Chile is one of the most prosperous countries in South America and as such is often held up as a point of comparison against its neighbors that have struggled with chronic instability in economic mismanagement the reality is though that Chile is a very unique nation that despite inhabiting the same general geographic region has a lot more to do with countries on the other side of the world than it does with those on the same continent that economic Prosperity is also worth investigating as well because alongside being one of the wealthiest countries in the region it's also one of the most unequal in the world low taxes LAX regulation in an ultra bus friendly environment have a lot of economists and commentators questioning if this is the secret to its success or if it's sold its people its resources and its future for some good-looking economic metrics today concerns over that inequality are not going away and the country is entering a dangerous position where it's people have enough to fight for but also not enough to lose by speaking out now this by itself is something that we've explored many times on this channel but beyond those internal problems it's worth understanding what they could mean for its external interactions with the rest of the world when we think of Natural Resources we tend to think of oil or maybe iron oil but they are relatively widespread and even though there are cartels like OPEC to restrict Supply there are still a relatively diverse array of supplies for people to get their dinosaur juice from Chile on the other hand is responsible for exporting a third of the world's copper right as this material is going into more and more manufactured products than ever before it has become a mining Powerhouse by being arguably over accommodating a foreign resource companies and if it's people decide that they've had enough of giving their resources away it could have major ramifications for the global economy so Chile is more than a case study into the relative success of a South American Nation or the issues of under Taxation and regulation it's an important country to watch purely for our own selfish interests so how did Chile become the apparent success story it is today has that success really translated into a high quality of life for its people and finally could the country address these concerns without crippling some of the world's most important industries once we've done all that we can put Chile on the economics explained leaderboard energy use tracks basically one to one with the GDP of a country the more energy a country consumes the higher it's GDP but of course the country requires new small businesses to create the opportunities that all kinds of energy usage fossil fuels or otherwise unlock for a lot of businesses this often means shipping directly to people's homes that's where our sponsor for this video stamps. com comes in they have discounts of up to 89% off ups and USPS so you can send what you need to faster and cheaper from the comfort of your own home or office it's all easy and takes no time at all with their apps so whether you're mailing out checks invoices legal documents books or anything else there's no better way to send out your business's branded mugs subscription boxes or quirky calendars to make things even simpler stamps. com can connect with all major marketplaces and online shopping carts so you don't have to spend tons of time copying and pasting details for every delivery it can all be done for you so keep your mailing and shipping moving at the speed of your business with stamps.
com sign up at stamps. com for a special offer that includes a 4-we trial plus free postage and a free digital scale no long-term commitments or contracts just go to stamps. com after declaring independence from Spain in 1818 it took decades for the Chilean government to get its bearings but the product of this political infighting resulted in the appointment of leadership with different priorities in comparison to its 19th century neighbors as their constitution developed it became clear that the major objective was to construct a government conducive to business of course this doesn't mean that Chile was a pure democracy with the people's interest in mind far from it however they did see periods in which administrations peacefully transferred power after albeit lengthy terms and peace is the operative word here sure terms were long wars were fought and the power transferred was to someone close to the previous administration but Chile's initial domestic stability was something that many other Latin American countries couldn't or still can't achieve stability that would allow the country to focus on economic goals without them being undone by a continual wave of political shakeups by 1870 Chile started with its first major set of mining projects with its GDP per capita twice that of Mexico's by 1896 shortly after this compromised stability was briefly interrupted by a civil war stemming from a desire to change constitutional law coming into the 20th century after that Chile began leveraging its resources to invest into infrastructure projects education and other public benefits that encouraged skilled laborers from Europe to settle in major port cities it's important to note that Chile's early period of Peace helped encourage industrial growth because what followed would lead them stagnant for almost a century the F and compromise of strong leaders that at least kept the economy on track started to fall apart which triggered a series of internal conflicts that would force Chile to join many of its unstable neighbors with its own series of coups often born out of the desire to improve working conditions it was not until the 1980s when the reigning regime faced pressure from the opposition following the end of an 8e term the Chile started to heal politically and economically so the country went from success to failure and back again which for obvious reasons is very interesting to a lot of countries in South America and the rest of the world for that matter so how did they do it the country's recovery period was a bit of an economic Miracle emphasis on a bit because it took a tremendous amount of work and more importantly restraint to get chile back on the map as an example of Latin American Prosperity at least on paper the origin story of how this came to be was quite bizarre a lot of Latin American countries have state owned Enterprises and a lot of countries abroad make it work Norway is a perfect example of that but in a lot of South American countries where the systems aren't finally tuned to check and regulate management well corruption and embezzlement it's been known to happen starting in the 70s and ' 80s before democratization Chile started to privatize with the guidance of a group of economists known as the Chicago boys at the time Chile was a developing