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The politics of decentralization in Chile: Allende and Pinochet

Villar, Daniel, M.A.

The American University, 1992

UMI 300 N. ZeebRd. Ann Arbor, MI 48106

THE POLITICS OF DECENTRALIZATION IN CHILE:

ALLENDE AND PINOCHET

Daniel Villar

submitted to the Faculty of the School of International Service in Partial Fulfillment of the Requirements for the Degree of

Master of Arts

International Development

Signature of Committee:

Chair:

Dean of SIS, Dr. Louis Goodman ^ Iff! Date

1991 The American University Washington, D.C. 20016 73)4

CH3 AMERICAN UNIVERSITY LIBRUY © COPYRIGHT

DANIEL VILLAR

1991

ALLENDE AND PINOCHET

DANIEL VILLAR

ABSTRACT

Decentralization, in practice, is never a value free process. National leaders try to target the process so as to empower political groups sympathetic to them. But since decentralization involves shifts in the power structure of society, the outcomes of the process may not be those desired by the leaders who set the process in motion.

Salvador Allende attempted a decentralization process aimed at empowering grass roots organizations traditionally supportive of the Chilean Left. With time, local organizations became increasingly autonomous from, and critical of, the Allende government.

Under Augusto Pinochet, privatization was used as much for economic as for political reasons. It was a means of returning to the upper class some of the power it had lost. It enabled the Pinochet regime to maintain that support of the upper class. The flaw of this decentralization process was that in its attempt to empower a minority of the

Chilean population it alienated the majority. In the only free elections held under

Pinochet he was defeated. To Nancy, my mother,

and Maria Helena, my wife. TABLE OF CONTENTS

Abstract ii Introduction 1 The Concept of Decentralization 2 Definition and 2 Types of Decentralization 5 The Issue of Power 7 The Process of Decentralization 12 Historical Overview 17 Independence and the Emergence of Portales 20 Balmaceda and the Political Crisis 26 New Political Actors and Alessandri 29 The Rise and Fall of the Radical Republic 34 Eduardo Frei’s Administration 41 Decentralization under Salvador Allende Gossens 53 Overview 53 The Successes of the First Year and Inaction on Decentralization 59 Truckers’ Strike and De Facto Decentralization 69 The Fall of the Allende Government 81 Decentralization under Augusto Pinochet Ugarte 89 September 11, 1973, and its Aftermath 89 Chile’e Economic Setting in the Early 1970s and Decentralization 93 Privatization in Chile 98 The 1981-1984 Political Crisis 104 Conclusion 117 Bibliography 123 INTRODUCTION

The purpose of this thesis is to examine an aspect of decentralization that has not been dealt with in great detail in the literature. This issue refers to the political consequences of the shifts in political power structures that inevitably come about with a decentralization process. This thesis is limited to Chile’s experience in the seventies and eighties. In this period, Chile has been governed by two drastically different administrations: Salvador Allende’s Marxist experiment (1970-1973) and Augusto

Pinochet’s right-wing dictatorship (1973-1989). This thesis will attempt to draw general conclusions of the vastly different decentralization processes of these two governments.

Both Allende and Pinochet undertook a decentralization process with the purpose of empowering a particular group of Chilean society (the poor majority in Allende’s case and the upper and middle classes in Pinochet’s case). The hope was that this process would bolster the leader’s power, and that of his supporters, even further. But as groups were empowered the ability of the leadership to manipulate them was substantially weakened. This process led, ultimately, to the demise of the governments. Under Allende it was the perceived "chaos," caused in part by the decentralization process, that precipitated the military coup; under Pinochet, decentralization and shifting of political forces were targeted on a minority of Chileans, which led to his defeat in the only free elections that took place during his regime.

But before beginning a discussion on decentralization in Chile, it is important to define the key concept of decentralization. This will be done in the next section. After this, the specific case of Chile, in reference to decentralization, will be discussed. THE CONCEPT OF DECENTRALIZATION

I. DEFINITION OF DECENTRALIZATION

"Decentralization is a process whereby centralized governing institutions transfer

authority, responsibility, or functions to, or share such attributes with, sub-national units

of government."1 Decentralization not only means transferring "authority, responsibility,

or functions" sub-national to units o f government', it also means transferring these roles

toprivate individuals or to institutions. An example of decentralization involving private

individuals is the privatization of state-owned assets. Over the past three years, twenty

five governments in diverse areas of the world have sold state-owned enterprises,

totalling $90 billion,2

Decentralization focuses on a central government’s distribution of power.

Theoretically, as the central State cedes some of its activities to local organizations, its

power diminishes because its ability to disburse resources is weakened. An exception

to this is deconcentration, a form of decentralization which intensifies the reach of the

State over the country.

Whereas decentralization stipulates the State’s relinquishing of authority, the

processper se does not indicate to whom these powers must be assigned. These

1 Morgan, Mara. "A Conceptual Overview of Decentralization." (Draft Report). (Washington, D.C.: The World Bank, 1991), 2.

2 Auerbach, Stuart. "Around the Globe, the Sale of a Century." The Washington Post. November 17, 1991. HI, H9. 3 "recipient organizations" range from local agents of the central ministries, to grass roots

groups (e.g. a neighborhood association or a labor union chapter), to private individuals.

The motivations that compel national leaders to initiate such a process are as

diverse as the agents they empower. Traditionally, it has been believed that the reason

leaders initiate decentralization is to make the State more responsive to the needs of the

population, to enhance democracy or to intensify the legitimacy of the state.3 These

beliefs, while often valid, assume a benevolent and efficient State.

But the way a State functions is a direct consequence of the way it is made to

function by its leadership. And once power is attained, there must be a powerful

incentive to relinquish it.

A politician, by definition, seeks power. Political leaders must feel that they will

gain something by diffusing the power of the State, over which they have significant

influence. There is much to gain: personal wealth, national prestige and universal

admiration.

The premise of this thesis is that leaders of a central government perceive

decentralization as desirable, if they also perceive that process as a means to increase

3 For example see World Bank reports such as Campbell, Tim et. al. "Decentralization in the LAC Region: National Strategies and Efficiency of Local Government Spending." (Washington, D.C.: World Bank, 1991), Campbell, Tim et. al. "Decentralization in Chile." (Washington, D.C.: World Bank, 1991) and Morgan, Mara. "Conceptual Overview of Decentralization (Draft)." (Washington, D.C.: World Bank, 1991). These reports, especially the first two, look at decentralization as a tool the central government has to increase the effectiveness of budget allocation and financial management. The report on Chile deals almost exclusively at improving local government financial rationality, this being, for the authors, one of the strongest attributes of decentralization, at least in the Chilean context. their personal power. A Statedistributing power is not paradoxical to an individual increasing his or her personal realm of influence. Decentralization produces shifts in the power structure; some political actors will gain and some will lose. The process also entails the restructuring of the composition of political power.

Decentralization as an abstract concept does not identify the beneficiaries of the power shift in society. But in practical terms, there is always a clearly-defined group which benefits by the changing political forces. National political leaders involved in decentralization empower those groups which they feel will support them and, in return, will bolster the leaders’ political power. This is generally a false expectation.

Decentralization inevitably empowers groups and individuals which, once empowered, may not be willing to simply obey the authority of those who began the process in the first place. This is the lesson of Chile.

This thesis deals with Chile’s decentralization experiences in the 1970s and ’80s: the Leftist government of Salvador Allende and the Rightist dictatorship of Augusto

Pinochet. Ironically, these vastly opposing approaches to decentralization prove that once a particular segment of society has been empowered, it will not unconditionally obey the dictates of its national leaders.

Salvador Allende’s attempt to empower grass roots organizations stemmed from

the belief that these groups would support his government at a time when it was in open

opposition to Parliament and the judicial system. Yet these organizations increasingly

were alienated from the government. There were two reasons for this. First, a

stalemate between the Executive and Legislative branches of Allende’s government nearly 5 paralyzed it; the Administration was no longer able to deliver tangible goods to the populace, including to Allende’s own supporters. Secondly, as a result of the chaos at the national level, local organizations realized that they could not rely on their

Government and began fending for themselves. As they attained autonomy, they were no longer under the control of the Administration...or willing to be.

Pinochet decentralized State power by weakening its economic base through a privatization program. The privatization campaign was as much an economic response to a national crisis as it was political. This program was an attempt by the regime to affirm the support of those who originally had favored the military coup: business leaders and the upper and middle classes. In the Pinochet years, the rivalry between technocrats and military/politicians were manipulated to assure the Regime’s control.

Despite the economic prosperity of the mid- to late 1980s, the first time Chileans had a legitimate chance of ousting Pinochet, in the 1988 plebiscite, they did so. Pinochet’s programs could not co-opt enough members of the middle class to avoid a defeat at the polls.

H. TYPES OF DECENTRALIZATION

There are different types of decentralization. These have to be explored since some forms of decentralization may actually involve the strengthening of the central government, while others involve the weakening of state power. Cheema and Rondinelli 6 have come up with four categories of decentralization.4 These are said to represent a

spectrum of options available for policy makers, and should not be treated as absolute

and definite categories, they are helpful to our understanding of decentralization. The

types of decentralization differentiate themselves in the degree of power that the central

government distributes. Cheema and Rondinelli’s four categories are deconcentration,

devolution, delegation, and privatization.

Deconcentration is the weakest form of decentralization. It is a process by which

the central government’s agencies and/or ministries establish field offices throughout the

country, and thus decentralize administrative functions to the local level. The goal of

this type of decentralization is to enhance the reach of the central government’s policies

by having agencies which will implement them throughout the country.

Delegation is a second category of decentralization that involves the creation of

a semi-autonomous agency designed to perform a specific task. Although the central

government has some control over this agency, like the ability to name high level

management, most decisions are left to the agency. In this regard it is quite autonomous.

In this type of decentralization the State is delegating responsibility for specific tasks to

an agency which is not administratively part of a central government ministry. The best-

known examples of delegating authority are the creation of State-Owned Enterprises

(SOEs).

Devolution is a form of decentralization that involves the diffusion of political

4 Cheema, Shamir and Dennis Rondinelli, Decentralization and Development. (Sage Publications, 1983), 18-25. 7 authority. Under this type of decentralization, the central government grants local level organizations the authority to make decisions affecting them. Nevertheless, the central government usually maintains some control over local governments by managing the national, and sometimes municipal, budgets.

Finally, Cheema and Rondinelli mention privatization as the ultimate type of decentralization. Under privatization, the state is giving up the control of mainly, though not exclusively, economic tasks. It is under privatization that the state is relinquishing the most power, since it loses all direct control over these activities. Indirectly, the State may still exercise some authority through regulation, fiscal and monetary policy, and other possible measures, but it has no direct mechanism of controlling a particular firm.

III. THE ISSUE OF POWER

Decentralization causes shifts in the power structure of society. Under most forms of decentralization the central state will transfer authority and functions to sub national units of government or to the private sector. The rationale of political leaders for undertaking this process is to enhance their personal power by taking advantage of the changes caused by decentralization. This thesis is about political leaders manipulating decentralization processes for their own benefit.

Therefore, the issue of power, and particularly political power, is an integral part of decentralization. The goal of national leaders undertaking this process is to enhance their own personal power; deconcetration and other attempts to increase the reach of the 8 State will increase its power; relinquishing authority and functions to sub-national units

of government or private individuals will diminish the central government’s power.

Karl Lowenstein, the German constitutionalist scholar, states that the three forces

that drive human behavior, love, faith, and power, are beyond reason, and therefore,

beyond rational comprehension. One can examine the holders of power in a society, in

a historical period, but the nature of power itself is beyond reason.3 Scholars such as

Bertrand Russell and Bertrand de Jouvenal6 have published essays on power, attempting

to describe and understand it. Only political power will be examined in this thesis.

John Kenneth Galbraith states that power implies control, and there are three

forms of control.7 According to Galbraith, a powerful institution (the government) can

force compliance in three ways. He calls these forms of control condign power,

compensatory power, and conditioned power. Condign power refers the ability to obtain

an expected behavior by fear of punishment.8 Compensatory power refers to the

opposite: the ability to obtain an expected behavior through a belief, real or not, of

receiving a favorable compensation for that behavior.9 Finally, Conditioned power

5 Lowenstein, Karl. Teorfa de la Constitucidn. (Barcelona: Editorial Abril, 1976), 23.

6 The books by these authors are: for Bertrand Russell, Power (New York: W.W. Norton, 1938); and for Bertrand de Jouvenal, On Power (New York: Viking Press, 1949).

7 Galbraith, John Kenneth. The Anatomy of Power. (Boston: Houghton Mifflin Company, 1983), 4-6.

8 Ibid, 16-23.

9 Ibid, 16-23. 9 refers to socialization, or, in cruder terms, brain-washing.10 This was quite vividly

described in Aldous Huxley’s Brave New World as children were told, in their sleep,

what their role in this "perfect" society should be, in order not to create any

disturbances. While the means by which modem states force compliance are not as

extreme as this example, states do attempt to control behavior by making individuals

comply with certain rules unconsciously.

These three types of control have to be taken into account to explain the Chilean

situation, since they all play a role in that country’s decentralization processes. The type

of power most closely examined in this thesis is compensatory power. The use of

compensatory power is widespread during decentralization. Targeting decentralization

to benefit a particular segment of the population means that this sector will be

compensated (by increased access to resources and/or decision making). Compensatory

power depends on the ability of the State to distribute benefits; once this ability is lost,

the effectiveness of compensatory power is also lost. The effectiveness of this

mechanism of control rest on the premise that the larger the group that feels compensated

by the government, the more secure the government will be.

This was the basic assumption of both the Allende and the Pinochet

administrations. Ultimately, it was when the compensatory elements of both

governments failed, that the support of groups that they had empowered began to waiver.

It is through the prism of compensatory power that decentralization is considered in this

10 Ibid, 24-37. 10 thesis. Decentralization was a very important mechanism to empower and compensate groups which would be supportive of the government, and which could bolster its power.

Economic crises derailed these efforts by alienating groups which had previously been supportive of the administration.

Under Allende, the government sought to strengthen the support, in both scope and commitment, of the lower class through a decentralization process. It was believed that the lower class, being the most numerous in society, once organized and empowered, would be in a position to defend the government. This strategy was undertaken by

Allende’s Unidad Popular, UP, (Popular Unity) coalition for both ideological and practical reasons. The UP leadership believed the exploited classes were the vanguard of the revolution that the UP government was carrying out. Also, most state institutions, as well as most other institutions of society dominated by the middle and upper-classes, were in opposition to the UP. Strengthening labor unions and grass roots organizations supportive of the UP administration, would enhance the position of the government. The larger the group that backed the government, the better position it would have negotiating with the opposition. But as the economic and political crisis of 1973 deepened, the government found that it was unable to carry out its promises of improved material benefits for the poor. Grass roots organizations began to demand actions by the government that would benefit them, but the government could not respond effectively to their demands. The support the administration enjoyed from these organizations therefore began to whither.

The Pinochet government sought to increase the support it enjoyed among the 11 middle and higher classes through a very different type of decentralization process. The

military repression made the middle and upper classes weary of supporting the regime

unless some benefit could be obtained from it. The regime’s strategy of compensating

these groups worked while economic situation improved. But due to economic crises the

support from business leaders and the upper and middle classes began to fade and

opposition to Pinochet’s government mounted. The case of banker Javier Vial illustrates

this process. Vial had benefitted from the regime’s economic policy and was the

president of the Bank of Chile and of one of the biggest financial networks in the

country. Nevertheless, he was openly critical of the government’s policies during the

1981-1984 depression. But beyond being critical, he began to publicly question the

regime itself. As an example to other potential critics of the regime, the government’s

economic team set out to destroy his financial empire, and succeeded.11 Compensatory

power had failed the regime in this case.

Other types of power cannot be ignored. Under Allende conditioned power was

severely limited, as increasing sectors of the middle and upper classes viewed the UP

government as unconstitutional. Under Pinochet repression was the main mechanism for

control, at least in the initial years of the regime. From the mid-seventies the threat of

repression was enough to maintain control. But decentralization in Chile depended on

compensatory power; the administrations would compensate certain groups in exchange

for political support.

11 Cavallo Castro, Ascanio et. al., La Historia Oculta del Regimen Militar. (Santiago: Editorial Antdrtica, 1990), 376-398. 12 IV. THE PROCESS OF DECENTRALIZATION

Decentralization is a process. Even though at any point in time it is possible to

analyze the balance of power between the central and local governments, this can only

give us part of the picture. An approach that is useful to understand decentralization is

to examine the process that has led to the centralization of the state. In Latin America

in particular centralization is a more prevalent phenomena than decentralization. The

Marxist differentiation of superstructure and infrastructure sheds some light into the

centralization of the State. To begin to understand the issue of centralization, one must

look at the way in which the infrastructure, the means of production, have been

centralized. All other manifestations of centralization (political, social, cultural, etc.) are

a result of this economic centralization that has taken place.12 The centralization of

power13 brings with it the centralization of other activities in society. This methodology

is quite helpful to understanding the type of decentralization which is the concern of this

thesis. Decentralization is occurring in a society because there is an on-going process

which is resulting in the diffusion of the ownership of the means of production.

According to this interpretation it would be correct to accept the proposition that

12 Ganido-Lecca, Hemdn. "El Problema del Centralismo." (Lima: Fundacidn Friedrich Ebert, 1988), 2-4.

13 In Marxist terms, the issue of power is fairly simple: the powerful are the owners of the means of production, and power is a condition that is inseparable from the economic reality of society. The definition of power is, therefore, tied to that of ownership of the means of production. 13 since the workers were taking power, it was being diffused throughout society, and a process of decentralizing other aspects of governmental endeavor would be following this reality. This would have been the case of the Allende administration. This was the expected outcome from the government’s promotion of grass roots organizations which, once empowered, would constitute a substantial basis of support for it. The decentralization process evolved so that the central government was willing to relinquish some of the traditional attributes of the state to non-state organizations with the hope that these organizations would support the UP leader and bolster their power. This process proceeded chaotically and was never concluded. The military coup quickly destroyed these organizations before they were able to become too autonomous and powerful.

Under Pinochet, the decentralization process was different. The attributes which the state relinquished were economic. The means of production were sold to the private sector. The goal of Pinochet’s privatization program was to transfer the productive state economy to the private sector. The result was not a diffusion of power throughout society because not everyone was able to the SOEs which were privatized. On the contrary, the result was a concentration of wealth in the hands of a few. This result did not pose a problem for the Pinochet regime; on the contrary, for ideological and political reasons it was the desired outcome. The regime believe that Chile needed entrepreneurs willing to gamble on the system to make profits, thereby leading to economic growth as they invested to further enhance their profits. These individuals, according to Joseph 14 Schumpeter14, are desirable social deviants. The resulting concentration of wealth was

also desirable for the Pinochet regime. The individuals concentrating the wealth of the

country were those businessmen who supporter the military. By increasing their power

the government was only increasing the power of its supporters and, hence, its own. The

Chilean military was not able not control the groups it had empowered. In fact, it was

the middle class, which the military had hoped would support them, gave impetus to the

opposition movement that culminated in the defeat of Pinochet in the 1988 plebiscite.

In Chile, prior to the 1960s there was no empowerment of local organizations.

But political power was not concentrated in Santiago, but rather oscillated, at various

historical times, between the capital and the regions. The history of the country shows

how the decentralization of political power has been important in Chilean politics. The

conflict between the Presidency and Parliament, the emergence of a middle class from

european migrants, the emergence of a powerful workers’ movement in the isolated

north, all of these issues underscore the problem of centralization of power versus

diffusion of power.

