What Does the TFP Do to Fight Hunger? – Folha de S. Paulo, July 2, 1972

 

by Plinio Corrêa de Oliveira

 

From time to time, people ask me whether the TFP limits itself to fighting communism or also does something for the poor. I invariably reply that it does, and I provide information on this subject, which is contained in a leaflet distributed by our members and volunteers throughout the country. However, I am keen to add that fighting communism is not different from fighting poverty. On the contrary, it is a superlative way to wage that fight.

No one who reads this valuable letter, which I received from a lucid and courageous Chilean reader, Mr. Carlos del Campo, can doubt it. He writes:

“I have been living in Brazil for six months, a country dear to Chileans for the traditional friendship that unites our peoples. I was forced to leave my homeland because of the political situation there. As a Catholic, professor, and researcher at the School of Economics of the Catholic University of Santiago, I lacked the necessary guarantees to carry out my teaching and research without compromise. Like many of my colleagues, I was also forced to leave my country.

“I have been impressed by the interest with which the Brazilian people follow Chilean affairs. I hope to reciprocate this friendly attitude by offering you, Professor, some data from official sources and newspapers (including communist ones) in my country.

“The first aspect highlighted in some international publications is the increase in production (GNP) in 1971, the first year of Allende’s communist government.

“According to official data, this would have been 9%, a relatively high figure compared with the 4.5% average over the past decade.

“To the unprepared mind or to the average person not specialized in the subject, this fact would appear to reflect the success of the Allende government’s policy.

“First, it is necessary to consider two aspects of the problem: according to official data, one of the sectors that contributed most to this increase was construction, which grew by 12.5%. However, cement production remained virtually unchanged, raising questions about the accuracy of that figure. If the data were corrected in line with this observation, production in 1971 would have increased by only 6%.

“Secondly, it is necessary to analyze the cause of this growth to determine whether it is merely a short-term result and, consequently, whether negative results are expected in the future.

“Simply put, two factors contribute to a country’s production: labor and capital. An increase in the use of these factors, a change in their ‘quality,’ or both leads to higher output.

“In 1971, investment decreased by 8% according to official data and by 16% according to private research organizations. On the other hand, the incorporation of the active population into the economy remained constant compared with previous years. Finally, given the negative investment, it is reasonable to believe that there was no change in the ‘quality’ of the resources employed. This raises the question: why and how did production increase in 1971?

“This question can be answered from two points of view: a) shortly after Allende’s government took office, unemployment rose to 10 to 15% of the active population; b) at the same time, the economy’s idle capacity reached 60% due to the uncertainties at the end of Frei’s government and the beginning of Allende’s government. In turn, there was a large accumulation of raw material stocks.

“Now, through a monetary policy of massive money issuance and the imposition of production quotas, unemployment was reduced, idle capacity disappeared, and raw material stocks were depleted.

“As can be seen, the causes of product growth in 1971 were largely circumstantial and disappeared as a source of future growth.

“Adding to this and worsening the situation is the decline in international reserves, from $327 million in September 1970 to $57 million in December 1971.

“From these considerations, it can be inferred that the Allende government’s Marxist economic policy was disastrous for Chile, and that the shadow of misery began to fall over the country in the middle of last year.

“This is confirmed by analyzing the possibilities for increased production in the current year. Investment originates in savings. Here, we can distinguish between domestic savings, which consist of savings by individuals, businesses, and the public sector, and foreign savings, which consist of an increase in international reserves resulting from a favorable balance of payments. This, in turn, will depend on the trade balance, capital movements, and foreign debt.

“By analyzing savings, it is possible to assess the potential for investment growth and, thus, in Chile’s current circumstances, for production growth.

“In Chile, individual savings have traditionally been considered negligible. In the current situation, there is no reason to expect a change in this regard.

“As for corporate savings, a similar prognosis can be drawn. According to the balance sheets published by more than twenty of the country’s most important private companies, 50% of those that had earned a profit of 122 million escudos in 1970 reported a deficit of seven million escudos in 1971. The rest had seen their profits fall from 336 million to ten million escudos by July 1971.

“The fiscal sector had a current deficit (the difference between current revenues and expenditures) of two billion escudos.

“According to the National Budget for 1972, the fiscal sector shows a deficit of 9.5 billion escudos.

“State-owned and mixed companies formed by former state-owned companies, along with those recently expropriated and confiscated by the Chilean government, show a current deficit of 2.6 billion escudos in 1972, as part of a total deficit of 23.4 billion.

“That is, in 1972, the state has a total deficit of 33 billion, equivalent to 160% of the total amount of money in the economy in December 1971, or 20.2 billion escudos.

“From these observations, one can conclude that there are few possibilities for domestic savings in 1972, and that economic activity will have to be financed through the inorganic issuance of currency.

“The 1971 balance of payments was negative by an amount equivalent to US$368.3 million, and for the current year, according to the Institute of Economics of the Catholic University, it is expected to be negative by US$600 million.

“In other words, excluding the possibility of an increase in foreign debt, the chances of a positive reversal in Chile are nil. Therefore, no increase in domestic production is expected in 1972.

“With international reserves nearly exhausted, the ability to import goods is severely constrained. As a result, the supply of goods to the Chilean population is unlikely to increase and more likely to decrease.

“Given these considerations, it can be concluded that Chile’s problems with supply, unemployment, and inflation will necessarily worsen. On April 30 of this year, inflation had already reached 38.5%, which, together with supply and unemployment, paints a picture of the poverty and misery into which Chile has fallen.”

 The reader may wonder what the government’s policy is in response to this series of disasters that are largely of its own making.

Mr. Carlos del Campo also has essential information to share on this subject. I will pause now and publish his letter next Sunday.