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A Special Supplement: Chile: Year One

There is virtually nothing that Chile can do in the short run about the price of copper, which has to stay well above forty cents if the calculations of the planners are to come out right. A great many things, including the end of the Vietnam war, could cause the market to drop for a sufficiently long time to be catastrophic. However, even if the market holds, there will certainly be an acute balance-of-payments crisis in 1972, which for various reasons, however, is expected to be less acute in 1973.

Unfortunately the two obvious ways of minimizing this crisis, exporting more copper and cutting imports, are very difficult. Copper production will not expand as much as is desirable or planned. Farm production will be lucky to remain stable. The boom in domestic spending will raise the demand for industrial raw materials, which is the other large item in the import trade. Chilean leaders are fairly optimistic about overcoming the transitional difficulties in copper and agricultural production, which are the most pressing of their economic problems. Even cautious politicians reckon that this shouldn’t take more than three years. But those three years will be difficult and crucial, and will keep their minds fully occupied.


In this situation the government has pursued four objectives:

First, it has aimed to introduce irreversible “structural changes” in the economy within its first year. The theory behind this appears to be a rather simple economic determinism. As one minister put it: “If we deprive the bourgeoisie of its economic base, it will not be able to return.” The method has been essentially the expropriation and, outside agriculture, nationalization of key economic activities. The UP is by its program committed to a three-part structure of the economy: a dominant public sector, a mixed public-private sector, mostly in the areas where technical progress and heavy investment in equipment and know-how (including those from abroad) are essential, and a private sector of, it is hoped, dynamic small and medium business.9 By now copper, nitrates, coal, iron, banking, cement, a good part of textiles, and a number of other firms have been taken over in one way or another, and foreign trade will presumably have to be nationalized.

Second, the Allende government has aimed to stimulate production and therefore employment, and at the same time raise the standard of living, by stimulating demand, i.e., by combining a sharp increase in money wages with a price freeze. The government assumed, on the whole correctly, that Chilean industry was working with a sufficiently large unused capacity to make this possible without immediate new investment, which private business was obviously not going to undertake. Giving more money to the poor, it was argued, would stimulate employment disproportionately, since they were in the market for commodities with a more labor-intensive production than the more sophisticated hardware of the middle-class market. It must never be forgotten that no more than 300,000 of the 9 million Chileans were the effective customers for industry.

This plan was risky, and during the first few dramatic months after September 4, when bourgeois hysteria led to mass flights of capital and a temporary collapse of production, it did not look promising. However, by the spring of 1971 the policy worked, to the enormous relief of the government and surprise of foreign observers, not to mention the striking benefit of the Chilean people. Unemployment was lower than it had been for ten years and, except for some serious planning troubles that delayed the revival of the construction industries, would have been even lower. The standard of living of the poor rose dramatically. Even the consumption of flour (i.e., bread) rose by 15 percent. The critics point out that with the increase in production Chile’s endemic inflation also revived. It used to run at 25 to 30 percent a year, and during Frei’s last year at 35 percent. Still, this year it will be no more than half of this. Domestic economic policy has so far been the most significant success of the Allende regime.

To demonstrate the material advantage of a popular government is indispensable for the UP since it must present itself at free elections. Allende cannot, even if he wanted to, impose the material sacrifices on his people that the Cubans have made for the past several years. This sets very narrow limits to government policy, though some of its followers are unwilling to admit this. The Communists, being the most realistic, take the view that during this presidency rapid heavy industrialization must be subordinated to light and consumer goods. Allende probably agrees, but the matter continues to be debated. Whether raising the standard of living alone will provide a government of legal revolutionaries with adequate support is another question.

The third objective follows from this calculation. The government must raise output, especially of copper and farm produce, in order to at least maintain the supply of food and consumer goods. Here again Allende and the CP see eye to eye. Since rationing or an uncontrolled sharp cutback in imports would be political suicide, the “battle for production” is the first priority. However, copper and agriculture pose rather different problems.

Most Chilean copper comes from three great mines formerly owned by US companies—El Teniente, Chuquicamata, and Salvador. Since last September output has been poor, which is a serious matter, and costs have risen steeply, which is less serious.10 To what degree this situation is caused by sabotage by Kennecott and Anaconda, or, more plausibly, by their attempts to cream off the easy and profitable deposits in anticipation of expropriation, is a matter of argument. Certainly it is a consequence of widespread noncooperation by executives and supervisory personnel—about 300 are said by the opposition to have resigned—especially those who used to be paid in US dollars, which they then exchanged on the free and now black market for increasingly astronomic quantities of escudos. Inevitably the effect of stopping these dollar payments to Chileans has been to lower the real income of such people, in spite of the government’s unenthusiastic readiness to pay them almost any salaries in escudos. (In the summer of 1971 the unofficial exchange rate was already over three times the pegged official rate.)