In the next sections of this thesis the decentralization processes in Chile will be

examined. In the second section, a historical background of Chile, the process by which

the State was consolidated will be explored. During the past two centuries Chile has

undergone moments of increasing centralization during the mid-nineteenth century and

the years following the Great Depression in this century. Interestingly enough, it was

14 See Schumpeter, Joseph Alois. Theory of Economic Development. (New York: Oxford University Press, 1961). 15 under these periods that Chile’s constitutions have been enacted (in 1833, 1925, and the last one under Pinochet in 1980). There have been also periods of increasing decentralization of power, most notably the Parliamentary republic of the late nineteenth and early twentieth centuries.

The third section deals with the decentralization process begun by the Frei administration in the mid-sixties. The purpose of Frei’s program,Promoddn called

Popular, was to allow Frei’s political party to make inroads in the sectors of the population that traditionally supported the Left. It was a very paternalistic program seeking to give the Chilean poor a few material benefits in exchange for political support.

The fourth section deals with decentralization under Salvador Allende in the early

1970s. Allende’s government continued the process begun by Frei whereby local organizations were given legal recognition and support from the state, but carried this process even further. For both practical and ideological reasons, the Allende administration sought to empower groups which had up to that time been marginalized from Chilean politics. The administration’s hope was that the newly empowered organizations would support the government and strengthening its bargainingvis- position a-vis Parliament and the Courts.

The fifth section deals with decentralization under the Pinochet years. The focus of this section is with privatization. The Pinochet regime represented a dramatic break with the previous administrations. The groups targeted as beneficiaries of the decentralization process were also quite different from those of the previous two governments. Frei and Allende sought to empower the lower classes; Pinochet sought 16 to redress the balance of power in favor of the upper class. This section will explore how privatization was used, among other things, to bolster the power of the upper and middle classes.

The last section contains some final comments of the processes described throughout the thesis as well as some suggestions of possible directions decentralization will take under the new democratic regime. Despite the present being the second

Christian Democrat (PDC) administration there has been little talk of reviving some of the programs that the first PDC administration (Frei’s) undertook. HISTORICAL BACKGROUND

The study of Chile’s history is important not only because it places the events of

the past two decades in perspective, but also because it sets Chile apart from other Latin

American countries. It was precisely because of the latter feature that the brutality of

the military coup (if not the actually coup) of 1973 took most Chileans, and the rest of

the world, by surprise.15 The coup was contrary to the country’s tradition of civilized

and democratic politics. There are also two historical figures that acquired symbolic

importance during the 1970s and 1980s. One was Josd Manuel Balmaceda whom to

Allende symbolized a reformist president destroyed by the reactionary landowning

class16; the other was Diego Portales, who represented order and prosperity for the

military junta17. Both regimes sought to continue what they saw as the legacy of these

two historical figures.

A historical overview of Chile helps place the decentralization process in

perspective. It shows how the state developed and how it was consolidated as a

democratic regime by the mid-1880s. Beyond this, in Chile political and economical

15 The coup itself was widely expected. In fact segments of the population were asking the government to intervene, since they viewed the Allende Administration as having gone beyond the bounds of the Constitution. See Alexander, Robert J. The Tragedy of Chile. (Westport: Greenwood Press, 1978), pages xi-xiii (Introduction) for a typical reaction to the viciousness of the coup.

16 Falcoff, Mark. Modem Chile. 1970-1989: A Critical History. (New Brunswick: Transaction Publishers, 1989), Appendix 1. (Interview with former President Eduardo Frei.)

17 See Cavallo Castro, et. al., Pages 9, 17, for statements made by the military junta in regard to this subject. 18 power has not always been concentrated in Santiago, the capital city. Although the

capital’s importance increased as the democratic regime’s consolidation was advanced,

there were periods when political power did not lay in the hands of the central

government in Santiago. These periods did not have increased democratic participation.

They were the result of the debilitation of the central state caused by pressures from

interest groups based in other regions of the country. An overview of history, therefore,

illustrates the shifts from decentralized power to centralized power as represented in the

conflicts for political power between the Parliament and the Presidency. The issues that

emerged from this conflict were not totally resolved when Allende took office (for

example, it was not established if Parliament required a simple majority or a two-thirds

majority to overturn a presidential veto18; this became an issue of critical importance

during the Allende years).

From Independence to 1833 one can speak of a period of decentralized power in

Chile, because the unrest of those years did not permit the establishment of a stable

national government. It was a period of intra-elite conflict. From 1833 until 1891, the

presidency was clearly the more powerful of the two institutions, leading to a phase of

increased centralization as an ever growing number of attributes began to be concentrated

in Santiago. This was the period of consolidation of the central state; a process brought

to a halt, temporarily, by the 1891 civil war and its aftermath. During the

"Parliamentary Republic" (1891 to 1924) the Parliament, supposedly representing the

18 Sigmund, Paul. The Overthrow of Allende and Politics of Chile. (Pittsburgh: Pittsburgh University Press, 1977), 167-169. 19 country’s regions, drastically reduced the power of the central government, thus starting a decentralization process in which political bosses were free to control their areas of influence without challenge from the central authority.

This does not mean that it was a period of increased democratization, as most members of Parliament were landlords interested in exerting increased control over their areas over which they held sway. The electoral system then in existence over represented rural areas at the expense of the growing urban centers. After the enactment of the 1925 Constitution the power of the Presidency was reasserted but Parliament retained some mechanisms of control, including the ability to impeach cabinet ministers.

This mechanism meant was used repeatedly against the Allende administration for political reasons. This process of increasing centralization of the State was especially true after 1964 when the presidency was given new powers and increasing number of attributes and obligations were placed on the central government. The rationale for using these changes was to promote administrative efficiency.

Parallel to this process, local institutions were given legal recognition with the hope that they would incorporate people, up to then, excluded from the political process.

The administration sought to empower these organizations mostly to benefit from their political support. These organizations were the focus of the decentralization process that occurred under Allende. 20 I. INDEPENDENCE AND THE EMERGENCE OF PORTALES

Chile became an independent nation in 1818, following the defeat of the Spanish

forces at the battle of Chacabuco.19 The leader of the Chilean forces, General Bernardo

O’Higgins was to be named the first President of the young republic. During colonial

times, Chile was a remote and largely forgotten Spanish colony. Possessing no precious

metals and a small and belligerent native population, Chile was not particularly appealing

to Spaniards. Those who settled in the territory were mainly interested in agriculture.

This led Chile to become a major supplier of wheat and other agricultural products for

the Viceroyalty of Lima.20

Social relations in the Chilean countryside were semi-feudal, as most of the

agrarian laborers were tied to the land, and large landowners controlled their territories

like medieval lords.21 The landowning class, due to its trade with the viceroyalty, was

also the wealthiest of the country. At the time of independence, it was the landowners

who held the balance of power. When O’Higgins took over the presidency, he set out

to modernize the republic by trying to create a civil service, engaging in some public

works, but more importantly attempting to curtail the power of the landowning class by

eliminating nobility rights, inheritance laws, and attempting to untie the laborers from

19 AU Country Study, Chile. (Washington, D.C. : The American University, 1983), 12.

20 Skidmore, Thomas and Peter Smith. Modem Latin America. (New York: Oxford University Press, 1989), 110.

21 Alexander, 3-4; AU Country Study, 78-79. 21 the land.22 The hacendados, together with the Catholic Church which opposed

measures being proposed such as the secularization of education, deposed O’Higgins in

1824. Centralized authority during this period was never really capable of controlling

the the country. The landlords, mostly from the central region of Chile, were still in a

position to challenge and defeat the presidency.

O’Higgins’ ouster led to a seven year period of unrest in which different factions

of the landowning class fought for supremacy. This period ended in 1830 with the

beginning of the "Conservative Republic" which was to last until 1861. During these 30

years there were three presidents who were reelected for consecutive five-year terms.

The key figure, though, was Diego Portales, a Cabinet Minister for President Joaquin

Prieto (1831-1841). Portales, a businessman from Valparaiso, waseminence the grise

of this government. He was also the inspiration, though not the author, of the 1833

constitution that was to be the Law of the Land for close to a century.23

The 1833 constitution was based on a strong presidency, with a professional army

subordinated to the civilian executive (a fact "overlooked" by the Military Junta of 1973

that proclaimed itself to be the heir of the ideals of Portales). There was to be a

Parliament which had some control over the president, including the authority to approve

22 AU Country Study, 12

23 The importance of Portales is still debated. For example, Valenzuela recognizes his importance but says his influence has been greatly exaggerated, especially pointing out the fact that Portales was assassinated before Chile achieved a stable and democratic order (page 162). On the other hand, Alexander (pages 4-7), Skidmore and Smith (pages 109-110) argue that Portales was the architect of the system that permitted democracy and prosperity to flourish in nineteenth century Chile. 22 the national budget.24 The Parliament heavily represented the landowning class, as the

country was still predominantly rural. The system of representation, though, did not

change significantly during the nineteenth century so that by the end of the century, the

rural areas were over-represented.25 The significant power of the predominantly rural

Parliament helped to hamper the strong centralization tendencies prevalent in other Latin

American countries. But the strengthening of the executive power established in the 1833

Constitution meant that Santiago would become increasingly important. Thus began a

period of consolidation of the modem Chilean state.

Portales advocated going to war with the belligerent President Santa Cruz of the

Bolivian-Peruvian Confederation, though his calls went largely unheeded. It was his

assassination in 1837 by troops he believed were loyal to him that precipitated the war

against Chile’s northern neighbor.26 Chile’s forces, under the command of General

Manuel Bulnes, won a stunning victory. This victory has been attributed as the root of

the strong nationalism among the Chilean elite that helped to minimize conflicts during

the nineteenth century.27 But other events were also taking place that would help

24 AU Country Study, 18.

25 Skidmore and Smith, 117.

26 Valenzuela, Arturo in "Chile: Origins, Consolidation and Breakdown of a Democratic Regime." Democracy in the Developing World (Boulder: Lynne Rienner Publishers, 1989) mentions that some have suggested there was a Bolivian conspiracy behind the assassination of Portales, to provoke the subsequent war, but he states that there is no evidence to support that theory. It is more believable that Portales was a victim of the general unrest still prevalent in the country (page 162).

27 Valenzuela, 163. 23 maintain a climate of stability. Landowning families were either getting involved in

commercial activities or marrying into families engaged in commercial activities. This

meant that Chile was avoiding the dichotomy between commercial and landed elites that

was to cause so much unrest throughout the rest of the continent during this time. Also

significant was President Bulnes’ administration. As the victor of the war with the

Bolivian-Peruvian Confederation he was easily elected in 1840 and re-elected five years

later. President Bulnes decided to create a civil police force that would be in charge or

law and order, while curtailing the power of the Armed Forces. This civil force was

powerful enough to put down a couple of rebellions during the 1840s. More importantly,

President Bulnes decided not to become a dictatorial ruler as he permitted individual

rights to be established and respected in Chile. He also voluntarily left the presidency

in 1851 to his successor President Montt, thus setting the example of peaceful transfer

of power.28

By the mid-nineteenth century Chilean politicians began accepting democratic

procedures, especially as conservative landowners understood that they would not gain

the presidency by force after three failed attempts (the last of these in 1861).29 By now

the more liberal members of the elite, those most closely associated with commercial

interests, gained control of the presidency and proceeded to encourage foreign investment

and trade. These policies did not curtail the power of landowners, but they nevertheless

28 Ibid, 164.

29 Skidmore and Smith, 113-115; Valenzuela, 164. 24 felt threatened and therefore rose against the government. Their defeat in 1861 signalled

the beginning of the "Liberal Republic," a period of stability in Chile, which was to last

until 1891. Aiding to the stability of the Liberal Republic was a tacit agreement by

which the power of landlords would not be challenged in rural areas and, therefore, they

would not challenge the commercial policies that were taken in Santiago. An uneasy

equilibrium between the centralized power of the presidency and the decentralized power

of the landlords, prevailed for the next thirty years.

Basic democratic procedures were respected, which added to their growing

legitimacy. There was also a lack of intra elite conflicts, as commercial and landowning

interests and later on mining interests, were progressively united by family ties. Equally

important to Chilean stability was the discovery of nitrates in the northern Atacama

desert in the 1850s.30 Nitrates were used in the manufacturing of artificial fertilizers

and ammunition; both profitable industries at the time. The mining industry generated

enough profits for the state so that the government did not have to rely on personal and

property taxes for financial viability.31 The near elimination of these taxes also diffused

another potential point of conflict between the government and the Chilean elite.

The emergence of political actors in various regions of the country restrained the

growing centralization pressures in the country. A new political actor, the mining

proletariat, became powerful precisely because a new focus of power was emerging in

30 Burnett, Ben G. Political Groups in Chile. (Austin: University of Texas Press, 1970), 164

31 Valenzuela, 165. 25 the country: the north. Because of the remoteness and the wealth of the north, the social

problems of the Atacama desert region were ignored by the central authorities, especially

as long as revenue kept flowing to the Treasury. This enabled trade unions in the area

to grow in strength. It is also important to mention that the reason the labor movement

in the north became so powerful was that it held the key to production in the most vital

sector of the Chilean economy. The emergence of a focus of power in the north acted

as a counterweight to the centralization process taking place in the country at the time.

During the second half of the nineteenth century there was an inflow of

immigrants from Europe (mostly from Germany, Greece and Yugoslavia), who

established themselves mostly in the south of the country and engaged in agriculture.

This wave of immigrants helped raise the agricultural production, and thus helped

stimulate the economy.32 They became the base of support for the newly formed

Radical Party. As the power of that party increased, so the power of the southern region

would rise.

In 1879 Chile declared war on Bolivia as a consequence of a series of border

incidents. Peru, which had a cooperation treaty with Bolivia, immediately declared war

on Chile.33 Still, the Chilean Armed Forces, due especially to the Navy, defeated the

combined armies of Bolivia and Peru. As a result of the war, Chile annexed Antofagasta

32 AU Country Study, 60-61.

33 Who actually started the war is still a matter of some controversy. Chileans claimed that they were provoked by the Bolivians, but the Bolivians claimed they were attacked by the Chileans. 26 from Bolivia and Arica from Peru.34 The new territories of the Atacama desert were

rich with minerals. By the 1880s, then, Chile was prosperous and victorious. The

mining north held the key to the prosperity of the country. This made the "War of the

Pacific" quite significant.

H. BALMACEDA AND POLITICAL CRISIS

In 1886 Josb Manuel Balmaceda was elected president. Though coming from a

rich landowning family, he did not seek to represent the interests of this class. Instead,

Balmaceda sought to expand the electorate, a move which would have added

representation in Parliament to the growing urban areas. To achieve this goal he

eliminated the property requirement to vote and promoted universal primary education

(since literacy was a requirement to vote, the latter measure would in fact enlarge the

electorate significantly). He also tried to break the control of the landowners over the

peasants who worked for them.35 In this, Balmaceda broke the tacit agreement that had

ensured the political stability of the previous thirty years. His measures were an attempt

34 Chile finally settled its border dispute with Peru in 1929. But the issue of Bolivia’s access to the sea, lost during the War of the Pacific, has yet to be resolved.

35 Even up to today, Balmaceda’s figure is controversial, though it became increasingly symbolic in the early 1970s. For Allende’s sympathizers he was the reform destroyed by reactionary forces. Others saw him as a radical proponent of economic liberalism, misunderstood in his time and today because of "politics". See Perez de Arce, Hermbgenes. "La Polftica Econbmica del Presidente Balmaceda." Visibn v Verdad Sobre Balmaceda. (Santiago: Instituto Providencia, 1972), 111-140. 28 The result of the civil war was a significant weakening of the presidential power.

The period from 1891 to 1924 is known as the "Parliamentary Republic". Due to the numerous political parties and factions within them, there was never a working majority in Parliament during these years. Each president had to structure loose coalition governments that would invariably rise and fall. The average cabinet lasted four months during these years, underscoring the instability prevalent at the time. During this period, as in the early years of the Republic, there was a period of increased decentralization of power, as the representatives of rural central Chile enhanced their control over the country at the expense of the central authorities. Clearly, this process is was not a structured decentralization process, as the central government was not diffusing power to sub-national or private entities. But the central government was forced to relinquish attributes and functions to other political actors representing a broad geographical area of the country. A decentralization process does not define who will receive the power that the central government is relinquishing. In this case, Parliament has to be considered as a decentralizing agent as it represents the power of the various provinces of the country. Here the process involves the devolution of power from the central government as represented in the presidency to another branch of the central government which is the Parliament. The point is that the Parliament resisted the pressures of centralization as this would mean the demise of rural Chile’s power base. Hence,

Parliament had a strong incentive to decentralize power. This fact made Parliament a force for decentralization.

The process of decentralization was given added to force by the adoption of the 29 Ley de la Comuna Autdnoma (Law of the Autonomous Municipality). "The origin of this

law lies in the pressure by oligarquic groups, primarily regional in scope, which

demanded increased autonomy and fought the excessive control of the central state."37

The law was a recognition that some regions of the country were, in effect, turned over

to the local landowners. This enabled landowners to control rural Chile without

interference from the central state. This law was in effect until 1925 when a new

Constitution significantly strengthened the power of the central authorities.

HI. NEW POLITICAL ACTORS AND ARTURO ALESSANDRI

By the first decades of the twentieth century three different processes were

underway that would shift the political balance of power away from the landowners and

in favor of the middle classes, represented in the Radical Party. (Though founded in

1864, the Radical Party only became a decisive political force in the 1920s.) These

factors would be significant in the strengthening of the central authorities in Santiago,

and this would lay the foundation for the modem state of Chile, which, in turn, would

lead to a process of increased centralization of power in Santiago. Strengthening the

Radical party were new foci of power appearing throughout the whole country

(immigrants in the south, miners in the north). These new actors contributed to the

37 Cordillera, Centro de Estudios Municipales. Gobemar la Comuna. (Santiago: Manual para Capacitacidn Municipal, 1991), Volume I, Page 5. [Translation is mine.] 30 centralization of power in Chile, despite the fact that their power base was spread

throughout the country. Attempting to achieve the reforms promised to its supporters,

the Radical party had to rely on an increasing powerful central state to counteract other

powerful political actors in society. Therefore, the rise of new powerful interest groups

in the provinces did not, initially start a decentralization process, but rather a process of

increased centralization.

First of all, the labor movement began to rise as a political force. Though still

not powerful due to voting restrictions that allowed few members of the lower class to

vote, it began to be heard. Organized labor’s stronghold was the mining north. The

nitrate and copper miners began organizing and staging strikes to demand better living

conditions. Initially, not much attention was given to the miners as they were isolated

from the rest of the country by the vast Atacama desert and their ideas would therefore

not "filter" down to the rest of the country. But their strikes began to be more successful

and their organization more coherent38, due largely to the efforts of Luis Emilio

Recabarrdn, claimed as the inspiration (and founder) of both the Socialist and Communist

Parties of Chile. The government’s answer was repression. The government also

seemed to believe that the unrest was caused by foreigners but, unlike Argentina and

Brazil, in Chile most of the miners were Chileans, not immigrants.39 The labor

38 Alexander, 9.

39 Skidmore and Smith compare Chile’s case with that of Argentina and Brazil, where the governments deported large numbers of immigrants accusing them of instigating labor unrest. This option was not available in Chile, even though the governments of the three countries attributed labor unrest to the same reason (page, 118). 31 movement was never controlled by the government. Due to the limited voting power of

the labor movement (and consequently their inability to achieve power as things stood)

the labor movement threw its support behind Radical candidates who were more

sympathetic to organized labor than the traditional elite.

