Reform, Revolution and Frei

LHD-11 Santiago, Chile

January 7, 1967

President Eduardo Frei of Chile will arrive in Washington February 1, as welcome as any guest that the U.S. government is ever likely to receive from Latin America. He is a personification of the Alliance for Progress, a tax-collecting idealist who already has shattered the tradition of official visits by declaring beforehand that he would no longer need the hosts’ massive budget aid.

But before this important man is caught up in the euphoria that the United States bestows on persons it thinks represent absolute blessings, the minority report of his critics ought to be read. The Chilean experience deserves a more measured assessment than was given Colombia, for instance -- which Washington’s Latinists embraced as the model of the Alliance five years ago, then rejected in disillusionment when the model turned out to be static.

In Chile, the loudest critics of President Frei are the conservatives, including a good portion of the U.S. business community, and the extreme left. The former see him as a sort of Christian Communist, the latter think he has sold out his “Revolution in Liberty” to American imperialists.

A quieter and small but relevant layer of dissent exists on the restless left wing of Frei’s own Christian Democratic Party, among observers in the endless international organizations that jostle each other here, and among bright and devoted young men in the universities’ faculties. Some of them share in varying amounts the views associated with Marxism, but they are not members of the Socialist or Communist Parties.

In composite, the position of these various critics could be stated thusly:

President Frei has proven to be a competent economic reformer, using wisely the country’s windfall profits from the high price of copper. But Frei and his Party came to power in 1964 under a pledge for fundamental change in a nation of 9 million people that had ossified economically because it was hopelessly stratified socially. While the Revolution was to consist of many specifics -- agrarian reform, a government share in the copper exploitation previously dominated by U.S. capital, defeat of disruptive inflation -- a key general objective was to organize the voiceless lower half of the population for active participation in government and society.

But, the critics say, the President has given up revolution in favor of control -- wage settlements without strikes, salary readjustments without inflation, legislation with the approval but not the unsettling participation of Congress. His desire for order has precluded effective attempts to organize the bypassed masses, a process that is of course disorderly. To these critics the President is, in short, an ideal reformist leader for a calm developed state. Frei would make a fine gringo statesman, was the way one economist put it. But they are not convinced that this qualifies him for the quite different problems of a developing nation, and by extension they are doubtful that the Frei way is meaningful to other Latin American countries.

For these critics, the Revolution was to have been a quick, thorough reordering of the social structure. And while it was to have been in relative liberty, it was bound to be disruptive if not violent to the upper classes from which had to come the means to bettering the lot of the lower ones. The critics now look about them and say that the old order has not changed. Peasant wages have doubled from nearly nothing, and the upper classes are paying significant amounts of taxes for the first time, yet the old patterns of economic and social, and to a lesser extent political, power remain the same. The voice of the technocrat is heard in the land, and the social revolutionaries have lost the President’s attention.

These arguments are subject to endless qualification, perhaps refutation, but they are worth bearing in mind during a look at the economic and social accomplishments of the Frei government.

The Economy

By just about anybody’s reading of the accounts, the economic performance of the Frei government has been impressive. Inflation that had become a way of life has dropped from 48 per cent in 1964 to the official figure of 18 per cent for 1966. Most people discount the official statistics, but not by a wide margin. The figure is not quite so good as the 15 per cent Frei had promised by now, and the recent U.S. inflation really helped appearances here, since everything is pegged to the one thing available that is stable, the dollar. But businessmen who for 50 years had learned to profit from inflation are being taught now disciplines.

Chile will announce shortly a balance of payments surplus of over $100 million. It had long since declined an offer of its U.S.-European creditors to roll back old debts. Some notes have been paid off early.

Most of this performance was made possible by one crucial factor -- the high, high price of copper provoked by the war in Vietnam and the difficulties of supply from Chile’s competitive producers in Africa. But Frei’s defenders argue with reason that when in the past copper has brought great income increases to Chile, these profits have gone into luxury imports for the wealthy, while this time economic control has been such that the windfall has gone to debt reduction and, largely, imports of capital goods for future diversified home production.

Finance Minister Sergio Molina and Central Bank Vice President Carlos Massad, who hold the confidence of Frei, have applied these disciplines. They are two of the “technocrats” decried by the social revolutionaries. But at the same time these two men are generally acknowledged to have the social consciousness so prevalent in Chilean economists. It is just that their training and their area of influence consigns them to the limited role of economic policy, and their dynamism results in too heavy an influence from that corner, say their critics.

