Is the Chilean “miracle” sustainable?

Is the Chilean “miracle” sustainable?

Sunkel, Osvaldo

IN recent years, Chile has arrived at a significant consensus regarding a number of subjects central to the country’s development; and, notwithstanding certain important differences between the Concertacion government and its opposition, there is considerable agreement regarding certain basic aspects of economic growth which will doubtless continue to be maintained in the mid-to-long run.

The official policy, as laid down by the government, is that Chile’s economy is now oriented toward achieving growth with social equity, and that the way to reach those goals is by strengthening the country’s insertion into the international economy, since the world is now moving towards a globalization which no country can afford to ignore. Given this new reality, the Chilean economy is also moving to take part in this process in a strategy that has proved fairly successful in recent years. In consequence, the mid-to-long term growth model which Chile has employed to meet this situation is based upon an economy that is in the process of both modernization and rapid growth: over the last decade or so, the average rate of growth has been on the order of 6% to 7%, which is exceptional not only for the level reached, but also for the fact that it was sustained for such a prolonged period of time.

During this time, it has succeeded in laying the foundations for three of the four pillars needed for sustainable development: (1) rapid and efficient economic growth with insertion into the international economy; (2) carrying out a transition to democracy, which means that, in the political arena, Chile is taking part in one of the great trends of our time, where democracy serves as the foundation on which sustainable development is constructed; and, furthermore, (3) in addition to returning to democracy since 1990, it has also achieved a considerable reduction in poverty. This is still, and obviously, insufficient since there has not been any improvement in social equity, that is to say, in the measurable distance existing between the poorest and richest sectors. Although it appears that the indicators that exist are not entirely positive in this regard, there cannot be the least doubt that there has been, in any event, a reduction of recognizable proportions in terms of extreme poverty, and of the poorer sectors in general, from 1990 to the present.

However, these successes on the economic (national and international) and political level, and advances in the social area, are not sufficient, in and of themselves, to assure national growth for the future. It lacks a fourth pillar, which should be based on identifying those conditions needed to sustain the environmental base on which growth with equity depend.

In order to indicate how basic, and how critical, it is to give some thought to this matter, let us attempt some speculation on where Chile could be some 10-15 years from now.

As we know, natural resource and environmental issues constitute concerns that affect the medium-to-long run in a way that should be analyzed from a perspective of at least one or two decades. In a widely publicized speech in mid-1934, the Minister of Hacienda (i.e., Secretary of the Treasury) suggested that, over the next six years, the country should grow at an annual rate of about 6.8o; moreover, he indicated — a question even more serious from the environmental standpoint — that Chile would have to double the value of its exports. The only explicit reference to environmental issues in the entire speech (which reflected government policy) appeared as an expression of concern for the quality of urban life.

These plans of the Minister of Hacienda spurred a variety of reactions and generated much subsequent debate. Economists from the opposition as well as independent economists viewed these plans as too modest, arguing that the Chilean economy has the necessary conditions, capacity, and strength to grow at 7%, not to mention still others who have indicated, more recently, that the country could grow at 8% or more. In all of these considerations, in which some of the most respected economists in the nation took part, there is no reference of any kind regarding the material base — whether environmental, energy, and/or of natural resources — that would be required to sustain a rate of growth that implies doubling the standard of living of the population as a whole over the next 10-12 years.

Thus, one of the major challenges facing the country at the moment is how to make attainment of these economic and social objectives sustainable.

In the first place, in order for these targets to be reached, it is essential that exports grow very rapidly. This is an important point of analysis from the standpoint of the environment. Mot only does the environment harbor certain hidden limits and obstacles to the proposal for economic growth but, even more so, for the pursuit of an open economy and external growth. It is understandable that, in countries of high, or mid-level, development, rapid economic growth would not be a priority of such fundamental importance. This is the case with the European and Scandinavian countries, and of the United States, where economic growth is not an essential requirement for raising the standard of living, or even of improving the distribution of income to make it more equitable. This is true because these countries have already acquired the economic capability needed to provide the great majority of their populations with reasonable levels of income and qualities of life — and at lower rates of growth. That is not true of Chile. The less developed countries (LDCs) need their economies to grow at a relatively rapid rate in order to reach, on reasonable terms, those levels of per capita income required to meet the basic needs of the bulk of their population, and in a process that stresses less poverty with more equity. In other words, economic growth is a necessary, but not sufficient, condition for raising the standard of living of the poorest sectors with the least income.

Moreover, it is also important to recognize that the world now operates under a strengthened capitalistic system, one in which the entrepreneurial sector serves as the principal dynamic agent. It is only by acquiring profits, which can then be reinvested, that it is possible to carry out, and carry on, the modernization needed if competitiveness, so essential to growth, is to be achieved. One of the great differences between the opposition and government forces in Chilean society is that the government does not believe that economic growth will “trickle-down” sufficiently to reduce poverty and foster equity. Deliberate, consistently maintained social policies are needed, and this has very strong, powerful implications for the environment, as we shall see below.

