th e stru c tu re o f p u b lic e x p e n d itu r e ________________ 388 6 .4 .3 .3 . Tax R e fo r m a n d R e v e n u e _________________________________________ 395 6 .4.3.4. M o n e ta r y P o lic y _________________________________________________ 405 6 .4 .3 .5 . The P r iv a tiza tio n P r o c e s s ________________________________________4 0 7 6 4 3 5 1. Privatization o f public enterprises and a s s e t s _______________ _ 407 6 4.3.5.2. Privatization in the Social Welfare sector (Education, Housing,
and Health) 411
6.4.35.3. The Privatization o f Social Security. The Pension System Reform _ 413
6.4.4. Prices, Wages, and Interest Rates P o licy _______________________420
6 .4.4.1. P r ic e P o l i c y __________ 4 2 0 6.4.4.2. W age P o l i c y _____________________________________________________42 0 6.4.4.3. In te r e s t r a te s a n d b a n k in g p o l i c y __________________________________ 4 2 i
6.5. Constitutional Changes: A New Institutionaland Political Setting 424 6.6. The Military Governmentand Pinochet’s Rule___________________ 434
6.7. Economic Performance 1975-95_________________________________ 440 6.7.1. Production ______________________________________________ 440 6.7.2. Inflation________________________________________________ 447 6.7.3. Investment_______________________________________________449 6.7.4. Productivity Growth or Total Factor Productivity (TFP)___________ 451 6.7.5. Savings_________________________________________________ 454
The institutional bases o f C hile’s economic ’miracle ’ — Table o f Contents
7. C hapter Seven — SU M M A RY & C O N C L U S IO N S_____________________ 458
7.1. Summary_____________________________ ;_______________________ 458
7.2. Th e In s t it u t io n a l Ba s e s o f Ch il e's Ec o n o m ic Tv iir a c l e':
a Comparisonoftwopolicyre g im e s____________________________ 464 7.2.1. State’s Economic Policy and Policy Regimes: ISI & FMOE________ 464 7.2.2. Policy Regimes and Government Discretionary Authority_________ 466
7.3. Conclusions _________________________________________________ 469
8. B IB LIO G R A PH Y & R E F E R E N C E S _________________________________ 476
S ta tistical A p p en d ixes_______________________________________________________ 501
Introduction
In 1992, on the basis o f a sophisticated econometric analysis o f the long-term patterns o f economic growth o f the seven largest Latin American economies during the period 1940-1985 (Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela), a detailed and careful study predicted that Chile would be the country to experience the
slowest economic growth during the 1990s (between 2.5% and 2.8% per year).* 1 This prediction took into account capital and labor endowments and their growth patterns as well as other economic factors traditionally supposed to determine a country’s pattern o f GDP growth. However, up to today—September o f 1997— Chile appears as the fastest growing Latin American economy o f the 1990-1996 period, with an average GDP growth rate o f 7.2% per year (5.5% in per capita terms).1 Moreover, in 1996 Chile completed 13 years o f sustained, uninterrupted economic growth.
Actual and Predicted Annual GDP Growth Rates for 7 Latin American Countries during the 1990s. 80
---Argentina Bradi C h it oalpmbta Mexico Peru Venezuela
Sources: Predicted annual average growth rates of G DP for the 1990s by Victor J. Elias (l 992) Sources o f Growth - A Study o f Seven Latin American Economies,, San Francisco, California: International Center for Economic Growth p. 168. Actual annual average growth rates o f total G D P from E C L A C (1997) Economic Survey o f Latin America a n d the Caribbean 1996-1997 (Summary)f U N ’s Econom ic Commission for Latin America and The Caribbean (EC LA C /C EPA L), September 1997, p. 24.
1 Victor J. Elias (1992) Sources o f Growth - A Study o f Seven Latin Am erican Economies, San Francisco, California: International Center for Economic Growth, 1CEG, p. 168.
1 See E C L A C (1997) Economic Survey o f Latin America and The Caribbean ¡996-1991 (Summary), U N ’s Economic Commission for Latin Am erica and the Caribbean (EC LA C /C EPA L), September 1997, pp. 24-25.