The financial chieftains’ reply would be something like this: We are participating in this government because we believe in the Revolution in Liberty. We don’t, however, believe that a revolution can proceed in liberty without tight, sound economic policies. The economy can be allowed to collapse, as it did in Cuba, if the regime is willing to follow up with regimentary policies. But Chile wants to avoid that, so the economy must be viable.

To make the economy strong, Frei’s men have streamlined the nation’s international trade stance to the point that foreign exchange is available quickly and tariffs low for imports aimed at legitimate expansion of capacity. With inflation the official value of the escudo is steadily depreciated in relation with the dollar, whereas the former tendency was to maintain it artificially high. The escudo is still considered to be over-valued, but less so.

Nationally, the Christian Democratic economists have stressed moderate steps toward income redistribution by holding the line in the better-paid sectors when the annual wage increases for inflation come up, while allowing raises larger than the rise in the cost of living to the poor. All this is accomplished by rather tight control of wages and prices. Yet copper workers continue to wrest annual raises far in excess of the norm -- a sign that the Frei government is not yet ready to apply where it might hurt most the policy of redistribution of income. The argument has always been that the copper workers were effectively outside the national economy anyway, since they lived in mining camps owned by foreign companies. But with the participation of Chile in the capitalization of the companies thanks to the hard-won “Chileanization” law, that argument will lose whatever relevance it ever had for other workers whose income is half that of the miners.

A more frequent leftwing complaint is that the government has failed to deliver its promised reform of private, tradition-minded banks. The government does not say much about the proposal these days, although the Party’s left still does.

Although application of economic controls is generally efficient, the gaffs can be colossal. Last year the price- and supply-fixing agency imported Belgian potatoes to keep down a critical price on the cost-of-living index. Then it turned to U.S. imports when the Belgian proved to be blighted. Next it rejected the Yankee spuds as too big for human consumption, only to loosen the restriction when the U.S. Ambassador fried some in his Embassy. As the U.S. potatoes filtered onto the open market, a Polish variety came into the trumpets of the Communist El Siglo. But these were blighted, too. Finally the Price rose, and so many Chilean potatoes came to market that the agency announced it would export the national surplus. A couple of agency officials went out with the potatoes.

In general, the efforts to expand output have resulted, says the Finance Ministry, in a growth rate of 7.3 per cent in the gross national product in 1965, and a figure about as high will be announced for 1966. The U.N.-Economic Commission for Latin America headquartered in Santiago, comes up with a far lower figure for the 1965 growth. Again, much of the expansion can be laid to the fortuitous copper bonus. But whatever figure is used, it is bound to reflect handsomely against the virtual stagnation that characterized the pre-Frei years.

Recently the government has altered its directions of public investment somewhat, putting more into development of industry and lowering somewhat the initial high outlays in housing. At the same time, the private sector, which is a weak one basically, is reporting extensive investment plans and bounding demand. The picture generally is one of a copper-lined expansion that may well continue at least as long as the metal price holds.

Despite President Frei’s dramatic announcement last month that he would need no more budget support, U.S. aid will continue to be a major source of foreign exchange. In fact, in White House ceremonies during Frei’s February visit, announcements can be expected of new aid Projects committing almost half as much money as the M9 million “program loan” that has been forthcoming during the last two years, and that Frei has now turned down.

The now money will be in “sector” loans, probably $20 million to the Agriculture Ministry and $15 million to education. Frei has used his declaration of independence of budget propping to good effect, arguing that any new spending will have to come directly out of Chilean pockets. While the foreign assistance and influence was looked upon with rancor only from the far left, Chile’s considerable national pride never accepted the dependent position inherent in aid. Yet two points are salient at this stage:

• The program loan, whereby the United States provided a large fixed sum for general use, and with certain restrictions, in the budget, is in no sense being repudiated by Chile. Should the copper price fall, a new program loan could and would be negotiated.

• The overall level of U.S. assistance will not drop as dramatically as Frei’s announcement implied. The aid was running above $120 million per year, all facets considered, almost $14 for each Chilean and more per capita than anywhere else in the hemisphere. The emphasis now will be on more narrowly focused sector and project loans, but the total inflow probably will stay above $90 million per year, mostly in long-term, loans.

The artificial attempt herein to segregate the economy from the society really breaks down with an attempt to sum up the economic performance. This is perhaps one of the fundamental gulfs between North American and Latin American attitudes, the divisibility of economy and society. The points of view can be characterized with two statements:

In a magazine interview, the president of Chile’s Student Federation was asked what his position would be if the government applied an unpopular means, such as a rise in the (2.5 cent) bus fare, even though the policy might be economically justifiable. The 23-year-old Christian Democrat replied that “there are no ‘economically just’ means. Justice has no modifiers. The rest is not justice, but justification. The compact of Christian democracy – ideologically -- and of the student -- socially -- is with justice and not with justifications. If the government decrees and unjust price rise, justifiable economically, the students will demonstrate vehemently to the government that its path is in error.”

