Chile and Its Business Policies - Case Study Example

Learning journal Student’s name Institution of affiliation Date of submission Learning journal Chile is a country in Latin America. The country has a rich political and economic history. The politics, culture and history of the country has had significant impact on the country. The literature read before the tour, during the tour and after the tour is illuminating. They provide a reliable picture of the county. The literature provides sufficient guidance on the political, social and economic history of Chile. It is easier to appreciate the economic and political organization of Chile from the available literature. The history of Chile informed the economic organization of Chile. The literature on the politics of Chile is, therefore, important in laying the foundation for a better understanding of Chile and its business policies. Cultural awareness of Chile was enhanced in our tour of the Chile. I realized the need for finding out the culture of a population before engaging in a business venture. However, the culture of Chile on business may be misleading because it was based on the analysis of a solar energy organization. This may not be sufficient to conclusively state the culture of the Chilean population. The fact that they responded slowly to energy products may not be conclusive. Though it was an eye opener, I will in the future require more evidence in determining the culture of the place that I tour. Chile is to be understood in certain political, social, economic, historical and cultural contexts. The history and the political orientation of the country shaped its economic choices. Failure to appreciate the political history of Chile may lead to a superficial understanding of the country. The interplay between capitalism and socialism in the country has influenced the management of the country’s resources. The war between the right wing parties and the left wing parties has shaped the economy of the country (Loreto Navarrete, 2014). The political agenda of Chile was influenced by the right and left wing ideologies. The left wing parties believed in a socialist state where the factors of production were in the hands of the state. However, the right wing parties advocated for capitalism where individuals controlled the factors of production. Between 1950 and 1969 a small number of people owned up to 86 percent of all productive land. The remaining 14 percent was owned by 141,000 families (Loreto Navarrete, 2014). Peasant families totaling to 123,000 did not own land. This means that peasants were denied the factors of production. The population of Chile has been increasing. In the year 1960, the population of Chile stood at 7,341, 115 and in the 2002 the population stood at 15,116,453. The malnutrition in the 1970’s in Chile was high with about 600,000 malnourished children. The number of malnourished children in Chile during the early years was high. The number of malnourished children with a population of less than 10 million is on the higher end. The political influence on Chile was due to the struggle between the west and the East during the cold war. The socialist East and the capitalist west were interested in imposing their ideologies on other countries of the world. Chile was also influenced by the opposing ideologies. The country was divided a long socialism and capitalism lines. Socialism in Chile was rejuvenated by the Cuban revolution. Chile which currently boasts of a growing economy had a poor economy in the early years between 1950 and 1969. Chile was deficient in food production between the years 1950- 1960. It experienced constant inflation and the country was very poor. Increase in financial spending of Chile led to increased inflation. The foreign trade in Chile was also limited to the American market. The country relied on copper production in its foreign trade. However, many sectors have developed over the years. The foreign debt of Chile was at 50 percent in 1970. This foreign debt was one of the largest in the world at the time. The debt was owed to the United States. The economy of Chile was performing poorly at the time. The political changes in Chile in the 1960’s and 1970 have shaped the economy of Chile. The winning by Eduardo Frei who is neither socialist nor capitalist led to several reforms in various sectors including the land sectors (Loreto Navarrete, 2014). The political reforms in Chile during the reign of Eduardo Frei had far reaching economic consequences. As part of its land reform agenda, the government alienated about 8.4 million acres of land to the people. The state created other 30,000 new owners. Copper mining was nationalized by Chile during the reign of Eduardo Frei. Nationalization of the copper industry placed the mining industry in the hands of the state. The government bought the American companies that were in control of copper mining in Chile. Socialism was taking shape in Chile. Fifty one percent of American companies were bought by the State. The government intended to double the production in copper mining and increase income of the copper industry. The nationalization of the mining industry which supported the economy at the time was the led to reduction in capitalism in the country. The government felt that concentrating the factors of production in the hands of the state