Secondly, the nitrate industry was in decline especially after the 1920s. The

invention by Germans of synthetic substitutes during the First World War and the

discovery of nitrate mines in European colonies, reduced nitrate revenues for Chile. On

the other hand, copper exports started rising as it replaced nitrates as the main export

commodity. The copper industry, unlike the nitrate industry, was wholly owned by

foreigners.40 American ownership of copper mines was to remain on the political

agenda until the nationalization of the copper industry by Allende in 1971. Due to the

need for foreign technology, the foreign investment laws of Chile were relaxed to permit

the incorporation of foreigners (mainly Americans) into the industry. This helped create

a technocratic core of professionals that were needed to absorb the new techniques of

production. Eventually, these technocrats would be Chileans mostly of middle class

extraction. The party which best represented the interest of these white-collar workers

was the Radical Party, as it was the only alternative to the elite-dominated Liberal and

Conservative parties.

Third, the urbanization of the country also aided the rise of the middle class. The

prosperity of the second half of the nineteenth century brought with it increased economic

40 Ibid, 112. 32

activity. Along with this, the need for professionals to perform such activities as law,

medicine, accounting, architecture, engineering, etc. provided opportunities for a

consolidation of the urban middle class.41 Again, the party of the middle class was to

be the Radical party.

In 1920, a candidate with the backing of this coalition of urban professionals,

technocrats, and organized labor was elected president. He was Arturo Alessandri Palma,

known as the "Lion of Tarapacd" becuase of his oratorical skills. Alessandri could not

resolve the issue of power of the presidencyvis-a-vis Parliament, either. He did manage

to get some legislation through Parliament, most importantly the adoption of a Labor

Code that for the first time would legalize trade unions (though this still remained a long

ar.d difficult process).42 In 1924 Parliament refused to continue collaborating with the

Alessandri administration. Parliament, also decided to raise its salaries while at the same

time lowering civil servants, including those of the armed forces.43 As a result,

Alessandri resigned and left the country and military officers took over the country.

41 Valenzuela, 166.

42 There is still some debate as to whether Alessandri was in fact pro-labor or anti-labor during his first administration. The issue revolves around the Labor Code which some argue makes it virtually impossible for labor unions to be recognized so it was a way of diffusing the issue of labor unrest; others argue that the Labor Code was a useful first step towards the legalization of labor unions.

43 During the debate over Parliamentary pay increases, a group of army officers packed the galleries of Parliament and started rattling their sables as a sign of protest. That brought the debate to a halt, though the issue was not solved until, a couple of months later, the military effectively took over the presidency. They did not dissolve Parliament, though it approved all the measures they new government had asked for as a condition for stepping down in one day. (Alexander, 12-13) 33 Having resolved the issue of salaries, though, the new leaders attempted to overturn some

of the pro-labor legislation that had been adopted. This caused a revolt from lower

ranking officers, led by Colonels Marmaduke Grove and Carlos Ibanez, who decided to

bring Alessandri back to the country in 1925. To lessen the power of the Parliament,

a new constitution was adopted in 1925 which again enhanced the power of the

presidency (though left Parliament with sufficient power so that it could, for example,

impeach Cabinet Ministers for political reasons).44

When Alessandri’s Vice-President, Colonel Ibanez, decided to run for president

in 1926, Alessandri resigned in protest attempting to block Ibanez’s election and

proceeded to leave the country. Ibanez simply took over the presidency, called

presidential elections which he won in 1927. Ibanez ruled autocratically, censoring the

press, jailing his opponents and curtailing civil liberties.45 Among the leaders that were

sent to internal exile was Colonel Marmaduke Grove, who was to be among the founders

of the Socialist Party in 1933. The Great Depression caught Ibanez totally unprepared

to cope with the challenges it involved. Therefore, as most other leaders of the

continent, political pressure forced the ouster of Ibanez. 1931 and 1932 were chaotic

times in Chile with a series of governments attempting to control the country. During

this period there was a sixteen-day "Socialist Republic" established under the leadership

44 AU Country Study, 21-23.

45 Alexander, 14-15; Skidmore, 120; Valenzuela, 167-168. 34 of Marmaduke Grove.46 As other administrations during these two years, it also

succumbed. Finally, in 1932 the president of the Supreme Court called national elections

to solve the issue of the presidency. Arturo Alessandri was re-elected for the 1932-1938

term. By now, this seven-year period of unrest was blamed as the cause of the economic

downturn of the country, as well as for most other problems facing the nation. The

solution that was proposed, therefore, was the strengthening of the presidency and the

centralization of political power and authority in Santiago. It was in these conditions that

Arturo Alessandri took the presidency for the third time.

By now, most of the energy had gone from the "Lion of Tarapacd." He left

economic policy to his Finance Minister, Gustavo Ross, who proceeded to adopt an

austerity package to ease the government deficit and control inflation, a persistent

problem in Chile. Ross’s policies, and a rise in the price of copper, helped Chile make

its way through the Depression. The Labor Code adopted under Alessandri’s first term

gave the government authority to resolve labor crisis, but Alessandri began favoring the

employers much more than before.

IV. THE RISE AND FALL OF THE RADICAL REPUBLIC

The 1938 presidential elections presented an interesting debate. On one hand, for

the Conservative Party was Alessandri’s Minister of Finance Gustavo Ross who proposed

46 Valenzuela, 168. 35 a continuation of the economic policies pursued during the previous six years, as well as

continued repression on labor; on the other hand was Pedro Aguirre Cerda, candidate for

a coalition known as the Popular Front. This coalition included the incipient Communist

Party (founded, by that name, in 1924) and Socialist Party (founded in 1933), although

the clear majority party of the coalition was the Radical Party. The election was quite

close and Aguirre Cerda won by a mere 4,000 votes.47

Though dominated by Radicals, the Presidential Cabinet contained politicians from

the parties of the Left. Among these, Salvador Allende Gossens, a doctor from

Valparaiso and a co-founder of the Socialist Party, was named Minister of Health48

Under Aguirre, the government clearly sided with the labor movement when disputes

arose. Economic policy also changed dramatically. Chile was the first country to

practice state-led Import Substitution Industrialization. To achieve this goal, the

Corporacidn de Fomeruo de la Produccidn (CORFO) de Chile was created in 1939. A

decade later most Latin American countries would model their Development Agencies

on CORFO.49 The role of CORFO was to provide investment capital to both the

47 Skidmore and Smith, 121.

48 Alegrfa, Fernando. "Para Una Biografia de Salvador Allende." Cuademos Latinoamericanos. Mayo-Junio, 1985, Pages 119-121.

49 Celso Furtado in Economic Development of Latin America. (Cambridge: Cambridge University Press, 1981) argues that the second phase of industrialization in Latin America occurred during the 1930s when there was a spontaneous move towards import substitution, due mostly to the Great Depression. Chile, though, was the only country to have the state in the forefront of this strategy. It would only be after World War II that the other Latin American countries would give the control of their industrialization process to the state. 36 private and the public sectors, and to coordinate economic development policy - a role

carried out later by theOfitina de Planificacidn National (Odeplan). However, CORFO

increasingly came to dominate economic activity in Chile as it had in its portfolio an ever

growing number of enterprises. This number finally reached its peak during the Allende

regime when over 500 companies were under state control. The fact that a state agency,

CORFO, was at the forefront of the economic development strategy of the country which

made the state assume an even greater role in Chile’s economy. It was this degree of

control over the national economy gave the final impetus to the process of centralization

that took place in Chile.

The Popular Front was short lived because President Aguirre, suffering from bad

health, resigned from office and died in 194l.so His successor Juan Antonio Rios, also

from the Radical Party, was less inclined to engage the support of the Communist and

Socialist parties and therefore did not include them in his Cabinets. Still, Rios followed

the same general policies as his predecessor by placing CORFO in the forefront of the

economic development strategy of the country.

The 1946 presidential elections were won by Gabriel Gonzalez Videla, also of the

Radical Party. To be confirmed by Parliament, he enlisted the support of the Communist

Party, which was to have representatives in his first Cabinet. In 1947 due to pressure

from the United States and his dislike over Communist Party tactics, he expelled the

50 Skidmore and Smith, 122. 37 Communists from his Cabinet.51 His coalition with conservatives in Parliament allowed

it to pass a law named "Ley de Defensa de la Democracia" (Law of the Defense of

Democracy) which banned the Communist Party. He also established a notorious

concentration camp, Pisagua, in the northern desert were Communist Party members

were to be imprisoned.52

Because of the growing reliance on state economic planning, and the increasing

importance of such agencies as CORFO, Santiago become the most important focus of

political power in the country. The process of centralization continued under Gonzalez

Videla. But by the end of Gonzalez Videla’s term of office, import substitution

industrialization had run out of steam. Industrialization in consumer industries had taken

place, and the Chilean market was definitely too small to sustain heavy industry.53

There was a need to adopt a different economic strategy. Unfortunately, for the next

twelve years the country’s economy stagnated as no forceful action was taken to addresss

this issue.

Gabriel Gonzalez Videla was supposed to be succeeded by Matte Larrafn of the

Radical Party, or so the leaders of that party believed. They did not think his main

51 Skidmore and Smith (pages 122-123) emphasize the U.S. pressure on Gonzalez Videla; on the other hand, Alexander (pages 33-34) states that Gonzalez Videla opted for this policy more because of tactics from the Communist Party which used its Cabinet appointments to enhance its power.

52 Pablo Neruda was to "immortalize" Gonzalez Videla in his poemEl Traidor de Chile (The Traitor of Chile), included in his Canto General (pages 279-281).

53 Alexander, 34-35. 38 opponent, ex-strongman Carlos Ibanez now in his seventies, stood a chance. By some

accounts the Radicals were so busy celebrating their "victory" from the day before the

election, that they did not bother to buy enough votes for Matte Larrafn. Other more

respectable reasons given for the defeat of the Radical party candidate include the wear

of incumbency, the growing disgust among Chileans of the opportunism of the radicals,

and the negative effects of the banning of the Communist party.54 This enabled General

Ibanez, now running on a populist platform much like that of Juan Domingo Perdn in

neighboring Argentina, to win the election.

During Ibanez’s first years in office inflation hit all time highs in Chile reaching

84% in 1955.55 In an attempt to solve this problem, the government hired foreign

consultants (the Klein-Sacks mission) who recommended an austerity package. The

government implemented these policies and brought inflation under control, but still

could provide no answer for the stagnation of the economy. What is important to realize

is that the central authorities, by now, were the only ones in a position to respond to the

economic challenges which the country faced. This helps show how far the centralization

process had gone, as other political actors were not able to take the initiative in any of

these challenges.

A solution that was proposed in 1958 was to allow competition in economic

activity to permit more efficiency. Under the slogan of a "businessman’s government"

54 Valenzuela, 168.

55 Hirschman, Albert O. Journeys Through Progress. (New York: Twentieth Century Fund, 1963), 160. 39 the proponent of this thesis, Jorge Alessandri, was elected president. The 1938 elections

were extremely close as Salvador Allende finished a close second (losing by almost the

same margin with which he would beat Alessandri in 1970), and third came Eduardo Frei

of the new and emerging Christian Democratic Party (PDC).56 The "businessmen’s

government" was not too much of a success either. It did not get the economy going,

nor did it really stimulate private investment and production. The state continued to be

the dominant player in the economic arena.57 In the 1964 presidential elections both

candidates advocated for drastic changes in the economic system. The two candidates

were Allende, representing a coalition of Marxist parties and Frei, advocating a

"Revolution in Liberty".

Frei’s Revolution in Liberty would redistribute wealth but respect private

property, while achieving economic growth. This was the desired result. Through tax

reforms, increased incentives to production, rises in real wages, and export incentives,

the administration managed to stimulate the stagnant economy. During the first three

years of the Frei administration, the economy grew at around 6.5% a year, while

inflation reached low levels for Chile. Unfortunately for Frei, this package of policies

56 The results of the election were the following (Alexander, page 46): Jorge Alessandri Rodriguez 31.50% Salvador Allende Gossens 28.35% Eduardo Frei Montalva 20.70% Luis Bossay 15.55% Antonio Zamorano 3.34%

57 AU Country Study, 104-107. 40 were ineffective during the second half of his term, and the economy stagnated.58

When Frei assumed office, the forces of centralization were prevalent in the

country. His administration strengthened the presidency and the central state in order

to make it more efficient, and attempts were made to incorporate into the political system

segments of the population that had been ignored up to now. It was this program that

would lead to the creation of grass roots organizations that, under Allende, would

become powerful enough to assume some of the functions of the state. But before

discussing Allende’s presidency one must examine the Frei administration’s

decentralization program in more detail.

58 Feinberg, Richard. The Triumph of Allende. (New York: A Mentor Book, 1972), 83-88. EDUARDO FREES ADMINISTRATION

With the support of the Conservative and Liberal parties, and the increasing

appeal of the Christian Democratic Party (PDC), Eduardo Frei easily defeated his

adversary in the 1964 presidential election receiving 54% of the vote to Salvador

Allende’s 39%.59 Furthermore, in the 1965 Parliamentary elections, the PDC gained a

majority in the lower House, the first party to do in over fifty years. Since only half of

the Senate was up for re-election, the PDC was still a minority in that Chamber. The

elections did not represent overwhelming popular support for the PDC. The Chilean

electorate had been evenly divided into three segments, representing the left, center and

right of the political spectrum. But in the months prior to the 1964 presidential election

there was a by-election in Curicd, a formerly safe district for the Conservative party. The

result was a victory by the UP candidate. This election made the parties of the right

discard an option of an independent candidate, and rather threw their support behind

Frei, in order to stop Allende. Therefore, Frei took office because of the support of the

PDC and the right-wing parties.

The PDC decided to avoid creating Parliamentary coalitions since the party’s

leadership believed this would mean compromising the PDC program. The decision was

taken in the aftermath of the 1964 and 1965 elections which for the leaders of the PDC

signaled the beginning of thirty years of PDC governments. This was to be the

59 Sigmund, 35. 42 administration of the PDC, and the PDC only.60 The PDC had a defined ideological

program which was based on six principle: Christianity, democracy, humanism,

revolution, nationalism, and communitarianism.61 The party had a very ambitious

program which included the construction of 500,000 new homes for low-income Chileans

in six years, increasing the pace of the Agrarian Reform to benefit 100,000 families by

1970, unionizing agricultural laborers, increase the State’s share of the copper industry

to 51% of the capital of the firms exploiting it (this was called "Chileanization" of

copper, to differentiate it from outright nationalization as proposed by Allende).

Furthermore, the PDC espoused a social philosophy which they called

"communitarianism." The attempt to act on this concept led to the legal recognition of

grass roots organizations as legitimate representatives of the population. This was the

beginning of a decentralization process under Frei, even though it was supposed to be

a limited decentralization, whereby only limited authority over simple matters (such as

embellishment of neighborhoods, creation of small scale cooperative enterprises,

organization of community events like, for example, inter-neighborhood soccer

championships, etc.) was given to these organizations. Exactly what the concept of

communitarianism entailed is difficult to understand as there existed almost as many

definitions of this concept as there were leaders of the PDC. At an abstract level, there

was not much debate over the concept, it was defined, primarily based on the writings

60 Ibid, 38-39.

61 Burnett, 183. 43 of Eduardo Frei, as:

a new phase in the development of civilization. All men who work together in the same enterprise will be organized together so that instead of capital and labor being separated as they are now, they will be gathered as one "in the same hands." Old-fashioned individualism is not the answer, for paradoxically it destroys the individual’s worth and the "free play of individual appetites has never succeeded in producing the common good." Contained in the concept of communitarianism is the belief in the inevitability of its eventual attainment, though man will enjoy it sooner by working to bring it about.62

Radomiro Tomig, the PDC’s 1970 presidential candidate, defined

communitarianism as humanism, respect for the integrity of every individual, and a belief

in the exploitation of mankind at the national and at the international levels.63

Parallel to the rise of the PDC, the so-calledteoria de la marginalidad (theory

of marginality) became very influential in Latin America. This theory reinforced the

communitarian ideology of the Christian Democrats. The theory is based on the fact that

a great number of the inhabitants of modem Latin America society are deprived of the

benefits of modem society. "But ... given that pobladores the are incapable of

overcoming their poverty by themselves, there is a need for an ’external agent’ that will

’promote’ these sectors of society and will integrate them into the mainstream of

society."64

62 Ibid, Pages 187-188. Burnett, in footnote 69, notes how this program contains a shadow of fascism. But he notes that in interviews with leaders of the PDC, they strongly condemned such suggestions.

63 Kennedy, John and Mario Zanartu (eds.) The Overall Development of Chile. (University of Notre Dame Press, 1969), 8-11.

64 Cordillera, Volume II, Page 5. [Translation is mine.] 44 At a practical level, though, there was some discussion as to who to achieve a

communitarian society. President Eduardo Frei saw communitarianism as a way of

expanding participatory politics. It would entail opening up the democratic system of

Chile; a process that had been gaining strength recently with the enfranchisement of the

women and illiterate of the country. At his fifth State of the Country address to a joint

session of Parliament on May 21, 1969, Frei clearly articulated his view of how this

ideal of communitarianism was to have an expression in the political life of his country:

In 19681 witnessed the culmination of one of my most important and fundamental endeavors: giving the country a legal structure that would permit [local organizations] to incorporate themselves to the active life of the country. This is the real meaning of the enactment of Ley the de Juntas de Vecinos (Law of Neighborhood Associations) and other communitarian organizations.65

The plan created to coordinate the activities of these community organizations and

to promote the ideal of communitarianism, and which would sow the seeds for the

emergence of the so-called Popular Power under Allende, wasPromoddn the Popular.

The goal of the Christian Democratic administration of Eduardo Frei was to achieve a

"Revolution in Liberty". This was their slogan during the presidential campaign, where

they attempted to portray themselves a genuine revolutionaries, but without the vices they

saw in Marxist ideologies. Therefore, the Frei administration felt the need to implement

a mechanism that would empower the lower classes; this was to be their commitment to

65 Frei, Eduardo (1). Ouinto Mensaie del Senor Presidente don Eduardo Frei Montalva al Congreso en Pleno. (Santiago: Presidencia del la Republica, 1969), 75. [Translation is mine.] The Ley de Juntas de Vecinos was finally published in the Diario Oficial on August 7, 1968. So though the Senate approved the law on July 19, it only went into effect some three months later. (Cordillera, Volume II, Page 6.) 45 the revolutionary part of their program. The PDC was also interested in distancing itself

from Marxist parties to maintain the allegiance of the middle class voters that gave the

party the victories in the 1964 and 1965 elections.

At the same time, though, the PDC was interested in breaking the hold the

Marxist parties had on the labor movement and other organizations that tended to

represent the lower class. This was the political goal Promocidn of Popular. This

program was designed to give legal recognition to neighborhood associations, soccer

clubs, etc. The law that established Promocidn Popular was finally approved by the

Senate on July 19, 1968.66

The leaders of the PDC were already looking at these grass roots organizations

as a potential source of political support. Their rhetoric, though, stressed such goals as

expanding democracy, increasing the accountability of the state, empowerment of the

dispossessed of Chile. A PDC sympathizer, Luis Scherz-Garcfa, professor of sociology

at the Catholic University (where the PDC was founded) used this rhetoric to explain

how Promocidn Popular was a program aimed at decentralizing the decision making

power of the state and devolving that power to the local level:

Politically, the task is to seek the legitimization ofjuntas the vecinales (local government assemblies formed around neighborhood units) and try to have them constituted as the basic cells of government endeavor.67

Other sympathizers of the PDC pointed out what the real goal of the program was:

66 Sigmund, 69.

67 Kennedy and Zanartu, 103. 46 winning over significant segments of the population to the Christian Democrat

government.

