Massive bankruptcies implied the destruction of capital (a lot of which would have been productive under normal demand and “right” prices). Losses resulting from sharp import liberalization and large ex- change rate appreciation were very significant in the 1970s (see chap. 3). The situation improved in the 1980s partly as a result of better macroprices (the exchange and interest rates), but it was restricted by the recessive effects of the binding foreign currency scarcity during the debt crisis. In the 1960s excessive protection and administrative obstacles fos- tered inefficiencies, but greater real macroeconomic stability helped im- prove efficiency and keep more enterprises afloat. It concentrated effort on creating enterprises rather than on transferring existing assets and provided more predictable patterns of demand and more stable relative prices (which stimulated productive investment, given its irreversibility). Development was also more integrated, which offered more productive opportunities for broader sectors of society. This environment, despite numerous inefficiencies, explains the better performance of productivity in the 1960s vis-a-vis the 1950s and the near match with potential produc- tivity in the 1980s. With respect to effective productivity, considering good and bad years in each subperiod, table 1.3 shows that the high underutilization of productive capacity in 1974-89 involved a sharp deviation between effec- tive and potential productivity in the two corresponding subperiods. The years of great underutilization of capacity have been associated with delib- erate or involuntary recessive adjustments following expansions, with fiscal, monetary, or balance of payments disequilibria. Underutilization also intensified when stabilizing policies rested on only one or two stabili- zation policy instruments instead of using multiple anchors (Ffrench- Davis 2000, chap. 6). Major gaps occurred in 1954-56,1959,1973,1975- 79,1982-87, and most recently in 1999-2001. Once all idle capacity was being used in 1989, the productive frontier increased vigorously at annual rates of around 7 percent in response to an increase in the investment rate by 10 points of GDP between 1982-89 and 1990-2000 (see table 10.4). Prevailing domestic stability throughout almost the whole decade, which was achieved by means of prudent countercyclical policies like the selective regulation of foreign short-term or volatile capital, determined the framework for a virtuous cycle of a higher utilization rate of existing capital, thus generating higher investment, and generally a more efficient use of
28 Economic Reformsin Chile productive resources, reflected in significant productivity growth of labor and capital.20 Growth of productive capacity is not a given immutable figure but the result of public action and the behavior of social, political, and economic agents. All of this occurred in the half century analyzed, in a context conditioned by the external environment and the ideas then in fashion.