But the difficulties also arise from the collective self-interest of the small labor aristocracy of copper miners, who did well enough out of the enclave economy of the US corporations and are not likely to do relatively as well in the future. Whether or not they actually supported Frei’s Christian Democrat government (and in Chuquicamata the UP failed to poll a majority in the presidential election), the spontaneous syndicalism of such groups tends to operate easily at the expense of the wider popular interest. The strikes of workers and technicians that broke out during the past summer reflect both factors.

The problem of farm output is much more complex. The Christian Democrat government had generally subordinated the rate of agrarian reform to the raising of output, which it did with substantial success. Only 30,000 families out of the quarter of a million of the landless and minifundists received land. Consequently by the end of Frei’s presidency the accumulating agrarian discontent was already exploding in a burst of land occupations and other rural conflicts. Even if Allende had not won, either land reform would have had to be speeded up or major trouble would have developed in the countryside. The UP has accelerated land reform, but at an immediate cost to output, as is usual in such cases.

The extent of the disruption in output is hard to judge, partly because it cannot be disentangled from the effects of some dramatic natural catastrophes during the first half of 1971, partly because these things are a matter of guesswork anyway. The disruption was due to sabotage or to realization of capital by those fearing expropriation—especially during the fall of 1970 when a lot of dairy and breeding stock was sold off for meat—to the uncertainty of the middle peasants about their prospects, and to the demoralization of peasants in the sector where land reform took place. This in turn was caused by the UP’s failure to apply any single or clear policy. When any meeting of agrarian reform officials is likely to turn into an ideological-programmatic argument over rival tendencies, peasants are likely to feel that the old government may have been slow, but at least a man knew who made the decisions and what they were.

The more suicidal or utopian elements in the UP have even exaggerated the extent of this disruption, talking wildly, and not only implausibly but without evidence, of a 50 percent drop in output in the reformed sector that, they argue, will be more than compensated by the progress of rural class struggle.11 The best estimate is that there may be some decline in output, though the official view is that the sowing this spring (our fall) will compensate for the drop in the last fall (our spring) sowing, which may be around 10 percent. The government reaction has been to slow down the initially very rapid expropriation of land, in order to get the 700 or so estates that were effectively taken over (out of the 900 or so expropriated) into production. Official expropriations have been stopped until after April, 1972. As for unofficial ones, the government’s view is that of Allende’s Message:

The indiscriminate occupations of estates and farms are unnecessary and prejudicial. What we have said and done should be enough to make people have confidence in us. Hence the plans of the government and their implementation should be respected. (Message, p. 18.)

On this point Allende (supported by the CP) clashes with the left opposition of the MIR and also with elements in the left wing of his own party.

Allende’s view assumes that the occupations are controllable. Probably they are, for they are only to a small extent the product of unmanageable grassroots unrest. Of the 150 or so occupations recorded on a day chosen at random in the summer of 197112 about 25 or 30 percent were attempts by Mapuche Indians to recuperate lost communal lands, which is certainly the most spontaneous part of agrarian agitation now, but even so not—or no longer—a mass movement. These sit-ins involved perhaps 700 to 800 individuals in all, and only three of them mobilized more than a hundred, which is peanuts by the usual Latin American standards of peasant land occupation.

The others were partly occupations by landless peasants demanding expropriations for their benefit, but mainly incidents in rural labor disputes in which landownership was not at issue. No more than a handful of people is involved in an occupation of either type. The tomas de fundos make foreign headlines, because they suggest riot and anarchy and because some fairly colorful figures on the uncontrollable fringes of the ultra-left are active in them, but at present Chile is a long way from rural insurrection.

  1. 9

    This formula was written into the program on the initiative of the most moderate groups in the UP, the Radicals and two small and otherwise insignificant groups parleyed into a strong bargaining position by the supporters of one Senator Tarud, who was astute enough to declare himself a left candidate before anyone else and to refuse to withdraw until the last moment.

  2. 10

    In principle, since the costs are in local currency and receipts in dollars, valuable foreign exchange will continue to be earned so long as enough copper is sold at an adequate price. In the extreme case of Bolivia, tin thus earns its way in the national economy though actually it may be sold below cost.

  3. 11

    This forecast occurs in an infantile document produced by the Agrarian Commission of the Socialist Party (which that party has disavowed). The document was promptly leaked to the opposition press, which made much of the fact that some top Socialist functionaries in agriculture supported it, at least, as one of them told me, “as initiating a necessary discussion.”

  4. 12

    My source is the confidential daily police report on these matters, which I was kindly allowed to consult.

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