[A] fundamental characteristic of the Christian Democratic program ... is to help and to organize those sectors of the underprivileged which are even in a worse condition than organized labor, and to do so directly, thereby bypassing the organized labor movement which is substantiallyin the hands of the opposition.“

The Socialist and Communist parties, though, supportedPromocidn the Popular law

because they would also benefit from it. Despite criticizing the proposal as an attempt

of the PDC to extend its party machinery into the lower classes, Marxist parties realized

that this new law could be beneficial for them also, primarily because the law envisioned

empowering segments of the population which had traditionally been supportive of the

Marxist Left. If the Socialist and Communist Party would be able to prevent any

increase in influence of the PDC among these segments of the population, then their

political power would be augmented as these local organizations were being empowered.

The challenge was maintaining the PDC alienated from these people. Therefore, the Left

opposed the faculties of Consejerfathe Nacional de la Promocidn Popular, CNPP, the

office in charge of overseeing the program,69 since the CNPP could easily become a

partisan instrument used by the PDC for electoral reason.

President Frei saw the potential Promocidnof Popular of undermining the power

of the Marxist parties of Chile, but he also seemed to understand that these organizations

68 Refers to the opposition on the Left of the PDC government, mainly the Socialist and Communist parties. [Italics are mine.] Kennedy and Zanartu, 139.

69 Cordillera, Volume II, Page 6. 47 could grow to the point of being beyond the control of the government or the PDC. This

may be the explanation why the program, under Frei, was used more for patronage than

for the empowerment of the dispossessed. It was also a political necessity of the PDC

to increase its support among the poor, since its base of support of middle class voters

was slowly eroding, as can be seen in the 1969 Parliamentary elections when the PDC

lost its absolute majority in the lower House. The programPromocidn of Popular under

Frei, therefore, consisted of granting favors to poor communities by way of small public

works projects with more political value for the PDC (they could be showed as examples

of the administration working for the people) than of anything else. In his Fifth message

to Parliament, Frei does not even attempt to disguise this tactic. SpeakingPromocidn of

Popular he clearly states that it has been successful because through

the coordination of resources and efforts of governmental and non-governmental organizations committed to social development,Promocidn Popular has achieved its purpose by achieving material benefits in infrastructure for the communities by way of installation of potable water, sewage, sidewalks, telephones, as well as promoting popular art expositions, and those of art crafts and small industries.70

There were other signs of power slowly being transferred to the poorer groups

of society if only minimally. As the electoral arena expanded, groups which had been

mostly ignored up until this time, began becoming more important players in day-to-day

politics. It would only be a matter of time before they started demanding more power

for themselves. It is important not to exaggerate this trend, as Chilean politics remained

70 Frei (1), 76. [Translation is mine.] 48 a two-tiered structure. At the national level ideological debate predominated with representatives across the political spectrum having a voice in Parliament and other national institutions; at the local level, patron-client relationships were still the rule. This would often mean that parties allied at the national level would fight among themselves at the local level - sometimes displaying open animosity. But the opening of the political system meant that more parties fought for the support of the lower class. These communities could withdraw support from any particular group that did not grant them what they demanded. In this sense, the political parties needed the local institutions that channelized the demands of the poorer sectors of society, as much as these institutions needed the parties. This meant that the potential for empowerment at the grass roots was there and it only needed to be tapped.

From the early 1960s, there was a substantial effort on the part of the

Communist, Socialist parties, the PDC, and other left-leaning parties to expand their support among the lower class Chileans. This was done by way of adopting clientelistic attitudes in the communities (by, for example, building a school in a district in exchange for votes); but this process was actually leading to the empowerment of these groups.

There were so many political parties (and factions within these parties) fighting for the support of poorer Chileans, that grass roots organizations could play politicians off among themselves choosing the party that would be most beneficial for them. This process eventually allowed grass roots organization to operate independently of the patronage of the state. But still the ties to political parties remained fairly strong up until the coup of September 11, 1973. 49 One of the most radical examples of such independence from the state was the

case of an organized shanty town calledNueva La Habana, organized by theMovimiento

de Izquierda Revolucionaria, MIR (Movement of the Revolutionary Left). The MIR was

considered the best organized and one of the most radical parties of the Left. It was not

a member of Allende’s UP coalition, though it was supported by the majority of

Allende’s Socialist party, including its Secretary General Carlos Altamirano. Founded

at the University of Concepcidn by a group of student dissidents from the Socialist Party

in 1965, the MIR did not believe in constitutional changes and advocated for an armed

revolutionary struggle. The MIR organized shanty town dwellers and directed invasions

of unused lands to set up a new communities.Nueva La Habana was founded by one

of these land invasions. The local leaders of the MIR declared that the constitutional

system of Chile had no validity in theirpoblacidn (an organized shanty town).

Therefore, the settlement enacted its own laws, setting up committees for defense,

cultural and administrative issues. Since the shanty town dwellers were to pay allegiance

only to their shanty town and the future revolution, they organized their own criminal

justice system, including police, judiciary, detention centers. The settlement was also

to be used for political education of the masses.71

The case of thispoblacidn was unique. It was to be the showcase of the MIR,

and all of its efforts in Santiago were devoted to enhancing the imageNueva of La

Habana. A former leader of the Socialist Party, critical of the MIR, explained that this

71 Henfrey, Colin and Bernard Soij (eds.) Chilean Voices. (Sussex: The Harvester Press, 1977), 130-148. 50

experiment could not be replicated elsewhere because, even though it tried to attain self-

sufficiency, it was totally dependent on the outside assistance for survival; it ignored the

realities of Chile as country. It was just a "public relations ploy" of the MIR.72

Nueva La Habana was also criticized by the Right which saw it as nothing more

than a guerilla training camp. They thought that the process of organizing slum dwellers

was really an attempt to cover-up the creation of an irregular army that would lead to a

revolutionary outcome to Chile’s problems. They also argued that leftist from other

countries that had emigrated to Chile were nothing more than military advisors.73

More objective observers have attempted to understand the degree of participation

and/or extremism present in thepoblaciones. While acknowledging that these

organizations and their actions had an extremist character whose aim was to achieve

power by force,

one cannot ignore that[tomas the and the resultingcampamentos] had significant popular support, and that they were acknowledged and supported by a segment of the Left larger than the MIR. The most interesting legacy of this experience was the possibility of self-government incampamentos, the in other words, being able to create a movement whose objective goes beyond petitions presented to the State.74

Nueva La Habana itself never really realized this potential and, thus, was not a

genuine example of empowerment of the inhabitantspoblacidn, of the as the community

72 Interview conducted by the author with Daniel Garcfa, a leader of the Socialist Youth for the North of Chile, based in Antofagasta.

73 Moss, Robert. Chile’s Marxist Experiment. (London: David and Charles Newton Abbot, 1973), 114-115.

74 Cordillera, Volume n, page 10. [Translation is mine.] 51 was still under the control of an organization alien and to the outside of it. One can argue that the power thepoblacidn may or may not have enjoyed, was not of the pobladores but of the MIR militants that were organizing it. The local people were now not subject to the State of Chile (if the claims of the MIR were true) though they were to be subject to the MIR, which for all its talk of a future state-less society were running this community as the State would. Still, the members of this poblacidn took unto themselves the attributes of local governments. In this they were usurping attributes of the state, thus leading to ade facto decentralization. It was a similar situation on a national scale that ledde facto decentralization under Allende.

This radicalization and expanding area of activity of the associations that were granted legal status under thePromocidn Popular law was severely criticized by Frei.

Writing after the September 11 1973 coup, Frei expressed his criticism ofcordones the

industrials. The cordones were symbolic in that it was the first grass roots organization

to emerge with the ability to control whole aspects of the lives of inhabitants in one

particular area. Whereas before local organizations were created mostly for a particular

purpose in mind, they were never in a position to overrule the dictates of governmental

agencies. The cordones were capable of doing this, since they were organizing the

production process as well as the activities of the workers in the industries of a certain

geographical area. Criticizing thecordones, Frei said:

[Under the Allende government] the so-calledcordones industrials were formed, surrounding the cities strategically; and as a consequence of the shortages, rationing mechanisms were organized based on political organisms which made the inhabitants dependentempadronaban ( ) on these organisms, so that they could 52 control the life of the population.75

Though this letter was written only a month and half after the coup, when the

intentions of the military were still unclear, and Frei was writing with a political purpose

in mind, it is clear that he disapproved of the evolution of the grass roots organizations

formed under his original program.

It is very difficult to de-link the organizations that appeared in the latter years of

the Allende government from their predecessors, the organizations conceived under

Promocidn Popular. The latter were still organizations that were patemalistically

controlled by politicians, despite the rhetoric of the time, and the former, while originally

the same type of organization (only under the control of the Marxist parties instead of

being under the control of the PDC), actually evolved to achieve a certain degree of

independence. This was a phase that began taking place since the end of 1972, but was

never completed when the process was abruptly halted by the events immediately

following the military coup of September 11, 1973.

Frei’s attempt to decentralize specific functions of governance to local authorities

seems to have run out of the government’s hands. Initially just seen as a mechanism for

increasing popular participation in politics,Promocidn the Popular program led to

increased decentralization in Chile, and eventually to the empowerment of local

institutions and the people they represented. It took the brutal and systematic use of

force under Pinochet to turn this process back.

75 Frei(2), "Carta del Ex-Presidente Frei a Mariano Rumor." Enfoques Politicos. Diciembre 9, 1974, Page 9.[Translation is mine.] DECENTRALIZATION UNDER PRESIDENT SALVADOR ALLENDE GOSSENS

I. OVERVIEW

Salvador Allende was the first Marxist to be elected president in a democratic

Latin American nation. He was backed by a loose coalition of Left-wing parties which had to compete with each other for political support because of the nature of the Chilean electoral system. Because of this system, characterized by constant elections and an electorate divided into three evenly split camps, there was little incentive for maintaining coalitions after the elections. This problem affected the Allende government, as it had affected his predecessors. But Allende faced an added difficulty. Because his program entailed the elimination of the capitalist system in Chile, Allende’s opposition gradually began uniting to undo his policies. The result was a bi-polarization of Chilean political life in which negative forces were operative but not positive ones. To attempt to break the stalemate, and also to maintain the cohesiveness of the UP coalition, the Allende government sought to promotede facto a decentralization process in which local and grass roots organizations would be empowered. The goal was twofold: to bolster those sectors of the population that traditionally supported the UP parties, and to increase the administration’s leverage with its political opposition since it could depend on an organized base of support.

During Allende’s first year of office, as the economy was growing, there were no major political hurdles for the administration and, therefore, the active promotion of grass roots organizations was not a priority. As the economic conditions of the country 54 worsened and the opposition to Allende cooperated, the administration focused more on grass roots organizations. But these groups were growing increasingly alienated from the government for two reasons: one, the worsening economic conditions meant that the government could deliver less resources to them, which made their support of the UP weaker; and two, as chaos became prevalent among the national political institutions, local organizations tried to cope with the situation the best way possible and avoided any reliance on the national leadership. Both of these factors contributed to the growing assertiveness and independence of local organizations, which began to perform tasks previously done by the central government. This is precisely the decentralization process that will be examined in this chapter.

On September 4, 1970, Chileans elected a new president. The Chilean electorate’s options included a conservative former president, Jorge Alessandri, who campaigned on the promise of stability and order. Alessandri hoped that the middle class was tired and scared of the growing politization that had taken place under the Frei government. Radomiro Tomig was the candidate of the Christian Democratic Party. He stressed a continuation of the policies of the Frei administration but insisted on taking social reforms further, since he considered them inadequate. Tomiq’s rhetoric turned as radical as the one of the Left, and he called for the elimination of the capitalist system and opening the way to a socialist state. The third presidential candidate was Salvador

Allende, the leader of the Socialist Party and president of the Senate. Supporting Allende was a coalition of Left-wing parties under the banner of the Popular Unity. "The

Popular Unity ... program was the most radical election platform that could have been 55 presented to the electorate in any country with a serious chance of success."76 As a

result of the elections, Salvador Allende received a plurality of the votes with 36.3% of

the total ballots. He defeated former president Jorge Alessandri by a narrow margin.

The result was similar to the 1958 presidential election, the last time there had been a

three-way race for president of Chile, and Alessandri barely defeated Allende. The

results showed that the electorate system of Chile was again divided into three contending

forces, and that the 1964 elections, in which there were only two candidates and one of

them received an absolute majority, were an aberration. Parliament had to confirm

Allende’s election as he had not obtained the required absolute majority to forego this

constitutional step. In Chile’s political tradition this had been a formality since the

candidate who received the most popular votes was always confirmed as president by the

Parliament. Even with highly controversial figures such as ex-strongman Pedro Ibanez

del Campo, who won the 1952 presidential campaign had been confirmed. The

difference in 1970 was that a Marxist was elected on a platform that called for the

dismantling of the capitalist system and the creation of a socialist state.77 Despite the

controversy, on October 23 of 1970, Parliament confirmed Allende over the opposition

of the conservative legislators.

Allende believed in the creation of a socialist state, in which the public sector

76 Israel, Ricardo. Politics and Ideology in Allende’s Chile. (Tempe: Arizona State University, 1989), 18.

77 Sigmund, 106-122. Here, there is also an account of the attempts by the C.I.A. and of I.T.T. to prevent Parliamentary confirmation of Allende, or if not possible than to stimulate a military coup. This, though, is beyond the scope of this paper. 56 would be the vanguard of the country’s development. His program attempted to raise

the standard of living of the poor, while at the same time raising productivity by giving

control of industries to its workers. Similarly, the government attacked the capitalist

class and the entrenched oligarchy of the country for opposing and blocking his

proposals. Greater participation of the masses in all aspects of society was to be the

main goal of the government.78 The increased participation of the masses was to take

place by the strengthening of grass roots organizations and the expansion of programs

such as Frei’s Promocidn Popular. The decentralization process envisioned by the UP

leadership entailed the empowerment of these local and grass roots organizations.

Decentralization in Chile under the Allende government fit within the UP’s

general philosophy and strategy.

The UP considered the mobilization of the dominated classes as one of the most important factors in imposing revolutionary change ... The UP’s strategy also involved the incorporation of the unemployed and the shanty-town dwellers of the major urban centers, for who special committees were established; and the unionization of agricultural workers was considered a basic element of their incorporation.79

The Allende administration and the coalition supportingUnidad it, the Popular, promoted

the idea of empowering what were calledorganizaciones de (basebase organizations).

These organizaciones de werebase grass roots and local organizations that had been

formed to achieve a particular goal, and which traditionally supported organizations and

78 Feinberg, 169-195, Appendix I.

79 Israel, 20. 57 movements sponsored by the Left. In some cases these organizations had been created by Left-wing parties to pressure for a short-term project. During the course of the

Allende administration these organizations became more autonomous.

Because of the crisis of October of 1972, precipitated by strike of the truckers’ union, popular organizations were forced to regulate and organize many facets of their life due to the leadership vacuum. This meant that grass roots organizations began to carry out functions which the central government previously performed. There was a delegation of functions and a devolution of authority from the central government to local grass root organizations. It is at this point in which de facto decentralization is taking place in Allende’s Chile. During the October crisis, the government called on these organizations to ensure that production and distribution of goods would continue in spite of the wave of solidarity strike among white-collar unions that swept the country following the truck drivers’ strike.

The Allende government hoped that these organizations would support the it, and that the UP administration could make them follow its dictates and policies. The administration’s goal was not only to encourage mass participation in the political and economic life of the country, but also to empower those political groups that would be more apt to support the UP government. Allende hope that this support would enhance his bargaining position with the opposition-controlled Parliament.

This was not the actual result of the decentralization process. Grass roots organizations increasingly turned critical of the government in the months preceding the

1973 military coup. Part of the reason for their opposition was the inability of the 58 government to deliver any material or political benefits to these organizations because of

the national political stalemate and inability of the national leadership to compromise.

The ensuing paralysis of the national institutions fueledde facto a decentralization

process in Chile as local grass roots organizations usurped governmental functions which

had ceased to be performed by the central state. The situation which ensued was called

"dual power" by the Left and considered a pre-revolutionary phase80, while the Right

simply called "anarchy."81 The process consisted of a series of uncoordinated activities:

in a few of the squatter settlements of Santiago, pobladores the were organizing

themselves into self-sufficient entities in an attempt to cope with the crisis; in the

countryside peasant organizations were creating their own production and distribution

rules and institutions; in the factories the workers were organizing production; in the

cities neighborhood committees were controlling the distribution and the price of goods

in order to avoid speculation. This describes the decentralization process which Chile

was experiencing.

Ironically, the process by which local institutions were strengthened was not

particularly successful from the government’s point of view as it was not able to control

most of these popular organizations. Characteristic of this lack of control was the wave

of land seizures by peasants which took place following Allende’s victory despite his

efforts to contain them. These were mostly organized peasants who took land with the

80 Roxborough, Ian et. al. Chile: The State and Revolution. (New York: Holmes and Meier Publishers, Inc., 1977), 161.

81 Moss, 145-154. 59 hope that the revolutionary government would legitimize their titles, which by and large

happened.82

Such organizations were controlled by parties in the UP coalition (primarily

MAPU and the Socialist Party) as well as organizations outside, but sympathetic to the

government (mainly the MIR). In some of the rural areas, especially in the south of

Chile, these organizations acted as the real government, as the authority of the central

state of Chile was increasingly ignored. This process was evident in the region near

Cautfn, which was under thede facto administration ofComandante Pepe, one of the

leaders of the rural wing of the MIR. A similar situation was taking place in the cities

where grass roots and political organizations previously supportive of Allende’s

administration increasingly grew more vocal and critical.

Even though it may appear paradoxical, it was quite common that the protest rallies that demanded a solution by the government for the housing needs, were organized by local organizations with close ties to political parties which were part of the governing coalition.83

II. THE SUCCESS OF THE FIRST YEAR AND INACTION ON DECENTRALIZATION

The problems within the coalition were not evident the first year of the Allende

administration. After all, it was a very successful year. In the municipal elections of

82 Sigmund, 139.

83 Cordillera, Volume II, Page 8. [ Translation is mine.] 60 March, 1971, widely seen as a plebiscite on the UP government, the ruling coalition

obtained close to 51% of the valid votes.84 The Allende government was still interested

in changing the nature of the economic structure of the country rather than in

decentralizing political power. The strategy the government was following to achieve

this goal seemed to be paying off; after all, if the elections had been Parliamentary rather

than municipal, it could be expected that the UP would have gained a majority in at least

one House of Parliament. This is a plausible explanation since Chileans voted for

political parties in the local elections, not for individual candidates and hence

personalistic or idiosyncratic elements usually prevalent in local political races were

much less evident in Chile. Because of the nature of the electoral system it can be

concluded that result of Parliamentary elections would have been similar to the results

of these elections. The PDC was the big loser in the 1971 elections. Though, it was

still the single largest party in Chile, it had only achieved 25.6% of the total vote,

compared to 54% in the 1964 elections, 42.3% in the 1965 Parliamentary elections, and

29.8% in the 1969 Parliamentary elections.85 The result obtained in 1964, though, was

due more to a collapse of a third alternative in a system characterized by an electorate

evenly divided in three factions, than a mandate for the PDC. The result of the 1965

elections reflect the "honeymoon" period that followed his presidential inauguration. In

this respect, Allende’s popularity, and the legitimacy of his administration, was

84 Sigmund, 142-143.

85 Burnett, 32-33. 61 comparable to Frei’s during this period. In fact, one might argue that Allende’s

popularity surpassed Frei’s as his coalition’s strength increased after the presidential

elections. Just as in 196S Frei claimed a popular mandate to enact his program, in 1970

the UP coalition proclaimed a popular mandate to enact their program. There was no

incentive for the Allende administration to alter its strategy at this stage, since it seemed

to be working.

