Counter visits from more than 160  countries and 1400 universities (details)

The political economy of development
This academic site promotes excellence in teaching and researching economics and development, and the advancing of describing, understanding, explaining and theorizing.
About us- Castellano- Français - Dedication
Home- Themes- Reports- Statistics/Search- Lecture notes/News- People's Century- Puro Chile- Mapuche

World indicators on the environmentWorld Energy Statistics - Time SeriesEconomic inequality

(For the period 1938-1970 -import-substitution- see

(by Róbinson Rojas Sandford)(1996)

The first wave of Western European hordes reached the Chilean region
in 1541. From then until 1817, the Spanish conquerors created an
economy based on exporting agricultural product (mainly wheat), some
manufactures and minerals, and a very polarized society.

The main unit of production during colonial times was rural (the
HACIENDA). The conquerors allocated for themselves the ownership of
huge portions of land, and with that ownership the right to use
human labour without paying wages, but, instead, using the system
of sharecroping or obtaining labour in exchange of the right of the
labourer to cultivate food for the household on the land of the
large landowner (see R. Rojas, "Latin America: Blockages to
Development", doctoral dissertation, 1984. Most of the text is available
in The Róbinson Rojas Archive)

By the beginning of XIX century, the Chilean society, as a reflexion
of the society in the whole continent, had the following structure:


        The ruling class:
                   Hacendados, merchants, manufacturers and miners,
                   accounting for around 4% of the non-rural labour
        The middle class:
                   Professionals ( 4% ), and civil servants (3%)
        Manual workers: including slaves and servants the accounted
                        for 89% of the non-rural labour force 
        Peasants: including landless farmers attached to the 
                  haciendas, sharecroppers, and subsistence farmers.
                  They accounted for the totality of the rural
                  population. This, because the "hacendados" didn't
                  live in the countryside. They lived in the cities
                  (mainly the capital city -Santiago).

Therefore, a better picture will emerge taking urban-rural social
structure together:

        Hacendados, merchants, manufacturers, and miners    0.4%
        Professionals                                       0.4%
        Civil servants                                      0.3%
        Manual workers                                      8.9%
        Peasants                                           90.0%

Because of the main features of the hacienda system, only urban
dwellers had access to money, thus, the domestic market was very
reduced, thus an export-led economy was justified.

This ruling class was the one that uprose against the Spanish domination,
and did put together armies which defeat the Spanish military forces
at the beginning of XIX century, making free nation-states of the former

During the XIX century, the Chilean ruling classes created
semi-democratic political systems, alternating in the government
representatives of the landed aristocracy, the new industrialists, and
specially the new mine-owners and bankers.

After 1879, the Chilean oligarchy started a modernizing drive in
association with British capital (nitrate), and then United States
capital (copper since 1911).

Because of that, a middle class of professionals and civil servants
grew alongside a working class (mainly miners and workers in textile
industries). Between 1900 and the 1930s the emergent working class and
intellectuals (especially teachers) created new political challenges
to the ruling of the old oligarchy (the Chilean Communist Party was
organised in 1927).

Because of that, the capitalist sector within the ruling class began
to push forward a plan to industrialize Chile, which began in 1938 led
by the Chilean state (it was the stage of import-substitution) in charge
of creating the necessary infrastructure for industrialization, and
finance energy production, steel, railways, roads, and port facilities.
By the early 1950s Chile was producing its own steel, part of oil needs,
and the manufacturing sector was producing up to durable goods (domestic
appliances, etc), and component parts for the car industry.

But this "modernization" was achieved through a triple alliance:
               1) the state
               2) the Chilean monopolic capital
               3) transnational corporations

By the 1960s, the Chilean economy was dependent upon United States
capital. The process of industrialization, which was intended to
bring about a greater degree of autonomy and independence, brought
instead a new kind of dependency. What we were conceptualizing in the
early 1960s as "neo-colonialism".

