Fernando Flores Labra "Challenges for Chile: A Conversation with Senator Fernando Flores" February 17, 2004

Since 2002, Senator Fernando Flores Labra has represented Chile's Tarapaca region. Previously, Senator Flores held several posts in the Allende government including: Minister of the Economy, Minister of Housing and Secretary-General of the Government. During the three years following the 1973 coup he was held as a political prisoner in Pinochet's concentration camps. Senator Flores received his Ph.D. in Interdisciplinary Studies from UC Berkeley and is the author of many books, including Building Trust in Business, Politics, Relationships and Life, and Disclosing New Worlds.

Challenges for Chile: A Conversation with Fernando Flores Labra
Kirsten Sehnbruch

Despite Chile’s reputation as the “Tiger economy” of South America, the country is actually in no position to be internationally competitive, according to Senator Fernando Flores Labra, who represents Chile’s Tarapacá regions and is a member of the governing coalition’s Socialist Party. In a talk at CLAS, he blamed Chile’s lack of readiness on the absence of a development strategy and the insular nature of its business elite.

Senator Flores suggested that under the current government of President Ricardo Lagos, Chile has completed a phase in its history by showing that the country can be ruled by a Socialist government without falling into a state of economic chaos such as that preceding the military coup in 1973, which overthrew the government of President Salvador Allende.

In the last 14 years, during which Chile has been ruled by a democratic coalition government, the Concertación por la Democrácia, the global economy has undergone a process of integration, a process in which Chile has participated. Free trade agreements have been signed with the European Union, the U.S. and, most recently, South Korea. But despite its integration into the global economy, its economic growth and its institutional stability, Senator Flores emphasized the problems that remain unresolved for Chile. Among the most pressing of these is the systemic inequality that has not improved despite Chile’s positive economic performance, an inequality expressed in monetary terms, but also in other areas, such as education.

Senator Flores distinguished between inequality and poverty: Poverty decreases with economic growth while income inequality does not. Furthermore, inequality is inevitable in a capitalist system. The question is how to address this issue and avoid social injustice. The senator considered that the answer lies in effective welfare economics and in giving people from low-income groups access to high quality education.

But Senator Flores highlighted the country’s lack of preparation for competing successfully in a globalized economy as the biggest challenge facing Chile today. According to the senator, the Chilean business elite do not understand the processes of international business. In particular, Chile is not participating in the global process of outsourcing, which has occurred in many countries and industrial sectors. Its software industry, for example, is shrinking because it does not have the technological capacity to take on large multinational software projects.

The main reason for Chile’s lack of competitiveness, he said, is its lack of business and economic development strategy, especially if compared to countries as diverse as Singapore, New Zealand or Finland, where the state has fostered investment in specific sectors, allowing the countries to grow successfully despite primary resource-based economies. In Chile, however, there is no link between research and investment, and development strategy is not even part of the political debate.

Senator Flores contended that by only exporting raw materials, such as those produced by the mining, forestry, fishing and agricultural sectors, Chile is not going to generate dignified work for its labor force. Part of the problem is that there is no culture of venture capital in Chile. The existing small businesses in Chile are a way of disguising unemployment. They do not compare, for example, to the start-up operations that exist in developed countries.

The senator argued that any Chilean development strategy would have to be global. Mexico or Brazil, which have large regional markets, can afford a different strategy, but Chile, due to its size, has to specialize in niche markets and be export oriented. Understanding marketing processes is key to the development of successful export strategies as in today’s economies it is necessary to promote brands, not simply a product. In order to make the most of Chile’s opportunities, Senator Flores suggested that there should be an alliance between government agencies and business interests. Under its current constitution, a legacy of the military dictatorship of General Pinochet, Chilean government institutions are not permitted to invest in business activities to foment economic activity. However, governments of other countries are permitted do to so and thus generate strategic alliances for development as well as providing venture capital funding for such projects. This has been a particularly common practice in East Asian countries, such as Singapore and Taiwan.

Asked about Chile’s vote against the U.S. military intervention in Iraq in the United Nations Security Council, the senator answered that this corresponded first to a conviction on the part of President Lagos that there was no strong and clear case for intervention, and that second, Chile was backed in its resistance by the U.K., which at the last minute swung in favor of the U.S. motion. Chile worked very closely with Mexico on the Iraq issue. Going against the U.S. on this matter was a momentous decision for both countries since their opposition risked triggering negative trade consequences. The senator also mentioned that President Lagos was backed by all the political parties in Chile.

In response to a question about the impact of the recent commemorations in Chile of the 30th anniversary of the coup against President Allende’s democratically-elected government, the senator said that the people for whom Sept 11th was an important date are now in the minority, as most Chileans were born after the coup. There is more interest in the future than in the past. In addition, Senator Flores explained that young Chileans participated very little in the political process and criticized the fact that schools have not educated the young as to the importance of political participation.

Senator Fernando Flores Labra represents Chile's Tarapaca region. He gave a talk at CLAS titled ”Challenges for Chile: A Conversation with Senator Fernando Flores" on February 17, University.

Kirsten Sehnbruch received her Ph. D. from Cambridge University. She is a visiting scholar at CLAS in Spring 2004.

Senator Flores spoke about the need for Chile's government to take a more active role in planning for the future, citing some issues with the current economic situation and Chile's current reliance on primary good exports.