Latin American leader: Chilean economic miracle and its development model choice
In Latin America, as a typical area of the “middle income trap” clearly defined by the World Bank,  in the historical evolution of more than half a century, its development path has revealed a number of commonalities, especially reflected in the different degrees of Latin American countries. Into the dilemma of “resource curse.” Although the Latin American countries started the modernization process as early as the middle of the 20th century, the abundant natural resources of the region failed to provide important material support for the regional economic development. Instead, the production structure of these countries became simplistic, and the development was stalled for a long time. decline.
However, in the context of the general development difficulties in Latin America, there is a special case – Chile. Chile has a land area of about 756,000 square kilometers and a total population of less than 18 million. From these two indicators, Chile is not dominant, but it has built the most stable and perfect social and economic system in Latin America, and was The OECD, which is known as the “Football Club”, became the only member of the Latin American region except Mexico. The international community has hailed the successful experience and development concept formed by Chile in its own modernization process as the “Chilean model”. Under this development model, Chile has successfully achieved a leap in the so-called “middle income trap”. As shown in the figure, as early as the 1960s, Chile and Latin America had a per capita GDP of more than 3,000 US dollars, but in the next 30 years, Chile’s per capita GDP did not open to the average level of Latin American countries, even in the 1970s and 1980s. Behind the regional level. However, since the 1990s, with the full liberalization of export-oriented reforms, Chile’s social economy has achieved rapid growth and continued to maintain steady growth after per capita income of more than 10,000 US dollars. According to the World Bank, by 2017 this figure has exceeded $15,000, far more than other Latin American countries.
From the perspective of historical changes, since the 1960s, Chile’s inward-oriented import substitution industrialization model, which has been in operation for 30 years, has begun to expose many drawbacks and limitations. In view of this, in 1973 Pinochet came to power, opened up the 17-year military government rule, and comprehensively rolled out economic reforms, turned to neoliberal development model, adjusted industrial structure, implemented privatization, opened up markets, and expanded free trade. . In the early 1980s, under the impact of the debt crisis in Latin America, Chile experienced a serious economic recession, but the military government still insisted on the idea and direction of the reform of externalization. Since the end of the 1980s, Chile’s social economy has finally passed the “painful period” of deep reform, and its fundamentals have stabilized. 1990 was a page engraved in the history of Chile. In this year, the military government “returned to the people” and started the process of democratization; also since this year, Chile has entered a high-speed development track. Since then, the successive literati governments have not fully failed to subvert the economic reforms of the military government period in view of the full understanding of the necessity of the state’s implementation of the export-oriented development model, but have effectively guaranteed the continuity of this process, supplemented by a number of social-level policy adjustments. Designed to build a more robust and efficient development system.
The growth of a country’s economy requires efficient and sound institutions as a support, and the perfect system and economic growth are mutually reinforcing and mutually reinforcing. In view of this, this article explores the root causes of the uneven economic development in Latin America from an institutional perspective. As one of the most abundant natural resources in the world, Latin America’s primary product sector has an overwhelming contribution to the region’s GDP and population size.  However, resource discovery and mining activities tend to pull down the quality of national institutions. In the historical development of nearly half a century, the prosperity of resource economy has distorted the distribution structure of Latin American political and economic actors on the factors of production, and led to the stagnation and fragmentation of the country’s industrialization process for a long time. In this context, Chile, as the world’s most important copper mining and exporting country, has not fallen into the same inefficient development track as other Latin American resource-based countries. Instead, it has explored a successful “Chilean model” and got rid of it. The volatility and uncertainty of the resource economy itself. This paper believes that Chile’s ability to achieve economic growth is inseparable from the country’s modern development model of the resource sector and its outstanding systemic endowments. In general, it can be analyzed from the following three dimensions: the robustness and predictability of policy implementation, the sustainability and counter-cyclicality of institutional arrangements, and the openness and diversification of external development concepts.
