Searching for Global Economies That Foster Private Company Prosperity: An Exploration of Chile

In the Economics courses I teach each semester, before we dive into the mechanics of supply and demand and after we establish what the science of economics is, we discuss the various types of economic systems around the world. We spend at least a couple of classes discussing the economies of the world on a spectrum between those that are command and those that are market economies.

One source we use to feed our discussions is the Index of Economic Freedom, which ranks the economies of the world. #economicfreedom About five years ago many of my students assumed that the United States was at or near the very top of the list. They were wrong (as I had also been before diving deeper into the facts). The United States left the index's highest “Free” category in 2010 and has been in the lower “Mostly Free” category ever since.  (Interestingly, as an anecdote of how public perception has changed, today most of my students come to class expecting that the United States is not at the top of the economic freedom list, even before seeing the rankings.) Today you can find countries in parts of the world that have been notorious for their lack of economic freedom ranked higher than the United States. Come on U.S.! You can find a country in each of Africa, Eastern Europe, and South America which have more economic freedom than the United States.

During several semesters of discussing this list with my students, it was the one country in South America that caught my eye. Currently ranked 7th in the world in terms of economic freedom (the United States is ranked 12th, much of Chile's economic progress #chile has occurred in the last 20-30 years. While its growth in prosperity wasn't at the media-getting pace of the Asian Tigers during a similar time frame, this 17-million person country has certainly taken a saliently different course than its Latin American neighbors.  It is currently the only Latin American member of OECD (although discussions are currently being held with Colombia and Cost Rica) and has slashed its poverty rates.

Over the last few years I became increasingly curious to learn more, and I just a few days ago returned from an almost three-week long trip to Chile with my family to have a look around.

In this post I present a few of the publicly available data sets that led me to want to have a first-hand look around. I'm not making any statements about the political system or investment climate in Chile, although I'd love to hear your thoughts.  This is admittedly not a scientific discussion and doesn't contain any original research or data.  I'm simply describing some of the factors that made me, someone who advises and invests in lower-middle market private companies want to buy an airplane ticket and learn more.  In future posts I will present a few stories of our personal experiences in this country of amazing natural beauty, warm and welcoming people, and a unique economic prosperity that has eluded much of the rest of Latin America. While the country isn't Disney Land and still has many issues to grapple with, many key indicators look promising.

Here is what I observed during several semesters of discussions with my students:  GDP per Capita: While Chile's GDP per Capita is still lower than many of those in the developed world ($15,700 USD as compared to, say Portugal at $21,700 USD in 2013), the country seems to have taken a trajectory recently on which it is emerging from its peers.  (The chart below shows GDP per capita, PPP in current international $ and thus reflects different value than USD.)

Figure 1 - GDP per capita, PPP (current international $) - you may need to select "Show all content" in your browser to view the charts as many of them link to Google's Public Data source.

Poverty Perhaps most impressive is Chile's large drop in poverty in only a few decades. The figure below shows that while most of the region has reduced its poverty levels (defined below by those living on less than $2 a day), Chile leads its peer group.