Furthermore, the economy was booming: unemployment fell to 3.5% of the labor

force, inflation was below 10%, and GNP grew 9.5% in 1971.86 No one could argue

with success. The PDC accused the government of creating the illusion of false

prosperity for electoral purposes, a policy that was irresponsible since it was deficit-

financed.87 This argument proved to be true, and the government’s policies in fact led

to massive deficits and inflation.

During the first year of the administration the decentralization program did not

gather force. The administration did not want to alter a strategy that was giving the

desired results. Therefore, the UP adhered to its original strategy forvia the pacifica

al socialismo (pacific way to socialism). The strategy was to gain the support of the

middle class, and strengthen the backing of the lower class, so that the coalition would

gain a parliamentary majority that would enable the government to enact its revolutionary

86 Sigmund, 142-145 (Account of the 1971 Municipal Elections); Page 281 (statistical data).

87 Valenzuela Arturo and Samuel J. Valenzuela (eds.), Chile: Politics and Society. (New Brunswick: Transaction Books, 1976), 125-129. 62

program.88

During Allende’s first year in office it became clear who were benefitting from

the government’s policies and who were suffering. The political importance of the lower

classes appeared to be increasing, as well as their level of welfare. An example can be

seen in thepoblaciones, which were politically active squatter settlements in which major

parties began becoming involved. There is debate as to who was using whom (the

settlers using the parties or vice versa) but the main point is that poor urban dwellers

were given a voice. The real decentralization of power would begin when the Chilean

poor demanded a leadership position in the transformation of Chile, instead of accepting

the dictates and the leadership of the Allende administration. But this process was not

apparent at this stage. At the other end of the scale, the higher classes felt threatened

by Allende. After all, his administration nationalized most of the banking sector, as well

as over two hundred and fifty industrial firms that had belonged to the members of the

high classes. The results of this first year coincided with the goals the administration had

sought out for itself. They never attempted to allay the fears of the upper class; Allende

himself had stated in his inaugural address, to contrast himself to Frei, that he would not

be the president of all Chileans.

The point is that the first year of the Allende administration decentralization was

not a priority. Decentralization was to be a tool used to bolster the support of the

national leadership, but this was not needed at the time. Unfortunately for the

88 Ibid, 1-4. 63 government, when it attempted to encourage a decentralization process, the divergence of forces within the coalition, each with its own decentralized base of support, was such that the process began to work against Allende. Each member of the coalition was moving in a different direction, thus undermining the whole process.

Allende had come to office with the support of a coalition that was far from homogenous, and this limited his political mobility on a number of occasions. The coalition was divided on many issues, including the decentralization. There was no unifying strategy among theUnidad Popular government regarding the local organizations which the PDC’sPromocidn Popular program had sought to encourage, because the strength of the various parties of the coalition resided in different sectors of society. The coalition was composed of the Communist Party, which had significant support among the labor unions andcordones the industriales (settlements formed around factories by the laborers who worked there); the Socialist Party, whose main sources of support were more or less the same as those of the Communist Party; the MAPU, a dissident faction of the Christian Democrats, which could depend on the support of organized peasants; the Radical Party, was still popular among the middle class; and the two other parties, the API and IC, both splinters of the Christian Democrats were minuscule with some support among the middle class. Outside the coalition, but not in opposition, the MIR controlled some shanty towns,Nueva like La Habana.

Unfortunately for the UP, there was little cooperation among its member parties to carry out a governing program, but rather there existed competition among them.

Electoral realities required each party to gain the most support for its members, given 64 the Chilean democratic system characterized by numerous elections. This meant that

parties of the coalition would undermine each other in search of electoral support. The

basic problem was that one voter, sympathetic to the UP, would be a union member

living in corddn a industrial. This meant that the Socialist and the Communist party

would seek this vote, and even undercut each other in the search for it. Allende himself

tried to prevent this internal conflict by establishing a confederated party that would

include all the groups within the UP coalition to avoid UP candidates competing among

themselves in the March, 1973, Parliamentary elections. The goal was to avoid a split

in the vote of the Left. But this proposal faced the opposition from outside the coalition.

The PDC, with the support of the rightist National Party, enacted into a law a statute

governing creation of new parties, that made it virtually impossible for the UP to

establish such a party before these elections.89 Even within the UP the strategy did not

work out, as candidates of the coalition ran against each other. A notable example is the

case of Santiago were Senators Carlos Altamirano, Secretary General of the Socialist

Party, and Volodia Teitlebom, of the Communist Party, ran in the same district.

During the first year of the UP government, the ruling coalition was more or less

unified. This was probably due to the initial success of the administration’s strategy.

89 One of the reasons why it would be so difficult for the UP to form a confederated party was that, for this new party to be recognized legally, and hence be able to take part in an election, the party needed to exist for one year prior to the election it would compete in. The PDC, which along with the National Party, had a majority in Parliament, passed the new statute for political parties in February of 1972, giving the government only one month to set up the new party. The problem was that though to the arrangements within the UP, every important decision had to be approved by all member parties. This meant that most of these decisions could only be taken after a long debate and intense negotiations. 65 The parties of the UP attempted to direct the activities of the organizations they controlled or influenced towards the same goals because the parties perceived it was in their interest to do so. Initially, these goals included the nationalization of large companies and foreign monopolies, as well as the take-over of large estates. But this phase of agreement and cohesion within the UP quickly ended, in part because of the worsening economic conditions, and in part because fundamental differences over tactics and goals were not resolved. The large estates and foreign monopolies were by and large nationalized; after this, some elements in the coalition argued for the nationalization of small and medium sized estates and establishment of collective farms, others within the coalition wanted to stop the wave of seizures which were illegal. The same debate was apparent regarding the nationalization, or not, of the small and medium size industries.

But after the success of the first year, the economy began to slow down and the country would soon enter into a recessionary phase with hyperinflation. It was at this point that the divisions in the coalition became apparent. The lack of consensus within the coalition, and the opposition from without, did not enable the government to respond to the crisis quickly or effectively. The president seemed to be walking on a tight rope trying to balance the positions of various factions within his administration.

Allende tried to satisfy all the members of his coalition, but this grew increasingly difficult as their disagreements were irreconcilable. The Communist Party, and its principal spokesperson in the Cabinet, Finance Minister Orlando Millas, proposed to consolidate the gains achieved by the revolutionary government. This meant that the 66 government should concentrate on increasing the productivity of the nationalized firms

and the nationalized land. Minister Millas argued that the government should operate its

firms more efficiently than the capitalists, since this would maintain a growing economy

and the support of the middle class, which was crucial to the strategy ofvia the pacifica.

Minister Millas complained that the nationalized industries were not operating efficiently,

that there was a high degree of absenteeism, and that worker participation only took

place in a selected few of the industries.90 The Communists still believed they could

control the transition to a socialist state from the government.

On the other hand, the MIR and the faction of the Socialist Party led by Secretary

General Carlos Altamirano argued for advancing. They claimed that the revolutionary

process could not be stopped since that would amount to nothing more than the same

kind of reformism that the PDC government had engaged in. The momentum of change

could not be halted, or else the government would be left behind, as the masses would

move on towards the revolution.91

The division within the ruling coalition transcended the issue of nationalization,

since what was at stake was the road the government should take. Should it abide by the

constitution and electorally muster enough strength to permit it to change the constitution

and eventually construct socialism, or should it disregard the law and attempt to crush

90 Many scholars have considered that if the Millas proposal had been adopted in early 1972, the military coup would possibly have been avoided. This, though, is a purely academic discussion.

91 For authors who are sympathetic to the Socialist’s point of view, see Roxborough et. al., 161-168. 67 the sources of bourgeois power now that it controlled the Executive?

These divisions within the coalition were also apparent regarding the

decentralization process. There were political and ideological differences regarding the

role of local organizations. There was not even an agreement as to what these

organizations actually were. This disagreement led to governmental inaction regarding

the decentralization process and it, therefore, proceeded quite chaotically and irregularly.

Perhaps the most significant element of contention within the Left was the question of Popular Power. The origin of the problem was in the autonomy sought by organs such as the industrial cordons(Cordones Industriales) and the community councils(Comandos Comunales) vis-k-vis the trade unions and the government. The political control exercised by the parties in the cordons, which made decisions in democratic assemblies was much less than that in the trade unions; hence, these organs were much more independent.92

The most radical members of the Socialist Party and the MIR looked at the

emergence of thecordones industriales (associations of factory workers employed in the

same geographical area which attempted to regulate production and distribution of goods)

and other similar organizations, not as responses to the truckers’ strike of 1972 (which

will be commented below), but as a pre-revolutionary stage in which the reformist wing

of the UP was being left behind. "The class polarization of October 1972 brought with

it the community councils and the industrial cordons, which were defined as alternatives

to the bourgeois state, and independent of the government."93 It is at this stage that

local institutions began to usurp the power of the state, thus paving the road for the

92 Israel, 75.

93 Ibid, 134. 68 decentralization process. Now even former allies of the Left were highly critical of the

government. As an Allende sympathizer asserted: "[t]owards the middle of 1972, the

political strategy of the Popular Unity went into undeclared bankruptcy."94

This faction of the ruling coalition saw the emergence of Dual Power as a reality

that would pave the way towards socialism. Their argued that the people were already

acting, and the government had been left behind. This idea is expressed in the following

passage of an article written by the Revolutionary Socialist Party of Chile, in the

aftermath of the October strike:

Facing [the bourgeoisie] is a workers’ movement that has not suffered any defeat as a class, that is strong and determined, and that despite its general support for the UP resolutely presses ahead on the road toward nationalizing industry and creating basic organs of workers’ power, resulting in conflicts with the government itself.

A situation of dual power prevails in Chilean society. This cannot help but be a transitory and unstable stage. The opposing classes cannot settle the problem of power in the idyllic and peaceful electoral arena, despite the government’s efforts ... that demobilizes and ties the hands of the proletariat, leaving at the mercy of the bourgeoisie. The question of power will be settled through class confrontation. In this regard, the death rattle of a "Chilean road" can already be heard.95

When the situation reached this stage,de facto decentralization began developing in

Chile. This process, which empowered local organizations, was not really an act of

rebellion against the government but a realization by local organizations that they had to

fend for themselves. The event that became the catalyst for this process was the truckers’

94 Roxborough et.al., 160.

95 Evans, Les (ed.) Disaster in Chile. (New York: Pathfinder Press, 1974), 148. 69 strike of October, 1972.

III. THE TRUCKERS STRIKE AND DE FACTO DECENTRALIZATION

The national political scene is quite relevant when discussing the Chilean decentralization process. The reason is that the political events at the national level increasingly led to the paralysis of government activities. Decentralization in this context gathered force for two reasons. First of all, the administration sought to create a strong network of organizations that would support it and place it in a position to overcome the political impasse. Secondly, from the perspective of grass roots organizations the rational thing to do was to become self-reliant as the national government, in the state of paralysis it was in, could not be counted upon to solve the immediate needs of the population. If the people themselves would not look after their security and well-being, then no one would.

The government’s position became increasingly precarious during 1972, largely due to its inability to reach a consensus on the strategy to follow. This was coupled by sabotages (notorious among these was the blowing up of railway lines connecting

Santiago and Valparaiso attributed to the ultra-conservativePatria group y Libertad,

Fatherland and Liberty), as well as efforts to destabilize the economy, both internal and external. A great number of events helped create an atmosphere of crisis and uncertainty. The response of the Chilean poor, encouraged by the Allende government, was to create and strengthen local organizations which would increasingly take over 70 responsibilities which the central government was unable to fulfill due to the many

pressures exerted upon it. Therefore, for the Allende government decentralization was

a program that was embarked upon due to a crisis; it was not a carefully thought out

plan.

One of the most important events that led to a climate of confrontation and to the

strengthening of local organizations among the Chilean lower class was the truckers

strike of October, 1972. There were a number of elements that contributed to the

confrontation in October. The U.S. government policy of de-stabilization began to be

felt in Chile: not only did private investment declined dramatically (which was to be

expected)96 but also public investment declined, precipitated not only because of the

drying up of tradition sources of credit for the government (there were no major credits

by multilateral organizations for Chile during this time97), but also because government

funds were diverted from investment to finance the growing demand that resulted from

the increased purchasing power of the lower classes. Government revenue was used to

fill the gap between the increased aggregate demand and the supply of goods; this

included the importation of foodstuffs.

External events help to partly explain the worsening economic situation such as

the international boycott of Chile, led by the United States government; foreign

96 Valenzuela and Valenzuela, 6.

97 Sigmund, 174-177. 71

investment dropped by 17% in 1973 alone98; the CIA was involved in Chile to some

degree (though the extent is not known); and strikes that were politically motivated

crippled the country’s economy even further. The Right was also stepping up its attacks

on the government, most notably from the conservativeEl Mercurio, daily while the

government answered back in fashion. The middle class grew increasingly distrustful of

the government because of the shortages and inflation, as well as the proliferation of a

black market of goods and services. The growing militancy of popular organizations as

well as the growing power of such organizations as the MIR, which many saw as a

paramilitary organization, also scared many members of the middle class.99

To all of this one must add the amount of propaganda against the government,

which was increasing constantly. Barrages of criticism against the government both

founded and unfounded were constantly being published. The U.S. media had set the

tone for this when Time’s coverage of Allende’s electoral victory had been given the

front page with the title "Marxist Threat in the Americas."100

There was mismanagement of the SOEs and the economy in general since the

government was always late in responding to crises, given the political agreements among

the parties in the coalition which required that all be consulted on important issues facing

the government. Finally, and a related problem was the split in the coalition as it tried

98 Yotopoulos, Pan. "The (Rip)Tide of Privatization: The Lessons from Chile." World Development. Volumen 17, Number 5, page 687.

99 Moss, 123-154

100 Time. October 17, 1970. 72 to come to terms with the problems relating to the nationalization of industries, which was to be the subject of intense parliamentary debate throughout 1972.

The middle class support of the Allende regime oscillated. During his first year in office the middle class had supported Allende as he pursued the nationalization of the copper mines (Chile’s major economic asset), and as he pursued an ambitious land reform program, none of which actually threatened the middle class and were actually appealing to them. But after 1971 the support of the middle class began to fade.

Shortages had started, the country seemed out of control as peasants took over lands and squatters took over settlements without the government seemingly doing anything. Most important of all though, inflation began getting out of control as of late 1971. All of this helped to steer the middle class support away from Allende. The move of the middle class against the Allende administration furthered a process of bi-polarization of political forces which was taking place in Chile.

The Parliament stepped up its attacks on the government and by early 1972 had

managed to stop every major initiative of the Allende government; the most prominent was the suspension of the nationalization process. The Christian Democrats stopped the

nationalization process and wanted to return some industries to private hands. Though

Allende, and the Communist Party, were willing to compromise on the issue, most of

the other members of the coalition were opposed to any compromise. There was a

fundamental difference within the coalition over this issue. Furthermore, the government

was on the defensive, responding to the charges of the opposition rather than taking the

initiative. The administration needed to strengthen its base of support. 73 Increasingly the Allende administration began to doubt groups which had

traditionally supported the Left. The situation of the labor movement in regard to the UP

government was always ambiguous. The Communist and Socialist parties had always

controlled the labor unions, precisely because of their ability to obtain the greatest

benefits for the labor movement. This expectation was not eradicated during the UP

government. The labor movement expected to continue to obtain benefits, now more

than ever since the parties of the working class were in power, and they were only

willing to support the government as long as those benefits were forthcoming, if not they

would also join the opposition. Underscoring this attitude was the strike at El Teniente

copper mine, that lasted for a month and half. The government appealed to the workers

to go back to work for the revolutionary government; the time for fighting for short-term

benefits was over, now a revolution must be constructed. These pleas did not work; the

copper miners went back to work when they were given the pay raise they sought.101

Therefore, the government was not sure if organized labor was totally backing the

administration; events seem to indicate that they were not. The administration, therefore,

needed to create a base of support it could count on. Therefore, Allende’s government

sought to empower groups previously ignored by the political system, through a

decentralization process, hoping that they would constitute a strong base of support for

the administration.

It was in this context that the truckers’ strike took place. The importance of the

101 Valenzuela and Valenzuela, 161-163. 74 trucking industry can be appreciated when one considers that, due to Chile’s geography,

the trucking industry is responsible for supplying most of the country’s goods. Also,

truckers usually owned their own trucks, and as small-scale owners of property were

suspicious of Allende. The Left was also suspicious of them since they were seen as

petit bourgeois. The initial reason for the strike was a protest of a small number of

truckers from Valparaiso complaining about the difficulty they had in acquiring spare

parts. The government blamed this situation on the economic boycott on Chile, and

moved to expropriate these truck drivers. This proved to be a costly mistake, since that

action sparked a solidarity strike of most truckers. These were joined by small

proprietors who were also afraid of being expropriated, by middle class professional

organizations which used it as an excuse to protest against the government, and by the

Right-wing parties and organizations.102

The strike was the cause of numerous shortages in the city as supplies were not

transported throughout the country. This also gave rise to black market activity. Even

more importantly, though, from the government’s standpoint was that most of the white-

collar unions joined in the strike. This meant that most industries, especially true in

those that had been nationalized, were left without management. Faced with the absence

of the managerial employees, the government asked the workers to continue working,

however they could. This meant that for the first time in Chile’s history, the workers

102 Sigmund, 184-187. 75 at the industries would also have to manage them.103 The strike was significant in that

it did manage to keep the economy from operating at full capacity. Equally important,

the strike drastically reduced government’s possibility of delivery goods and services to

local organizations. The basis of the support from local organizations was compensatory

power; as long as the government would provide material benefits, local organizations

would support it. But the government’s ability to do so was drastically reduced due to

the truckers strike . As the economic situation worsened, the government was

increasingly in a weaker position because it could not compensate its supporters. It was

because of this problem that some grass roots organizations began to be alienated from

the government, and started developing as independent organizations.

It was due to the truckers strike that cordonesthe industriales started forming.

These were supposed to be temporary organizations, that would keep production going

during the strike, but they quickly acquired a permanent status. After three weeks the

truckers strike was finally settled when Allende named general Carlos Prats, the head of

the Armed Forces, to negotiate with the strikers as the new Minister of the Interior. This

solved the immediate crisis but it did not solve the problem within the ruling coalition.

There had been some resistance to the entry of the military into the cabinet as some

coalition partners thought it would compromise the government’s program. These groups

103 The documentary "The Battle for Chile" by Patricio Guzmdn devotes a while to explaining this phenomena. In the documentary he interviews a number of workers that have taken the challenge of making factories run without their managers. This documentary, though, is sympathetic to the UP government (the post-production was done in Cuba, among other things) but does illustrate the situation in some of the factories. 76 sought to encourage the newly formedcordones and other such institutions, in part to

gain some leverage they felt they were losing to the "reformist" wing of the coalition.

