Chile has been one of the most studied economies in recent history due to its impressive feats during global recessions. Being a small, copper export dependent economy until the 1980s, Chile often went under the radar on the global marketplace. Due to policy changes starting in 1985 and a political regime change in 1990, Chile began to thrive. Chile now boasts an economic model which encourages economic freedom, competitiveness, and investment. This model has allowed for Chile to have the highest per capita income in Latin America. Although Chile has had successes with its economy, it is still considered a developing country. ...view middle of the document...
During this transitional period, Chile was in the early stages of developing its social class system. By this time the majority of the population consisted of the working and middle classes. They wanted a new type of government that would enable social equality for all and with that respect they elected Arturo Alessandri. As the first liberal president of Chile, Alessandri was a firm believer in social reforms that would make the state of Chile a more collectivist society. Unfortunately, the conservative congress, backed by the military, would not allow the proposed reforms to be enacted by the government. From this point on until 1970 there is an ongoing battle between the liberal socialist and the military conservatives. Much of these year are represented by political instability that has led to countless defeated elected parties that have not lasted very long.
By 1970 a new president was elected by the name of Salvador Allende. His vision for Chile was that from a Marxist point of view. He believed that Chile should become a socialist government that controlled every aspect of the economy. By the beginning of his first term Allende goal was to nationalize every enterprise within Chile. He started with the banking sector and then moved on to nationalize many of the industrialized sectors of the economy, like mining, construction, and steel industries. In addition, Allende’s policy also included prices controls of certain goods, increase in wages, and a tax reform that redistributed income to those in need. Although Allende’s policies worked in the short run, they could not be sustained. After about a year into his presidency much of the new reforms enacted were beginning to fail. First, Chile experienced capital flight in many of the public works projects it had established under Allende. Second inflation began to increase at an exponential rate. It was reported that inflation surpassed 200%. And finally a combination of plummeting private investment and increased bank withdraws caused a massive upheaval within Chile. Some of the negative effects included, the public sector deficit was over 25% of GDP, international currency reserves were staring to decrease dramatically, and real wage fell by approximately 15% and continued to fall.
After three years, the Marxist government under Salvador Allende was overthrown in 1973 by a military coup led by Augusto Pinochet. The new military government, now under Augusto Pinochet, acted quickly to get the economy back on track. With the advice from the “Chicago Boys”, a group of Chilean economist that studied at the University of Chicago under the supervision of Milton Freidman, Pinochet followed the idea of free markets. First, they enacted policies that would re-privatize all the banks and other enterprises. Second, they had to increase monetary policy by reducing inflation and stabilizing their currency. Then they eliminated all governmental price controls, they called it the liberalization if the...