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Latin American Report: Chile: A Case Study of Economic ColonialismAuthor(s): Hugh FoxSource: The North American Review, Vol. 253, No. 1 (Jan., 1968), pp. 2, 4-5Published by: University of Northern IowaStable URL: http://www.jstor.org/stable/25116711 .

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1 L?TIN?MERIC?N REPDRT

| CHILE: A CASE STUDY OF ECONOMIC COLONIALISM.

The problems of Latin America are much the same as her African and Asian counterparts in the underdeveloped ("de

veloping") areas of the Third World. Although no longer politically colonies, the nations of the third world still suffer

under the burden of an economic colonialism that considers

them primarily as producers of raw materials and a market

for manufactured goods. As Howard J. Sherman describes the

colonial economic structure in his Introduction to the Econ

omics of Growth, Unemployment and Inflation (N. Y., 1964): In most cases, the imperial country wanted an outlet for sur plus capital, which was invested in the colonial countries where it brought astoundingly high profit rates, primaily because of a cheap labor supply and an enforced lack of competition. The capital was mainly invested in extractive industries, which ex ported raw materials to the imperial country. In the imperial country the cheap raw materials were profitably turned into

manufactured goods, part of which were exported back to the colonial country, (p. 184)

The English, of course, tried this same kind of system on

the United States. In 1700, for example, a Report on Trade

and Plantations was presented to Parliament that was very clear

in stating that the colonies must buy their manufactured goods from England, and should not be allowed to manufacture their own

products: Having . . . observed that several of his majesty's plantations

in America applied themselves to the improvement of woolen manufactures in those parts for the supplying of themselves and neighbors, to the hindrance of the exportation of our English manufactures, we prepared a clause for the preventing thereof, which was presented to this honourable house and accordingly received and enacted the last session of parliament; and we have since understood that the said restraint has had a very good effect. . . .

The English went so far in their coercive measures that, as

Roger Burlingame points out in his Machines That Build

America (N. Y., 1953), "Parliament forbade any artisan or

workman trained in textile production to travel away from

England." (p. 34). The reasons why the U. S. was able to become a manufac

turing power whereas many other colonies have not, is a com

plex historical-economic problem that involves such various

factors as the state of manufacturing in the mother country after colonial times, the complete socio-economic structure of

the colonies themselves, the natural resources of the colonies, and the colonial-mother country link in relation to the total

world manufacturing picture. North America was colonized, and the colonies themselves

were to a large extent autonomous from the very beginning? and colonized by

a country that was itself already a manufac

turing power. In South America, on the other hand, the very nature of the Conquista merely destroyed the balanced pre Colombian social structure and imposed in its stead a top

heavy autocratic and centralized system that allowed the col

onies little or no freedom. Furthermore, Spain itself was not

a manufacturing power at the time of the Conquista. All of which means that in a country like Chile 85 to 90%

of the export revenue comes from minerals?and this mainly

copper. As evidence that this situation seems destined to be

chronic, the government is planning to double copper produc tion in the near future which a recent editorial in La Naci?n

states "represents an increase in the national product of 240

million dollars annually, the acceleration, by its effect alone, of an additional 1 percent more

yearly of the country's

growth." (From News From Chile, published by the Chilean

Embassy in Washington, Oct. 28, 1967.) Production may be doubled, but does this really mean an

automatic 240 million dollar annual increase in the Gross Na tional Product? In 1956 the market price for copper was $.50 a pound. In 1958 it was $.20 a pound. Unless one can expect a

rapid increase in the world demand for copper?plus no

production increase in other copper producing countries (like the U. S.)?it seems possible that the decrease in price could cancel out the increase in production and the net gain for

Chile end up zero. This might not happen. The price of cop per may remain stable (or even increase) and Chile's most op timistic expectations may be realized, but even if the Gross

National Product should increase temporarily, the fact still remains that Chile is precariously dependent on world market

prices for raw materials.

*

Chile today is in the midst of a period of economic aus

terity. Prices are punishingly high. According to figures from the International Monetary Fund, there has been almost a

500% inflationary rise between 1959 and 1966, which places Chile fourth in the list of Latin American countries with high inflationary rates; Brazil in the same period has experienced an incredible 2,910% rise in the cost of living, Uruguay 1,260%, and Argentina 859%.