But these grass roots organizations were also supported for ideological reasons.

Because of whatever reason, be it revolutionary consciousness or an attempt to

increase their short term well-being, the workers at thecordones industriales did not

dismantle their organization at the end of the strike, but rather continued organizing

production and delivery of supplies. Ultimately they must have realized that the more

independent they were, the more they would have a voice in government, not just of the

UP but of whoever would succeed them.

Along with thecordones other organizations were created to respond to the

economic crisis. The truckers’ strike, as well as the decline in production, coupled with

increased demand and purchasing power had created serious shortages of basic goods.

Parallel to this, a black market was flourishing, with prices far in excess of the official

prices. To cope with the situation, on February of 1973 the government strongly pushed

for the creation ofJuntas de Abastecimiento y Precios, JAP (Juntas of Supply and

Pricing).

Since the governmental authorities began to see the distribution problems that would occur regarding the distribution of essential goods it stimulated the creation of mechanisms that could solve the problem within the philosophy and objectives of the administration.104

The solution was to be the JAPs, which were community organizations whose goal was

104 Meneses, Augusto. "Las JAP: Servicio a la Comunidad o Control Polftico?" Mensaje. Junio, 1973, Page 266. [Translation is mine.] 77 to distribute goods in an equitable way in the particular community where the JAP

existed. These organizations were sharply criticized by the opposition who portrayed the

JAPs activities as rationing goods and keeping them from political opponents, and

mentioned the appearance of food lines, thus comparing the situation with Communist

countries.105

The legal formation of the JAPs, though, took place in April of 1972 by

Resolution Number 72 of theDireccidn de lndustria and Comercio, DIRINCO

(Directorate of Industry and Commerce), but did not become an issue until February of

1973 when the government attempted to implement them. According to the government,

the JAPs were clearly defined as independent entities working within the framework of

the administration’s policies:

A Junta de Abastecimiento y Precios is defined as a group of workers who are fighting to improve the living conditions of the people within their own communities, making an effort to guarantee an adequate supply, overseeing the efficiency of price controls, fighting against speculation and monopolies, promoting the more effective use of the means of subsistence of the people, and generally cooperating with all the functions ofDireccidn the de lndustria y Comercio.106

The language itself is very suggestive, as it is typical of that used by the main partners

in the UP coalition, the Socialist and Communist parties. This, in part, enabled the

opposition to attack the idea of the JAPs as an attempt by the administration to keep

105 See, for example, two right wing commentators of the events in Chile: Whelan, Charles. Out of the Ashes. (Washington D.C.: Regnery Gateway, 1989), 373-374; Moss, 171-174.

106 Meneses, 266. [Translation is mine.] 78 goods away from the hands of opponents of the UP government. This accusation

stemmed from the situation which arose in certain neighborhoods where the

Neighborhood Association and the JAPs were at odds with one another. Usually, the

reason for this conflict was that the former was dominated by sympathizers of the PDC

(which had stimulated such organizations throughPromocidn its Popular program) and

the JAP was dominated by sympathizers of the UP. In early 1973, the JAPs still

responded to the directives of the political parties. But not all the parties of the UP were

instructing their followers to carry out the same mandate. This issue was supposed to

have been solved with directives coming from the parties at the national level to prohibit

political sectarianism, but problems remained in some communities.107

The government backed down from its plan shortly after the appearance of the

JAPs, in part because it wanted to avoid any unnecessary confrontation before the March

elections. The event that led to the cancellation of the plan was the appearance of

rationing cards in a Valparaisopoblacidn. The administration maintained all along that

this was not a rationing program, rather it was intended to prevent speculation and

hoarding.108 But the publicity give to the example of the Valparaiso JAP proved to be

an embarrassment for the government, since this JAP was directly contradicting an

official position of the administration.

The goal of the JAPs had been to control products at the distribution level, not

107 Ibid, 268.

108 Roxborough et.al., 88. 79 at the retail level. This would mean that the small shop owner would need not feel

threatened by the measure. (This was true except in the cases were there were no

merchants to supply goods, as in the squatter settlements.) But the symbolic value of

rationing became too hot an issue for the administration as the March 1973 elections

neared and the administration attempted to eliminate the program -a t least until after the

election.

The JAPs, as well as other grass roots associations that had been created during

the crisis of October of 1972 and which had remained after it was settled, were gradually

becoming more autonomous from the government, and striving to increase their

independence. The JAP program gathered a life of its own in some areas, as

neighborhoods began setting up neighborhood stores, which they would take turns

administering.109 These moves, though, were more responses to a perceived need than

actions resulting from increased revolutionary consciousness. Grass roots organizations

had begun to control the supply of goods at the local level despite efforts by the

administration to carry out this task. In this respect, JAPs were increasingly becoming

independent from the central government for their survival The government recognized

this situation, but it still continued supporting these local organizations hoping to ensure

their backing. Recognizing the existing reality, the government finally allowed the JAPs,

109 The JAPs are still an emotional subject for many, as some argue that they were rationing of goods, pure and simple, hence they were "bad," see Whelan, 373-374. Others argue that they were a revolutionary response by the working class to economic sabotage, hence they were "good," see Roxborough et.al., 167-169. It was probably just one more attempt by the government to deal with the shortages which by early 1973 began becoming chronic, Sigmund, 228-230. 80 which were not governmental bodiesper se, to carry out functions that the state agency

D1RINCO was supposed to carry out, namely price control enforcement, and oversight

and regulation of commercial activities generally.

The Chilean Center for Municipal Studies, in a brief history of grass roots

organizations, comments on the roles these organizations played during the Allende

administration. The Center’s analysis of the various local institutions (such as the JAPs)

that existed during the Allende administration, concludes by stating that there are three

identifiable characteristics of such organizations:

these were "top-down" organizations, in other words, created by the government

Secondly, ... these organizations rapidly acquire popular support which makes them an instance of mass participation. Still, this participation was clearly supportive of the Allende administration. In this regard, they are organizations formed with a political purpose ....

The third characteristic has to do with self-government; despite being organizations created from the top, and of being strongly ideological and politicized, being purely local organizations with effective participation of the community, gives them and effective an real power over its interests.110

It is this third characteristics that demonstrates how the situation was one of

decentralization of power. Despite all the controls that the government attempted to

impose on these organizations, they became quite powerful.

This result was the logical conclusion of the decentralization process begun by

Allende’s administration. Since the government needed a strong network of organizations

to support it in its task of building a socialist state, these supporters could not afford to

110 Cordillera, Volume II, Page 11. [Translation is mine.] 81 be weak, especially given the obstacles that Allende faced. Because the grass roots organizations that existed among the poor were important sources of support for the government, they had to be strengthened. But the more power these organizations would have, the more autonomous they would become. This is precisely what happened in

Chile.

IV. THE FALL OF THE ALLENDE GOVERNMENT

The national political scene in Chile, from mid-1972 until the military coup was one of inability to get things done. An atmosphere of political crisis was prevalent, and amid growing pressures on the economy, increasing scarcities, and general unrest, there seemed to be no formal institution that could actually govern the country. The

Parliament was strongly opposing the government and had enough strength to prevent any government initiative from taking effect. But if the Parliament tied the hands of the government, it could not offer any other alternative for leadership in the country. The government itself was deeply divided over tactics and over philosophy, leading it to adopt contradictory policies as it sought to deal with different elements in the coalition. The situation was one of political stalemate. The only forces in operation in the political system were destructive ones, as most of the political actors could prevent action but none could take any initiative. "Faced with this leadership vacuum, Popular Power 82 began to develop as an alternative power, frequently antagonistic to the government."111

Popular Power, though, was still more of a rallying cry of the Left than a reality.112

The poorer segments of the society had seen their power enhanced, but they were still

far from controlling society as some would suggest.

At the local level, the situation required solutions, but no formal institution

seemed capable of providing any. The army had become involved in the distribution

network of the country during the October of 1972 truckers’ strike, and again in mid-

1973, but was not very successful.113 There were some highly publicized raids on

warehoused hoarding goods (and selling them in the black market), but these actions did

not seem to be the solution for the crisis. The Parliament and the Executive were in a

political stalemate, with the President vetoing the Parliament’s legislation and the latter

impeaching the president’s cabinets for whatever reason they could find. The courts had

decidedly turned against the government, and in June 27 issued a declaration declaring

that the government’s actions were unconstitutional (and suggesting that the government

itself was unconstitutional).114 Despite all of this, people had to go about their daily

lives.

111 Israel, 231.

112 Even this seems to be accepted by the Left as their chant at rallies wascrear, " crear, poder popular" (create, create, popular power). The implication of this slogan seems to be that popular power does not exist at the moment, but rather that it has to be created, sometime in the near future.

113 Sigmund, 228-230; Roxborough et.al., 144-146.

114 Open letter of the Supreme Court to President Allende; June 27, 1973. 83 There was really only one hope that the stalemate could be resolved peacefully.

This was the congressional election of March 1973. The Right had allied itself with the

Christian Democrats in opposition to the government, and hoped to get a two-thirds

majority in Parliament (so it could impeach president Allende and call for new elections

that presumably former president Frei would win). The Left just wanted to increase its

Parliamentary representation (and therefore its vote when compared with the 1970

election), and hoped to avoid giving the opposition enough seats to leave it in a position

which would make it possible for them to impeach the president. Unfortunately for

Chile, this election maintained the stalemate: the UP received 44% of the vote to the

opposition’s 56%.115

Most of the organizations that had begun appearing since the truckers strike were

becoming increasingly alienated from the government. The government still encouraged

the JAPs to some degree, but the support desired by these organizations was not

forthcoming. The administration had also urged the workers to continue production, so

they now demanded that their industries be nationalized. But the government could not

do this because of a constitutional amendment introduced by the PDC which limited the

number of firms which could be nationalized.116 Now the government seemed willing

to give certain firms back to private owners, in accordance with the Millas plan which

sought to increase profits in nationalized firms, in an effort to reach a political agreement

115 Sigmund, 199.

116 Falcoff, 144-150. 84 with the PDC. Also, Luis Figueroa, the head of theConfederacidn Unica de

Trabajadores, CUT (Unitary Workers Confederation), which had as its members

virtually all of the country’s blue collar unions, as Minister of Labor called for

moderation in wage demands and increases in production. But the labor movement never

made the transition from being on the outside making demands to being part of the

government; therefore, Figueroa’s calls went largely unheeded.117 Increasingly, too,

the cordones industriales began questioning the CUT’s policies of unconditional support

for the government. Some felt that if the government would not cede to the demands of

the workers, it ceased to be a government of the workers.118

Because of the government’s inability to achieve its program, and the splinters in

the coalition that became apparent to everyone, the grass roots organizations felt that they

could not rely on the government for their fulfillment of their needs. Though they still

were sympathetic to the government, they were no longer unconditionally supportive of

it. The attempted coup of June 29, 1973, would show this relationship. While workers

in the cordones responded to the administration’s calls of taking over their places of

production and support for the government, once the attempted coup was over, the

workers that had taken over factories did not respond to the government’s call for a

return of industries, which had been taken over during the coup attempt, to their previous

117 For analysis of the mentality of the labor unions before and during the Allende administration, see Valenzuela and Valenzuela, 135-171.

118 Roxborough et. al., 163-173. 85

private owners.119

The same situation existed in thecampamentos.120 The campamentos had an

internal organization. They usually had a Directorate, whose composition varied

depending on the organization ofcampamento, the which served as the liaison with the

Allende administration.121 This meant that the government was, in effect, dealing with

community organizations that had taken over the duties which the local government did

not perform. As such, the government recognized this situation as one in which the

central state was ceding power to a grass roots organization. Since these organizations

had supported the government, the administration was more than willing to help them

out, but the support ofpobladores the was not unconditional. The Chilean documentary

"Poblacidn"122 illustrates this relationship quite clearly. In one scene, the

representatives of the settlement meet with the Minister of Education to demand

construction materials for a local school. Since the Minister is not forthcoming with the

119 Ibid, 175-176.

120 Campamento is an organized settlement of squatters. It usually has its originstoma, in a which is an organized take-over of a unused land. The new settlers then organize a community, first of all, to defend themselves from eviction, and secondly, to obtain government services in the new neighborhood. Probably the most notoriousNueva was La Habana, whose organization and function was explained in Par 2. campamento, This as mentioned, was controlled by the MIR which became the de facto government for its inhabitants.

121 Portales, Pablo. "Comunidades Llamadas Poblaciones." Mensaje. Agosto, 1973, Page 376.

122 The documentary, produced in 1972, is sympathetic to the UP government. It is based on the organizationNueva of La Habana, and despite the reservations one might have of this campamento in particular, it is useful in that its footage includes exchanges of views between government officials and settlement (MIR) leaders which are not altogether friendly. 86 materials they desire, they threaten him with withdrawing their support. Finally, he

agrees to see what he can do. While this is just one example, it helps to show the nature

of the relationship between the administration and these settlements. The administration

was operating under a number of constraints that the settlers did not seem to recognize

(or simply did not care about); they just wanted help from the Popular government. The

fact that the administration could not help all these organizations slowly alienated them

from the Allende government.

Still, the government continued to rely on these grass roots organizations as a

source of support, since the prevalent perception at the time was that these organizations

were the base of support of the Allende administration. As an observer sympathetic to

the UP points out, "[t]he majority ofpobladores the are Leftist, and they participate in

activities aimed at defending the Constitutional Government. Lately, there has been a

unanimous support for these activities; even inhabitants members of the PDC

participated, last June 29 [day of the attempted coup] in taking over roads that link the

center of the city [Santiago]."123 This view may not be altogether true. A systematic

study carried out by Alejandro Portes in squatter settlements around Santiago, including

the most famous, arrived at different conclusions:

Thus, in Chile, support for Salvador Allende and the Left among urban pobladores never reached the overwhelming levels that their class situation would have led us to expect. Despite the much publicized caseNueva of Habana and other such radicalcampamentos (squatter settlements), the truth is that leftist

123 Portales, 378. [Translation is mine.] 87

radicalism was never the dominant orientation in these areas.101

If there was any correlation between the poor and the degree of political radicalism, it

was due to the place of work, and the influences (mostly trade union ideologies)

prevalent there, and not the place of residence.102 Still, the government kept granting

as much power as it could to these local organizations in an attempt to improve its

bargaining position with the opposition, since it viewed these organizations as its main

source of support. After all, in politics perception is more important than reality.

With the prolonged stalemate at the national level, it seemed obvious to most

everyone that the only solution would be a military one. The left, most notably the MIR,

began to arm its supporters awaiting this confrontation —over the objection of president

Allende who still believed some compromise was possible. On the other hand, more and

more voices were calling for the military to take over what some consider to be an

"unconstitutional" government. In the days prior to the military take-over, prominent

figures like the ex-Presidents Gabriel Gonzalez Videla (who had outlawed the Communist

Party during his administration) and Jorge Alessandri (who had been Allende’s adversary

in the 1958 and 1970 presidential elections) were calling for a military intervention.

Finally, with the support of the U.S. government, the upper and middle classes, and with

101 Portes, Alejandro. "Political Attitudes Among the Chilean Poor," in Valenzuela and Valenzuela, 231.

102 Ibid, 201-237. 88 the Armed Forces solidly united126, the military government took over. Former

president Eduardo Frei and the Christian Democratic Party also called for a military

intervention.127

The stalemate was resolved on September 11, 1973 when Salvador Allende

Gossens died in the Presidential Palace, fighting to maintain his legitimate government.

That day General Augusto Pinochet took control of Chile and ended, by force, most of

the processes started under the Allende government.

126 General Carlos Prats, head of the Armed Forces and Minister of the Interior, had been the principal defender of civilian rule of Chile, and his work under and support for President Allende were a way of expressing his support for the Constitution. General Prats resigned from his positions two months before the coup and left for Argentina where he was murdered (seemingly by agents of the Pinochet government) in 1976.

127 Moss, 194. DECENTRALIZATION UNDER GENERAL AUGUSTO PINOCHET UGARTE

I. SEPTEMBER 11, 1973, AND ITS AFTERMATH

September 11, 1973 marks a dramatic turning point in Chile. Salvador Allende

Gossens, Chile’s Marxist democratically-elected president, was overthrown in a bloody

coup by the Chilean Armed Forces, led by General Augusto Pinochet Ugarte. The

Chilean military called the Allende government "unconstitutional," and proceeded to

change Chilean life. Though the coup was widely expected, and supported by the middle

and upper classes, the path the military was to take was unknown. Some had supported

the coup with the hopes that the Armed Forces would call elections soon (notably the

former president Frei and the PDC who believed they would win a presidential election

if it were to be held then).128 Some argued for changing Chilean society, claiming that

excessive politics had led to a climate of chaos under Allende.129 Still, in polls taken

in the months preceding the coup, an overwhelming majority of Chileans said they

preferred that the impasse would be resolved by constitutional means, which

unfortunately seemed impossible.130

Even among the military there was no clear vision as to where to go. There had

been cohesion and agreement over the overthrow of Allende, but where to go from there

128 Sigmund, 248-250.

129 Whelan, 597-608.

130 Valenzuela and Valenzuela, 1-29. 90 seemed an open question.131 Some, like Junta member Air Force General Gustavo

Leigh, argued for the creation of a corporatist state, loosely based on Franco’s regime

in Spain.132 Others, like Junta member Carabinero General Cesar Mendoza, did not

seem to have any idea of where to go after the coup. Some, like General Oscar Bonilla,

seemed to support constitutional government in the near future, "once the Marxist threat

had been eradicated."133 But it was General Augusto Pinochet who had his way.

Pinochet increased his personal power over the years by, first, having himself

named President of the Junta, limiting the Junta to legislative matters. He then named

himself president of the country in 1980, and announced he could rule by decree, thus

making the Junta largely irrelevant. Pinochet, then proceeded to dismiss the next seven

generals in hierarchy after him, and surrounded himself by younger generals who "owed

their careers" to Pinochet.134 Finally, influential members of the armed forces, such

as Generals Bonilla and Augusto Lutz, died mysteriously the year following the

coup.135 Pinochet believed that the country needed drastic changes and it needed them

131 O’Donnell, Guillermo et. al. (eds.) Transitions from Authoritarian Rule: Latin America. (Baltimore: The Johns Hopkins University Press, 1987), 98.

132 Ibid, 99.

133 Ibid, 99-100.

134 Cavallo Castro, et. al., 22-24.

135 The case of General Lutz is quite revealing. He stormed out of a meeting with Pinochet and the corps of Army Generals, arguing that the government repression was going too far, that it was undermining the integrity of the armed forces, and that it was not necessary since it was turning into a witch hunt. The following day his post was changed, so from secretary of the Junta in Santiago, he became commander of the southern forces in Punta Arenas (near the Arctic Circle at the extreme south of Chile). A week upon his arrival, he was hospitalized for an 91 now. He was determined to take Chile down a road that would change Chilean society.

His goal was to change society to the point of preventing the possibility of a "second

Allende" from ever gaining the presidency.

It was true that by 1973 the country’s economy was in bad shape: inflation was

running at about 1,000% a year; the government deficit had risen from 2.4% of GDP

in 1969 to 20% of GDP in 1973; even though unemployment was low at 3.7% of the

labor force, savings was low, and investment was less than 10% of GDP (below the

traditional rate of around 15% of GDP). The country was also experimenting negative

growth at -5.6% growth of GDP.136 It seemed clear to the military government that

something had to be done but the political impasse before the coup prevented any action

from taking place. Therefore, in the eyes of the military their intervention was more

than justified.