The institutional bases o f C hile’s economic 'miracle * — Introduction
What determines the pace o f growth o f the wealth o f a country? W hy do som e countries grow faster than others? Which factors affect the long term pattern o f econom ic growth o f a country? These questions— as old as Adam Smith—have attracted increased attention from economists and social scientists during the last two decades. One remarkable characteristic o f this endeavor has been the sustained effort to incorporate non-econom ic factors into the analysis o f growth in order to improve understanding o f the sources o f divergent patterns in countries* economic performance.3
Although the theoretical and empirical literature on the determinants o f economic growth is huge, a large controversy accompanies contrasting approaches to accounting for concrete cases. The polemics surrounding the so-called ‘East Asian Miracle’, ongoing for at least ten years, although showing some signs o f exhaustion, has not resulted in a consensus or, at least, in a reduction o f the differences arising from alternative political-economy paradigms.4 A key issue which has divided scholars is whether government intervention and the nature o f state involvement in the economy was a favorable, unfavorable, or unimportant factor for the achievement o f high and sustained economic growth. According to some scholars, active state involvement and government industrial policies that m odify and override market forces were the key to success; for others, instead, the key issue had to do with export orientation and the working o f competition and market mechanisms. The first view claims that accelerated and sustained growth was a result o f the presence o f a “strong developmentalist state,**5 that is, a state that becomes actively involved in the process o f economic accumulation, acting as a surrogate entrepreneur.6 According to the other view, to
Elias* prediction regarding G D P growth rates was based on “predictions o f the rates o f growth o f the inputs— labor and capital— along with some assumptions about the growth o f technology** after a careful analysis o f the patterns observed by these variables during the whole period 1940-1985 [Elias (1992) Sources o f Growth, p. 164). The disappointing result o f such an econometrics-based prediction, if not a proof, is at least an indication o f the limitations faced by a pure 'economic-factors* approach to economic growth.
4 See for example M ichael Sarel (1995) "Growth in East Asia: W hat We Can and What We Cannot Infer From It," IM F W orking Paper No. 98, September 1995, International Monetary Fund, W ashington DC. See also W illiam Easterly (1995) "Explaining Miracles: Growth Regressions Meet the Gang of Four," in Takatoshi Ito and Anne O. Krueger (eds.) Growth Theories in L ig h t o f the East Asian Experience, Chicago: The Chicago U niversity Press.
5 Frederic C D eyo (cd.) (1987) The Political Econom y o f the N ew Asian Industrialism , Ithaca: Cornell University Press, pp. 15,227 and 230; and Peter Evans (1992) “The State as Problem and Solution: Predation, Embedded Autonom y and Structural Change,** en Stephan Haggard and Robert R. Kaufman (eds.) The Politics o f Econom ic A djustm ent - International Constraints, Distributive Conflicts a n d the State (Princeton, NJ: Princeton University Press), pp. 147-148.
* See D eyo (1987), p. 18; Alice Amsden (1989) A sia 's Next Giant: South K orea a n d Late Industrialization, Oxford University Press, New York; Evans (1992); Ajit Singh (1994) “Asian Economic Success and Latin American Failure in the 1980s: New Analyses and Future Policy Implications," Kellogg Institute W orking Paper #204, M arch 1994, University
The institutional bases o f C hile’s economic ‘m iracle' — Introduction
call these states ‘developmentalists’ is an tx-post~factum labeling. What should be compared is rather whether there is a causal relationship between active state intervention and rapid growth. Moreover, successful East Asian countries should be compared either with their past policies or with other states which also intervened actively.
Due to methodological problems, the studies that have attempted to identify the factors that account for the notable performance achieved by East Asian countries have reinforced rather than solved the disputes on the role o f state intervention in economic performance. Indeed, notwithstanding the vast number o f books, articles and working papers about the notable performance shown by the East Asian economies, still today “there is little agreement on the main determinant o f their success.”7 * Due to the wide range o f strategies followed by these countries,* their successes have “been used to support each development school’s favorite prescriptions ranging from free market outward orientation to aggressive trade intervention.”9 As the World B ank’s report on the “East Asian Miracle” acknowledges, there is a selection bias problem involved in the explanatory approach o f the effect that state intervention played in the attainment o f sustained economic growth in East Asian economies:
“Were some selective interventions, in fact, good for growth? In addressing this question we face a central methodological problem. Since we chose the high-performing Asian economies for their unusual rapid growth, we know before we begin analysis that their interventions did not inhibit growth.” 10
In the same way, William Easterly has pointed out that
“Economists find it much more appealing to study what the successes did right than what failures did wrong: from 1969 to the present there have been 717 articles on Singapore in economic journals. On the Central African Republic, a country o f similar population size but opposite performance, the number o f
of Notre Dame; Peter Evans (1995) Embedded Autonomy: States a n d Industrial Transformation, Princeton, NJ: Princeton University Press , p. 6.
7 Sard (1995).
* See Dani Rodrik (1994) “King Kong Meets Godzilla: The World Bank and The East Asian Miracle,*’ C EP R Discussion Paper No. 944, April 1994, Centre for Economic Policy Research, p. 37.
9 Easterly (1995). Quoted by Sarel (1995), p. 13.
10 World Bank (1993) The East Asian Miracle: Economic Growth and P ublic Policy (Summary), Oxford University Press-The W orld Bank, New York, pp. 6*7.
