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Socialist Policies Undoing Success of South America's Strongest Economy

December 15, 2014 in Economics

By Richard W. Rahn

Richard W. Rahn

Why do very successful nations often adopt policies that lead to their undoing? After a revolution or major reform, some countries allow a high degree of economic freedom, establish the rule of law, protect private property rights and establish low tax rates with strict limits on government spending and regulation. The economy takes off, the citizens become far richer and then the government mucks it up, usually by attempting to redistribute income and expand state control.

Is Chile, which has been one of the bright spots in the world economy, falling into this pattern under socialist President Michelle Bachelet?

For the past three decades, Chile has outperformed the other South American countries and now has the highest per-capita income in South America, averaging approximately $22,000 per year on a purchasing power parity basis. The World Bank lists Chile as a “developed economy,” and it was the first Latin American country to become a member of the Organization for Economic Cooperation and Development. The average Chilean has a per capita income about three times higher than in 1983. Ian Vasquez, director of the Center for Global Liberty and Prosperity at the Cato Institute, recently noted that in Chile, “all welfare indicators have risen like no other part of Latin America. Chile is not only a star in Latin America, but has been a star in terms of development around the world.”

What is happening in Chile is neither surprising nor new.”

Chile began its march to success after the overthrow of Marxist Salvador Allende in 1973 by Gen. Augusto Pinochet. Allende nationalized many companies, including the copper industry. Inflation reached 140 percent, and the economy was sinking. Pinochet had little understanding of economics when he seized power, and after flailing about, he hired a group of free market economists collectively known as the “Chicago Boys.”

The Chicago Boys began to free up the economy by removing many of the tax, regulatory, trade and other impediments to growth imposed by the socialists. According to the Annual Index of Economic Freedom in 1970, Chile had the least-free economy among those rated. By the early 1980s, Chile moved into the top half of the ranking, and by 2008 it was ranked as the fifth-freest economy in the world. Its ranking has slipped modestly in the past several years. In 2012, the latest year available, it was ranked as No. 10. Chile has been politically and economically stable, with governments swinging back and forth from moderate right to moderate left since the full restoration of …read more

Source: OP-EDS

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