When the Pinochet regime came to power, it embarked on a course that was to

be the opposite of the one chosen by the Allende government. What the military saw in

Allende was an attempt by Marxists to take over the country.137 In this the Armed

unknown illness. After a month and half of missed diagnostics, medical mistakes and confusion, he finally died. Before dying he had asked his family to take him out of the country, since he was being killed in Chile. The family attributed this to deliriousness caused by the illness. Since his death received so much attention, the government ordered an inquiry, but a month after the family was interrogated, they asked about the results of the inquiry. No one in the government knew anything about any inquiry on General Lutz’s death. Cavallo Castro, et. al., 62-67.

136 Corbo, Vittorio, "Reforms and Macroeconomic Adjustment in Chile During 1974-1987." World Development. Volume 13, Number 8, page 913.

137 O’Donnell et.al., 99. 92 Forces were unanimous. Furthermore, they had the support of the vast majority of the

middle class (and virtually the entire upper class) which was appalled at the chaos and

agitation that characterized the Allende years.138 During the consolidation of the

regime, Pinochet engaged in a systematic campaign to eliminate the Left, which the

government faulted for all of Chile’s ills. The radical Leftist Revolutionary Movement

(MIR) and the Communist Party were left inoperable, and Allende’s own Socialist Party

only functioned in exile, and there it was divided into at least three competing

factions.139 On the economic front the government’s attempts to restructure society

involved returning the country to a capitalist economy.

The years between 1968 and 1973 had seen a polarization of the Chilean people;

little by little it became clear that most Chileans were either on the Left or on the Right,

with virtually no one in the middle. The main reason for this vacuum in the middle was

the rise of an ideological party, the PDC, which was not willing to play politics the way

the Radicals had done. The Radicals, by allying themselves with everyone possible to

remain in power had given Chilean politics a degree of flexibility that was lost with the

emergence of the PDC.140 The military believed excessive politics was a problem that

needed to be solved. After the military take-over, and especially after the violent

138 Sigmund, 202-230.

139 Cavallo Castro, et.al., offer an account of the offensive against the organized Left, as well as the results: dissension among the Socialist, a declaration of defeat from the MIR, confusion among the Communist.

140 Valenzuela, 170. 93 repression of the Left, the mood in the country began to quiet down. People were not

interested in politics anymore (either because of fear or exhaustion) and just wanted to

get on with things. This was especially true for the middle class. But the military

government must have understood that this state of affairs could not last a long time;

repression and fear were, therefore, not be the only mechanisms for staying in power.

It is at this point that the military began to try to compensate those groups in Chilean

society that had supported them initially. Therefore, in then military’s campaign to

change Chilean life, they would have to benefit those segments of the population that

would be their backbone of support. So with little opposition, and actually a good deal

of support, the Pinochet government embarked on its attempt to change Chile in a fashion

which would benefit the military’s supporters.

II. CHILE’S ECONOMIC SETTING IN THE EARLY 1970S AND DECENTRALIZATION

There were at least two distinct decentralization processes that took place in Chile

during the military regime. The first one was a process of administrative decentralization

that culminated with the adoption of the 1980 constitution in a highly suspect

plebiscite.141 The process entailed the division of the country into thirteen regions and

two hundred and fifty two municipalities. This meant that the existing seven

141 Campbell, Tim et. al.,(2) "Decentralization in Chile." (Washington, D.C.: The World Bank, 1991), 2-9. 94 administrative boundaries, established under the Frei administration, were further sub

divided. An important problem facing municipalities was that since their size had been

reduced their ability to achieve economies of scale was also hampered. The goal of this

process was two-fold: to increase administrative efficiency and to increase capabilities

of control by the central government over the country. The goal of increased efficiency

was promoted by the adoption of very strict budgetary constraints for municipalities. The

central government had the authority to veto municipal budgets, and government transfers

were drastically reduced. The hope was for municipalities to be financially self-

sufficient. The goal of increased control was highlighted by President Pinochet himself

who explained that the regional and local governmental officials were to represent the

president at the local level, they were not to represent the people at the national

level.142 This goal was facilitated by the fact that local officials were all appointed by

the President himself, who established a hierarchical top-down line of responsibility.

This type of decentralization fits with what Cheema and Rondinelli have called

deconcentration.

The second decentralization process taking place under Pinochet was a

privatization program. The rationale for this program was basically economical, and it

focused on the increased efficiency and responsiveness of market mechanisms as opposed

to public sector mismanagement. But the program fulfilled a further role: it would

compensate members of the upper class for their support of the military coup. After all,

142 Ibid, 6. 95 the government would not only be giving back to the private sector the companies expropriated under Allende, but the goal was to privatize most, if not all, of the SOEs.

Therefore, members of the upper class were able to increase their assets and economic power, placing them in a stronger political position in Chilean society.

Both of these decentralization processes involved increasing the control and power of the central state over the country. The former was achieved through mechanisms of control prevalent in police states, such as appointed local officials whose goal is to promote a policy of the national leader (as opposed to elected local officials whose goal is to promote the interests of the locality). The second mechanism, privatization, is not as obvious an example of control. Yet precisely because of this feature, it is much more powerful. This thesis will only deal with the second mechanism, which involves the use of compensatory power by the state (to keep with Galbraith’s terminology offered in the first chapter of this thesis). It should be borne in mind that privatization was not the only decentralization process that was taking place in Chile during the Pinochet years, and that decentralization processes were not the only means by which the Pinochet regime controlled the Chilean people. But the focus of this thesis is on the decentralization process that involved the use of compensatory mechanisms to ensure control (this is the privatization program), since this was the same mechanism which

Allende was using to ensure support from grass roots organizations.

Whatever discussion existed in Chile focused on economics, not politics. As such, the issue of decentralization of power was not associated with politics, at least rhetorically, as had been the case under Allende, but rather with economic policy. The 96 new battleground for power in Chile was now over economic measures. One, of course,

cannot separate politics from economics. This thesis contends that in this period of

Chilean history increased access to economic decision making and economic benefits

translated into increased political power. It is for this reason that one most consider a

brief overview of the economic measures of the military government.

From 1974 to around 1987 a group on orthodox monetarist economists, mostly

graduates of the University of Chicago, effectively controlled the economic decision

making of the regime. They thought of themselves as technocrats, above political

squabbling. These were theChicago Boys.143 In the best tradition of neo-classic

economics, they believed that economy is a science capable of being demonstrated based

on statistical and econometric models. Values and value-related institutions have no

place in the sphere of economics. Because of this belief, the ’Chicago Boys’ did not

intervene in the area of politics, beyond commenting on issues that directly affected

economics such as minimum wage and inflationary policy.

The first priority set by the new economic team was to stabilize the economy (for

143 An account of how these various economist rose to the top levels of the Chilean government, primarily under the wing of Jorge Cauas, Minister of Finance and Minister of Economy from 1974 until 1976, is found in Cavallo Castro, Ascanio, et.al. pages 81-90. Though Sergio Fernandez appeared on the scene only in 1976, he has been identified as one of the Chicago Boys. Others included Roberto Kelly (of the Chilean Navy, who because of his military connections was initially, very influential and played a key role in convincing Junta members of the economic policy espoused by the regime), Pablo Baraona, who was appointed President of the Central Bank in 1975; Sergio de Castro, Minister of Economy from 1975 until 1982; Sergio de la Cuadra, Minister of Finance from 1982 until 1985; Miguel Kast, President of the Central Bank from 1982 until 1984; and Hemdn Buchi, Minster of Finance and Minster of Economy from 1984 until 1988, then presidential candidate for the Right in the 1989 elections. 97 which they were highly commended by the IMF)144 focusing on reducing inflation and

reducing the government’s budget deficit. The results were slow (because of economic

mismanagement according to some economists145) but satisfactory: by 1981, inflation

was down to 9% per year, and by 1978 instead of a government budget deficit, there was

a surplus.146 Still, the social costs were enormous: output fell by 15% in 1975, which

helped create the 20% unemployment of the labor force, in 1987 real wages were still

15% below 1970 levels, private consumption per capita in 1987 was 8% below the 1970

level and 15% the level of 1973.147 There was very little attention paid to the social

costs of the government policies during the 1970s, mainly because the economic team

believed that this short-term suffering was necessary, and that eventually all Chileans

would benefit from the economic growth the country would experience once the initial

imbalances of the economy were overcome.

A further reason for the lack of concern of the social costs of the economic

policies adopted by the government was that those that suffered the brunt of the

144 Moran, Cristian. "Economic Stabilization and Structural Transformation." World Development. May, 1989, 493-495.

145 Corbo, 909. He particularly points to the fact that the exchange rate was used as a mechanism for stabilization, yet it was working at cross purposes with economic liberalization. The result, helped by the lack of financial regulation, was an increase in the privately contracted debt, which the government eventually had to assume.

146 Yotopoulos, 686

147 Moran, 493-495 98 stabilization policies were not part of the government coalition.148 Furthermore, there

was no incentive for the economic team to take this issue into account; after all, those

who wished to protest would be severely repressed.

III. PRIVATIZATION IN CHILE

The second part of the government’s economic program, to be undertaken once

the economy was stabilized, was the adjustment of the economy. This program rested

primarily on three policies: privatization, financial liberalization, and trade liberalization.

The three policies, of course, basically interact with each other. This is especially true

of financial liberalization and privatization, since the goal of the economic team was to

create a private financial sector with as little interference from the government as

possible. It was hoped that this would encourage capital repatriation and foreign

investment that would stimulate economic growth.

Chile has undergone four distinct periods in its privatization program, two of

these can be considered as re-privatization and two as privatizationper se. The power

that was being decentralized under privatization was economic power. The Pinochet

148 This probably allowed Minister of Finance Sergio de la Cuadra to say, in 1976, that the only contribution which the poor of Chile could make to the country’s development was to tighten their belts and work harder. De Zubirfa, 2. 99 regime was not going to be able to govern for long if it was dedicated solely to

repressing opposition; it also had to earn supporters. The strategy of the government was

to compensate those who had supported the coup, and had undermined the Allende

administration through economic boycott and strikes.

The first period of Chile’s privatization program took place from 1973 to 1975.

By the end of the Allende government, the Chilean state controlled over 600 enterprises,

up from 47 in 1970.149 Some of these enterprises had been nationalized, some had

been taken over by their workers, and in some cases the owners simply fled the country.

The Pinochet regime, therefore, decided to return these enterprises to their previous

owners (on condition they drop any claims against the Chilean government). Pinochet

was hoping to consolidate the support of the higher classes that opposed Allende. As a

result of Pinochet giving them their firms back, they would continue supporting the

government. And this is what happened since most businessmen perceived the

government as being an administration friendly towards them. The support of the upper

class can also be seen in that, for the first time since the early 1960s there was capital

repatriation to Chile. The repatriation of capital was due not only to investor confidence

in the Pinochet regime, but also to the incredible amounts of capital that left the country

during the Allende administration. A large number of entrepreneurs were therefore in

a position to take back their old companies. Because of these conditions, this was the

most extensive privatization period in Chile as some 350 enterprises were given back to

149 Nankani, Helen. Techniques of Privatization: Volume II. (Washington, D.C.: The World Bank, 1989), 18. 100 the private sector.150 This first period set the tone for administration. Businessmen

benefitted from the economic measures of the government, and were willing to support

the it.151 This period, therefore, was one of re-privatizing enterprises whose operation

the state had taken over. It the first step in gaining the confidence and support of the

business community, and the upper class generally, which saw that the government could

compensate them.

The second period in Chile’s privatization program occurred from 1975-1981,

after which the depression the country suffered in 1981-1984 forced the government to

take over a number of enterprises, especially in the financial sector, to avoid their

collapse. This second phase involved the divestiture of enterprises that had either been

created between 1971 and 1973 or enterprises in which the government had bought shares

in that period. This way a total of 110 enterprises were sold to the private sector.152

Most of these transactions involved the selling of shares to a selected group of investors,

most of whom were Chilean. This meant that there was confidence, among investors,

in the administration. It is an important aspect of this period that the administration was

targeting the group of investor’s it hoped would buy the SOEs. These investors were

upper class businessmen. It is important to point out that in Chile SOEs were mainly

sold to Chilean businessmen, and the level of foreign investment, in the initial years, was

150 Ibid, 21,26

151 Thorp, Rosemary and Laurence Whitehead (eds.) Latin American Debt and the Adjustment Crisis. (Pittsburgh: University of Pittsburgh Press, 1987), 117-161.

152 Nankani, 21, 26-28 101 relatively low. Thus, privatization became a way of compensating specific groups of

individuals. In the first part of this thesis it was said that decentralization was a targeted

process. In other words, the leadership at the central level decided who would be

empowered by the process so that the shifts in the power structure would benefit them.

The first two phases of the privatization program of Chile clearly demonstrate this point,

in that the beneficiaries were clearly chosen by the government.

There were two main economic problems that resulted from the divestitures of

enterprises in this phase of the privatization program, and which were to lead to a

restructuring of the process. First of all, since privatization was taking place amidst a

recessionary environment there were limited funds within the country to finance the

transactions, other than the capital being repatriated or foreign loans. The result of this

was that the government sold its enterprises below their reported value, and there was

a growing external indebtedness (especially debt contracted with private banks) for which

the state of Chile was not responsible and over which it had very little control.153 The

problem with this approach is that when the financial system collapsed due to insufficient

regulation, external factors, and speculation in the financial market, the government took

over these institutions and suddenly found itself with a debt of almost US$10 billion.

The issue of the value of state enterprises, especially if they operate under

153 Yotopoulos, 693-695. For the resulting indebtedness, see Ffrench-Davis, Ricardo. "The Debt Crisis in Chile." The Debt Crisis in Latin America. (Stockholm: Institute for Latin American Studies, 1986), 128-132. He points out how it was the government that rescheduled the loans of the private sector, thus contradicting the argument of the government as to the efficiency of the private debt (as opposed to the public debt). 102 monopolistic conditions, is always a tricky one. But there are various indications that lead to the conclusion that the Chilean State enterprises could have been sold for a higher price. Not only were the companies sold at an average of two-thirds their book value, but the ideological commitment to privatization by the government, made it more important to sell a company than to obtain a good price for it. Also the recessionary environment and the difficulty of obtaining profits in this environment did not make the companies particularly appealing, so there was no problem with selling the companies at whatever the state could get for them. This becomes a problem when discussing decentralization because privatization involves the transfer of power from the central state to other institutions, in this case to individuals. Under this phase of the privatization program, the government was relinquishing power in favor of a select group of individuals, at little cost to them, but at high cost to society. The reason for this statement is that the SOEs that were sold belonged to society, at least theoretically, and were dependent on the support of the citizenry via taxation. In this transaction, the middle class, which pays the bulk of the taxes, was the biggest loser, while the government was strengthening the position of the upper class, and the support of this class for the Pinochet regime.

The second problem with this second phase of the privatization program was that there was a large degree of concentration of wealth in the country, with a handful of conglomerates owning most of Chilean assets. This is because most of the purchases of

state enterprises was done through external financing, and only large groups had access

to international credit. 103

The evidence of concentration [of wealth] is scattered but points to the increasing economic power of the major conglomerates. The largest five conglomerates owned 46.5% of the assets of the 100 largest companies in 1969; they controlled 60% of these assets in 1978. In fact, the largest conglomerate, Cruzat-Larrain, controlled only 14.6% of the total assets of the 100 largest enterprises in 1968 and had increased its share to 25.5% by late 1978 (US $5078 million out of a total of US $1,993 billion).154 Other than the obvious concerns of equity and fairness, there was another ominous consequence of this concentration of wealth. The recession of 1981-1984 brought the collapse of these conglomerates{financieras ). Much of the bankruptcies could have been avoided with a minimum degree of financial regulation (notable for its absence during this period).155 But with most of thesefinancieras going bankrupt, the companies whose assets they held also collapsed. This financial crash, and its consequences over the rest of the economy, ushered in the worst recession in Chilean history since the

1930s.

Still, one must not be surprised at the concentration of wealth; since the government was helping it supporters, it was natural that they should benefit. This is what Galbraith means by compensatory power: the ability to enforce obedience by granting favors, or by the perception of granting favors, to those that are to obey. The upper classes respected what seemed to be a tacit agreement: they would not get involved

154 Yotopoulos, 696.

155 Corbo, 909. The argument against the premise that financial markets regulate themselves (which was given by government officials) in the specific context of the Southern Cone is given by Zahler, Roberto. "Estrategias Financieras Latinoamericanas: La Experiencia del Cono Sur." Coleccidn Estudios CIEPLAN. No. 23, Marzo, 1988, 117-142. He points out that the other big mistake of the Chilean government, regarding financial de-regulation, was to believe that a "free" interest rate would equal an "equilibrium" interest rate. He states that this clearly was not the case in Chile. 104 in politics or criticize the regime as long as they received economic benefits from the military government. By 1981, therefore, the business community which had supported military coup and the subsequent regime, could be pleased at the result of their support.

State-owned enterprises were sold to them at bargain prices, and though some could not compete in the growing competitive environment (due to trade liberalization) they were in a position to make a profit from what they bought. Also, the increasing concentration of wealth brought with it increasing power for the members of the upper class which were partaking of the wealth being distributed by the government.

The privatization program, as well as the economic policy in general, was altered.

It was the economic crisis begun in 1981, and hence of the reduced role compensatory techniques played, that forced the government to adapt its policy.

IV. THE 1981-1984 POLITICAL CRISIS

The political problem the government faced was that the middle class was starting to get restless. The middle class had supported the coup, yet the economic policies adopted by the government, especially trade liberalization, seemed to hurt the middle and small proprietors which made the majority of the middle class.156 But now, the economic situation was increasingly getting worse. There were no more benefits for supporting the regime unless it changed its policies. The economic crisis of 1981-1984

156 Thorp and Whitehead, 117-161. 105 precipitated massive demonstrations against the government most of which were repressed by force. They began with strikes from the powerful (though technically illegal) Confederacidn de Trabajadores del, CTC Cobre (Confederation of Workers of the Copper Industries), and quickly spread to monthly "days of protest."

The government took action to undermine the anti-government forces, though initially it was slow in reacting. Its tactic was to divide the middle class by establishing benefits for some of its members. This way, they would feel they "owed" something to the military and would not remain in opposition. The middle class had the key to the balance of power. If it remained in opposition, the government could continue to be in trouble; if they would be turned over to the government’s side it would easily weather the storm. The attempt to control the middle class by way of compensatory techniques forced the government into a restructuring of its decentralization program, at least regarding privatization. Changes to the privatization program were introduced to make it easier for members of the middle class to buy into the state economy. This was the goal the government set out to accomplish, although the regime had to first agree on the course to take.

There were problems within the ruling coalition. Some members of the military were reluctant to march down the streets repressing public opposition rallies. Also, there was growing discontent with the way the government was handling the crisis. The dogmatism of the economic team, but especially of Finance Minister Sergio de la

Cuadra, was such that the situation deteriorated more than it needed to. While still believing in their basic principles, the military temporarily kicked the economic team out 106 of office, and appoint more pragmatic economist to resolve the crisis. The situation was to get worse for the government, as prominent businessmen openly criticized the government’s economic policies. The area of debate in Chile was limited to economic policy, and then very limited. Two notable businessmen, Javier Vial, President of the

Bank of Chile, and Rolf Luders, former Minister of the Economy, were charged with business-related criminal offenses once their criticisms proved too much for the regime.