4
77te institutional bases o f C hile’s economic ‘miracle * — In tro d u ctio n
articles over this period was: 1. It is not really clear why large positive outliers should contain more information than large negative outliers.” 11
M ichael Sarel (1995) has stressed this selection bias problem in the use o f the E a s t Asian economic success to support the causal relationship between state interventionism a n d high growth. He has pointed out that “in analyzing specific policy actions and selectiv e interventions, we cannot address the most (and perhaps the only) relevant question: ‘W h a t growth rate would have been observed i f these policies had not been in place?*” 12 In a re c e n t paper on the impact o f government industrial policy and trade protection on th e manufacturing sector in Korea, Jong-W ha Lee (1996) found that “The empirical findings show no evidence to support any positive contribution made by government interventions to productivity growth. The Korean success could have been done stronger w ithout government intervention. ... the Korean success occurred ‘in spite o f rather than ‘because o f interventions.**13 Therefore, the issue o f the role o f state involvement in countries’ economic performance is far from being settled.
Rather than ‘whether state or market*, the present piece o f research attempts to contribute to the efforts towards achieving a better understanding o f the role o f n o n econom ic factors in shaping countries’ patterns o f economic growth by looking at a single case: Chile, a country which has experienced a striking sh ift in its pattern o f economic performance during the last decades. In fact, Chile offers an interesting case for analysis since for m ost o f this century it was characterized by a slow pace o f economic growth, both in absolute terms and relative to the performance o f most other Latin American economies (see C h a p te r Two). However, at least since 1984, it has shown a remarkable performance which does contrast with both its former record and that o f most other Latin American economies during the same period. Since 1984 Chile’s p e r capita GDP has grown by around 4.6% per year on average, the fastest in Latin America since the onset o f the so-called
*debt-11 Easterly (1995). Quoted by Sarel (1995), p. 13. 12 Sarel (1995), p. 13.
13 Jong-W ha Lee (1996) “Government Interventions and Productivity Growth,” Journal o f Econom ic G row th, Vol. 1, No. 3, September 1996, p. 403.
crisis.” 4 Moreover, this growth was uninterrupted, something never seen before in Chile’s economic record, at least not during this century.
The attainment by Chile o f high and sustained growth rates for more than a decade has promoted the use o f the journalistic term “economic miracle.” However, rather than to ask why Chile has grown faster than most other countries during the last decade or so, this research examines the factors which may explain the shift from a pattern o f slow and unstable growth which characterized the Chilean economy during the 1950s and 1960s, to a pattern o f fast and sustained economic expansion that seems to have taken place there since the mid-1970s. Although there is a large literature on the Chilean economy and the policy changes carried out, this notable shift in Chile’s long-term pattern o f economic growth is a phenomenon that has not yet been analyzed and explained enough. This dissertation aims to contribute to filling this vacuum.
In order to carry out the analysis, the thesis adopts an institutional approach; that is, it starts from the premise that a country’s long-term pattern o f economic performance is related to the kind o f institutional arrangements in which economic action takes place: institutional differences can account for divergent economic performance patterns. My working hypothesis is that the change observed in Chile’s pattern o f economic growth was a result o f a policy and institutional change. This ‘policy regime’ shift modified the set o f opportunities and incentives for the behavior o f economic agents, shaping aggregate outcomes in terms o f overall economic performance.
I hypothesize that the shift resulted in a reduction in the degree o f administrative
discretionary authority (DA) enjoyed by the government and the polity to intervene in the
economy, through the creation o f a more impersonal order consisting o f general and non-
discriminatory rules, leaving more room for the operation o f market forces and (internal and
external) competition. This reduction in the degree o f discretionary authority enjoyed by the state and the polity in the economy reduced the room for “political exchange” (e.g., clientelism, rent-seeking, influence, graft) vis-à-vis the importance of “ economic exchange” as ways for acquiring and/or preserve wealth, profits or rents. Such a hypothesis arises from
The institutional bases o f Chile'5 economic *miracle ' — Introduction
See Andrés Solimano (1996) "Econom ic Growth under Alternative Development Strategies: Latin America from the 1940s to the 1990s," in Andrés Solimano (ed.) Road Maps to Prosperity - Essays on Growth and Development, ?: University o f M ichigan Press (forthcoming).
a theoretical framework based on Max Weber’s theory o f capitalism and on the p e cu liar institutional and political conditions that accompanied its development and made p o ssib le the rapid economic expansion experienced by the West, as emphasized by Douglass N o rth , combined w ith theoretical contributions drawn out from public choice approaches to h u m a n behavior and social action (see C h a p te r Four).
Firstly, the thesis describes and analyzes the trends o f growth o f the C hilean economy during the period 1950-1995 (C h ap ter Two). The aim o f this Chapter is to set o u t the facts to be explained and to verify the existence o f a shift in the growth pattern during the period and to characterize it.
Secondly, the thesis revises the theoretical literature on economic growth and th e determinants o f divergent performance patterns in order to build a framework in which to conduct the inquiry (C h ap ter T h ree). In particular, the chapter revises and discusses the main political-economy theories which relate non-economic factors to economic performance: political regimes (democracy/dictatorship), inequality, socio-political instability, state involvement and government intervention in the economy, and institutional factors such as the property rights regime, the room for economic exchange, transaction costs, and limitations to the operation and expansion o f market exchanges. It concludes with a set o f hypotheses drawn out from the main theoretical approaches revised in order to provide guidelines for the collection and analysis o f the evidence aimed to account for and understand C hile’s “economic miracle.”