In 1970, before the presidential election, the income differentials
for the urban population ( 75 % of the population), were as follows
(taking average income of blue-collar workers as one):
                                   Employers 40.0
                    High rank civil servants 20.8
                        White-collar workers  3.3
                         Blue-collar workers  1.0
(Source: R.Rojas, "La Unidad Popular, Hacia donde?", Quimantu, 1973)
By 1970, a large sector of the Chilean population was openly advocating
a revolution. The prevailing revolutionary ideology was one based in
the enormous economic power of the "mobilising state". This ideology
posed the strategy of "making the revolution from inside the state",
gaining the government, that is. That was the basis for the political
programme presented by the Popular Unity (Unidad Popular) for the
presidential elections in 1970:


Programme presented to the Chilean people during the Presidential
Election campaign in 1970


The parties and movements of which the Popular Unity's Coordinating
Committee is composed, without prejudice to our individual
philosophy and political delineations, fully agree on the following
description of the national situation and on the programme
proposals which are to constitute the basis of our common effort
and which we now present for consideration by the whole nation.

Chile is going through a grave crisis, manifested by social and
economic stagnation, widespread poverty and deprivation of all
sorts suffered by workers, peasants(*), and other exploited classes
as well as in the growing difficulties which confront white collar
workers, professional people, small and medium businessmen, and in
the very limited opportunities open to women and young people.

These problems can be resolved in Chile. Our country possesses
great wealth such as copper and other minerals, a large hydro-
electric potential, vast forests, a long coast rich in marine life,
and more than sufficient land, etc. Chile also has a population
with a will to work and progress and people with technical and
professional skills.


What has failed in Chile is the system - a system which does not
correspond to present day requirements. Chile is a capitalist
country, dependent on the imperialist nations and dominated by
bourgeois groups who are structurally related to foreign capital
and who cannot resolve the country's fundamental problems -
problems which are clearly the result of class privilege which will
never be given up voluntarily.

Moreover, as a direct consequence of the development of world
capitalism, the submission of the national monopolistic bourgeoisie
to imperialism daily furthers its role as junior partner to foreign
capital, increasingly accentuating its dependent nature.

For a few people it is good business to sell off a piece of Chile
each day. And every day this select few make decisions on behalf of
all the rest of us. On the other hand, for the great majority of
Chileans there is little to be gained from selling their labour and
brain power and, in general, they are still deprived of the right
to determine their own future.
(For a full text of this programme see
         The Popular Unity's Programme (Alternative Development)

The following measures were proposed in the programme:

-Land reform, reducing large landowners land to 80 hectares of
 irrigated land;
-nationalization of the copper mines;
-expropriation of the majority of chilean monopolies;
-state ownership of the banking system;
(see BOX 1 for an evaluation of the above)
(From R. Rojas, "The Murder of Allende and the end of the Chilean
                 way to socialism", Harper & Row, 1975, pp. 233-35)
When Allende became President, Chile was for the most part a developing
capitalist country, but dependent on U.S. transnational capital. To get
an idea of the nature of Chilean society at that time, let's look at
some statistics taken from "National Accounts of Chile 1967-68" 
("Cuentas Nacionales"), ODEPLAN, Santiago, 1970:
    Agriculture, forestry, and fishing      10.5 percent;
    Mines                                    9.7 percent;
    Manufacturing                           25.7 percent;
    Construction                             4.5 percent;
    Electricity, gas, water                  1.7 percent;
    Transportation, warehousing, and
    communications                           4.4 percent;
    Wholesale and retail commerce           21.6 percent;
    Other services                          21.9 percent;
    Agriculture, forestry, and fishing      25.6 percent;
    Mining                                   3.0 percent;
    Manufacturing                           21.6 percent;
    Construction                             6.2 percent;
    Electricity, gas and water               0.8 percent;
    Transportation, warehousing and
    communications                           6.3 percent;
    Commerce and services                   36.5 percent;

The same accounts showed that 50 percent of the work force was
labourers and 1.4 percent employers. This gives an idea of why
the combative strength of the workers in Chile was so great and
was able to push such movements as the Unidad Popular forward. Its
fighting capacity was tragically set in motion in 1907 when the
saltpeter works went on strike, to be suppressed by the government
through the Army's slaughter of 3,000 workers in the Santa Maria de
Iquique schoolhouse. The owners of the saltpeter works were British

The 1.4 percent of the work force comprising the employers and
bondholders was organized into guilds in the Sociedad de Fomento Fabril,
the Sociedad Nacional de Agricultura, and the Confederacion de la
Produccion y el Comercio, through which they had always controlled the
Chilean government.