Not that these two businessmen were totally innocent of any wrongdoing, but it is telling that they engaged in the same types of activities as other prominent businessmen and bankers, yet were the only ones prosecuted.

The government’s change of economic team was meant to appease other potential critics of the regime, as these were more pragmatic economists.157 The new minister of Finance was critical of the former economic team. In reality, the government was not changing orientation, but temporarily deviating from prescribed policies to deal with the

situation on hand. The Pinochet regime remained committed to free-market principles,

and an open and capitalist economy. Still, this move, as well as the signs of recovery

in 1984 helped appease the criticism of the business community. By 1984-85, though,

a new set of ’Chicago boys’158 was in control of the economic policy once again.

157 Popularly it was said that the ’Chicago Boys’ had been replaced by the boys from the London School of Economics, as this is where the members of the new economic team did their graduate work.

158 The most well-known of these was Hemin Buchi, who devised the reprivatization of the financial system in charge of both Finance and Economics ministries. In 1989, he was the presidential candidate of the Right who lost to the opposition’s Patricio Alwyn. 107 Still the military government had to try to win back some of the middle class to ensure its stability. The Pinochet regime, therefore, switched tactics during the early

1980s. It became more conciliatory, and the appointment of Sergio Onoffe Jarpa, a former congressman from the Right-Wing National Party, as Minister of the Interior marked this change of attitude. Jarpa was respected by the opposition which believed in his sincerity and his commitment to a timetable for the re-establishment of democracy.

For the first time since the coup, the military engaged in conversations with the opposition (though only with the centrist Christian Democratic Party). Still, the government did not let down on its repression of the marches organized by the opposition. What ultimately caused the failure of this protest mechanism was the division within the opposition as to whether to engage in dialogue with the government or increase the number of protests. This division was used by the government to win back some of the support of the middle class, as the government claimed it was the only one capable of guaranteeing stability and social peace.

The government also attempted to draw the support of the middle classes, by giving them access to companies’ shares. This was probably an attempt to make more people feel proprietors of means of production, and would therefore make them less willing to "rock the boat." This was the objective of the third phase in the privatization program. Here, again, the military regime was engaging in what Galbraith has called compensatory control. Given that the ultimate goal of the government was to prevent

another socialist experiment in Chile, the military knew that the middle class had been

crucial to Allende’s victory in 1970. Therefore, the middle class had to be bought into 108 the capitalist system by giving it a sense of ownership in the means of production. This was the goal of the government as it set out to continue its privatization program in 1984, after the reversal of the program during the recession. Here again, the government was targeting the beneficiaries of the privatization program, to ensure that the groups which were to be empowered as a result of this program, would be supportive of the military regime.

The third phase of the privatization program was, in effect, to re-sell the companies that the government had taken over due to the recession. These enterprises were considered to be firms without owners as the government refused ownership of them, and were classified by the government as belonging to the "odd" sector of the economy. And wishing to avoid the mistakes of the previous phase, the government announced its intentions to sell shares of these companies either to its employees (the so- called "labor capitalism") or to small investors, limiting the number of shares any individual could acquire (the so-called "popular capitalism")159. The government began viewing the previous privatization effort as badly implemented because of two reasons.

First, it had given excessive power to a small group of financial conglomerates(grupos financieros) which had the ability to control the nation’s economy. The government did not want to foster this kind of monopoly, since their failure would lead to the possibility of the overthrow of the regime itself, as the past few years had shown. Furthermore, the regime realized that its base of support was quite narrow, since a slight change in

159 Nankani, 28-32. 109 economic fortunes would deliver the middle class to the opposition. Therefore, there was a need to increase the level of support among the middle class. This is where "popular capitalism" and "labor capitalism" were to have a role.

The program was successful to a point. It did guarantee some added support of the upper middle class. But it is also important to remember the timing of this proposal.

It was announced amidst the recession, with unemployment as high as 31 % of the active population - this despite the employment-generating public work projectsPlan decalled

Empleo Mlnimo, PEM (Plan of Minimum Employment). The PEM was supposed to be a temporary program developed under the stabilization process of the mid-1970s, in which workers received less than the minimum wage for engaging in such activities as sweeping the streets, etc. It was supposed to be temporary -a response to unemployment insurance- while the person found alternate employment. But with other employment not available (employment-generation was never a priority of the economic team) PEM became permanent. Therefore, there was a substantial portion of the labor force

(estimated at between 5 and 10%) earning less than the minimum wage, but officially not considered unemployed. When the popular capitalism program was launched, there were few members of the middle class that were in a position to take advantage of it. CORFO encouraged lending as a mechanism for buying company shares, but this was a risky endeavor in Chile at the time. On the one hand, the recession undermined confidence in the financial system and in the ability of the state to regulate it. On the other hand, with high positive interest rates (among the few Latin American countries with positive interest rates in the period) borrowers were discouraged. The opportunity to buy shares 110 of companies being privatized was therefore not available for everyone, but rather to a relative small group of people comprising the upper and upper-middle classes.

In this regard CORFO changed its role from providing most of the funds for investment in the country either for large private companies or state-owned enterprises, to helping finance the acquisition of shares of public enterprises to small investors. Also reflecting this role in the state corporation, the companies in CORFO’s portfolio has fallen to only 17.160

The copper industry had remained in the state’s hands, despite the pressure of the economic team for its privatization. The military saw the re-privatization of copper industry almost as treason; copper was to remain an integral part of the Chilean state.

With the exception of the copper industry, the military wished to change the state’s role from the leader of the country’s development to the facilitator of this process. This meant that now, even governmental bodies such as the Central Bank would be practically outside the reach of the president (this would be true after Pinochet left). This change in the state role was severely criticized since CORFO was an agency of which many

Chileans were proud.161 Still, CORFO was to retain an important role in production as it kept in its portfolio companies in the mining sector.

There are at least two more very prominent privatization examples which occurred in Chile following the recession, which serve as illustration of the very limited role

160 Yotopoulos, 691.

161 Pinto, Anibal. "La Ofensiva Contra el Estado-Econdmico." Coleccidn Estudios CIEPLAN. Numero 21, Junio, 1987. Ill which the government was expected to play in the future. First of all, the pension system was privatized. Employees were encouraged to switch from the state-run social security system to private pension funds. Though these had to be nationalized due to the recession of the 1980s, they were soon re-privatized. Not only were these private funds encouraged, but by limiting the interest payments and other services of the state social security system, those that remained in the official system were penalized. By many accounts, the privately-run pension funds in Chile has been one of the successes of privatization.162

The second event that is worth noting is the privatization of the water supply system in Santiago. Public services had been traditionally been perceived as being the responsibility of the government, especially in Latin America. So in a sense this was a bold experiment. In Santiago there are two private companies that supply the city with water. Each has been given a geographical area for which they are responsible, though they overlap in one section of the city: the upper-middle class neighborhood of Lo Curro.

Since the government sets the price they can charge for the delivery of water, competition is base on how the service is provided. Both companies run and operate the whole business (from collection of water in reservoirs to the repairing of broken tubes).

This has also been seen as a success story.163

There are two conclusions that can be drawn from these two examples of

162 Nankani, 32.

163 Roth, Gabriel. The Private Provision of Public Services in Developing Countries. (New York: Oxford University Press, 1987), 157-158. 112 privatization. The first one is that there were significant factors, other than the government’s will, which were acting as incentives to continue the privatization program.

Probably the most notable of these is the hard budgetary constraints in which municipalities found themselves in after receiving the mandate of financial self- sufficiency. The administrative decentralization process, which was mentioned above, acted as a reinforcement to the privatization process; these were not unconnected events, but part of the regime’s strategy.

The second conclusion is that the government was still firmly in control throughout the early 1980s despite the protests and worsening economic situation. In other words, other mechanisms of control beyond the use of compensatory power were still being used effectively by the army. Despite the protests and international condemnation following the deaths of numerous protestors the government carried on with its program. The brutality of the government’s response was one of the reasons why the opposition leaders decided on stopping the protest; they believed these protests were not debilitating the government’s will to repress dissent. The government’s continued possibility of controlling the situation is evident in that both of the mentioned examples were opposed by the bureaucracies that used to run the social security system and the water supply. Though it is difficult to measure the level of opposition within the government to privatizing these two public services, what stands out is the relative ease with which the government sold these companies. It would seem that the government put a lot of emphasis in the sale of these companies for political reasons as well. If these very visible firms (water supply and pension funds affect a great many people directly) 113 were successful, the government could use this as a showcase for its policy. Having won over some of the middle class with compensatory control (by way of "popular capitalism" schemes), the government could probably count on greater support from the middle class if public services were more efficient. Thus the government proclaimed itself as the government of prosperity and stability. This message was to be important especially as

Pinochet faced a plebiscite which, he hoped, would maintain him in power until 1997.

In 1987 there were major changes in the military government. Since Pinochet was already campaigning for the March, 1988 plebiscite that was to decide his fate as president of the country, the government tried to distance itself from most of the symbols of its bloody past (except the armed forces, of course).164 Still, the government portrayed the period before 1973 as one of violence and instability, and the one after

September 11, 1973, as one of prosperity and stability. One of the most prominent of the members of the Pinochet cabinet of the 1970s, former Interior Minister Sergio

Femdndez, was given his old position. He had planned the plebiscite of 1980, which approved the country’s constitution quite successfully.165

The economic policy making team lowered its profile and simply guaranteed that

164 Among the interesting changes in Pinochet himself was the fact that he was no longer to be seen wearing his uniform. Rather, Pinochet campaigned throughout the country with a business suit and did not surround himself with military personnel. Though Pinochet called his activities just visiting the country and not campaigning, it was painfully obvious that he was trying to change his image.

165 Successfully from the point of view of the government, as it is was plain that the plebiscite was anything but fair. The real results may never be known, but it is clear from the vast number of voting violations registered, that the real results are not those which were announced by the regime. Valenzuela, 192; Cavallo Castro et.al., 321-332. 114 the upswing in the economy continue. The government’s team managed to set in motion the fourth period of privatization in Chile in the midst of the campaign. In this phase 40 state-owned enterprises were divested --including public utilities, which up to that point had only been privatized as case studies.166 The objectives and the mechanisms were more or less the same as they were in the third phase: selling shares to small investors and employees so that middle and lower class Chileans would have a stake —at an economical level- in the capitalist system. The problem with the strategy is that lower class Chileans would not be able to partake of the growing economy and could not invest in companies’ shares. This privatization process would, above all else, ensure that

"another Allende" would not be elected president of Chile.

The government remained quite detached from the population and could not see this. This was to be expected of an authoritarian regime which does not have to rely on the mandate of the people to remain in office; therefore, it can isolate itself from the population. The Pinochet government believed that the carrot of the "popular capitalism" schemes in the midst of a growing economy, along with the stick of potential repression, and the images of the "chaos" under Allende, repeated day and night on television, would be enough to ensure a Pinochet victory.

In the first free elections that took place under the military regime of Pinochet, the Chilean people ousted the generals, when 54% of the voters voted "No" to the

166 Nankani, 33. 115 question of Pinochet’s extension of power until 1997.167 A year later, confirming the animosity for the military government, the candidate of the opposition, Patricio Alwyn, was elected president of Chile.

The military government remained more than a year in office after it lost in the plebiscite. During this period, the military government attempted to sell off whatever else it could, and limit the maneuvering space of the new president. Even the universities, which for more than a century had been part of the public sector in Chile were put up for sale.

Ultimately, the military government’s attempt to co-opt parts of the population through its decentralization process (the privatization program) were not enough to maintain the regime in power. The tactic of allowing the central state to relinquish some of its attributes, and hence of its power, in an attempt by its leaders to tighten their personal grip on power, backfired. The population rejected the military the first opportunity it had of doing so. Part of the reason for the failure of the government’s strategy is that it placed too little emphasis on mechanisms of compensatory power and too much emphasis on repression. The use of compensatory power was used to enhance the position of power of the upper and upper-middle classes even further. But proving that the regime’s economic policy would be beneficial to these groups was like

"preaching to the converted." These groups would be more willing than any other segment of the population to support the regime. The problem is that these groups of

167 An account of October 5, 1988 (the day the plebiscite took place), which examines the mood and the results is found in Cavallo Castro, et.al., 566-588. 116 society were always a minority. Therefore, the regime’s response to the protests and grievances of the majority of the Chileans was repression. There were no attempts to

"buy o ff members of the lower class through the regime’s decentralization processes.

This was probably the fatal flaw of the government’s policy, since it ultimately had to face an electoral contest, were the "repressed" majority outvoted the "compensated" minority.

The Finance Minister under Alwyn, Alejandro Foxley, promised that the government’s macroeconomic policy, insofar as it was successful, would be maintained, but that there would be increase emphasis placed in the social sectors, long neglected.

He expressed that the privatization program had been exhausted in his country, and would therefore not continue anymore.168

168 Foxley, Alejandro. "Chile: After Pinochet comes Progress." International Economics. January-February, 1989, Pages 50-53. CONCLUSIONS

The purpose of this thesis was to examine the intended and real outcomes as the political power structure changes due to a decentralization process. In the 1970s and

1980s, Chile experienced two types of decentralization vastly different both in process and content. Still, the end result of both was an attempt by the leaders of the central government to manipulate the Chilean power structure in such a way as would benefit them. From this perspective, Chile’s decentralization processes were failures. Although certainly some groups were empowered, this process never led to the point where the national leaders were able to survive the ultimate challenge to their power.

Salvador Allende, as has been described, continued programs began by his predecessor Eduardo Frei. The content and direction he gave to the decentralization process was quite different from Frei’s. Allende sought to empower grass roots organizations that were representative of the poor, and which traditionally had supported the Chilean Left. The government was never in control of this decentralization process.

Several factors explain this: first of all, the government did not place a priority on empowering grass roots organizations until it had to do so to react to the increasing power and militancy of the opposition. In this respect, the UP’s strategy was reactive, and not well articulated. Secondly, it was difficult for the government to take any action because the opposition was able to veto any initiative by the government after 1971.

This political stalemate meant that Allende had less room to maneuver. It also meant that the government had less access to resources at its disposal to compensate supporters.

Towards the end of the UP government it seemed that the only weapon which Allende 118 had at his disposal to rally his supporters was ideology. And in times of scarcity ideology is a less than ideal glue for a diverse coalition. Thirdly, The UP government was formed by a diverse coalition, and each party composing it had its own decentralized base of support. The parties were not able to agree on strategy or ideology, plus they had little incentive for the coalition to remain after the presidential election. This led to a process whereby each party sought to empower its own base of support, following different tactics and for different purposes, all of which combined to make decentralization work against Allende. Lastly, the growing chaos and stalemate at the national level convinced many grass roots organizations that they had to fend for themselves; if they did not take care of their own nobody would.

All of these factors led to ade facto decentralization process which began to strengthen local organizations. As grass roots organizations began to engage in more activities and to supplant the state authority in some respects, their power and autonomy increased. This led to less control from the national level. The problem with this type of decentralization process is that there never was a national strategy to guide it, and the whole process proceeded in a very disorganized and disruptive way. Eventually this made the whole process work against itself and created a climate of crisis that permitted the armed forces to step in, with considerable support from the upper and middle classes.

In conclusion, Allende’s attempt to alter the Chilean power structure was mostly reactive and uncoordinated. It also mobilized the opposition, which presented a much more unified position. The hardening of positions from both sides led to the military coup. 119 Augusto Pinochet’s regime did not develop a clear political strategy until 1975, though there was a general understanding among the armed forces that politics in Chile had to change somehow. By 1975, the military’s strategy clearly became an attempt to grant back some of the power the upper and middle classes had lost to the lower class during the Allende years. Among the many facets of the decentralization process undertaken by the military government, this thesis was concerned with the privatization program by which the government sought to control the upper and middle classes by what J.K. Galbraith calls compensatory power. By compensating, and thus empowering, these groups, the military hoped to earn their allegiance. The problem for the regime was that the ability to compensate these groups rested on a prosperous economy. When the economy declined, the support of many of these groups -most notably of the middle class- turned into opposition.

After the economic crisis of 1981-1984, the Pinochet regime sought to compensate growing numbers of the middle class through its "popular capitalism" privatization program. But the support the Pinochet acquired through these type of programs was not enough to impede the his eventual defeat at the polls. The main flaw of the regime’s strategy was that it sought to empower a minority of Chileans (the upper and middle classes) with the expectation that this would be enough to guarantee a victory at the polls.

The reasons for this are various: the military was insulated from the ordinary people, and thus not responsive to the population; the regime had "won" in two earlier plebiscites (in

1978 and 1980) which were controlled to ensure a victory; the leadership never thought the general would lose an election, because his power was so immense he thought no one 120 dared to challenge it.

In a sense the Chilean political situation in 1989 resembled the situation in 1974.

The opposition was united in its resistance to Pinochet (just as the armed forces were united in their antagonism to Allende in 1973), but there was no unanimity as to where to go from here. The Alwyn government, despite being a coalition government, could be called the second PDC administration because of the immense influence of that party in government. With regards to a decentralization strategy, the course the present government plans to take is not clear. It seems clear that the most radical proposals of the PDC program of the 1960s are no longer held by the party; most notably the attempt to destroy the capitalist system for a "communitarian" system.

The administration does want to begin a different decentralization process soon.

Following two years of the Alwyn administration, the only mayors that were not appointed by Pinochet, are the mayors of the twenty-three largest cities of the country.

The Alwyn administration is interested in increasing municipal autonomy and democracy.

The strategies that will be taken, though, do not seem to be the same as those taken by

Frei. Political patronage disguised as decentralization, in the form of local organizations supported by the PDC or any other party, are unlikely in the near future. These organizations, as most other policies of the turbulent sixties and early seventies want to be avoided.

The administration will likewise avoid the use of policies similar to those of

Pinochet. The demise of the privatization program in Chile is due to the fact that most everything "privatizable" has been sold, but more importantly to the fact that those who 121 benefitted from privatization are in opposition to Alwyn. Also, the present administration ran against Pinochet and his record, so it is not likely to engage in the same policies as the military government. Alwyn proclaimed all along that he would not dismantle the aspects of the economic policy that worked but professed the need to devote more energy and resources to the social sector of the economy, and to help the lower class to some extent.

The Alwyn administration seems to be attempting to take a middle road, looking out for the middle class. The policies of Frei and Allende aimed at empowering the poor are unlikely to be repeated in the near future. Likewise, the policies of Pinochet aimed at benefitting the upper class are defunct. The lesson the Alwyn administration has drawn from the past has been not to repeat it. The goal of the current administration is to favor the middle class, and to avoid polarization of the political climate. In this context, the decentralization process which may be advocated by the present government will consist of opening up municipalities to elections, and restricting the tight monetary constraints they face. This will allow increased political participation at the local level, coupled with a increase economic independence from the central government (and a reduced incentive to privatize).

What the future holds for Chile is difficult to predict, but probablystatus the quo, with some minor changes, will be maintained unless there are dramatic events to force another type of response. The administration’s position seems to be that the past is too recent and too emotional; therefore, it is better it to leave aside to the extent that this is possible. If Chile’s history and politics are quickly forgotten, and its relevance to the 122 developing world is limited to its economy, the new leaders of Chile will be satisfied.

A final comparison of the present with 1974 is called for: Chileans are tired, for the moment (but probably not for long), of the polarization and politization of everyday life.

Just as under Allende there were two distinct camps about to go at war with one another, under Pinochet there were also two distinct camps. There is however one key difference: the military’s solution to the polarization was to annihilate the opposition, but post-

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