Blast from the Past: Bachelet Revives Chile’s 20th-Century Disaster

EspañolSince the days of classical antiquity, we have known that “those who forget their history are doomed to repeat it,” as Marcus Tullius Cicero said. Nicolás Avellaneda, president of Argentina in the 19th century, repeated this phrase when his country found itself plunged into a deep economic and political crisis.

It is worth remembering that when his government became overwhelmed by its fiscal deficit and the country was forced to pay its large public debt, Avellaneda made the decision to drastically reduce public spending. When confronting the public with his plan of action, he said:

There are millions of Argentineans who would economize even to their hunger and thirst to fulfill the promises of our public commitments in foreign markets.

The honest attitude of Avellaneda and his people greatly contributed to Argentina’s rise, quickly becoming a country with one of the largest economies per capita in the world, on par with Britain, Germany, and France.

Unfortunately for Argentineans, within the first few decades of the 20th century, their rulers gradually changed their attitudes. This shift was hardly innocuous and caused repercussions for the general population, as evidenced by the persistent decline of Argentina’s standard of living.

We are currently witnessing a new episode of this national drama through Cristina Kirchner’s attitude toward the country’s most recent default. After listening to her statements and those of other high-ranking members of the administration, one cannot help but recall the words of Hegel: “History always repeats itself, first as tragedy, then as farce.”

The words of Cicero also come to mind when one considers the situation in Chile under Michelle Bachelet’s second term as president.

At one time, the Latin-American nation came close to knocking on the gates of hell. The process began in the 20th century with the populist politics brought forth by various administrations, especially those with socialist inclinations.

These policies produced spiraling inflation so drastic that between 1950 and 1975 the price level rose by 11,318,874 percent. Chile achieved the unenviable status of the global champion of currency destruction. Needless to say, this caused a significant decline in the quality of life of Chileans, especially in the poorest communities.

Augusto Pinochet’s subsequent dictatorship was the only logical outcome of this situation. The autocracy came from the Chilean conservatives just as easily as it could have come from the progressive left, because as Friedrich Hayek explains in The Road to Serfdom, statist policies necessarily lead in this direction.

For many years, Chileans suffered through the aftereffects of the dictatorship, but skillfully managed to recover their democracy peacefully. For Latin Americans who had gone through a similar process in their own countries, what was most striking about the situation in Chile was how its socialist politicians responded to criticism and realized their faults.

They recognized the mistakes of the past and were determined not the make them again. They understood that it was civil society, and not the state, that produces wealth. Consequently, it became clear that the best way to reduce poverty is by creating a foundation for entrepreneurship that thrives without legal obstacles.

They realized that entrepreneurs are the true national heroes, who carry the rest of the public on their backs. This was the only way out of underdevelopment and toward a path of sustainable progress over time, for the benefit of all Chilean society.

With this goal in mind, the Coalition of Parties for Democracy expertly guided the country toward this destination, making Chile a role model for the rest of South America. This path, its economic success, and social progress continued under the more conservative, business-oriented administration of Sebastián Piñera.

Inexplicably, however, in her run for a second term as president, Michelle Bachelet has apparently changed course. To start with, she has allied herself with Communist Party representatives, something the coalition had avoided doing. This alone shows a radical change in policy relative to business, and the respective roles that the state and civil society should have in this regard.

Suspicions were then confirmed when, after taking office, Bachelet sent Parliament a tax reform bill, to raise corporate taxes. The stated goal was to raise revenues by 3 percent of GDP, which translates to nearly US$8.2 billion a year.

After learning the details of the tax proposal, Renato Peñafiel, CEO of Grupo Security, said: “As a businessman, I think a significant tax increase could dampen investments and employment. Increasing taxes does not provide an incentive to invest; that is a fallacy.”

Despite this and other similar warnings, Bachelet continued unfazed with her statist, populist objectives and the bill was signed into law.

The consequences were immediate. Recently, the Central Bank reported Chile’s economic activity in June rose just 0.8 percent over the same month a year ago. Preliminary results show declines in manufacturing, wholesale, and car sales.

It is the lowest reading since March 2010, when annual growth was down to just 0.2 percent. At the time, the economy was still feeling the effects of the earthquake and tsunami that damaged the central and southern areas of the country.

The current record lows may be hinting towards the coming economic, social, and political tsunami, if the Bachelet administration does not change its course.

Previous governments were able to claim ignorance of the potentially disastrous effects of their actions. Today, that is no longer the case, and there is nothing to absolve the current authorities of their responsibilities.

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