Thirdly, I develop my own theoretical framework which relates economic performance to the economic policies and institutions underlying economic action during a given historical period, what I call a ‘policy regime*. My working hypothesis is that the contrasting patterns o f economic growth observed in Chile are related to two contrasting
policy regimes. One key feature that characterizes a policy regime is the nature o f the
incentives and opportunities it creates for individuals and organizations to pursue economic gains. According to my theoretical framework, this opportunity and incentive set is related to the kind o f authority enjoyed by the government and the polity over the economy, which . results from the constitutional, institutional and political setting (C h ap ter Four). ’
Then, the thesis describes and compares the economic policies, institutions, and the constitutional, political and policy-making setting under the two periods in which the
The institutional bases o f Chile's economic 'miracle ’ — Introduction
Chilean economy appears to have been characterized by a contrasting pattern o f growth and overall performance (C hapters Five and Six).
Finally, the thesis presents the main results, revises the alternative hypotheses and theoretical explanations in light o f the historical and analytical evidence, discusses their explanatory power in accounting for the performance change experienced by Chile, and presents the conclusions (C h ap ter Seven).
Admittedly, this thesis does not aim to explain why certain specific set o f policies were adopted, nor their effects on income distribution and social welfare. There is a vast bibliography that deals with these issues. By the same token, this thesis is interested in the characteristics o f the political and electoral system only in the measure that, by the kind o f incentives and opportunities they create for economic action and policy-making, they may contribute to explain economic performance.
I am not concerned in this research with the issues o f democracy, political development, human rights, and social justice. These issues are very important by itself in social and political life, and the Chilean experience during the period under analysis contains dramatic episodes that most Chileans deplore, particular during the years o f the military dictatorship. No economic achievement can justify the violation o f human rights and the state o f fear that prevailed in Chile during the 1970s and 1980s. However, in this thesis-work, I only seek to explain w hy the Chilean economy experienced a change in its pattern o f growth.
I do not provide any prediction regarding the prospects for the Chilean economy in the future. I think this is a job for diviners. I rather prefer to concentrate myself on trying to understand and explain what has happened. I hope to contribute to such a challenge.
1
C hapter One — TH E ISSUES
“an institutional perspective on the econom y sh o u ld address questions o f efficiency a n d perform ance, even if so cia l scientists no rm ally tiy either to avo id those subjects o r t o leave them to econom ists."
--- J. R o ge rs H o llin gsw o rth , P h ilip p e C. Schm itter, and W o lfg a n g Stiee ck ( e d s . ) (1994) G o v e rn in g C a p ita lis t E c o n o m ie s - P e r fo r m a n c e a n d C o n tr o l o f E c o n o m ic S e c to rs, N ew Y o rk : O xfo rd U n iv e rsity Press, p. 10.
1.1. Th e Problem: From Stagna tionto ‘Ec o n o m ic Mir a c le*
During the last years the Chilean economy has shown a remarkable performance th a t has promoted the use o f the journalistic term “economic miracle” to refer to the sustained pattern o f continued output growth, which has taken place there for more than a decade.1 This performance is especially striking since, traditionally, Chile was a country characterized by a rather poor economic record.2
During the 1950s and 1960s, the so called “Golden Age” o f economic growth worldwide,3 the Chilean economy experienced a very slow rate of economic expansion relative to both international standards and those o f other Latin American economies during
1 See, for example, Rachel À. Schurman (1 9 W *) “C h ile '* New Entrepreneurs and the ‘Economic M iracle': Product o f Culture, Ideology, or P o lic y V University o f California, Berkeley, (mimeo); Osvaldo Sunkel (1995) "Is the Chilean 'M ira c le ' Sustainable?," Journal o f Interam encan Studies and W orld A ffairs, Vol. 37, No. 3, Fall 1995: 1-7; Joseph Collins and John Lear (1995) Chile's F ret-M arket M iracle■ A Second L ook, Oakland: The Institute for Food and Development Policy.
