In Chile, the refusal to learn is not from inertia but from success. Michelle Bachelet’s socialist government swapped 6% GDP growth in 2013 for 1.8% growth in 2014. How? By hiking government spending 9% and financing it with a 20% rise in corporate tax rates.
This year’s bid to repeal Chile’s 1979 Pinochet-era labor laws will ratchet growth even lower — back, in fact, to the pre-Pinochet era, when Chile was a Third World country with a per capita GDP just 20% of today’s level. Back then, as strikes engulfed the country, unions got 29,000 laws passed and crippled the economy. Property rights were nil, and the country was a shambles.
Chile learned only when it turned to free markets, due to University of Chicago economists known as The Chicago Boys. In their memoirs of the era, Jose Pinera, Hernan Buchi, Sergio de Castro and other Chicago Boys described the difficulty of changing course after decades of failure and the entrenched interests who resisted it.
The Bachelet camp is willfully clueless about them.
The most important reason the Chilean economy is suffering is the falling price of copper, their biggest export. Nevertheless, IBD is right that dramatically increasing government and labor union power will ruin Chile in the future. Chile has prospered from the Chinese building empty cities of building with copper tubes and wiring but that will not continue indefinitely.