The degree of concentration of economic power in this 1.4 percent is
revealed by the following facts, from the same source:

17 percent of the stock companies possessed 78 percent of the total
                  assets of the stock companies.

In those dominant companies, the ten biggest shareholders owned more
                  than 90 percent of the stocks in almost 60 percent
                  of these companies.

It was there that the eleven oligarchic clans mentioned were
concentrated, consisting of no more than 1,000 adults, for whom
1,500,000 labourers worked.

The oligarchy was closely related to major American capital. The facts
show this:

Machinery and equipment production     50 percent American control;
Iron, steel, and metal products        60 percent;
Rubber products                        45 percent;
Automotive assembly                   100 percent;
Radio and television                  Nearly 100 percent;
Office equipment                      Nearly 100 percent;
Copper fabricating                    100 percent;
Tobacco                               100 percent;
Advertising                            90 percent.

To this data should be added the power of Anaconda, Kennecott, and ITT,
in copper and telephones (D. Johnson, ed., "The Chilean Road to
Socialism", New York, Doubleday Anchor, 1973, p. 13)

Combining this situation with the state's foreign debt and private
Chilean companies having North American organization, the outlay for
technology, and the dependency of the country's armed forces on the
U.S. Army should give an idea of what is meant by calling Chile "a
capitalistic country dependent on imperialism".

(for the role of Chilean armed forces see
  R.Rojas: The Chilean Armed Forces: a political organization)

After 1907, the organization of workers and peasants began actions to
obtain legal recognition, which was achieved only in 1953, when the
Central Unica de Trabajadores was formed. In 1972 the Central Unica had
a million members, that is, 33 percent of the work force. The
agricultural workers' unions began to gather strength after the 1967
peasant unionizing law, forming various "confederations" which by 1972
represented more than 100,000 agricultural workers.

Such political parties as the Communists and Socialists depended on the
strength of the urban and rural workers' organizations to be able to
participate in the country's political life, finally obtaining the
presidency in 1970. It was against this rapidly rising force that the
Chilean generals mobilized their troops on September 11, 1973.

The Chilean unions, in addition to serving the workers as a weapon to
obtain wage increases, better working conditions, and fringe benefits,
traditionally took an active part in politics, being the vanguard in the
struggle against the domination of the American multinationals and
paralyzing the country whenever political crises threatened to bring in
fascism and its derivatives. The owners' guilds (for example, the
Sociedad de Fomento Fabril) traditionally took the opposite position.

Lying somewhere between these adversaries were some 1,400,000 employees
and self-employed workers, whose inconsistent political position tended
to oppose that of the workers. These formed the middle stratum in the
city and the country, and traditionally they served as a kind of buffer
zone to the 1.4 percent of employers and bondholders. Some 400,000 of
these people were government exmployees during the Allende
administration. It was this middle stratum that the fascist military
movement depended on for the success of the September 11 coup.
(end of section from R.Rojas, "The Murder....",1975)

During the three years of Popular Unity government, the old
"mobilising state" began to wobble under the pressure of large sectors
of workers trying to create "a new, revolutionary, democratic,
socialist state", and the large landowners (hacendados), industrialists,
bankers and big merchants, trying to stop the "rebellion of the
masses". In the middle, the Popular Unity government led by Salvador
Allende tried to gain time. But, in 1973, the old tripple alliance
between transnational capital, domestic big capital and the state (this
time reduced to the armed arm of the state) finish their preparations
for a coup d'etat and unleashed it on Tuesday, 11 September 1973.
(For the triple alliance conspiracy against democracy in Chile, see
  S.Allende: Speech to the UN General Assembly, 4th Dec. 1972
U.S. Senate: Covert Action in Chile 1963-1973, and
   R. Rojas: "The Murder of Allende and the end of the Chilean way
              to socialism", Harper and Row, 1975)

For an account of the conspiracy to overthrow the Popular Unity
Government in 1970-1973, see:
11.- S.Allende: Speech to the UN General Assembly, 4th Dec. 1972
13.- U.S. Senate: Covert Action in Chile 1963-1973

For an analysis of Popular Unity government, see BOX 1 below.

