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Thoughts and Ruminations on Economic Development

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“Your poor. If you sell me your hill and your lake, you will have money”

“When the money runs out, I won’t have a hill or lake”

“Ignorant!”

As the product from an academic program that encourages and implores its students to be “global citizens” and “critical thinkers” regarding issues on the world agenda, I have not been able to help but analyze my surroundings here with such a mindset. That being said, I suppose this will be my inevitable post pertaining to the areas of economic growth, development, industrialization, protecting indigenous rights, yada yada yada in Chile. Although these are areas of an academic discipline which I’ve grown to fancy quite a bit in recent years, I have slowly started to develop a side-eye regarding the true, underlying meanings of all these gaudy, vague, seemingly all-encompassing yet not very distinguishable buzzwords (and to all those who know me even slightly well, rest assured that I have already successfully managed to find the Spanish equivalents to the majority of the words in the “Buzzword Bazooka”).

The main impetus to me writing this post is the aforementioned desire to understand “development” from a variety of angles and viewpoints. In line with this, my being in this current position teaching English in Chile, living with a host-family, talking casually with people in my town regarding the matters impacting the lives of ordinary, every-day people, I have been afforded the unique opportunity to gain an on-the-ground perspective of development to contrast with my current assumptions, which have been mainly derived from reading articles and books on the subject. One prime example that immediately comes to mind comes from earlier on in the year with one of the students in my ‘English Club’ elective. In preparation for the English Opens Doors debate initiative, we were holding informal discussions covering a wide range of topics. After having posed the question to my kids regarding charities and foundations and whether or not they really create impactful change in fighting poverty in places like Africa (don’t ask me how we got to talking about that), the question somehow steered into more familiar territory; I asked them their thoughts on Chile as a first world, industrialized country. One student quickly replied without hesitation, “Chile’s a third-world country”. Amidst head-nods and what seemed to be resounding agreement from the others in the group, he proceeded to explain the reasons behind this belief.

Frankly, I wasn’t sure how to react. After 2 years of solid immersion in all things ‘Global Development’ at the tail-end of my university stint, I had come to not only associate the term ‘Third-World’ with the abject poverty seen in the shanty-towns of Africa, India and SE Asia, but also as a term that had lost some of its significance and could no longer be used to classify countries in the Post-Soviet era. Even more so, in preparation for my trip to the Southern Cone, I had been adamant about doing my homework and reading the corresponding literature. Thus, after some pretty hefty research regarding Chile’s current economic standing, it’s inclusion as the first Latin American country into the OECD,  essentially first-world’s country club, as well as high rankings in terms of democracy, rule of law, and business-friendly infrastructure which encourages foreign direct investment, I was operating under the assumption that Chile had realized the elusive ‘pinnacle’ of development, one which is set out and perpetuated by an intricate system of lending and indebtedness between creditors such as the World Bank, Regional Development Banks, Industrialized countries, and their debtor counterparts in the rest of the world (the majority of which lay south of the equator). However, after a few months in-country, I can’t say that my viewpoints at present align with this previous assumption.

After stumbling upon this revelation, I started to view my surroundings differently. Although the town in which I’m currently living has plenty of industry, a bustling city center, and pockets of noticeable wealth in some neighborhoods, it also has more than its fair share of poorer, destitute areas that comprise a sizable part of the metro area. I’m now reminded of this on my walk home from work every day, where I pass El Retiro, one of the nicer, safer neighborhoods of the city lined with good-looking houses, manicured lawns, and expensive, foreign-manufactured cars in the driveways only to walk a half a kilometer further, to see rows of rinky-dink shacks lined up near a small stream, bordering the countryside and a few abandoned warehouses.