In a conversation, a graduate U.S. economist noted that Chileans were forever arguing with him about just prices. “I don’t believe there are just prices,” he said. “There are only real prices and artificial prices.

These attitudes seem to express general national positions that are not susceptible to proof of their correctness or error. They simply are held. Inside the Frei government, this usual Chilean assumption of the malleability of economic laws seems to be diluted by the more U.S. inclination to react to, rather than attempt creation of economic imperatives. This may be a cause for the partial disenchantment of the Chilean left, which senses an encroachment from the system they have thoroughly rejected -- capitalism.

The incomprehension may also be a source of some of the considerable U.S. confidence in the Frei government. As a lot, the U.S. economists in Chile tend to see the present stage of tight economic control and broad government intervention as a temporary thing. The interplay of these attitudes crops up often. Members of the U.S. diplomatic and aid missions hors are fond of delivering speeches to point out that the real U.S. economy has little relation to the capitalism of old textbooks. In fact, they say, the present U.S. economy constitutes just about what they understand to be the ideal that Christian Democracy is trying to achieve. These statements cause concern in the Party’s center and they are appalling to its left.

Actually both the left and the North Americans may be misinterpreting the long-range Frei economic policies. Conversations with people important to the future of the economy give the distinct impression that they foresee no significant withdrawal of the state from its intensive regulatory and initiative roles. The fact of Chile’s dependency on copper revenues is itself a sufficient cause for tight control, explained one high official. Chile will never allow fluctuations in the world copper price to tumble the domestic economy unhindered, he said, and this alone implies a large role for the government in the future. Furthermore, this is a country with a small effective market, and traditions of monopoly, family prerogative and a predilection for low production at high prices. There are strong doubts that free market forces could alone transform this history.

More likely than a withering of the state role may be a perfection of it, and as the performance has generally been acknowledged to be good so far, the future could develop surprises for those who look with pleasure or dismay at what they foresee as a diminution of the state’s role.

The Society

Most Chileans and foreign observers here would agree that the principal social change wrought by the Frei administration has been one with an economic motor -- the monitization of the countryside. By means of decreed wage increases considerably in excess of the annual rate of inflation, the government has put money into the hands of peasants who scarcely knew it. One result has been an increase in demand for textiles and shoes and simple manufactures. The government now says that this demand actually has risen faster than capacity, with the result being new inflationary pressure.

Another area where real rural advancement is reported is in education. Startling numbers of new schools are contributing substance to Chile’s traditional claims of minimal illiteracy, just as in the cities children who used to quit after the sixth grade are now continuing through a seventh and eighth.

A third major influence should be the agrarian reform, but the legislation is still in Congress. Perhaps as important is the organization of the countryside. The process is swelling fast and with much controversy. Men of the Party and the government are fragmented by the clash of plurality and unity in peasant unionism, and as U.S. aid has ventured into this volatile area with some funds it may become involved in the controversy also. The issue is dividing the Party’s left, which prefers a unitary Christian-Democratic-dominated peasant union, and the right -- in this case including the President -- which opts for plurality, for unions free of Party or government domination.

It seems that neither side relishes free competition with the Communist-Socialist entry in the field, although at present such competition exists and the Christian groupings seem to be holding their own.

If social transformation of the countryside is dramatic, with true revolutionary possibilities when the land reform begins, there are no such prospects in urban Chile, which comprises two thirds of the population. The Christian Democrats have proven amply that they have no roots in the tiny labor movement nor have they given any sign of acquiring them. The professed interest in rewriting the labor code into this century has not borne legislation, nor has the promised social security reform. The Labor Ministry, which handles these matters, accounted for less than half a percent of public investment last year.

The other great disappointment, perhaps the greater for the expectations brought in with it, is Promocion Popular. This was to have been the people’s anti-poverty ministry, the great tool of the government for helping the voiceless to organize in pursuit of their own interests. But the feeling widely shared is that it has not worked out that way.

One of the nuclei of the movement was to have been clubs known as mothers’ centers, a type of organization that preceded the Christian Democrats’ coming to power. Promocion Popular was to have built on such foundations to expand popular engagement in community development -- building of roads where towns were isolated, schools where classrooms were few, even popular restaurants that self-righteously serve no wine in a country that drinks over 50 liters per head each year.