2 See M ilton D. Lower (1968) “Institutional Bases o f Economic Stagnation in Chile," Journal o f E conom ic Issues, Vol. II, No. 3, September 1968 283-297, Hugo & Pablo Tnvelli O. (1978) "E l Crecimiento Económico Chileno," in Roberto Zahler, Ernesto Tiront, et al. (1978) C hile 1940/1975 - Treinta y C inco Años de D iscontinuidad Económica, Santiago de Chile: Instituto Chileno de Estudios Humanísticos (IC H E H ); Arturo Valenzuela (1978) The Breakdown o f D em ocratic R egim es - Chile, Baltimore: The John Hopkins University Press, p. 18; Jorge Marshall Rivera (1984) "Econom ics o f Stagnation • Analysis o f the Chilean Experience 1914-1970," unpublished Ph D. Thesis, Harvard University, M a y 1984; Ricardo Ffrench-D ivis & Oscar M uñoz G. (1990) "Desarrollo Económico, Inestabilidad y Desequilibrios Políticos en Chile: 1950-89," Colección Estudios CIEPLAN, No. 28, Junio 1990: 121-156; Sebastián Edwards and Alejandra Cox Edwards (1991) M onetarism and Liberalization - The Chilean Experiment (2nd edition with a new Afterward; first edition in 1987), Chicago The University o f Chicago Press, pp. 3-6; André A. Hoftnan (1993?) "C hile's Econom ic Performance in the 20th Century, a Comparative Perspective," Estudios d e Econom ía, Depto. Economía, Universidad de Chile, Vol. 20, Special issue, pp. 113,115.
3 O n the “Golden Age", see Angus M addison (1982) Phases o f C apitalist D evelopm ent, New York: Oxford University Press; Stephen M arglin and Juliet Schor (eds.) (1990) The Golden A g e o f C apitalism , Oxford: Clarendon Press. See also Angus M addison (1995) Monitoring the World E conom y ¡820-1992, Paris: O E C D , pp. 73; and Ha-Joon Chang and Robert Row thom (eds.) (1995) The Role o f the Sta te in Econom ic Change (Oxford, U K : Clarendon Press), pp. 3-11.
The institutional bases o f Chile's economic 'miracle ’ — Chapter I
the same period.4 Indeed, there has been wide agreement among scholars in considering the
slow pace o f economic growth as the main ‘stylized fact’ characterizing the Chilean
economy during most o f this century, at least until the 1970s.5 * This phenomenon has puzzled many economists and social scientists, both inside and outside the country, who have attempted to understand and explain the causes o f such a poor performance or relative economic stagnation?
Today Chile is the strongest and most dynamic economy in Latin America,7 being the country that has experienced the fastest economic growth in the region since the so- called “debt crisis” o f the early 1980s. Moreover, according to the World Bank, during the period 1985-1993 Chile ranks fourth in the world in terms o f the pace o f expansion o f real GNP per capita, and first if Asia is excluded.1
4 cf. Trivelli & Trivelli (1978); Valenzuela (1978) (“Chile experienced a generally slow economic growth rate, with the per capita growth o f the national product amounting to an estimated 1.6 percent from 191S to 1964...”(p. 18)]. See also Marshall R. (t984), pp. 4,12-13; Ffrench-Davis &. MuAoz G. (1990); Edwards and Edwards (1991); and Hofman (1993?).
5 See, for example, Marshall R. (1984). pp. 4, 12-13, and J. Gabriel Palma & M ario Marcel (1990) "Kaldor y el 'Discreto Encanto' de la Burguesía Chilena,' Colección Estudios CIEPLAN, No. 28, Junio 1990, p. 85 (there is an English version: "Kaldor on the 'discreet charm* of the Chilean bourgeoisie," in Tony Lawson, J. Gabriel Palma and John Sender (eds.) (1989) Kaldor's Political Economy (London: Academic Press Limited)]. Jorge Marshall R. (1984) has asserted: “Perhaps the most interesting feature o f the Chilean economy in the twenty century, until 1970, is the combination o f a development process with a slow pace of economic growth " (p. 12). See also Jorge Ahumada C. (1958) En Vez de ¡a Miseria, Santiago de Chile: Editorial del Pacifico (9th edition, 1973).
4 See Nicholas Kaldor (1956) “Economic Problems o f Chile," study prepared for the Economic Com m ission for Latin America (C E P A L or E C L A ), Santiago de Chile (mimeo), and reprinted in Nicholas Kaldor (1980) Essays on Economic Policy II, London: Duckworth; Ahumada (1958); Aníbal Pinto Santa Cruz (1958) Chile. Un Caso d e Desarrollo Frustrado, Santiago: Editorial Universitaria, (2nd. edinon m 1962); Albert O. Hirschman (1963) “Inflation in Chile," in Journeys Toward Progress - Studies o f Economic Policy-Making in Latin America, New York: The Twentieth Century Fund (reprinted in 1993 by Westview Press, Boulder), pp. 159*223; Aníbal Pinto (1964) Chile: Una Econom ía Difícil, Mexico: Fondo de Cultura Económica; Osvaldo Sunkel (1965) “Change and Frustration in Chile," in Claudio Veliz (ed.) Obstacles to Change in Latin America, London Oxford University Press; Lower (1968); M arkos J. Mam alakis (1976) The Growth and Structure o f the Chilean Economy From Independence to Allende, New Haven and London: Yale University Press; Zahler, Tiróni, e t a l (1978); Marshall R. (1984); and Edwards and Edwards (1991), pp. 5-6.
cf. Edwards and Edwards (1991). p xv,; Ricardo Ffrench-Davis & Raúl Labán (1995) "Desempeño y Logros Macroeconómicos en Chile," m C. Pizarro, D. Raczynski, &. J. Vial (eds.) Políticas Económicas y Sociales en el Chite Democrático, Santiago de Chile: C IE P LA N .U N IC E F , p. 49; Javier Martínez and Alvaro Díaz (1996) Chile. The Great Transformation, Washington, DC: Brookings Institution/UNRISD, p. 1; and E C L A C (1997) Economic Survey o f Latin America and The Caribbean 1996-1997 (Summary), U N ’s Economic Comm ission for Latin America and the Caribbean (EC LA C /C EPA L), September 1997.