country in the Civil warw tradition chalain business groups were young and steady and at the start of the 70s only about 20% of publicly traded firms were affiliated with a business Group by 1990 this affiliation Rose to about 70% for publicly traded firms with outside businessmen replacing much of the bureaucratic aristocracy that had been in control for decades this was a result of what one would call a re-education program perhaps the most controversial economic story in Chell to this very day until about 1973 a majority of Latin American countries operated their economies based on the principles held by the United Nations economic commission for Latin America and the Caribbean or eclac a strong State protectionism and inward development prioritizing industrialization as a way to emerge from underdevelopment of course this is just a colorful way to say that the continent shared an interest in state dominance feeling that free market competition was not the only way to enter the modern industrial landscape but this was all happening at the height of the Cold War and the Bal Eagle Country up north was not about to lose ground so they developed a long-term plan with Chilean Elites they sponsored an agreement between the University of Chicago and the pontificate Catholic University of Chile or pu signed back in the 50s that enabled the exchange of professors and postgraduate fellows now a quick side note is that the University of Chicago has historically been a huge proponent of the virtues of the free market and has a reputation for generally touting the virtues of deregulating as much as possible to let competitive business St its thing unrestricted by inefficient government meddling most famously this Chicago School of thought is associated with Milton Freeman who was a professor there at the time but it was largely supported by the rest of the faculty as well anyway this Chile project brought 26 Chilean students over to Chicago between 1956 and 1964 where they were later sent back to take over the Pu School of Economics when On The Rise back in Chile if the Chicago boys were asked about their vocation they would say that they were passionate scientists who were driven solely by objective truths but many today argue arue that their motives were far less pure than they made it out to be regardless this was a slow moving process it wasn't until 1975 that the leader of the Chicago boys was named Chile's economic Minister where they started making efforts to combat the hyperinflation caused by the last active Administration efforts that would not have been possible if the current government hadn't given them almost total autonomy these extreme circumstances gave them the power to enact their own brand of economic shock treatment the Chicago boy objective here promoted drastic Cuts in public spending and social investment Industrial production fell 28% in 1975 while GDP was down 12.
9% the Hope remained that things had to get worse before they got better once the signal was given the government opened the economy quickly which involved liberalizing prices customs fees were lowered from a maximum of 94% to a blanket 10% Duty and some higher taxes were completely removed at its peak almost all chain industry was privatized along with sectors like health and education in an effort to awaken a sense of competitiveness in the Chilean economy and for a short while it worked at least partially inflation remained high but it did drop from over 200% to an annual average of 79. 9% and the open market strategy did encourage more trade and competition but then came the real challenge that Ender the Chicago boys active participation in the Chilean economy something that plagues developing countries All Over The World Export dependency combined with Antiquated policy when the price of copper fell along with the country's other main export Commodities the US dollar was simultaneously appreciating with the rising interest rates Chile stagnation became a huge problem and these recent improvements and long-standing Export strengths were no longer insulating them from changes beyond their borders a major reason for this was that the Chilean Central Bank had pegged its currency to the US dollar in 1979 with an emphasis on lowering the rate of devaluation again the country's aim was to drive inflation closer to International levels the government also believed that the pre-announcement of the devaluation would help to remove uncertainty and align domestic interest rates with those abroad they lifted trade restrictions reduced tariffs all in an effort to tell the world that Chile was once again open for business but new and old policies proved to be non-compatible slow moving Capital restricted outflows and most long-term lines of credit been subject to approval from Chile Central Bank a financial crisis became inevitable with a problematic indexation model that automatically adjusted wages with inflation it caused a runaway price spiral GDP fell by over 14% in 1982 with unemployment skyrocketing to about 24% severely damaging or outright destroying a large portion of its banking sector shortly after the crash started the Chicago boys were disbanded and a Revolution using an 8-year term agreement in the regimes Constitution restored democracy for Chile and its people and this is where things get really interesting after Chile's transformation it only took about 1 year between 1982 and 1983 for the country to begin to recover and since then schlain GDP has continued de climb with relative stability into the present day of course much of this is because of Chile's legendary status as a global provider of copper as the world's largest producer Chile is responsible for onethird of the entire planet's output and this isn't expected to change anytime soon if anything Chile will most likely benefit from increased demand as a significant amount of modern tech relies on the Metal's conductivity to function there are other parts of the Chile machine that are proving to be quite competitive as well with a 2022 report showing that Agriculture and related sectors represented about 27% of national exports at the moment the Chile and service sector dominates the P though contributing to 54. 3% of the country's GDP and employing about 70% of the country's population very much in line with most advanced economies these are good numbers numbers that on the surface should translate into almost Universal lifestyle improvements for the populace and yet what has been good for chile hasn't necessarily been good for Chileans see when the Chicago boys left their controversial policies for the most part didn't sure some of the dramatic privatization was tamed in an effort to improve and restore social programs but the perhaps overly business friendly regulations or black thereof remain between 1990 in 1998 the previously crippled TR GDP grow 7.
