Doing Business 209A Brief History
Like most Latin American countries during the 1940–1960s,
Chile practiced Import-Substitution Industrialisation (ISI).
The goal of ISI was to free the country from dependence
on foreign economies through domestic or regional
industrialisation. Production took place within the country’s
borders and high tariffs and non-tariff barriers were erected
to protect these struggling industries. Chilean products faced
very little competition since imports were severely restricted.
The end result was inefficiency and high prices.
Socialism
The struggling economy came to a virtual standstill follow-
ing the election of Salvador Allende, a socialist, in 1970.
A combination of many factors, primarily bad policies
combined with international and domestic sabotage, led to
the ruin of the economy. Allende nationalised a great many
industries and his populist policies such as price controls
led to shortages. The situation was aggravated by the large
amount of factory takeovers by the workers, which reduced
overall productivity. Inflation spiralled out of control and a
black market emerged. A series of strikes and the cessation
of international investment sealed the economy’s fate.
The Military Government and
Free-Market Reforms
The military regime that ousted Allende in a coup in
1973 immediately focused on the economy. In the mid-
1970s, the Pinochet government, advised by a number of
technocrats educated at the University of Chicago known
as the ‘Chicago Boys’, implemented a process of rapid
economic liberalisation. Tariffs were reduced and non-tariff
barriers were eliminated. The strategy was to make domestic
production more efficient as Chilean firms faced an influx
of imports. The government also sought to diversify the
economy, eliminating the country’s dependence on copper.
A series of privatisations were initiated and the role of the
state was severely reduced. Labor unions were outlawed and
any manner of dissent or protest was repressed. Workers