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Wednesday, June 28, 2006

The Chilean Tiger and the Demographic Dividend

This is fascinating:

"The price of copper, Chile's main source of foreign exchange, has rocketed to $3 to $4 a pound in the past year, from as low as 60 cents in 2001. The high copper price has added billions of dollars of new wealth to a country that is now the richest in Latin America...."

"Yet Chile's population is on edge over the question of how quickly to spend its copper windfall. In demonstrations in May and June, student and teacher groups demanded that President Michelle Bachelet pay out more for education and other social programs. High-school students called a strike, and more than 800,000 people protested at high schools and universities across the country. Police in the capital of Santiago and other locales responded with water cannons and tear gas, arresting more than 1,000."

"We have the money from copper now, and it should be used now"

Now the interesting point to note, as the Bloomberg article points out, is that Chile is now the richest Latin American country in terms of income per capita. In part this wealth is a product of the copper boom, but this boom comes at a very favourable time in terms of Chile's demographic and institutional development (to what extent are these two inter-connected? Just a question).

Here is a page summarising demographic data for Chile, which, as can be seen, are now relatively favourable for economic take-off, with fertility around replacement level, and life expectancy (and education levels) increasing nicely. Here is some background economic data, and here's a more extensive pdf file summary. The pyramid evolution also looks good, and if you're interested you can check it out here.

Now the issue that presents itself is that all this is very finely balanced. There are limited resources and conflicting demands. There is, if you like, an 'allocation problem'. The copper price element could be considered a kind of 'one-off' windfall. The issue is how to best use this. Clearly neither extreme will be optimal, there needs to be a 'balanced path' or political pressures will 'upturn the cart'. But this is just what Bachelet seems to be working towards, a balanced path.

Now interestingly enough this whole situation can be conveniently understood in terms of Bo Malmberg's 'Four Phases of the Demographic Transition' approach (I have a PDF file here which outlines this in some detail). Basically Chile is moving from being a child dominated society to being a young adult dominated one. Now as Malmberg suggests 'young' child-dominated societies, tend to be very economically dependent on the primary sectors (agriculture and raw materials extraction), and this is evidently Chile's case. Now the interesting thing to do would be to 'leverage' the windfall to facilitate a transition to a more sustainable path. This would normally be industry, but it may be that Chile will never be an industrial power-house (think Australia) and may move directly from extractive and agriculture to high value services like design and digital communication.

`The Poor Can't Wait'

This is a real and pressing human concern. However a judicious use of existing resources may mean that Chile is better able to long term address the povery issue, an 'injudicious use' may mean, OTOH, that the poor stay poor, at least for much longer.

1 comment:

Anonymous said...

FWIW, I wouldn't trust the IDB population pyramids. Every time I've had occasion to check them against primary source data, there has been no resemblance, although their recent revisions are greatly improved.