But while some organization has occurred, often it has been as suffused with politics as are most matters here. This would not necessarily be a failing, but by the disinterested standards that the government set for itself, the creation of Communist vs. Christian Democrat vs. Socialist mothers’ centers was not the sought-after ideal.

Again, it was not at all orderly. And it is the feeling of the left-leaning critics that for this reason Frei lagged in his all-important support. For them the symbol of this became the defeat of government-proposed legislation to give legal status to the sundry popular organizations and to Promocion Popular itself. They feel that if Frei really wanted to see channels of popular demand cut through the granite of class custom, he would have rallied his political forces as he did, say, in the case of the copper Chileanization laws. But he did not, and the bill died, and some of the interested observers laid this to the fact that foreign copper companies can be guided down a preset path with much more surety than can an unruly lot of unwashed citizenry that have learned to -shout when their needs squeeze them.

On balance, the social policies seem to go forward unevenly -- the rural organization disjointed but active, the rural transformation outpacing Promocion Popular, the unionization disorganized and passive.

The President

So strongly presidential is the Chilean political system that the man in the Moneda. Palace can safely be blamed or praised for whatever governmental ill or good befalls the country. President Frei came to office with something little known to his predecessors, firm majority backing for his Party and himself in national elections.

The fact that the Senate is only partially renewed each four years left it the sole bastion of the repudiated rightwing politicians. Therefore the luxury of a compliant lower house was counterbalanced by the liability of a Senate in which the rump right and the Marxist left could combine to outvote the Christian Democrats. This they have done except when Frei’s proposals appealed to the right, as in the copper legislation, or to the left, as is anticipated in the agrarian reform. This potential veto in the Senate has been one clear reason for the failure of more of the Frei program to have materialized in the first two of his six years. The question is, are there other reasons as well?

As described earlier, the self-described revolutionary left feels that the President is afraid to trigger the social transposition they feel would come with organization of the masses. They do not make a closed case for this. However, one point is obvious. This group and the President disagree on what should be the pace of a revolution. And the critics’ most prevalent and most widely accepted argument is that the economic arm of the government has subordinated the social arm.

Yet in an interview last May, the President exactly reversed the order. “…It is evident that our plan of social development is being fulfilled,” he said. “The economic plan has encountered some difficulty.” Since then there has been little passage of major legislation in either category. Some major bills have died, such as that providing juridical life to the national planning agency. As in the case of Promocion Popular, the more important measure of the success would seem to be in the Performance of the agency, rather than in its legal footing. But perhaps because of the vaunted Latin legalism, advocates of central planning took the bill as a sign, and they were disappointed that it received what they felt was insufficient presidential support.

In fact, the bulk of the economic planning, generally held in high regard, takes place in the Finance Ministry and is of a very short-range sort. The polished five-year design for development is awaited from an agency that is kept waiting in the President’s anterooms.

Another point of divergence between Frei and the left of his Party as well as the left of the university -- which generally has given him such strong support -- is the attitude toward private enterprise. They often are firmly against it; he seems to be for it, so long as it is genuinely productive.

In my interview, Frei summed up his goal as “a society dominated by a philosophy of economic humanism in which the state directs the economy, assisted by a strong private enterprise sector.” He was almost defensive about the large role allotted to the central government, which provides 75 per cent of total investment. “We want statism and private enterprise together, as counterweights.... Yes, it is difficult for the government to attempt so much. But the alternative is communism, and that is difficult also.”

He spoke in the tufted-leather elegances of the Moneda offices. A floor below, the citizenry was exercising its common law right, strolling through the orange groves of the Palace courtyards, in what must be the world’s most attractive and official downtown shortcut.

For a man supposedly afraid of organizing the poor, he dwelt upon it at length. He showed some irritation with politicians who sit in Santiago and issue statements but who know nothing of the countryside of which they speak. He visits it often in weekend speechmaking tours; dwells often in addresses and interviews on the dispossessed nature of the population’s lower half. Most of his program and much of the legislation he has seen adopted is aimed at the problem. It would be unfair for Frei’s critics to say that he is uninterested -- all the evidence is to the contrary. The argument that he fears disorderly organization of the poor is a. subtler one, harder to refute.
One point that attests to his sincerity also tends to enforce his critics’ contention: In his frequent addresses to peasants clustered at crossroads, Frei never offers the inflaming words of calls to instant action -- to takeovers of patronal lands or strikes at crop-ripening time.