was the best way of improving the country’s economy. The reforms initiated by Edurado Frei led to political polarization. The Agrarian and the Land Bill was rejected by the right wing parties. Political polarization grew until 1970 when the elections were held and the left wing candidate won became the president. The post 1970 period was marked by political tension because the right wing parties did not like the socialist presidency. Allende’s government proposed certain economic reforms. It proposed for the establishing of three economic areas. State owned, mixed and private economy was to be established by the government (Loreto Navarrete, 2014). The government was to own the copper, iron, salt and coal mining. The banking, strategic and foreign trade industries were also to be owned by the State. The government as proposed the fastening of reforms in the agrarian reforms. The government wanted to extend social security to a greater number and improve health care. The government was promoting socialism. Capitalism was slowly dying. The government’s push for a socialist state contributed to the polarization of Chile. The decisions made by Allende’s government shaped the economic and political direction of Chile. The government embraced socialism and in the first year of Allendes’s administration, children and pregnant women obtained daily portions of milk. 100,000 houses were constructed by the government so as to realize its social security agenda. The government nationalized copper mining after unanimous approval by the congress. The state owned economy and the promotion of social welfare was the road towards socialism. The agenda of left wing parties were achieving their agenda as regards socialism. The right wing parties and Christian democrats were opposed to Chile’s road to socialism. The United States used various means to sabotage the socialist government. The CIA used about $ 12 million to sponsor strikes among trade unions in Chile cause shortages. The shortages caused by the enemies of socialism led to shortage of many necessities including fuel and food. The emergence Black market in Chile was as a result of such shortages. The middle class in Chile began to oppose the government. More women were involved in street protests against the government. The sabotage by the United States was because the Chilean government had embraced socialism which was tantamount to supporting the East. The Chilean government was working closely with the Fidel Noel Castro of Cuba. The west was uncomfortable with such developments. In 1972 the government was strategic in its management of affairs and controlling the brewing discontent with the government. The GDP growth was at a negative value. The GDP stood at -1.2 percent in 1972. Inflation stood at 163.4 percent the same year. The inflation above the 100 percent was an indication that the economy was performing poorly. The political and economic choices made by the Chilean government were bearing on the economy. In 1973, the economy continued to deteriorate with the GDP standing at -4.3 percent (Loreto Navarrete, 2014). The inflation in 1973 averaged 381 percent. The economic situation in Chile grew from bad to worse. The forceful taking over of the government by Pinochet by use of force was added to the economic woes of Chile. The government was dictatorial and many people were executed. There was blatant abuse of human rights in Chile. The government banned political parties, suspended the Constitution and limited civil liberties. Industrial action was prohibited by the government. During Pinochet’s reign, the about 30,000 Chileans went to exile in neighboring countries. The government sought to retrench capitalism by deregulating the economy. The factors of production were returned to the hands of the government. Land that had been previously given out to people was returned to its former owners. Nearly one-third of land was returned to its former owners. The state stopped controlling the economy. The economy continued to plummet under the reign of Pinochet until his ouster through the ballot in 1988. The economic situation was worsened by the 1982 economic recession. In the year 1982, unemployment stood at 21.4 percent. This number is large due to the small population of Chile by 1982. The election of a new government saw the government attempt to alleviate poverty and increase economic growth. The economy grew and the market economy in Chile began to flourish. However, the literature on the political history of the Chile is scanty and insufficient after 1988. The political intrigues are lacking. The literature merely mentions the facts but with less explanation. The literature is sufficient in providing an illuminating picture of the Chile. The literature explains why certain economic choices were made by the government. Chile is small in terms of population but is a leader in mining. The country ranks first in the mining of copper, lithium, iodine and natural nitrates. The country ranks sixth in silver mining worldwide. The mining industry contributed to about 15 percent of the Chilean GDP between the 2005 and 2013(Sonami, 2014). This shows how the economy of Chile depends on mining. In the period between 2005 and 2013, up to 59 percent of all Chilean exports came from mining. This means that mining in Chile is at the centre of foreign