So successful that it passed a historical milestone in the process of becoming the first developed country of Latin America: Chile is now a member of the OECD, better known as the club of industrialized/developed countries. Here is the OECD news report, and here is a German report for my German readers.
Let’s see how Chile’s economy transformed during the last 40 years. Here is a comparison of real GDP over time from Wikipedia, using the respected dataset from Angus Maddison (the blue line is Chile, the orange line is the Latin American average):
Let’s compare Chile to Argentina and Brazil (illustration done by me, dataset is the same from Angus Maddison):
Note that Chile is yellow this time and that I started in 1961, which makes the increase after 1983 appear less dramatic. Of course, this is only a visual, not a factual, difference.
Let me emphazise some aspects of this chart. I’m sorry for the German text, but I didn’t want to make new charts. “Beginn der Pinochet-Regierung” means “beginning of the Pinochet administration”:
You can see that Chile was about to fall behind Brazil before the Pinochet administration. This was because of the socialist Allende administration, which introduced socialism to the Chilean economy from 1970 onwards, with clear effects afterwards. At that time, GDP growth since 1961 had been even worse than that of Argentina, a country that experienced two military coups, massive social upheaval, and inflation up to 50% per year between 1961 and 1970. Chile’s only trouble in that time period was high inflation, though it was not higher than in Argentina.
With the exception of the financial crisis in 1982 that was brought along by wrong monetary policy (note: against the advice of Milton Friedman!), the Chilean economy boomed ever after the privatization and liberalization efforts of the Pinochet administration. In 1973 Argentina’s GDP was almost twice as high as Chile’s. Today Chile has surpassed Argentina and is in much better shape for sustainable future growth than Argentina, which seemingly is bound to become bankrupt again in the next two years.
But there is even more to see in this GDP chart. Let’s have another look:
What I want to show to you with my awesome drawing skills is that Brazil experienced something similar to Pinochet’s Chile, the so called Brazilian miracle. Roughly between 1967 and 1980, the Brazilian economy grew at a rate comparable to that of China today, over 7% per year. As with all economic “miracles”, they are not miracles at all. Instead, they are the result of economic liberalization, i.e. deregulation, and privatization, i.e. abolishing state ownership. Before 1967, the Brazilian economy was buried under leftist policies, which included forced industrialization, nationalization, and inflation up to 75% per year because of the government’s inability to control expenditures, though one has to admit that this is really difficult to do when you nationalize half of the economy…
By the way, if you ask yourself why the Brazilian miracle did not last that long, please be reminded that the democratic governments from the 1980s onwards revoke some of the earlier reforms. Further, they caused a terrible hyperinflation that wrecked the whole financial system and deprived many Brazilians of their personal savings.
To conclude, military governments are certainly not a good thing. The Juntas in Argentina and Uruguay failed to reform the economy properly, perhaps they even did more harm than good to the economy. But if democracy fails to provide a sustainable legislative framework for the economy, then a military coup might be the last resort. What would have been the alternative in Latin American countries? All mentioned countries were caught in a vicious circle of leftist policies that wrecked the economy, and increasing demands for socialism because of the bad economy. Brazil and Chile were on the verge of full-scale communism. Let’s just hope that European and American democracies work better, so that we will never go that far.