For an analysis of the Pinochet dictatorship, see
22.-O. Letelier: Chile: economic 'freedom' and political repression 
23.-R. Rojas: 15 years of monetarism in Latin America: time to scream

==BOX 1==============================================================

Developing Societies-Social Science Yr 2-1992
Kelly Coughlan Group C

     The period of planning carried out by The Popular Unity Government
in 1970-73 was aimed at creating a democratic socialist path to
development. This particular path to development was unique in the
history of Latin America in that, the Popular Unity (a coalition of six
parties: Socialist party, Communist party, Radical party, Mapu party and
two others) was democratically elected to office by a substantial
section of the Chilean people to carry out a democratic socialist

     There are three areas to look at in order to understand why this
strategy was possible:
1.- The socio-economic conditions prevailing in Chile in 1970,
2.- the failure of past strategies of development to solve many social
and economic problems still prevailing in Chile after 150 years of
independence, and
3.- the relatively high degree of class consciousness and organisation
of the Chilean working class.

     Although Chile in 1970 was a semi-industrialised society certain
economic and social characteristics were constraining any further
significant social and economic development. These were:
-- a high degree of dependency on U.S capital (Rojas, 1976, gives the
following figures:
 machinery and equipment, 50% American controlled,
 iron, steel and metal products, 60%;
 rubber products, 45%;
 automotive assembly, 100%;
 radio and television, nearly 100%;
 office equipment, nearly 100%,
 copper fabricating, 100%,
 tobacco, 100%;
 advertising, 90% ), 
highlighted by Anaconda's, Kennecott's and ITT's interests in copper and
-- a high degree of concentration of capital and land ownership, the 3% 
of agricultural landowners considered to be latifundistas (owners of
vast amounts of agricultural land) appropriated 37% of the income
generated in that sector, while 71% of rural families received only 33%
of the income (Rojas, 1976 and Letelier, 1976)

     Even when Chile has plenty of fertile land, inefficient use by the
large landowners led to the importing of large quantities of food. The
social structure in the rural sector, an outcome of colonial rule  was
very difficult to change, due to the economic and political power of the
large landowners.

     Foreign control over strategic basic resource industries was a main
obstacle to development ( copper accounted for more than 80% of Chilean
exports, but Braden, Anaconda and Kennecott owned Chile's copper mines,
and nearly 60% of copper earnings was invested outside of Chile, lecture
notes). The result of all the above was a small domestic market, shaped
by a regressive income distribution. 
     Rojas, 1976, and Zammit, 1973,  highlight the extent of this
regressive income distribution: wage earners who made up 50% of the
workforce, received 21% of the total annual income, office workers, who
made up 22% of the workforce received 27.2%, the self-employed who
comprised 21.8% of the workforce received 17.6%, contractors and
bondholders, who were only 1.4% of the workforce received 26.4%.  

     The six-year term of the Christian Democratic government
(1964-1970) had tried to solve the above problems by attempting to
introduce the following policies: 
     -agrarian reform aiming to introduce capitalist relations of
production in the rural sector by expropriating the latifundias,
     -implementing a progressive income distribution policy through tax
     -state promotion of heavy industry and industrial diversification,
     -integration of the masses into the modern economy, ( informal
     -expropriation of some Chilean industrial monopolies, and
     -a joint ownership of the copper mines between  the U.S  companies
and the Chilean government ("chilenization").( Wynia, 1978)   

     In general the implementation of these reforms proved
difficult. The agrarian reform which had initially set out to create
100,000 new landholders expropriated less than one third of the large
estates. As Petras (1973) points out "the links between the Christian
Democrats and U.S and Chilean businessmen weakened their ability to pass
social legislation and economic reforms that would have redistributed
income and increased the participation of the working class in the
industrial system". 

