"The Chilean Path to Socialism" In his speech to the Chilean legislature following his election, Allende made clear his intention to move Chile from a capitalist to a socialist society: Upon assuming the presidency, Allende began to carry out his platform of implementing a
socialist program called
La vía chilena al socialismo ("the Chilean path to socialism"). That included
nationalization of large-scale industries (notably
copper mining and banking), government administration of the healthcare system and of the educational system (with the help of a United States educator, Jane A. Hobson-Gonzalez from
Kokomo, Indiana), a free-milk program for schoolchildren and in shanty towns of Chile, and an expansion of the land seizure and
redistribution already begun under his predecessor President
Eduardo Frei Montalva, who had nationalized between one-fifth and one-quarter of all the properties liable for takeover. Allende also intended to improve the socio-economic welfare of Chile's poorest citizens; a key element was to provide employment, either in the new nationalized enterprises or on public-work projects. Allende began returning land that was stolen from Chile's indigenous population, specifically the
Mapuche, arguing that a consequence of land inequality among the indigenous population led to '600,000 Mapuche and Chilean peasant children [being] mentally retarded because they had lacked protein in their formative years.' Allende instituted a program of establishing family farms among the Mapuche, creating farming cooperatives, radio stations and medical clinics.
Economic policy Chilean presidents were allowed a maximum term of six years, which may explain Allende's haste to restructure the economy. Not only was a major restructuring program organized (the
Vuskovic plan), he also had to make it a success if a left-wing successor to Allende was going to be elected. In the first year of Allende's term, the short-term economic results of the economy minister
Pedro Vuskovic's expansive monetary policy were highly favorable: 12% industrial growth and an 8.6% increase in GDP, accompanied by major declines in inflation (down from 34.9% to 22.1%) and unemployment (down to 3.8%). By 1972, the
Chilean escudo had an inflation rate of 140%. The average real GDP contracted between 1971 and 1973 at an annual rate of a 5.6% negative growth, and the government's fiscal deficit soared while foreign reserves declined. Unemployment rates had dropped from 6.3% in 1970 to 3.5% in 1972 before dropping again in 1973 to the lowest ever recorded. The combination of inflation and price controls, together with the disappearance of basic commodities from supermarket shelves, led to the rise of
black markets in rice, beans, sugar, and flour. The Chilean economic situation was also somewhat exacerbated due to a US-backed campaign to fund worker
strikes in certain sectors of the economy. The Allende government announced it would default on
debts owed to international creditors and foreign governments. Allende also froze all prices while raising salaries. His implementation of the policies was strongly opposed by landowners, employers, businessmen and transporters associations, and some civil servants and professional unions. The rightist opposition was led by the
National Party, the
Catholic Church (which in 1973 was displeased with the direction of educational policy), and eventually the
Christian Democrats. There were growing tensions with foreign
multinational corporations and the government of the United States. Allende undertook the pioneering
Project Cybersyn, a distributed
decision support system for
decentralized economic planning, developed by British
cybernetics expert
Stafford Beer. Based on the
experimental viable system model and the
neural network approach to organizational design, the Project consisted of four modules: a network of
telex machines (
Cybernet) in all state-run enterprises that would transmit and receive information with the government in
Santiago. Information from the field would be fed into statistical modeling software (
Cyberstride) that would monitor production indicators, such as raw material supplies or high rates of worker absenteeism, in "almost" real time, alerting the workers in the first case and, in abnormal situations, if those parameters fell outside acceptable ranges by a very large degree, also the central government. The information would also be input into an economic simulation software (
CHECO, for
CHilean ECOnomic simulator) which featured a
Bayesian filtering and control setting that the government could use to forecast the possible outcome of economic decisions. Finally, a sophisticated operations room (
Opsroom) would provide a space where managers could see relevant economic data, formulate feasible responses to emergencies, and transmit advice and directives to enterprises and factories in alarm situations by using the telex network. In conjunction with the system, the Cybersyn development team also planned the Cyberfolk device system, a closed television circuit connected to an interactive apparatus that would enable the citizenry to
actively participate in economic and political decision-making. Allende raised wages on a number of occasions throughout 1970 and 1971, but the wage hikes were negated by ongoing inflation of Chile's
fiat currency. Although price rises had been high even under Frei (27% a year between 1967 and 1970), a basic basket of consumer goods rose by 120% from 190 to 421 escudos in one month alone, August 1972. From 1970 to 1972, while Allende was in government, exports fell 24% and imports rose 26%, with imports of food rising an estimated 149%. Export income fell due to a hard-hit copper industry; the price of copper on international markets fell by almost a third, and post-nationalization copper production fell as well. Copper is Chile's single most important export, as more than half of Chile's export receipts were from that sole commodity. The price of copper fell from a peak of $66 per ton in 1970 to only $48–49 in 1971 and 1972. Chile was already dependent on food imports, and the decline in export earnings coincided with declines in domestic food production following Allende's agrarian reforms. The rate of inflation fell from 36.1% in 1970 to 22.1% in 1971, while average
real wages rose by 22.3% during 1971. Additionally, Allende government had reduced inflation to 14% in the first nine months of 1971.
Foreign policy In 1971, Chile re-established diplomatic relations with Cuba, joining Mexico and Canada in rejecting a previously established
Organization of American States convention prohibiting governments in the
Western Hemisphere from establishing diplomatic relations with Cuba. Shortly afterward, Cuban president
Fidel Castro made
a month-long visit to Chile. Originally, the visit was supposed to be one week; however, Castro enjoyed Chile and one week led to another. Despite his attitude of "socialist solidarity", Castro was reportedly critical of Allende's policies. Castro was quoted as saying that "Marxism is a revolution of production", whereas "Allende's was a revolution of consumption."
Socioeconomic and political tensions In October 1972, the first of what were to be a wave of strikes was led first by truckers, and later by small businessmen, some (mostly professional) unions and some student groups. Other than the inevitable damage to the economy, the chief effect of the 24-day strike was to induce Allende to bring the head of the army, general
Carlos Prats, into the government as Interior Minister. Throughout his presidency, racial tensions between the poor descendants of indigenous people, who supported Allende's reforms, and the white elite increased. Throughout his presidency, Allende remained at odds with the Chilean Congress, which was dominated by the Christian Democratic Party. In 1964, Eduardo Frei had promised a "Revolution in Liberty", a middle-class revolution that was funded by the United States government's
Alliance for Progress. Frei carried out a series of progressive reforms, including
land reform, an issue that had not been touched since Chile's independence in the early 19th century. According to historian Marian Schlotterbeck, this was "[John F.] Kennedy's vision –?stave off the threat of communist revolution by improving standards of living across the continent". The Christian Democrats had campaigned on a socialist platform in the 1970 elections but drifted away from those positions during Allende's presidency, and accused Allende of leading Chile toward a Cuban-style dictatorship and sought to overturn many of his more radical policies. They eventually formed a coalition with the
National Party. Allende and his opponents in Congress repeatedly accused each other of undermining the Chilean Constitution and acting undemocratically. Allende's increasingly bold socialist policies (partly in response to pressure from some of the more radical members within his coalition), combined with his close contacts with Cuba, heightened fears in Washington. The Nixon administration continued exerting economic pressure on Chile via multilateral organizations and continued to back Allende's opponents in the Chilean Congress. Almost immediately after his election, Nixon directed
CIA and
US State Department officials to "put pressure" on the Allende government. His economic policies were used by economists
Rudi Dornbusch and
Sebastián Edwards to coin the term
macroeconomic populism. In 1972, Chile's inflation stood at 150%. == Foreign relations during Allende's presidency ==