In the second place, not only does the gross domestic product (GDP) have to experience a high rate of growth, but exports have to grow even faster because, at least in the medium term, exports bring in the revenues that finance needed imports. In a country with no capital-goods industry and only a very weak scientific/technological infrastructure (conditions essential to efficient growth and the ability to compete in international markets), it is possible to achieve the high rates of investment needed only by importing (and adapting) that knowledge and those capital goods, financing their purchase through the increasingly expanding export of goods. This means that if the GDP grows at a rate of 6 to 7%, exports would have to grow perhaps in the range of 9 or 10%.

This issue becomes critical when considered from the point of view of the environmental sustainability of economic growth. As we know, a high percentage of Chile’s exports are directly based on the exploitation and use of natural resources, like mining, fishing, the lumber industry, agro-industry, and tourism. The country’s export development is associated — in the first instance — with the use of specific resources: like marine resources in the case of the fishing industry, or of the forests in the lumber industry, and the most fertile soils for agriculture. If the goal is to double exports by the year 2000 and then continue to multiply them several times in the future, the question that must be addressed is: how can you prevent the rate of exploitation from outrunning the rate at which these resources could be replenished or replaced?

Naturally, not all resources entail the same considerations. In the case of mining, for example, the concern is not with conservation over the long run, but whether sufficient investment can be generated to expand the known reserves, subject to the ability to exploit resources in the future to the extent needed to maintain the expansionist rhythm of mining; and/or to direct part of the profits to invest in other resources that might serve to replace that export capacity, now occupied by mining, in the future. In the fishing sector, on the other hand, the possibilities are more limited, since this sector requires already regulation to lessen the risk of exhausting specific resources, not only through over-fishing, but also through the deterioration suffered by ecosystems from which that resource comes. On the other hand, little attention is paid to tourism in relation to its use of, and dependence upon, the conservation of natural resources, like coastal areas, lakes or wetlands, native forests, and hydrographic basins.

Nevertheless, economic activity in general — and export activity in particular — is based not only on a single resource associated with a final product, but on others as well, since the production process involves the use of generic resources like water, land, and air. Each one of these presents some critical situations in different areas of the country, a result of the conflicts that arise from trying to meet the needs of the various activities competing for their use. So, for example, air quality is particularly important in urban areas; while the water resources required for development — whether urban, industrial, agricultural, or for tourism — constitute a critical issue for the future. In the case of land, though Chile is a country that possesses a significant expanse of territory, the amount of land suitable for agriculture is limited, even more so when considered from the standpoint of the products cultivated for export; at the same time, land used for agriculture must compete with other claims, such as those that come from urban sprawl, new infrastructure, and development of the tourist and forest industries. Besides the pressure brought to bear on a given resource directly, exploitation for production affects the biodiversity of the ecosystems that surround those resources, both specific and generic, and with which they must develop and interact. This is particularly true of the marine and coastal ecosystems, as well as of the various water basins, which must be shared by all of the activities that contribute to the nation’s economic welfare.

Finally, growth of both GDP and exports is essential for bringing about, and underwriting, the third major consideration, i.e., the elimination of poverty — which is, moreover, a government commitment — with substantial improvement in social equity. Seldom is any reference made to the environmental implications of these social objectives. For example, to reduce the distance from 1 to 20 or more now existing between the poorest third of the population and the richest 10% would mean — if the country grows at an average rate of 6 to 7% per year — that per capita income of that poorest third would be growing at double or triple that average in order to reduce inequality in a relatively short period of time. What does this rapid improvement in the standard of living of the poorest third mean in material terms, in terms of specific resources, generic resources, and ecosystems? It could mean, for example, that the population who now live in flimsy, minimal dwellings have to move to larger, more solidly constructed houses; that its daily consumption of water and energy might double or triple; that use of the country’s transportation and communications systems would intensify which, in turn, would require an expansion, and more efficient use, of the nation’s infrastructure.

Thus, when a country makes plans, as a state policy, to accelerate growth and insertion of its economy into the international marketplace, and to improve the quality of life of the poorest sectors of society into a more reasonable relationship worthy of a social democracy, then it is also saying, at the same time, that it is going to bring strong additional pressure to bear on utilizing the country’s basic ecosystems, natural resources and the environment.

This constitutes an enormous challenge, one that requires greater appreciation of, and changes in treatment toward, the environment by drawing upon all the body of knowledge regarding the utilization and conservation of the natural resources sufficient to assure their continued existence and/or reproduction in the future — and then creating institutions adequate to that task. In short, planning for the environmental sustainability of economic growth and sociopolitical development represents the fourth pillar upon which the country’s future rests. The construction of this pillar is a necessary condition for the transition from an unsustainable to an environmentally sustainable economic growth path that is commensurate with social equity and democracy.

Osvaldo Sunkel is Professor of Economics and Director of the Program for Sustainable Development at the University of Chile, in addition to holding a number of other positions: Director of Pensamiento Iberoamericano (Revista de Economica Politica)

Madrid

; special advisor to the Economic Commission for Latin America and the Caribbean (ECLAC); and President of the Corporacion de Investigaciones para el Desarrollo (CINDE), among others. He is the author of many published books and articles.

* Translated from Spanish by Jane Marchi.

Copyright Journal of Interamerican Studies Fall 1995

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