The problem of inflation, then, is general in Latin America, but nowhere (except perhaps in Uruguay) is its effect more

cruelly felt than in Chile. The signs of government action are

everywhere. Money is tight, salaries incredibly low, taxes

(protective tariffs) incredibly high. People are wearing, not

last year's overcoat, but an overcoat from five or six years ago?if they're lucky. Living in Chile is like trying to live on a thousand dollars a year in New York. You live, but just barely.

As Werner Baer points out in a very fine article in the

Latin American Research Review, "The Inflation Controversy in Latin America: A Survey" (Spring, 1967), there are cur

rently two approaches toward Latin American inflation, that of the "monetaries" and that of the "structuralists." The mone

tarists are for hard and firm anti-inflationary policies: the curtailment of government expenditures and/or increased collection of taxes to eliminate deficits; the severe tightening up of credit; the elimination of inflationary subsidies; the control of wage increases, which is a necessary complement to control of credit increases; and the elimination of subsidized exchange rates, if there existed a system of multiple exchange rates (p. 7)

In other words the monetarist blames inflation on an over

abundance of money in circulation, and so wants to tighten up the money supply as much as he can.

The structuralists consider this tight-money moneterist po sition as

stagnating and deadening. Considering the whole

economic problem as merely as part of a much larger socio

economic complex, thy tend to blame inflation, not merely on

an overabundance of money in circulation, but on the overall

economic situation of Latin America in relation to the rest of

the world.

Urbanization and population, they say, have increased sub

stantially in the last few years. Farm production has not kept pace with the increased demand, and consequently food prices have gone up. The same movement toward industrialization/

modernization that stimulates urbanization and increased pop Continued on Page 4

2 The North American Review

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THINKING

What you said last week before leaving, stays with me.

Now you are far in the North as your letter says.

Outside the window, lilacs shiver in the April wind, and what I cannot say makes the stains on a thousand white birches.

Will the evening break and be joined together again?

Think of your white body, think of the white pages, of your pale lips, of this wind blowing everywhere. In the air stars hang and what remains of the night.

Another wind is not here yet. Something inside me grieves and opens.

The old houses have no ending, the lights are blinking. Since I have shut myself in this room, how many times has the lilac flowered and how many times has the moon phased?

LONELINESS

// you are afraid of loneliness, don't marry. Chekhov

Late this afternoon I fell back into the word, into the heart of the blossom.

Now I feel it quietly circling me

like a pond as I sink down.

My eyes open in a young night and see all things in their secret conditions.

Darkness swallows the day like me.

Where is the dream that shares us?

Didn't I hear you say you had seen once

a coldness gathering in my face?

Something edges close to me

and I can only watch the blue limb, in silence,

wondering if it will open its body and hide me.

S. J. Marks

S. J. MARKS is often mistaken for the poetry editor of The

North American Review. "Marvin Beit is often mistaken for S. J. Marks. We would like to take this opportunity, there

fore.

LATIN AMERICAN REPORT Continued from Page 2

ulation growth, has, on the other hand, stimulated a need

(and taste) for machinery, TV's, radios, cars, etc. The "mod ern" world is being brought in, only export income does not

match the added import needs, dollar reserves are exhausted,

import controls are put into effect, supply decreases and cost

goes up.

Again we return to the initial problem of the former non

industrial colony moving into the industrial, technological twen

tieth century with only raw materials to exchange for manu

factured goods. And, as Francisco A. Pinto S. C. points out

in La Estructura de Nuestra Econom?a, The Structure of Our

Economy (Santiago, 1947), the prices for raw materials vary

considerably (usually in a downward trend), the prices for

manufactured goods rise steadily: The production and sale of raw materials in exchange for manu factured products permanently imposes negative conditions that tend to progressively worsen, (p. 27)