Beyond the intra-city level, another aspect which has caught my interest is the relationship between Santiago, the booming, bustling capital-city metropolis that I touched on in my first post, and the rest of the country. If one were to create a “Development 101” course, included in the curriculum would certainly be the relationship between a country’s administrative center (or core) and the rest of the country (referred to often as the periphery, outlying areas, etc). The idea is that as a country begins to develop its industry and advance its economic prosperity, inevitably certain demographics begin to benefit more than others, and a disparity in wealth and income distribution occurs. More often than not, pockets of wealth accumulate in the larger centers of industrialization and commerce, i.e. cities, while rural areas are generally omitted from this progress. Now, I would be among the first to say that any economic progress, albeit only in certain areas, is better than absolute poverty all around. Especially with the proper political institutions in place, this new economic capacity could effectively be leveraged in order to redistribute wealth in a more equitable fashion. However, this theory usually remains a theory, and looks entirely different in operation. In the case of Chile, Santiago has become a bastion of finance and commerce, and accordingly, has become the gateway for foreign capital not only into Chile, but the whole of South America. Buoyed by copper exports, the Chilean economy has managed to utilize the surplus in its natural resource sector to diversify other sectors of its economy, namely financial services and materials & processing. As such, the Chilean economy has a low level of unemployment and growth prospects that would make any European periphery country green with envy. However, the reality of the white-collar executive in Santiago is not necessarily the same as the fisherman in Coyhaique, and what may be beneficial for the former may not be for the latter.

This is where the Jackson School over-used phrase of the year comes into play: “Industrialization and its discontents”. Although I personally am of the belief that industrialization is a crucial element of economic growth, and that the entire doctrine of modern capitalism implies that there will be winners and losers in any case of even slight economic progress (as it is this competition between firms and companies that creates the foundation for growth, and maintains market efficiency), I think it’s the government’s role to manage and oversee the economy in a way that mitigates any possible negative externalities associated with the free-market, neo-liberal capitalist model. The universal solution to this has been the creation of the modern welfare state: however, in terms of this paper, I’d like to focus on the protection of environmental and indigenous rights. In Chile, there is at present an overwhelming detachment between what is happening in Santiago and what is happening in the rest of the country, namely rural areas with special neglect to the Chilean South. In a recent post, I highlighted the “Patagonia Sin Represas” protests, a movement which has manifested in order to challenge the motion to build an enormous hydroelectric power plant in one of the most ecologically, environmentally, and culturally significant places on earth. The plant, fully endorsed by the current administration led by President Sebastian Pinera (which has heavily encouraged foreign investment and capital to finance the project) will on one end, help to maintain Chile’s current level of growth by providing the necessary energy infrastructure needed to support said growth, and on the other end, potentially displace many thousands of indigenous, fishing, and agricultural communities and have dire consequences for the swath of Chilean Patagonia in which it is being constructed.

Now, I will be the first to stand by the importance of a “pro-business” mindset in advancing the livelihood of a country and its citizens. I do maintain the belief that the concept of finance does in fact serve an invaluable role in allocating capital efficiently across market segments to provide support and enable firms and companies to grow and achieve larger scale.  However, the realm of finance often does not adequately take into account the real world outside equity markets, with a precedent that encourages managers to pick securities and shares which maximize returns for investor portfolios whether or not the returns come at the expense of a minority group or a nature reserve that exist outside this realm. As far as “socially-conscious investing” is concerned, a buddy of mine has summed it up very nicely in his blog (http://schoolsandthought.com/2011/12/29/socially-conscious-investing/), where he states that despite an investor’s abstinence from buying shares in companies whose operations negatively impact the environment, the void will inevitably be filled by other investors in the market. This is due to the fact that “Markets are typically very efficient, and unless everyone works together to withdraw financing from ‘unethical’ firms, those who don’t care will arbitrage their share price back up to where it was before socially conscious investors withdrew their capital.”

Also, I politically think of myself as a left-leaning moderate, and before coming to this country, would never in a million years have considered myself a socialist. In my opinion, the fact of the matter is that many Americans in the current day are a bit hesitant to refer to themselves as socialists, primarily due to the “witch-hunt” that has taken hold in the political scene, one which is led by radicals on the right, namely the tea-partiers, vehemently prosecuting any individual who even utters the words “income equality”. However, I have noticed that the variation of the socialist ideology that exists here, Socialism “a la Chilena”, is less about radical, Marxist-style income re-distribution utopianism, and more about a sort of moral and economic fairness.

So, in order to wrap this tangent up, I will say this: all in all Chile has made great strides in overcoming a brutal dictatorship, adopting a pro-growth economic model and providing appropriate political institutions to support it, ultimately leading to three decades of positive growth in real GDP and GDP-per capita and setting an example for other middle-income countries around the world. However, despite being among the more improved countries in the world, it still has a ways to go vis-à-vis its own people before we go ahead giving it our unrelenting praise.

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