Through all of Frei’s speeches runs a theme heard less from politicians than from statesmen: In social development the piper must be paid before he plays, in hard currency; there are no shortcuts through orange-groved courtyards to economic growth. With all its foreign aid, the job is Chile’s and even those with few escudos had better be saving some of them. He offers “neither imme6iate solutions nor immediate prosperity, but sacrifice in the present for prosperity in the future.”

The critics of Frei who are also his friends say that to their surprise he is showing no fatigue in his tiring job, rather he seems to enjoy the power and its manipulation. Consistent with their position, they fear that he is ignoring able counsel, especially from the left. At this point it probably should not be said that the discontent on the left of the Christian Democratic Party, constitutes a threat to its existence. In fact, some of those who look for the Revolution but don’t find it are simply discussing its postponement. By this argument, Frei will leave the country in far better condition economically than he found it. The Party will have remained strong enough to bring in with a comfortable majority the man who surely will be the Party candidate in 1970, Ambassador to the United States Radomiro Tomic. Surely Tomic, some are saying now, will carry out the Revolution.

An issue that could provide some measure of the actual depth of the discontent is that of the referendum. One of the planks of Frei’s platform was expanded plebiscite powers, allowing him to take a small number of stymied bills before the public. The opposition of the rump Senate increased the appeal of this proposal, and despite middling experiences elsewhere, the left saw in the “direct democracy” an accelerator for the Revolution in Liberty.

But of course the opposition in the Senate thwarts passage of the necessary legislation for the plebiscite. Frei personally has not stressed the matter lately but from time to time the government newspaper trots out the idea. Recently the always-vivacious politics became embroiled over a very complex executive-legislative conflict of powers. Frei used his veto in such a way as to restore to original form a constitutional amendment that he had proposed and the Senate had altered. The subject matter was the important one of property rights. Among the casualties of the clash was the Christian Democratic president of the Senate. Subsequently elected to the only marginally important post was Frei’s Popular Front opposition candidate in the last election, Socialist Sen. Salvador Allende.

This provided some summertime diversions, such as pro-Cuba rallying in the Congressional Salon de Honor. But was in no sense a substantial defeat for Frei. The convolutions of the parliamentary aspects of the conflict defy description, but one of the possible conclusions might be the chance for the President to put the validity of his veto before the people in the long-sought plebiscite. Frei has always been reported as anxious to do this, confident that he would receive overwhelming voter support that would bring the Senate to heel. There is some feeling now, however, that he is less sure. The tactics of the Party, therefore, will bear watching as an indicator of his assessment of his position and his attitude toward “direct democracy” today.

In any case, a partial measure of the public’s appraisal of Frei’s government will come in April in municipal elections. Local issues will intervene, but as always, the alternatives will be poised strictly along party lines. A public opinion poll taker, who has proved his accuracy by predicting Frei’s big margin in ‘64 and the Party’s parliamentary triumph the following March, detects a significant tall-off of public support.

At present he predicts a Christian Democratic victory, but with only a 40 per cent plurality of the vote instead of the majorities of the previous elections. The poll taker does not, however, foresee the Socialist-Communist Front profiting from the Christian Democratic diminution, nor does he expect a revival of the repudiated Radical and conservative National Parties. He does expect a 20-25 per cent abstention, which for Chile would be dramatically high. Much of the discontent seems to be located in the overweight service industry-small shop owner-civil servant class that often has received the least adequate compensation for inflation.

Frei undoubtedly could thwart any lessening of public support by easing up on unpopular economic restrictions -- of luxury imports, broad wage increases, marginally-productive credit. His refusal to do so, his determination to muster the nation’s limited resources and use wisely its one big earner – copper -- are the traits that place him in statesman status by North American standards.

On the other hand, he has not prevented discontent on the left of his diffuse Party, and the important issue of incorporating the marginal population is not his strongest suit -- not when as distinguished a minister as Molina can say in a national broadcast, as he did in August, “We know what the majority of the people want, even if it still does not have the organization to express its true desires.”

So far the Frei policies do not make a revolution -- unless it be argued that the true reform policy is so rarely applied in Latin America as to be revolutionary by its very existence. Some of Frei’s critics have seen other reform governments come and go, and they wanted this one to be more than that. Frei came to power on a policy of Revolution. Perhaps it was a poor semantic selection of slogan. The critics argue with reason that reform Chile now has in abundance, but revolution is still too strong a word. The old question of whether the necessary changes in Latin America can be made in liberty remains unanswered. The important Chilean experiment continues -- gradually.


Mr. Diuguid is a 1965 Alicia Patterson Fund fellowship award winner on leave from The Washington Post. Permission to publish this article may be sought from the Foreign Editor, The Washington Post.

Received in New York January 16, 1967.