Industrialization and modernization, then, at least in its

initial steps, is economically disastrous for a non-industrial

country?as has been amply demonstrated in Latin America in

the last few years. Modern technology has extended life expectancy, drastic

ally cut infant mortality; and industrialization, stimulating ur

banization, has done its share to increase population. But more

than anything else an industrializing, urbane population, able

to see the world around it in magazines, in movies and on

TV, wants manufactured goods. The non-industrial country with fixed birth and death rates is more or less able to supply its own needs. It is stable, static, but self-contained. This is

the idyllic, pastoral world described by Pedro de Valdivio in a letter to Charles V written in La Serena, Chile, Sept. 4, 1545:

The summer is so soft and filled with such delicious winds, that a man can walk in the sun all day . . . there is a great abund ance of pastures and fields, which can support any kind of cattle and plants that one may imagine; much and very beautiful wood to make houses, an infinite amount of firewood, and extremely rich gold mines, and everywhere the land is full of gold, and wherever one turns one can sow and build and there is water and firewood and grass for one's cattle, so that it seems that God created it on purpose so that everything would be right at hand. . . .

A perfect paradise?except for the problems that the gold would bring it.

The high inflation rate with all its concomitant problems, however, may be a necessary step in the development of an

industrial economy. When a country has fully industrialized

and is able to manufacture cars, radios, TV's and all the other

paraphernalia of the twentieth century industrial Baby lon, then it is able to "interchange" manufactured products

with other industrial nations and also serve its own national

needs. Initally, though, per-unit cost is high, and there has

been a traditionally small market in proportion to the neces

sary initial capital needed to set up a major industry. The es

tablishment of a Latin American common market is the only

practicable and immediate solution to this market problem? the initial high per-unit cost takes care of itself as techniques are perfected.

The answer really seems to be in the acceptance of infla

tion, devaluation, whatever, in order to totally industrialize.

Certainly this has been true for the case of Brazil. The pas

sage from a non-industrial, former economy, to that of an

industrial (or "industrializing") economy has been swift and

dizzying. But "progress" has been very real. In pig iron

production (a rather reliable index of industrialization) Brazil

produced 2,756,000 tons, as compared with Austria's 2,429, 000 tons and Chile's 340,000. Of course, Chile had moved

from 314,000 tons in 1961 to 340,000 in 1965, but still neither

the 1961 figure or the increase are particularly impressive. It

is interesting to note, though, that Brazil produces more pig

iron than Austria?it is slowly moving out of the bloc of de

veloping countries into the category of a developed country,

although it still remains a lightweight on the overall world

industrial scene. The U. S. in 1965 produced 91,016,000 tons

of pig iron!

Current Chilean official monetary policy seems markedly

4 The North American Review

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"monetarist." Inflation is blamed on an overabundance of

money in circulation and everything is being done to stop in

flation now. Protective tariffs, the almost "freezing" of wages at current levels, the cutdown on programs entailing govern

ment spending, and all the rest have turned Chile into a sad,

dead, austere country. Which might presumably be justified if

today's austerity will bring tomorrow's prosperity, but what

are the results really likely to be?

In the July 17, 1967, U. S. Department of Commerce week

ly, International Commerce, there is a statement that the Chil

ean Government has approved 22 investment projects for a

total of $907,000,000 of which $751,500,000 will come from

abroad. This investment program in general is concerned not

only with copper production but also with the increased develop ment of iron-ore mining, steel production, the petrochemical

industry, timber and cellulose. As we have already seen, the

main concentration is on increasing copper production. The

increased production of iron ore, on the other hand, plus in

creased steel mill capacities, may make the Huachipato steel

mill the greatest single most important factor in Chilean ec

onomic development. At the same time the austerity program as it is currently

set up would seem to be destined to produce a negative effect

on individual buying capacity which in turn would presum

ably tend to slow down production. Per capita earnings since

1960 have gone up from $474 to a mere $589 (31.5%) whereas the rise in the cost of living has gone up 483%?

which simply means that anything above basic subsistance

buying is impossible for the average Chilean. The fact that

some Chileans are affluent and do have "extra" money, does

not change the fact that for a viable capitalistic system the

great mass of the population must not only be solvent, but

have a little something extra to spend on

luxury. Or, to bring the problems a little closer to home, how would it be if ev

eryone in the U. S. had enough money for barely adequate food, clothing and housing, but didn't have anything left over

for a car, a new pair of shoes for the kids, a book, a coat of

paint for the bathroom, a new shirt, some decorative wall

plaques, a new bedspread, new furniture, a TV, an electric

razor, only to mention a few of the thousands of not strictly

necessary items that Americans put their surplus cash into.