* World Bank (1995) The World Bank Atlas 1995, Washington D C , pp. 18-19. The ranking o f the ten fastest growing economies in terms o f the average annual rate o f growth of real per capita G N P for the period 1985-1993 is the following: Thailand (8.4%), Rep. o f Korea (8.1%). China (6.5%), Chile (6.1%), Singapore (6.1%), Mauritius (5.8%), Malaysia (5.7%), Belize (5.7%), Botswana (5.7%), Hong Kong (5.3%).
The institutional bases o f Chile’s economic ‘miracle ’ — C h a p te r
I
C h a r t 1:1— Chile’s p e r capita G D P, 1950-1995.
G ro w th o f C h lte ’s r i a l p o r ca pita G O P , 1950*1995. (In c o n s t a n t In te rn a tio n a l d o lla r s o f 1980)
O N « V O N
Y « a r
S o u rc e : 1950*92 from Andre A . Hofman (1996) forthcoming;, 1993-95 from E C L A C (1996) P anoram a Preltm inar d e la Economia d e Am erica L atina y e l Caribe - ¡996, U N Economic Com m ission for Latin Am erican and the Caribbean, December 1996.
This apparent contrast between Chile’s performance record until the 1970s and th a t o f the last twelve years (see C h a rts 1.1 & 1.2) constitutes a phenomenon which does n o t seem to have been sufficiently stressed and analyzed from a political-economy perspective, despite the existence o f a large literature on the Chilean economy. This may have to do w ith the relative novelty o f this new growth pattern; the pressing political and human rights problems involved in the transition between periods, marked by two economic slumps; th e polemics around both the policy mistakes and the social cost o f the process o f structural adjustment and policy reform carried out during the 1970s and 1980s; and the emphasis o n distributive issues that has historically characterized the economic debate in Chile.* 9 Nevertheless, as this research will attempt to grasp and disentangle, the change in the
pattern o f grow th experienced by the Chilean economy seems to be an undeniable stylized
fact (see C h a p te r Two). The importance o f such a change is revealed by the fact that according to the average compound rate o f growth o f the period 1950-1970 (1.6% per year), Chile would have needed more than fo rty-fo u r years to double Gross Domestic Product p er
Both H irschm an and Marshall have noted the fact that economic debate in Chile has traditionally focused on inflation and distributive issues. See Hirschman (1963); and Marshall R. (1984), p. 8. T his thesis shares M a rsh a ll's view that “real variables such as growth are the key to appraise overall social and economic performance."
The institutional bases o f C hile’s economic 'm iracle' — Chapter I
inhabitant.10 11 By contrast, according to the average growth rate attained during the period 1983-1995 (4.6% per year), Chile would have been able to double its per capita GDP in
sixteen years only.
1.2. Th e Q u e s t i o n
How can we explain this remarkable change in Chile’s pattern o f economic performance? Which factor or set o f factors made such performance change possible? This thesis aims to find some answers to these questions.
There is a yet no articulated analysis and explanation for the change in the long-term pattern o f economic growth which has taken place in Chile during the last decades. More than one decade ago, Jorge Marshall R. (1984) called attention to the fact that most political- economy analyses o f the Chilean economy have focused on inflation as the basic variable which would better reflect how the economic system works." The same could be said regarding income distribution or the concentration o f ownership o f land, assets and wealth. That is, distributive issues rather than growth have been the main focus o f m ost o f Chile’s political-economy analysts. The number o f studies which have explicitly taken growth
performance as the main variable to be explained is surprisingly small.12 13 Furthermore, most o f these few studies have tended to describe and compare the growth record o f different incumbent g o v e r n m e n t s and/or to use total—rather than per capita—GDP growth figures.14
’°cf. Trivelli & Trivelli (1978), pp. 243 and 277; and Marshall R. (1984), p. 4. 11 Marshall R. (1984), p.8.
12 Am ong the few exceptions to this general trend are the works by Ahum ada (1958); Lower (1968); Trivelli & Trivelli (1978); Marshall R. (1984); Ffrench-Davis & M uñoz G. (1990); and Andrés Solimano (1996) "Econom ic Growth under Alternative Economic Strategies: Latin Am erica from the 1940s to the 1990s," in A. Sotimano (ed.) R oad Maps to Prosperity - Essays on Growth and Development, The University o f M ichigan Press (forthcoming).