Robustness and predictability of policy implementation
In the change of party power in Latin American countries, there is a general lack of continuity in ideology and policy orientation. Faced with many uncertainties in the political structure, leaders of various countries will regard the wider support of voters as the top priority when they step on the stage. They often give priority to resources that belong to the same camp and can help them stabilize their political interests. On the group, it puts aside policies that are conducive to the sustainable development of the country’s social economy. In this context, the fiscal expenditure structure of Latin American countries based on resource economy presents short-sighted and highly discounted features, and lacks incentives for production sectors that can produce incremental returns in the long run. However, Chile is a counterexample. Since the democratization in the 1990s, the political ecology of the country has been very robust. Even if the left and right regimes change through elections, the policy differences are not obvious, that is, there is no “left turn” in the Latin American political tradition. , “Right turn” effect. Thanks to the joint efforts of several governments, the positions of Chilean political factions on the core development of the country have gradually converge. This undoubtedly enhances the credibility of the government’s commitment and the tolerance of the policy, which in turn helps to increase investor trust in the sustainability of its policies. This is crucial for a country to build an efficient business environment that will enhance its attractiveness to foreign investment. If investors hold negative expectations about the stability of a country’s policy, then any relevant policy signals will have a significant blocking effect on the investment flow. In Latin America, most countries fail to form a positive interaction between fiscal policy and investment behavior. Taking the resource sector as an example, resource development companies generally lack trust in the quality and efficiency of government resource management systems. Therefore, in the face of fluctuations in fiscal and taxation policies, the risk premium expected by investors will expand to a greater extent.
Here we compare the case between Mexico and Chile to demonstrate that the credibility and predictability of the policy are important reasons for the different outcomes between the two countries in achieving financial goals and investment incentives. As a major producer of oil and gas resources, Mexico experienced a significant contraction in investment size between 1975 and 2008, despite resource-related fiscal revenues. By raising the tax rate, the Mexican government was able to collect more revenue from its own state-owned oil and gas company (PEMEX), but a series of social and economic turmoil, especially the outbreak of the financial crisis in the mid-1990s, seriously damaged the stability of the country’s political situation. It has made Mexico lose its attractiveness to foreign investment.  Due to the lack of sufficient foreign investment, Campeche Bay, the most important oilfield developed by PEMEX, has experienced a significant decline in production since 2006, despite its resource boom. It can be argued that Mexico has long been caught in the dilemma of fiscal revenue expansion and investment boost.
In addition, Chile has simultaneously achieved the dual goal of attracting investment from the copper mining sector and increasing the financial revenue of resources. In the early 1990s, as Chile had just achieved a democratic transition from the Pinochet military government dictatorship, the political system and the business environment were full of uncertainty. In order to boost private sector confidence in the copper sector to attract sufficient investment, the Chilean government has adopted a series of tax incentives. Facts have proved that this kind of financial “discount” is necessary and effective. On the one hand, Chile’s state-owned copper mine company (CODELCO), as the main source of government finance, gives full play to its financial revenue extraction function, while minimizing investment in exploration and mining activities. On the other hand, the private sector fully enjoys tax incentives for a period of time, vigorously expands investment, and improves resource development capabilities. After nearly three decades of democratization, thanks to the high efficiency of macroeconomic and economic regulation and the improvement of the resource management system, Chile’s good political reputation and stable operation of the system have won a reputation among international investors. Based on this, even if the Chilean government proposes a higher fiscal and tax share in the future resource mining negotiations, it will not cause a rebound in foreign investment.
Sustainability and reverse periodicity of institutional arrangements
In the past half century, the fragility of the economic system in Latin America has seriously hindered the pace of industrialization and modernization in various countries, mainly due to the excessive tilt of the economic structure of the primary product sector. It should be considered that the accumulation of productive capital and the implementation of sustainable development planning in a country require the government to adhere to the concept of sustainable development and make full use of public policy instruments, especially to play the counter-cyclical function of regulatory tools to offset the volatility of the resource economy itself. . If a country has traditionally built a sound government fiscal allocation mechanism and prudently responded to the extra income profits caused by commodity booms, then these countries generally have the ability to withstand cyclical shocks. In this sense, sovereign wealth funds are a reasonable and effective policy option.
