Economic Expert Warns Kast Repeats Dictatorial Mistakes with Tax Cuts and Spending Cuts

“They are making the same mistake as the military government,” stated economist and National Humanities Prize winner 2005, Ricardo Ffrench-Davis, while warning that by simultaneously cutting taxes and fiscal spending, the administration of José Antonio Kast is repeating the formula applied during Augusto Pinochet’s dictatorship.

In an interview with Andrea Costa-Allendes, the emeritus professor from the University of Chile cautioned that rather than stimulating development, the far-right leader is following a “more ideological” agenda that is “shrinking the State.”

He labeled the reduction of the corporate tax without compensatory measures included in the major economic-tax reform pushed by La Moneda as an “error,” arguing that it will “consolidate the scarcity of public resources.”

Pinochet’s Dictatorship Averaged Only 2.9% Economic Growth

Ffrench-Davis, who despite earning a Doctorate and Master’s in Economics from the University of Chicago did not adopt neoliberal ideas, provided an unrelenting assessment of the dictatorial era, describing the policies implemented from 1973 to 1989 as a “failed experiment,” arguing that the average Gross Domestic Product (GDP) growth barely reached 2.9% during the regime’s 16 and a half years.

“The large shadow was the dictatorship, because with full power to implement the changes it wanted, it failed to achieve sustainable growth: it barely averaged 2.9% growth,” he asserted in an interview published by La Tercera.

To contextualize the magnitude of this failure, the economist, who served as the director of Studies at the Central Bank of Chile from April 1990 to March 1992 after the restoration of democracy, recalled that two of the gravest crises since the 1930s occurred during Pinochet’s dictatorship.

“In those two instances, there were drops in GDP of 14% and 17%, and recovery took many years. For example, in the case of the 1980s, we only recovered the per capita GDP of 1981 in 1988,” explained the economist, who will be launching the book “Economic Reforms in Chile” this September.

In contrast to this bleak scenario, the academic, who acted as senior regional advisor for the Economic Commission for Latin America (ECLAC) from 1992 to 2004, highlighted the performance of the first Concertación government led by Patricio Aylwin, noting that the change in strategy, which included regulation of capital accounts, increased taxes, and elevated social spending and fiscal investment, propelled growth to 7.1%.

“The average investment rate during the dictatorship was eight points of GDP lower than the investment rate from ’90 to ’98. That’s the difference between growing 2.9% and growing 7.1%,” clarified the expert, who co-directed an International Group on Macroeconomics for Development between 2002 and 2006 and chaired the United Nations Committee for Development Policy (CDP) from 2007 to 2010.

However, his diagnosis does not spare criticism of the Concertación governments in their later phase, indicating that despite their initial success, they “lost momentum” by gradually abandoning reforms in education, support for small and medium-sized enterprises (SMEs), and exchange rate management.

This loss of dynamism, coupled with the economic stagnation of the past decade, is, in his view, the spark that ignited the social discontent manifested in the social uprising of 2019.

Marcel “Saved” Boric’s Administration from an “Explosive Situation” in the Economy

Regarding the administration of former president Gabriel Boric, Ffrench-Davis, who at 90 years old unabashedly identifies as “progressive, social-democrat, and social-Christian,” acknowledged some successes, like the appointment of a “specialist in balancing macroeconomics” such as Mario Marcel as Minister of Finance, a choice that, in his words, “saved his government” while confronting the 2022 inflation crisis and an economy that “was in an explosive situation.”

As a recipe for the next 50 years, Ffrench-Davis advocates for a model change that prioritizes investment in human and scientific capital. While he proposes creating “real favorable conditions for private investment,” he emphasizes that growth must be accompanied by a drastic increase in research and development spending, raising it from the current 0.39% of GDP to 2.5%, as seen in countries like South Korea. To this end, he cites the “extensive inclusion” implemented by Scandinavian countries from 1930 to 1950.

“We need to invest heavily in basic and secondary education. There should be a connection with the productive world,” the economist stressed.

*Featured image: University of Chile.

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