trade. About 20 percent of fiscal of Chile’s fiscal income come from the mining industry. The mining industry also pays the highest salaries. They industry is followed by the financial and the electricity sector. The mining sector has reduced poverty levels in Chile. In 1990, the poverty levels stood at 38.8 percent. The poverty level had reduced to 14.4 percent by 2011. The reduction in poverty levels was contributed to by the robust mining industry. The mining industry has continued to grow over the years. A commendable growth rate has been recorded over the period between 2000 and 2011. The average growth rate of copper mining between 2000 and 2011 stood at 1.2 percent (Sonami, 2014). Despite the success of the mining industry, the industry continues to experience challenges. The challenges have an effect on the investment environment in Chile. The competition among stakeholders is one of the challenges facing the sector. The high number of stakeholders means that the sector is more regulated. Decision making also becomes difficult with the increased number of stakeholders. Many players in an industry create bureaucracy thus affecting performance. The Chilean politics revolves around the mining sector. Mining and politics are intertwined because mining is the backbone of the Chilean economy (Sonami, 2014). However, this challenge is expected in any mineral rich country. The issue of distribution of benefits of mining is a political matter. The issue of taxation which is at the center of politics in Kenya is a challenge to the economy. The environment is also not friendly for investment. The regulation of the mining sector is high and this limits investment. Mining is a prime asset of the government hence the increased regulation. The government regulates the entry into the sector. The ore grade has also been declining. This technical aspect has affected the success of the industry. Any investor must, therefore, be prepared to surmount the challenges of the industry. Though the mining industry is a cash cow for the government, an investor must be careful as the waters are murky. Salmon farming is important in meeting the protein needs of the world population. The world population of about 7 billion and is projected to rise to 9 billion. This means that the demand for proteins will continue to increase over the years (Camanchaca, 2014). Salmon farming leads to increased employment and, therefore, a contributor to the development in the remote areas where the framing is practiced. Local communities stand to benefit if salmon farming is enhanced. Salmon farming is important in the export industry going by the trends in the countries that practice the farming. Countries such as Chile, Norway and Scotland have used salmon farming to promote foreign trade. Chile comes second salmon farming after Norway. This farming has significant contribution to the global economy. One of the leading companies in fish and salmon farming is Camanchaca. The company made sales of US $ 439 million (Camanchaca, 2014). The company relies in the increased demand for seafood in the industry. The high number is an opportunity for investment. The education sector has also been boosted in Chile. The improvement in the education sector began to be improved during the reign of Allendi’s. The then president dedicated resources to development of education and the printing of millions of books to boost the sector. Currently, the Fundacion Origen foundation has been at the front in ensuring the versatility of students coming from the learning institutions (Fundacion Origen, 2014). The non- profit foundation educates youths, children and adults in various sectors. The focus area of the foundation is sustainable education, peace leadership and organic agriculture. The move to ensure that everyone realizes there potential is a strategic management tool. The foundation aims at promoting business ventures to ensure that individuals are able to sustain themselves. The foundation intends to ensure that 100 percent of the people in Chile are employable (Fundacion Origen, 2014). This strategy can improve the economic development of Chile if properly executed. A socially and economically empowered society is important in realizing development. Solar is also another business that is important to the Chile. Northern Chile is important in the supply of Chile (Verano Capital, 2014). It is the best source of solar resource in the whole world. It produces higher amount of solar in terms of megawatts than Los Angeles, Sao Paulo in Brazil and New York City. The price of solar energy is high in Chile due to the high demand for the energy. The supply has of solar in Chile is still low hence the high prices. It, therefore, provides an opportunity for investment in the sector. Chile is an ideal investment destination due to its growing economy. The economy of Chile grows has been growing steadily at 6 percent. This growth creates numerous opportunities for investment. The healthy economic growth and the demand for solar energy should be an attraction for investment. The need for energy has continued to rise in Chile. The demand for energy has been increasing at the 6 percent. However, this is expected to be about 12 by the year 2022(Verano Capital, 2014). This is an attraction to long term investment. Long term investment in Chile stands at 5 