A Tale of Two Chiles

This past weekend's earthquake exposes a geographic and cultural rift in South America's strongest, most stable, and most resilient country that the incoming government must address if it desires to sustain the miraculous economic development that this country has enjoyed over the last two and a half decades.

Having recently returned from a trip to the South of Chile myself, and having been in Santiago for nearly the last two years, I am struck by the developmental disparities. In the more touristic city of Puerto Varas, one might find modern 4 star hotels, nice restaurants, clean streets, new buildings, and modern grocery stores. But the surrounding towns cause one a bit of a time warp, with old, unrenovated houses, small local markets, and deteriorating infrastructure. Compared to the steel and glass high rises and hypermarkets of Santiago's Las Condes or Vitacura comunas, one might think they had been transported to another country.

Growing up in rural northwest Arkansas has given me a reasonable perspective on the subject, however, for Chile's problems are little different from the same problems facing largely rural areas in the highly developed economies of the United States and Canada. The urban-rural divide is perhaps not a problem to be solved, but a reality to be dealt with over the course of time. However, my own home town of Bentonville is an excellent example of how a rural, small-town community can be transformed into a hotbed of commerce and innovation by the presence of entrepreneurship and market forces. Chile does not need another Santiago in the same way that the United States does not need another New York City. But Chile needs a Bentonville, a Redmond, a Cupertino, an Omaha, and a Research Triangle spread over its beautiful and diverse 2,600 mile corner of paradise, wedged between the mighty Andes mountains and the cold blue Pacific Ocean. The new government, personally led by entrepreneur and billionaire Sebastian Piñera (who also holds a PhD in Economics from Harvard) has this challenge ahead of it. His dynamic teams at both the Ministry of Economy and the Ministry of Planning and Development should work to design attractive market mechanisms to draw industry, culture, and entrepreneurs from all over the world, while encouraging the talents of its (by Latin American standards) highly educated population to be directed toward entrepreneurship as well.

So many developing economies have made the mistake of offering temporary gimmicks and short-term tax breaks to attract foreign investment, and for the most part Chile has avoided this temptation (and should continue to do so), but the country is reaching the limits of current policy and incentives. Santiago is bursting at the seams, and is sprawling into the valleys outside the city in search of lower-cost real estate. The further development of Santiago will undoubtedly come at costs, even while Chile is among the least densely populated countries in the world. The right permanent shifts in tax policy combined with a few strategic investments in infrastructure could transform the unipolar economy of Chile, centered around Santiago, into a bustling and diverse nation with several regional economic hubs that lift millions into the global middle class, eradicate poverty, and transform Chile into the Hong Kong or the Singapore of the Western Hemisphere. The 5th freest economy in the world already (according to the CATO institute), Chile is poised for this transformation, but political speeches and mere desire alone are insufficient to inaugurate the necessary legal and cultural changes.

If the cities of southern Chile were as well developed as Santiago, the human tragedy of this weekend's earthquake would have been substantially mitigated, and the impact in the South would have been closer to the minor impact it has had on the city of Santiago. The question is: does the new government have the the will and the creativity to aid in this transformation, or will it let inertia dictate its developmental agenda?

Posted via email from The Invisible Sand