At any rate, maintaining the population at a subsistence

level, although it may help curb inflation, does not even ap

proach the root of the economic problem?total production increase with a special concentration on industrial and farm

products. Anything to once and for all terminate the nation's

role as exclusively a producer of raw materials.

Once Chile or any of the other marginally industrial nations

in South America moves into a position of significant indus

trialization, however, its problems are just beginning. Chile, by itself, with a

population of 8 million cannot provide a suffi

ciently large market to make a large industrial plant possible. Nor does it seem likely that a theoretical market can be set

up first, and then product increased to meet market needs. In

September of 1967, at a meeting of ALALC (Associacion Lat

inoamericana de Libre Comercio?Latin American Free Trade

Association) in Asuncion, Paraguay, a first step was made

toward at least a theoretical framework within which a com

mon market can function.

Among other resolutions was that of the establishment of

the first of a series of subregional agreements similar to that

already set up in Central America?the Andean Group con

sisting of Columbia, Chile, Ecuador, Peru and Venezuela. As

Gabriel Valdes of Chile said at the conference( showing very much the awareness of the problems, although perhaps not

any clear or easy means of solving them) :

This means the creation of a market, or even better, an econom ic 'nation' of some 55 million inhabitants and a combined gross national product greater than that of Brazil. This agree ment opens a wide path toward general integration, and creates a mechanism whereby the less developed countries can unite their forces and markets to compete with the more developed ones . . . our insufficient markets can become sufficient by joining together.

(Vision, Sept. 15, 1967)

What such a subregional agreement means in concrete

terms is a complete abolishing of tariffs on products, that still

are not produced within the group (presumably items like

watches, TV's and cars) in order to stimulate production of

these articles, with various other tariff agreements still to be

worked out. One danger here, of course, is that the countries

involved may merely exchange raw materials and/or agricul tural products, still without moving into complete industrial

ization. Another is that old grudges such as those between

Ecuador and Peru, Peru and Chile, will impede any genuine oneness of action. A whole new mentality must be formed.

How can you expect economic integration between Chile and

Peru, for example, when it is impossible to buy Peruvian

newspapers in Chile and Chilean newspapers in Peru? In San

tiago you can buy The New York Times, but unless you go to the Peruvian Airlines (APSA) you can't buy a copy of

Lima's La Prensa. Perhaps you can't expect cultural integra tion to precede economic integration, but certainly you can

expect it to accompany it.

The other alternative to industrialization, increased agricul tural production and the development of markets (either

through a Latin American Common Market or on a larger more

international scale) is disaster. The demographer, Raymond Ewell, predicts famine in China, India, and Pakistan in the

1970's; by the 1980's (given a continuation of present con

ditions and tendancies) he expects famine to hit Latin America

?hard. Birth control (in spite of and even against the massive

conservatism of the old guard hierarchy that make up the

majority strength of the Church in Latin America) is one

answer, but nothing less than industrialization will adequately solve the problem. Chile is lucky. There is not a vast mass

of Indians (as there are in Peru, Bolivia, Ecuador and to a

certain extent in Colombia) who live somewhere between the

fifteenth and nineteenth centuries and have next to nothing to

do with the modern world. The schools are good. The uni

versity infrastructure due to recent decentralization is good and improving. Technical education is receiving strong stim

ulus from the government. In spite of class struggles and

social disparities the population is much more uniform than

in most other Latin American countries?excepting perhaps

Argentina, Venezuela, and Costa Rica. The next ten years will

be decisive. If industrialization doesn't take place now it prob

ably never will and the social problems will be so great, so

completely unsolveable, that the economy will never get off

the ground and Latin America will sink to the level of the

super-undeveloped while other industrial nations like the

U. S. (and perhaps Brazil) will soar up to a new plateau (if we don't blow ourselves up or get blown up) of super-de

velopment.

Hugh Fox

4

January, 1968 5

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