     This failure brought discontent amongst the Chilean
population which facilitated the Allende victory in the 1970
presidential election, proving that the Christian Democratic reformist
government completely failed to win over the working class.

     The Popular Unity government aimed to implement a socialist
development strategy to solve, what they saw as structural blockages to

     Their strategy of planning involved the following (Popular
Unity's election program, 1969): 
A.- a gradual transfer of power from the ruling groups to the workers    
    peasants and progressive middle sectors through the creation of a    
    people's assembly, 
    and a greater participation of workers and peasants, through unions  
    and community organisations, in national and local policy decisions, 
    as well as direct representation of workers and white-collar         
    employees on the board of directors of public enterprises; 
B.- a restructuring of the economy by increasing, significantly the      
    state sector by expropriating all agricultural estates which were    
    more than eighty hectares of irrigated land (mainly the latifundia), 
    establishing cooperative ownerships, nationalising the basic         
    resource industries that were in the hands of foreign and domestic   
    monopolies ( these included the large mining industries -copper,     
    nitrate, iron and coal-), the financial system (the banks and        
    insurance companies), foreign commerce and the big distributional    
    firms. Also to be nationalised were the monopolies in other          
    production sectors that were necessary to strengthen the country's   
    economic and social development. 

     Thus, the aim was establishing a mixed public-private sector where
the state was going to establish a sort of partnership with the private
sector consisting of small and medium size private firms.

     It is necessary to point out that the Popular Unity government did
not have a majority in congress. This made the government's task of
passing legislation difficult, most of the time impossible, because it
needed the ratification of the opposition. 
     The Popular Unity government followed two policy approaches. One
approach was short-run programs to gain popular and electoral support,
the other was to implement the structural changes. 

     In the short run the Popular Unity's expansionary policies were a
success. The gross national product in 1971 grew by nearly 9%, prices
rose by only 20% and unemployment was reduced to near 2%. The land
reform was completed during the period as well as nationalisation of the
banks, and 80 Chilean industrial monopolies. Furthermore, starting with
copper, the government nationalised all the main industries with foreign

     Despite predictions that copper production would fall after the U.S
managers had left, it rose. ( Wynia, 1978). At the end of 1972, copper
output, from the large nationalised mines reached 572,000 tons, an
increase of 6% over the previous year. (Petras, 1973). 

     On the other hand, although consumption rose, gross domestic
investment declined by 5% as private firms responded negatively to the
threat of expropriation. 

     A further problem for the government was the refusal of opponents
in congress to authorize tax increases to finance the socialist program.
This forced the government to increase the money supply by 100% to cover
the fiscal deficit which triggered off an inflationary situation which
reached about 500% by the end of 1973. Official figures are as follows:
1970-71   22.1% inflation,
1971-72  163.4% inflation,
January 1972 - January 1973  180.1% inflation, 
May 1972 - May 1973  238.5%

     The bill for nationalisation was also enormous and severely
weakened the government's economic plan. The following figures (Rojas,
1976) will highlight to what extent:
purchase of shares to nationalise        
commercial banks                         400 million escudos
cash payment for the expropriation       
of large estates                         320 million escudos 
purchase of industrial oligopolies       600 million escudos
purchase of three foreign banks          120 million escudos
purchase of U.S. iron, saltpetre,        
and industrial consortia                 576 million escudos  
"indirect" indemnification to
 Anaconda and Kennecott                8,830 million escudos

(The total was the equivalent of  US $890 million, which was equivalent
to 15.8% of the Gross Domestic Product in 1971 -US$ 5,629 million)