13 See, for example, Ffrench-Davis & M uñoz G. (1990); Patricio Metier (comp.) (1990) "Resultados Económ icos de Cuatro Gobiernos Chilenos: 1958-1989," Apuntes C IE P L A N No. 89, Santiago, September 1990; Patricio Meller, Sergio Lehmann & Rodngo Cifuentes (comps.) ( i 993) "L o s Gobiernos de Aylw in y Pinochet: Comparación de Indicadores Económicos y Sociales," Apuntes C IE P L A N No. 118, Santiago, September 1993; and Ffrench-Davis & Labán (1995). m 49-76.
14 Ibid. In a recent book on the Chilean economy, Patricio Meller provides total G D P figures only, and expressed as annual average rates o f variation for periods of fiv e years. Also, he presents the record of average annual total G DP
The institutional bases o f C hile’s economic 'm iracle' — C h a p te r I
This thesis focuses instead on per capita GDP growth, considered as the k e y variable in assessing Chile’s long-term economic performance, and looks beyond the r e c o r d o f single governments. This last point is motivated by the observation that the c o u n try ’ s historical trend o f per capita GDP growth between successive governments does not s e e m to be substantially changed by the mere replacement o f the incumbent politicians.15 In fa c t, a mere comparison between the annual average growth rates o f per capita GDP attained b y the Chilean economy during each o f the last seven governments shows us the following:
Table 1.1— A nnual average grow th ra te s of Chile’s
per capita GDP» by presidential term s (1952-95).
..y
P r rei ^ frittai Term s
Ibáñez (1952-58) 0.9 A lessan dri (1 9 58-64) 1,6 Fret M on talva (1 9 64-70) 1.9 Allende (1 9 70-73) -1.0 Pinochet (1973-89) 1.8 A y lw in (1 9 89-93) 4.6 Frei R u íz-T a gle (1 9 93-95) 4.5 A v e r a g e 1 9 5 2 -9 5 1.8 Source: Elaborated from Hoftnan (1996) and E C LA C (1 9 9 6 ).
Instead, a long-tenn view which takes into account the variability experienced by th e trend o f growth o f Chile’s per capita GDP over the whole period 1950-95, shows us th e following:
growth rates obtained by four administrations. See Patricio Meller (1996) Un S ig lo de Economia Politico Chilena (1890- ¡990), Santiago de Chile: Editorial Andres Bello, pp. 295*299, and 320.
B y the same token, it would be foolish and senseless (both theoretically and historically) to attribute, for instance, the difference between the average growth rate o f per capita G D P attained by the Chilean economy during the Frei’s government (1964-70; 1.9% per year) and that o f the A ylw in’s government (1990-94; 4.6% per year) to differences in the Presidents, the com position o f their governments, or their finance ministers.
The institutional bases o f C hile’s economic ‘miracle * — Chapter I
C h a rt 1.2— A nnual variations of Chile’s per capita GDP, 1950-1995.
10.0
-16.0
C hile’s Per capita G DP, 1950-1995. A n nu al variations (in */•).
t/> sn *> «n
$ $ s
T ur Source: Elaborated from Hofman ( 1996) and E C L A C (1996).
C h art 1.2 reveals that by focusing on presidential terms one misses the shift experienced in Chile's growth trend. Indeed, according to the analysis based on presidential
terms, the ‘economic miracle' seems to take place after the 1989 return to democracy while
the record o f the Pinochet term merely equals the average o f the whole period, and seems similar to that o f the Alessandri and Frei Montalva presidential terms (see T able 1.1 ).w In this way the contrast between the growth record achieved by the Chilean economy during the Pinochet and the Aylwin terms (1.8 and 4.6 percent per year, respectively) appears indeed as a ‘miracle*! Instead, by observing the evolution o f the growth trend on the basis o f the annual variations in per capita GDP, a different picture arises: a new pattern o f growth seems to take place since 1976, characterized by both higher and more stable annual growth rates interrupted by a deep drop during 1982-83. The analysis based on presidential terms thus hides the shift in Chile's long-term growth trend and does not help to understand and explain the rise o f a new pattern o f economic performance. Moreover, the analysis by presidential terms assumes that the explanation should be found in the policies implemented
In fact, by comparing the record o f the four Presidential terms o f the period 1958-1989 in terms o f their average annual growth rate in to ta l GDP, Patricio Metier asserts that “the performance o f the M ilitary regime results relatively mediocre.” See Meller (1996) pp. 319-320.
