The economy of Chile has shifted substantially over time from the heterogeneous economies of the diverse indigenous peoples to an early husbandry-oriented economy and finally to one of raw material export and a large service sector. Chile's recent economic history (since 1973) has been the focus of an extensive debate, as it pioneered neoliberal economic policies., p. 149
Chile emerged into independence as a rural economy on what was the periphery of the Spanish Empire. A period of relative free trade that began with independence in the 1810s brought a modernizing development of certain sectors of the Chilean economy. This was accompanied by formation of a local business class, a novelty in Chile. Chile experienced its first modern economic crisis with the Long depression in the 1870s.
Historically, the Chilean economy has relied on natural resources (nitrate, copper, coal, silver, and gold). The exploitation of lucrative nitrate deposits of the north conquered in the War of the Pacific (1879–1884) marked a whole epoch in the history of Chile and the economic legacy of nitrate has been widely debated. The onset of Chilean industrialization has often been dated to the end of the 19th century.
In the first half of the 20th century Chile suffered severe economic recessions including the Great Depression. This period saw the rapid urbanization of the country, and a state-led partial "industrialization" that began in 1939. Large-scale copper mining replaced nitrate extraction as the country's main source of wealth. Chilean agriculture remained one of the most undeveloped sectors of economy and was stagnant, despite land reforms in the 1960s and 1970s, from 1930 to 1980.
In the mid-1970s under the influence of the Chicago Boys, Pinochet's military dictatorship initiated profound changes oriented to a "neoliberal" economic model. The government implemented trade liberalization, as well as privatization of state-owned assets. The democratic governments that succeeded the dictatorship since 1990 have largely continued its economic policies, but increased social spending and reduced poverty. Chilean exports and GDP per capita rose steadily through the 1980s and 1990s until the Asian crisis of 1997 after which economic growth slowed somewhat. In the post-1973 period there has been a rise in outsourcing, self-employment, informal employment and an increase in women's share in the labor force.Salazar & Pinto 2002, pp. 184–187.
Pre-Hispanic economy In the Far North the Pre-Hispanic economy of indigenous groups were divided among those that practised agriculture and were sedentary and the Changos that lived as coastal hunter-gatherers. The sedentary groups raised llamas and practised irrigation techniques. Bone necklaces, gold and copper objects interpreted as luxury goods suggest according to Villalobos et al. certain level of social stratification among the sedentary groups.Villalobos et al. 1974, pp. 21–22.
At the time of the arrival of the first Spaniards to Chile the largest indigenous population concentration was in the area spanning from Itata River to Chiloé Archipelago.Otero 2006, p. 36. In this area indigenous groups practised glade agriculture among the forests.Otero 2006, pp. 21–22. The forests provided firewood, fibre and allowed the production of planks. Agriculture type varied; while some Mapuches and Huilliches practised a slash-and-burn type of agriculture some more labour-intensive agriculture is known to have been developed by Mapuches around Budi Lake (raised fields) and the Lumaco and Purén valleys (canalized fields).Dillehay, Tom D.; Pino Quivira, Mario; Bonzani, Renée; Silva, Claudia; Wallner, Johannes; Le Quesne, Carlos (2007) Cultivated wetlands and emerging complexity in south-central Chile and long distance effects of climate change. Antiquity 81 (2007): 949–960 Pre-Hispanic agriculture extended as far south as the Guaitecas Archipelago (44° S), were indigenous Chonos cultivated Chiloé potatoes. Tools are known to have been relatively simple. In addition the Mapuche and Huilliche economy was complemented with chilihueque raising.Villalobos et al. 1974, p. 50. The southern coast was particularly rich in molluscs, algaes, crustaceans and fish.
The fjords and channels of the Chilean Far South (excluding Chiloé Archipelago) were inhabited by nomadic canoe-using hunter-gatherers. These groups included the Chonos, the Alacaluf and the Yaghans.Villalobos et al. 1974, p. 57.
Colonial economy
Spanish conquest (1541–1600) The conquest of Chile was not carried out directly by the Spanish Crown but by Spaniards that formed enterprises for those purposes and gathered financial resources and soldiers for the enterprise by their own.Villalobos et al. 1974, p. 87. In 1541 an expedition (enterprise) led by Pedro de Valdivia founded Santiago initiating the conquest of Chile. The first years were harsh for the Spaniards mainly due to their poverty, indigenous rebellions and frequent conspirations.Villalobos et al. 1974, pp. 97–99. The second founding of La Serena in 1549 (initially founded in 1544 but destroyed by natives) was followed by the founding of numerous new cities in southern Chile halting only after Valdivia's death in 1553.
The Spanish colonization of the Americas was characterized by the establishments of cities in the middle of conquered territories. With the founding of each city a number of conquistadores became vecinos of that city being granted a solar and possibly also a chacra in the outskirts of the city, or a hacienda or estancia in more far away parts of the countryside. Apart from land natives were also distributed among Spaniards since they were considered vital for carrying out any economic activity.Villalobos et al. 1974, pp. 109–113.