percent. Chile, therefore, provides an appropriate business hub. The Chile needs inexpensive and clean energy. This is not provided by hydrocarbons which are expensive to consumers. The government policy and the law on energy is promotes investment in the solar energy. The producers of energy are required by law to generate 5 percent of their energy from renewable sources that are non-conventional. A part from the limited power supply and high demand, the revenue obtained from the industry is higher than in neighbouring countries. Verano Capital makes about 270 percent more than what other companies make in neighbouring countries. It is important to understand the culture of the people in Chile in order to succeed in business. Chilean population is not receptive to new products. There is, therefore, need to be persistent in order to be successful in Chile. Verano Capital made its first sale after one and a half years. This literature has helped me understand the nature of the Chilean people and the need to be patient when introducing a new product to the Chilean market. The Manana culture of the Chilean people is informative in understanding the need for patience and persistence when doing business in Chile (Verano Capital, 2014). The culture of the people of Chile requires that slow steps are taken. Rushed steps could frustrate a food business plan. The people take time to embrace an ideology. It is, therefore, important to understand the culture of a society before engaging in business. The culture lesson has made me realize that business is not only about supply and demand. Other factors such as culture have a role to play in the success of the business. However, certain challenges are associated with the industry. Concentrating in another business outside the niche is a distraction. It can affect the number the revenues raised by the industry. Rushing is discouraged when investing the sector. The challenge of limited grid capacity and the uncertain opportunities within the sector is a major challenge to investment in the solar sector. The potential for increased opportunities in the sector is not clear and it might be a trial and error for an investor. The national demand for solar in the country is low. Increase in the number of competitors in the field could, therefore, mean less revenue for investors in the sector. Production is also not consistent. It is, therefore, not easy to project production. The varying production increases uncertainty in investment. Subsidies are also lacking in the sector. There is need for subsidies within the sectors to ensure that the investors reap maximum benefits from the industry. The government of Chile started the start up Chile program to increase innovation and entrepreneurship in the country. The government through this program enables small companies with the potential to go global achieve those ambitions through the country. The country attracts foreign applicants in the start up program. The government has so far accepted bout 100,000 applicants from 75 countries. The program provides the country with the opportunity of attracting diverse innovators and entrepreneurs from different stages, n backgrounds. The diversity enables the country develop a competitive edge over other competitors in Latin America. Through the start- up Chile program, the government provides opportunities to beginning investors worldwide. The program is intended to attract hardworking entrepreneurs and ideals that can have global impacts. Chile has adopted this strategy to improve their global performance innovation. The government provides a capital of US $ 35,000 TO start up companies that have been selected. The companies selected also enjoy a one year work visa. This approach is different from that adopted by other states which opt to chase away investors. The strategic move by the government will ensure that it edges out its regional neighbours. The people who come are taken through the program are mentored so as to improve their innovation and entrepreneurship. The government provides the necessary support to the start up companies and offers their marketing networks. Foreign investors should, therefore, seize the opportunity to invest in Chile. The government’s agenda of attracting foreign talent is important in ensuring that the government realizes its mission of being a leader in innovation and entrepreneurship in Latin America. The diversity of the innovative community also offers versatility to the industry. The Chilean government has, therefore, offered opportunities for investors. The government offers quality of life to innovators and entrepreneurs to ensure that they concentrate on innovation. The aim of the government through this program is to provide a good environment for investment. The current state of Chile has been as a result of interplay of several factors. The political and economic choices made during the early years impacted on the country. Bibliography Loreto Navarrete. (2014). “Fifty Years of Chilean Politics or How to understand Chilean Society?” Sonami.(2014). “Mining Contribution to Chilean social and Economic Development” Foundacion Origen. (2014). “Diversity & inclusion: Basic wisdom” Verano Capital. (2014). An Expat’s Story of Starting and Growing Business Chile and its successes and challenges Camanchaca.(2014). “The Salmon Story” Read More