1% annually inflation fell to 11. 7 % and unemployment dropped to 7% while poverty decreased steadily to reach 8. 6% in 2017 for some this economic Prosperity was the product of the Chicago boys effort to set the economy free they argued that the economic Miracle may have occurred after democratization but that Economic Policy by its very nature is slow moving meaning that all of the benefits the Chilean people have today was born out of the seeds planted in the 70s and the early ' 80s in short they surmise that the government's acceptance of the policies After the revolution is in itself prove that the economy would not have improved without them to the critics this is an incomplete story and they have a fair enough argument the primary reason has to do with the effects that this miracle has had when it comes to wealth distribution yes Chile has an impressive per capita GDP for the region about $165,000 however half of Chilean workers earn $ 6,320 or less annually or about $550 per month about 50 to 60% of income is earned by the richest 20% of Chile's Elite which in turn makes wealth inequality even worse as it it's very hard to save money on an income that is relatively low compared to the national average that is dragged up a lot by the people at the top between 2019 and 20122 Chile experienced a catastrophic series of protests costing an estimated $3.
5 billion in Damages to property resulting in the loss of about 300,000 jobs in recent years the government has been progressively more and more open to making concessions even going as far as offering to change their constitution to appease the populace but it's going to be hard to appease these demands without spooking the international companies with large operations in the country that are responsible for a lot of that headline success to begin with so can the country address these concerns without shaking up Global Supply chains well social reforms might be a good start taking some of that headline wealth and putting it towards simple things like public education could not only give its workers an opportunity to compete it can also just generally increase overall productivity the problem with these idealistic Solutions though is that they take time investing in the education of a child today isn't going to provide economic returns until they are productive m member of the workforce now the good news is the situation is slowly improving today income inequality as measured by its Genie coefficient is right in line with the USA down significantly from the extreme levels of the 1980s though to be fair the USA is not exactly a shining Beacon of social equality and perhaps more importantly it's a much richer country overall so even though the distribution of income may be similar poorer us workers are still sharing in a much larger income P overall either way if Chell wants to make real changes to maintain its ation of stability in Latin America it'll ultimately have to introduce reform that diverts much larger sums of money to the underpaid labor forces in demanding Industries which seems to be what at least part of the system is encouraging they'll also need to diversify even if the need for copper and lithium is on the rise leaning on a non-renewable resources has never proven to be sustainable on the face of it Chile is a prosperous economy with the highest GDP per capita on the continent even in the wake of recent events but it's a country plagued by the kind of inequality that can genuinely undermine a lot of that stability and growth even if it's not an outright Revolution people in tough situations will support political figures that offer more extreme solutions to these pressing issues all right now it's time to put Chile on the economics explained leaderboard starting as always with size Chile has GDP of 335 billion making it the 45th largest economy in the world just behind Pakistan and just ahead of the Czech Republic despite its relative stability and prosperity this still puts it behind Brazil Argentina and even Colombia amongst its neighbors by raw output alone and it getss a 6 out of 10 now largely that's just because Chile has a significantly smaller population than these other countries only been home to 19. 5 million people which means its GDP per capita is significantly higher at just over $177,000 and this makes it one of the most productive economies in the region on a per capita basis only falling slightly behind Uruguay and Guana which are both much smaller economies overall this puts Chile about 50% above the global per capita GDP average and it gets a 6 out of 10 stability and confidence is good for the region which was made it a popular destination for international companies and operations that want to do business in South America but don't want to be directly exposed to the political instability that has plagued many of the other countries Chile has had quite robust monetary stability good property rights and the second lowest levels of perceived corruption on the continent again just behind Uruguay now it's still not perfect by any means and an over Alliance on natural resources and a general push back against the free reign that businesses have had in the nation over the last four decades could shake things up again and to be candid being the most stable country in South America is like having the best teeth in the UK anyway it gets a 7 out of 10 growth has been strong will be a little bit shaky over the last decade with ups and downs caused by changes in commodity prices and investment inflows it's still moving in the right direction though and it gets a 7 out of 10 industry is helped a lot by its business-friendly environment but there is The Balancing Act to be found here there's a difference between making things easy for new Enterprises to get off the ground and letting International companies walk all over the economy while it's arguably still finding that right balance and relying l so heavily on natural resource exports it gets a 6 out of 10 altogether that gives Chell a very respectable average score of 6.