Beyond subsistence the 16th century economy of Chile was oriented towards large-scale production. Spanish colonizers used large amounts of indigenous labour following the slave labour system used in the sugar cane plantations of the Mediterranean islands and Macaronesia. This system of labour successively killed the production base leading to the imposition of the encomienda system by the Spanish Crown in order to prevent excesses. In Chile Spanish settlers managed to continue to exploit indigenous labour under slave like conditions despite the implementation of the encomienda. Rich Spanish settlers had over time to face opposition to their mode of production by Jesuits, Spanish officials and indigenous Mapuches.Salazar 1985, pp. 23–25.
The initial Spanish settlers of Chiloé Archipelago (conquered in 1567) attempted to base their economy on gold extraction and a "hispanic-mediterranean" agricultural model. This activity ended in a general failure given the unsuitable conditions of the archipelago. Spaniards however reoriented their activities into logging Fitzroya.
Century of suet (1600–1687) The collapse of the Spanish cities in the south following the battle of Curalaba (1598) meant for the Spaniards the loss of both the main gold districts and the largest indigenous labour sources.Salazar & Pinto 2002, p. 15. After those dramatic years the colony of Chile became concentrated in the central valley which became increasingly populated, explored and economically exploited. Following a tendency common in the whole Spanish America haciendas were formed as the economy moved away from mining and into agriculture and husbandry. Compared to the 16th and 18th centuries Chilean mining activity in the 17th century was very limited.Villalobos et al. 1974, p. 168. Over the course of the 17th century the indigenous population of Chile declined, making the encomiendas less and less important.Villalobos et al. 1974, pp. 160–165. Chilean encomenderos who had encomiendas in Cuyo, across the Andes, introduced to Chile indigenous Huarpes who they hired to other Spanish without encomiendas.Villalobos et al. 1974, pp. 166–170.
In the 17th century economy of the Viceroyalty of Peru, Chile's husbandry and agriculture based economy had a peripheral role, contrasting to ore-rich districts like Potosí and the wealthy city of Lima. Husbandry products made up the bulk of Chilean exports to the rest of the viceroyalty. These products included suet, charqui and leather. This trade made Chilean historian Benjamín Vicuña Mackenna label the 17th century the century of suet (Spanish: Siglo del sebo). Villalobos, Sergio; Retamal Ávila, Julio and Serrano, Sol. 2000. Historia del pueblo Chileno. Vol 4. p. 154. Other products exported included dry fruits, mules, wines and minor amounts of copper. Trade with Peru was controlled by merchants from Lima that enjoyed protection by the Spanish authorities in Lima. In addition to the exports to coastal Peru Chile also exported products inland to Upper Peru through the port of Arica. Trade inside Chile was small since cities were tiny and self-sufficient.
Generally the extraction of wood had little importance in colonial Chile but Chiloé Archipelago and Valdivia were exceptions.Villalobos et al. 1974, p. 225. These two areas exported planks to Peru. With the destruction of Valdivia in 1599 Chiloé gained increased importance as the only locale that could supply the Viceroyalty of Peru with Fitzroya wood. In 1641 the first large shipment of Fitzroya wood left Chiloé.Torrejón, Fernando; Cisternas, Marco; Alvial, Ingrid and Torres, Laura. 2011. Consecuencias de la tala maderera colonial en los bosques de alece de Chiloé, sur de Chile (Siglos XVI–XIX)*. Magallania. Vol. 39(2):75–95.
Century of wheat (1687–1810)
In the 1650–1800 period the Chilean lower classes grew considerably in size.Salazar 1985, p. 49. To deal with the poor and landless population a policy of founding citiesThese cities were often in fact more of villages or towns due to their size. and granting lands in their surroundings was implemented. From 1730 to 1820 a large number of farmers settled in the outskirts of old cities or formed new cities.Salazar 1985, p. 58. Settling as a farmer in the outskirts of old cities (La Serena, Valparaíso, Santiago and Concepción) was overall more popular than joining a new city since it secured a larger consumer market for agricultural products.Salazar 1985, p. 52. Chilean haciendas (latifundia) engaged little in the supply of Chilean cities but focused on international exports for revenues.Salazar 1985, p. 88.
Chile begun exporting cereals to Peru in 1687 when Peru was struck by both an earthquake and a stem rust epidemic.Villalobos et al. 1974, pp. 155–160. Chilean soil and climatic conditions were better for cereal production than those of Peru and Chilean wheat was cheaper and of better quality than Peruvian wheat.Collier, Simon and Sater William F. 2004. A History of Chile: 1808–2002 Cambridge University Press. p. 10. According to historians Villalobos et al. the 1687 events were only the detonant factor for exports to start. The Chilean Central Valley, La Serena and Concepción were the districts that came to be involved in cereal export to Peru. It should be pointed out that compared with the 19th century the area cultivated with wheat was very small and production modest.
Initially Chilean latifundia could not meet the wheat demand due to a labour shortage, so had to incorporate temporal workers in addition to the permanent staff. Another response by the latifundia to labour shortages was to act as merchants buying wheat produced by independent farmers or from farmers that hired land. In the period 1700 to 1850 this second option was overall more lucrative.Salazar 1985, pp. 40–41