It is worth pointing out that the effective operation of this mechanism not only requires long-term accumulation of experience at the operational level, but also requires a strong government role as a support, because large-scale savings are made during the resource cycle, especially during the price increase period. The decision-making is politically challenging, and the government needs to withstand the pressure from all parties to ensure the deposit of a specific share of income in strict accordance with the regulations. In this regard, governments in Latin America generally lack sufficient capacity and incentives to ensure the sustainable accumulation of wealth. During the economic boom, governments that were previously lacking in credibility faced greater pressures on current spending, so they often had to give up stability funds or sustainable fiscal rules, which led to the country’s counter-cyclical system security rankings.
Since the 1970s, some Latin American countries have tentatively established stabilization funds or consciously implemented some counter-cyclical measures in the process of industrialization construction, with a view to alleviating the price fluctuations of international commodities. After entering the 21st century, countries have formally established a sovereign wealth fund mechanism based on the return of natural resources, aiming to save a portion of resource revenues through institutionalized operations and invest in improving infrastructure, specific education and training programs, technological capabilities, etc. field. However, it is undeniable that this fiscal arrangement with countercyclical functions is still scarce in Latin America. Of the 70 global funds counted by the Sovereign Wealth Fund Institute, Latin America has only 8 seats, while Chile accounts for a quarter of it. Although many countries in Latin America have established similar income smoothing mechanisms, only Chile and Trinidad and Tobago have long-term plans for the use of these funds;  In addition, according to the Income Watch Institute, the region Within the scope, only the Chilean Stabilization Fund mechanism is working effectively, and the relevant mechanisms in other countries have not effectively performed their functions. 
For more than a decade, Chile has implemented structurally balanced fiscal rules with a view to separating the level of fiscal expenditure under cyclical economic fluctuations from the negative spillovers of copper price fluctuations. In this regard, the national copper mine revenue management system is highly transparent, and the government has clearly defined the functions and positioning of countercyclical fiscal instruments. For example, the creation of the country’s Economic and Social Stabilization Fund aims to further compensate for the fiscal gap during periods of slow growth or low copper prices. The income and expenditure of this institutional arrangement has obvious counter-cyclical characteristics. As of the end of 2017, the total revenue was about 21.8 billion US dollars, which was accumulated in 2007-2008, where the copper price was in the “super cycle”, and the global financial crisis and Europe. After the debt, the international commodity prices stabilized and rebounded in 2010, 2012 and 2013; the total expenditure was 10.9 billion US dollars, mainly in response to the global economic shock in 2009, and the international copper price has entered a downward cycle since 2014, which is in a downturn. Domestic macroeconomic injections are motivated.  Especially in 2009, in the period of resisting the global economic crisis, the Chilean government made a decision to use half of the total funds accumulated in the previous two years for the bailout plan. This measure not only enabled the sovereign wealth fund mechanism to effectively play the role of society. The role of economic stabilizers also marks the maturity of the Chilean government’s countercyclical economic management system with a structural balance.
Openness and diversification of the concept of external development
The choice of foreign policy is an important institutional element for Chile to achieve economic growth. In the past three decades, in view of the special geographical location of Asia across the sea, the tilt to the Asia-Pacific region is the basic position of the Chilean government’s consistent economic and trade policy. Specifically, as an active advocate and practitioner of global multilateral free trade regulation, the country has been seeking to open its doors to Asia-Pacific countries for many years, expanding the diversified development of foreign trade relations, especially deepening relations with China. This trend is evident in its positive position on a range of Pacific Rim, subregional cooperation and integration organizations, such as the Asia-Pacific Economic Cooperation (APEC), the Trans-Pacific Partnership (TPP), and the Latin American Pacific Alliance.
It can be argued that the concept of freedom and openness that Chile has always pursued is inconsistent with the inward-looking development model characterized by high tariffs and trade protectionism in many Latin American countries. However, this externalization preference is in line with the changing trend of international economic and trade patterns in recent years. : First, the global multilateral trade regulation capacity represented by WTO is gradually declining, free trade agreements are popular on a global scale; second, in the context of today’s world economic growth center from the Atlantic to the Pacific, especially in 2009, global finance. After the crisis, a number of emerging Asia-Pacific economies, including China, have become new growth points for global development. Based on the above two points, Chile has actively expanded its relations with Asia-Pacific countries, especially emerging markets, by signing bilateral free trade agreements with a more pragmatic and open policy stance, and is striving to promote diversified economic development. 