The institutional bases o f C hile’s economic 'm iracle' — C h a p te r J
by each administration, thus leading us to the naive conclusion that the r e m a r k a b l e difference between the 1.8% annual average growth rate o f the military government d u r i n g the 1973-89 period and the 4.5% o f both the Aylwin and the Frei R u i z - T a g l e administrations (1989-93 and 1993-95, respectively) are due to differences in the p o l i c i e s followed by them! Whereas the use o f such a simplistic approach could be understandable i n partisan political propaganda campaigns, social scientists interested in understanding t h e sources o f Chile’s new pattern o f economic performance cannot be satisfied by such a n a i v e explanation. It is necessary first to analyze the historical evolution o f the long-term p a t t e r n o f growth o f the Chilean economy establishing empirically the turning-points observed i n the growth trend, and then look for an explanation o f the change observed in the lo n g -te rm growth trend (see C h ap ter Two).
The Chilean case, indeed, raises the issue o f the factors which can account for t h e
shift from a pattern of slow and unstable economic growth to a more dynamic and su sta in e d
one, as observed in Chile particularly after 1975 (see C h a rts 1.1 & 1.2), thus involving a discussion o f the theories which have attempted to identify the factors that shape a n d account for differential development trends through time.17
1.3. Th e Sourcesof Diffe r e n tia l Grow th Pa ttern s - An Ov erv iew
The lack o f adequate understanding and agreement about the sources o f countries* economic growth or stagnation is well reflected by the recurrent use o f the term ‘miracle* every time a country experiences rapid and sustained economic growth over time, that is, a n expansion o f output over and above the rate o f growth o f population.1* Famous examples
17 See Adam Szirm ai (1993) "Introduction,* in Adam Szirmai, Bart Van Ark, and D irk Pilat (eds.) (1993) Explaining E conom ic G rowth - Essays in H onour o f A ngus M addison, Amsterdam: North-Holland, Elsevier Science Publishers B .V .. pp. 1-34.
Rostow defines ‘growth* as “a regular expansion o f output per head.** W .W . Rostow (1963) "Introduction and Epilogue," in W .W . Rostow (ed.) The Econom ics o f Take O ff Into Sustained G row th, London: The M acm illan Press, p. xvi. In the same volume, Simon Kuznets defines modem economic growth as ‘a high and sustained rate o f increase in real product p e r capita See his "Notes on the Take Off," p. 22. See also W.W . Rostow (1971) The Stages o f Econom ic Growth (Second edition), Cambridge and New Y ork, p. 9; Douglass C. North and Robert Paul Thom as (1973) The Rise o f the W estern W orld - A N ew Economic History, N ew York: Cambridge University Press, pp. 1-2; and D ouglass C. North (1981) Structure a n d Change in Economic H istory, New York: W.W.Norton, p. 22.
The institutional bases o f C hile’s economic *miracle ’ — Chapter I
have been post-war Germany, Japan, Brazil during the 1960s and 70s, and more recently, South Korea, Taiwan, Hong Kong, and Singapore.19
Since the days o f Adam Smith, the search for the factors behind the observed differences in the patterns o f economic performance experienced by different countries at a given period, or by a single country during different periods over time, has puzzled social scientists. During the 1980s and 1990s, the issues o f growth and development have experienced renewed academic interest, fostered by the ‘miraculous* performance shown by some East Asian economies in contrast to the slower dynamism experienced by advanced industrialized nations, as well as by the economic slump suffered by most African, Middle Eastern, East European, and Latin American countries. Thus the attempt to identify those factors that could account for contrasting patterns of economic performance appears to be relevant, both theoretically and practically.20
In the aftermath o f W.W.II, when peace and the cold-war made more visible the apparently growing differences in the level and pace o f development among countries, and thanks to the possibilities offered by improvements in both the collection and standardization o f national accounts data for empirical research, the inquiry into the factors ‘determining’ or conditioning countries* economic growth increasingly attracted the attention o f social scientists. Since then, most empirical research on the ‘determinants* o f economic performance has followed one o f two approaches: on the one hand, the so-called “growth accounting tradition,*’* 10 11 that is the analysis o f the relative contribution o f capital, labor, and ‘technological progress* to total output growth, according to a given production function, and, on the other hand, the “Cross-Country regressions” approach, which attempts to identify those factors which seem to be related to the differences in growth rates by
cf. Wortd Bank (1993) The East Asian Miracle: Economic Growth a n d Public Policy, New York: Oxford University Press-The W orld Bank.
10 “Understanding growth is surely the most urgent task in economics. Across the world, poverty remains the single greatest cause o f misery; and the surest remedy for poverty is economic growth. It is true that growth can create problems o f its own (congestion and pollution, for instance), which may preoccupy many people in rich countries. But such ills pale in comparison with the harm caused by the economic backwardness o f poor countries— that is, o f the larger part of the world. The cost of this backwardness, measured in wasted lives and needless suffering, is truly vast." Quoted from "Econom ic Growth - The poor and the rich," in The Economist, M ay 25th 1996, p. 23.
11 For a recent compilation and discussion o f the “growth-accounting" tradition, see the articles contained in Sorm ai, Van Ark, and Pilat (eds.) (1993) Explaining Econom ic Growth - Essays in H onour o f Angus M addison, Amsterdam: North-Holland, Elsevier Science Publishers B.V.