     Balance of payments also posed problems. In 1970 Chile had a $91
million surplus, in 1971 this had turned into a deficit of $315
million. Reasons for the deficit were an overvalued exchange
rate, increased imports to meet consumer demand, the accelerated
flight of financial capital and a 30% drop in copper prices. The
flight of capital was associated with taking money out of bank
accounts because of political reasons:  Immediately after Allende's
election victory, the industrialists, bankers and large
landowners began warning people to withdraw all their savings and
deposits from their bank accounts, telling them that the
government would take all their money. This point is illustrated
very well by Rojas (1976): 
             "Two weeks after the elections, 611 million escudos         
              (some $50 million) had been withdrawn from
              current accounts in the private sector of the              
              commercial banks and the State Bank, the withdrawal        
              against adjustment bonds was 11 million escudos            
              ($900,000); and the savings and loan associations          
              suffered withdrawals of 322 million escudos (over
              $26 million)"..."the "financial panic" was completed       
              with the flight of foreign currency, dollar speculation    
              on the black market, and the artificial increase of        
              trips abroad, all in illegal maneuvers protected by        
              Frei's Ministers of the Treasury and the Economy. The      
              sale of dollars for trips abroad, which from
              January to August 1969 had averaged $5.3 million per       
              month, rose to $17.5 million in September and $13.6        
              million in October. The official price of the dollar       
              was 12.2 escudos, but on the black market it reached a     
              high of 70 escudos".
     The whole period was one of class conflict between the government
supported by majority sectors of the working class and peasants, with a
weak help from the International socialist bloc, and the Chilean power
elites supported by the middle sectors with strong backing from U.S
government, transnational companies and the International banking
system, both economically and militarily.  

     In assessing the successes and failures of the Popular
Unity's planning it is necessary to point out that it is
difficult to evaluate the program entirely on its own merits
because its performance was effected by forces and conditions,
which in the main were beyond the governments control, especially the
international blockade led by the U.S.A and using the IMF, the World
Bank and private international banks to strangulate the external sector
of the Chilean economy (Letelier, 1978; Wynia, 1978; Rojas, 1976).       
     Thus, it is impossible to assess the government's economic
performance because the socialist experiment only lasted about 30
months. There is no way to evaluate medium and long term effects. The
main point here is thinking about why this political experiment was
brought to an end in such a brutal manner (Pinochet's coup d'etat in
September, 1973). This proved that the main failure was a political one.

     As a concluding summary I do agree with Loveman's (1988)
          "the ultimate tragedy of unidad popular, then, was that
          President Allende lost the opportunity to carry out
          important social reforms while maintaining the political
          liberty that had evolved in Chile after 1932. United
          States diplomacy, economic pressure, and covert subversion  of 
          Chile's domestic politics played an important role in          
          the failure of the UP coalition. However, American or          
          other outside pressures could not by themselves have           
          ensured this failure"...Whatever the full extent of United     
          States complicity in the tragedy of September 1973, and        
          whatever the impact of international economic, the most        
          critical factor of all in the failure of the Allende           
          administration was bad politics. Bad politics- the             
          spouting of revolutionary rhetoric without the force to        
          impose a revolutionary program-produced a politico-            
          economic crisis. Bad politics prevented conciliation and       
          compromise with the Christian Democrats, the small             
          shopkeepers, the truckers, the beneficiaries of the Frei       
          agrarian reform-in short, with all the elements of the         
          middle strata, working class, and peasantry who had            
          nothing to lose and much to gain by an attack on economic      
          monopolies and foreign Corporations".


Wynia, G.        "The Politics of Latin American Development",           
                    Cambridge University Press, 1978
Petras, J.     "Latin America: From Dependence To Revolution",
                                  John Wiley & Sons, Inc, 1973  
Rojas, R.          "The Murder Of Allende", Harper & Row, 1976
Zammit, J.       "The Chilean Road To Socialism", The                    
                    Institute Of Development Studies, 1973
Loveman, B.       "Chile: The legacy Of Hispanic Capitalism", 
                                 Oxford University Press, 1988
Letelier, O.    Chile: Economic 'Freedom' And Political 
                Repression" The Institute Of Race Relations. 1976
========================end BOX 1=======rrojas research unit=========