As one of the countries with the highest degree of freedom in the world economy and one of the countries with the largest number of free trade agreements, the Chilean government knows that the Asia-Pacific countries have a large population and a vast market. The demand for raw materials, especially copper mines, is huge, and bilateral trade is highly complementary. Sex. Therefore, over the years, it has been committed to negotiations on free trade agreements with Asian countries. By the end of 2018, there have been more than 10 Asia-Pacific countries and regions that have signed a free trade agreement with Chile. It is particularly worth noting that Chile is the first country with China. Signing and updating the Latin American countries of the FTA; on the other hand, Chile has been hoping for a greater role in the process of economic integration in the Asia-Pacific region for many years and positioning itself as a “link between Asia-Pacific and Latin America”, especially Asian countries build bridges with South American countries facing the Atlantic. In terms of expanding contacts with Asia-Pacific countries, Chile has carried out a large number of practices and attempts, and has become one of the countries with the most experience in dealing with Asian affairs in Latin America.
It should be pointed out that Chile’s foreign policy orientation can not only enable it to reduce its dependence on traditional destinations – European and American markets, but also enhance its own economic system’s ability to withstand external risks, and can fully utilize the development dividends of emerging economies. Provide incentives for the country to gain new economic growth points.
The freedom and openness of Chile’s foreign policy design is also reflected in the tolerance of foreign capital investment. As is known to all, the country ranks first in Latin America in terms of investment climate indicators such as economic freedom, business environment and economic integrity. It even ranks among the top in the global rankings. This is reflected in the country’s national treatment of foreign investment. When you enter Chile, you will enjoy the same treatment as your domestic company. In addition, in order to encourage technology research and development and new energy project development, the Chilean government has introduced a series of tax incentives and financial support measures. These institutional conditions will undoubtedly increase the expectation of multinational companies’ return on investment in the country.
Enlightenment and prospect
After half a century of historical evolution, the Chilean government has successfully explored a modern development model based on its own national conditions. Instead of falling into a “growth trap” like other Latin American countries, it has created an economic miracle and successfully entered a country with high income levels. Ranks. From the perspective of institutional attribution, the world-famous “Chilean model” mainly benefits from three levels of endowment characteristics: the stability and predictability of policy implementation, the sustainability and counter-cyclicality of institutional arrangements, and the concept of external development. Openness and diversity. At a deeper level, the country’s ability to build an efficient regulatory system that other countries in the region cannot achieve is inextricably linked to its sound national governance capabilities and matching value proposition.
First, from the perspective of national governance capabilities, according to the definition of the Latin American Development Bank,  in a democratic society, national capabilities are particularly reflected in whether the winners can fulfill their commitments to voters and whether the public can resort to questions. The responsibility mechanism protects its own rights and interests. In order to measure these concepts, the author compares the performance of countries in the inter-regional credibility and political inclusion level according to the World Bank database . Studies have shown that Chile is outstanding in both of the above indicators. As far as the former is concerned, the Chilean people generally have positive expectations for their government’s institutional capacity to promote political consensus and agreement. It is worth pointing out that for resource-rich countries, under the influence of cyclical factors, the influx of short-term huge resource returns will have great appeal, and induce the national government or political elite to seek private gains and resort to dishonesty. Behaviors, such as tearing up wealth distribution agreements that have been reached with resource developers, are common in Latin America. However, the Chilean government has been able to reach an agreement between stakeholders in the relevant policy development process and to implement it strictly in accordance with the contractual norms over time.
In the latter case, the new institutional economics believes that political inclusiveness is reflected in the society’s transfer of sovereignty to the state in exchange for public goods, and in this process, the relationship between the state and society through contracts. .  In this sense, the more inclusive policies are formulated, the more leaders will pay more attention to public programs. As far as Chile is concerned, the government can effectively play its role as an agent of all citizens. At the same time, accountability agencies such as the legislature, the judiciary, and civil society can fully perform their functions and create checks and balances on the government’s commitment to fulfilling its powers and exercising its power. , supervision, and restraint.
