Chile

CHILE

  • At one time, there was a strong tradition of publicly owned companies in Chile.
  • In 1939, a populist coalition government created CORFO, the Corporation to Foment Production, a government agency that provided credit, conducted research and development and promoted numerous public enterprises and mixed private-public companies.
  • Over the next three decades., government founded industries that were important to Chile’s economic development.
    • CAP (Pacific Steel Company) was formed in 1946 as a mixed enterprise and became one of the most important steel producers in Latin America, generating useful linkages to mining and manufacturing industries.
    • LANCHILE, the national airline, was formed in 1931 as a project of the military.
    • ENDESA, the national electric company, and several other regional electric companies.
  • In 1970, Salvador Allende was elected, the world’s first freely elected socialist president. One of his government’s first pieces of legislation, nationalized the foreign-owned copper industries, creating the giant public company CODELCO.
  • By the time Allende was ousted in a military coup in September 1973, the public sector formally included the country’s 19 banks and 185 other companies and an additional 350 “intervened” firms.

 

  • General Augusto Pinochet, the dictator who followed, carried out some of the world’s most significant and sweeping privatization.
  • Between 1975 and 1989, under the guidance of economic policymakers, the “Chicago Boys,” schooled in the free-market philosophy of the University of Chicago’s Milton Friedman, Pinochet sold government stakes in more than 160 corporations, 16 banks and over 3,600 agro-industrial plants, mines and real estate and land.
  • The Chicago Boys put Chile’s traditional public sector through two waves of privatization, the first from 1975 to 1981, the second from 1985 until Pinochet surrendered political power in 1990.
  • The first wave of sales was made up primarily of the banks which had traditionally belonged to the public sector, but the financial collapse and recession that began in 1981, put obstacles in their way.
  • Massive losses by the most important, newly privatized, Chilean banks forced the Pinochet government to come to their rescue.
  • The government, at the urging of the International Monetary Fund (IMF), the World Bank and Chile’s other major international creditors, took over the failed banks and businesses. The government and the Chilean public were then responsible for $4.7-billion in foreign loans contracted by private Chilean institutions.
  • Of the 19 banks that the government had privatized in the 1970s, all but five failed and fell back into government hands, as did 90 other diverse bankrupt enterprises.
  • One back in the public sector, a tradition of competence and efficiency in Chile’s public sector, helped turn these banks and industries around. They also became more profitable because of laying off workers, lowering wages and raising prices. Virtually every major public enterprise was turning a profit, generating 25% of the government’s revenue.
  • The set off the second wave of privatization., when the government announced plans to privatize most of the remaining large public companies, which still included six of the ten largest corporations in Chile.
  • Revenue from sales of public corporations provided one-time boosts to the government budget, allowing Pinochet to balance the budget from 1986 through 1988, make timely payments to foreign creditor banks and cut taxes.
  • However, since the companies sold had produced revenues for the government rather than deficits, such gains were brief and illusory. Future governments bore the loss of those income generating assets.

 

  • Labour did not benefit from privatization. As prerequisites to the privatization process, the Chicago Boys abolished virtually all labour rights through and eliminated the power of union leaders in numerous public companies.
  • Some union leaders who publicly opposed privatization faced intimidation or were fired. Others were bribed.
  • Early in the second wave of privatization, union leaders from public companies met to organize the Commando for the Defense of Public Enterprises, which conducted an arduous campaign against the privatizations.
  • Confronted with brutal government repression during the mid-1980s, the organization was rarely able to mobilize people outside the unions and proved largely unsuccessful.

 

  • Multinational corporations have gained a stronghold over the Chilean economy through their control of financial companies that control workers’ pension funds.
  • The Pinochet government handed over natural monopolies like electricity and telephones to the private sector and foreign capital without establishing any regulating power or any other significant counterweight.
  • Some have claimed these financial groups are as powerful as the drug lords, powerful enough to bring down any government which might attempt to regulate them. Privatization has made multinational companies in Chile more powerful today than ever before.
  • The government has been stripped of most of its potential to shape a truly competitive economy that serves the interests of most Chileans.