It can be argued that the democratic mechanism of the political ecological structure of Chile has a higher degree of institutionalization, and it has formed electoral competition centered on the promotion of collective welfare, and the state has a relatively complete institutional guarantee for the functional fulfillment of horizontal and vertical accountability. This kind of national governance system that balances fairness and efficiency guarantees the country’s policy formulation and implementation based on the characteristics of stability, counter-cyclicality and multi-openness. This not only optimizes the predictability of social and economic structural changes, but also succeeds. It avoids the risk of disturbance caused by the high volatility of the resource economy.
Second, from the perspective of value orientation, Chile is able to form an efficient institutional system that has a positive effect on the economy. In addition to the improvement of national governance capabilities, the value orientation elements should not be underestimated, especially the cultivation of consensus awareness. We know that the successful case of many countries in getting rid of the “middle income trap” fully proves that the effective implementation of the policy framework is often based on the consensus of the whole society on a package of goals aimed at achieving sustainable development of the country, such as the construction of endogenous productive capacity, Counter-cyclical use of resource revenues, and investment in technological innovation. However, Latin America, especially in resource-rich countries, lacks a social coordination mechanism that rationally uses public finances, and thus cannot guarantee the continuity and effectiveness of these resource revenue management and reinvestment.
In this context, Chile is “outstanding” in building a development-oriented institutional culture. On the one hand, as mentioned above, the country has become a model of Latin American countries in the financial management of resources by virtue of the efficient operation of sovereign wealth funds. Tracing back to the source, the Chilean government is able to achieve a steady accumulation of resource returns, but unlike other countries, it succumbs to political pressure and resorts to current consumption, largely based on the way the government uses the mineral revenues prudently. And the need to build a long-term savings/investment mechanism has reached a broad consensus. It should be noted that this system endowment has effectively curbed the rent-seeking and corruption intentions of enterprises and individuals, thereby improving the transparency of the country’s copper mine revenue management system. According to the results of the Global Governance Index, in the context of the widespread erosion of the quality of the Latin American bureaucratic system, Chile’s high-quality regulatory system has spared itself from being targeted by private companies. 
On the other hand, the new institutional school pointed out that the institutional change process is often “inert” and can only be achieved when the expected return is higher than the implementation cost.  The inherent characteristics of the resource economy itself tend to exacerbate the short-sightedness of resource expenditures. The Chilean governments have responded to the demands of reforms and formulated social and economic measures suited to their national conditions, showing the whole society a huge development dividend for the country’s export-oriented economic model. Under this trend, the effectiveness of various reforms began to emerge, and gradually released positive externalities, especially boosting people’s confidence in government performance, and making people positive expectations of the potential benefits of government policy choices. This value orientation has improved the social cost-benefit structure, which ultimately led to the formation of a trajectory of change from a corrupt culture oriented toward personal interests to a consensus consciousness based on national development interests.
In the medium and long term, the Chilean government has made realistic plans for the future development direction, adhered to the comparative advantages of the resource sector, and built a more complete and balanced institutional structure to deepen the diversification of production specialization and foreign relations. An outward-oriented development approach. Chile has now initiated beneficial policy adjustments in two areas with a view to bringing the country’s sustainable development into close integration with the changes in the global economic and trade structure.
First, as we all know, China is Chile’s largest trading partner and the most important copper exporter. In recent years, in the context of the “new normal”, China’s economic structural upgrading has transformed trade demand preferences. In response to this trend, the Chilean government is committed to adjusting the production structure in a timely manner and improving the value-added of the primary products and the optimization and upgrading of the value chain. This not only helps to meet the new demand preferences of the Chinese people in structural adjustment, but also enhances Chile’s own economy. The ability of the system to respond to external uncertainties.
Second, 2019 is a year of great significance for Chile, because the country is about to become the organizer of the APEC Summit and the Global Climate Conference. The Chilean side has earnestly hoped for these two events and strives to unify the positions of all parties and effectively contribute to the effectiveness of these multilateral governance mechanisms. Although there are certain external pressures and disturbances, especially from the United States, it should be clear that the basic position of the Chilean government to defend free trade, oppose protectionism, and build a multilateral trading system will not change. Historically, thanks to this open globalization, Chile has achieved economic growth; in the future, Chile will continue to use this positive factor to expand the country’s broader export market and foreign relations, and further explore New economic growth points.
(Author: Institute of Latin American Studies, Chinese Academy of Social Sciences)
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