Download economic report series #159

ECONOMIC REPORT SERIES #159
What Do Our Children Learn about Economics in High
School?
October 2005
By María de la Luz Domper
María de la Luz Domper holds an undergraduate degree in management (Ingeniería comercial) and a
Master’s degree in Applied Economics from the Pontifical Catholic University of Chile. She is a researcher
for the Economics Program of Libertad y Desarrollo.
The author wishes to thank Fernando Luco Echevarría for his contributions to the development of this
paper.
What Do Our Children Learn about Economics in High School?
EXECUTIVE SUMMARY
In 2004, Libertad y Desarrollo released
its first report on the teaching of
Economics in high schools. That report
sought to analyze how Economics was
being taught in high schools as well as
the criteria used to teach it.
Among other conclusions, the report
found that approximately 88% of firstyear high school students (9th graders)
take Economics and Civics classes
taught with the textbook supplied free of
charge from the Ministry of Education to
all public and state-subsidized private
high schools. The book used in 2004
was published in 2003 by Editorial ZigZag publishers.
The report concluded that both the ZigZag text and a second book, published
by Arrayán Editores, were economically
and politically biased towards proregulation, pro-interventionist policies.
The books’ orientation --which ignored
the overwhelming consensus among
economists that market-based systems
are
the
optimum--was
therefore
somewhat outdated.
The current study analyzes the 2005
edition of the Zig-Zag textbook to see
how economic issues are addressed
and ascertain whether the changes
made to the 2003 edition have resulted
in a more suitably objective text.
The results of the second study show
that important progress has been made
in economics education as compared to
the earlier version in that many biased
views have been removed. However,
favoritism persists on certain issues,
such
as
the
environment
and
sustainable development. The new text
also offers incomplete information that
could lead students to draw inaccurate
conclusions on certain topics (on the
reasons for the country’s unequal
income distribution, for example).
Although progress has been made in
the way the economic models are
presented, particularly in that the
absolutely pessimistic—and almost
egotistical—view of the capitalist system
and consumption has been abandoned,
the biases of the earlier version remain,
albeit less intensely. It is noteworthy that
the analyses of different economic
systems are not based on the three
basic questions of economics: what to
produce, how to produce, and for whom
to produce.
The explanation of the role the State
should play the area of subsidies is also
unclear. The book notes that the State
should
be
active
in
defense,
transportation, education, cars, water
and energy. All but defense are
incorrect.
Lastly, the text ignores many concepts
and issues, such as externalities,
competitive advantages and public
goods, among others.
I. INTRODUCTION
In 2004, Libertad y Desarrollo presented an initial report on the teaching of Economics
in high schools. The report sought to analyze how Economics was being taught in high
schools and the criteria used to teach it.
Among other conclusions, the report highlighted the fact that approximately 88% of firstyear high school students (9th graders) take Economics and Civics classes taught with
the textbook the Ministry of Education supplies free of charge to all public and statesubsidized private high schools. The book used in 2004 was published in 2003 by
Editorial Zig-Zag publishers (see Figure 1).
Alarmingly, both that text and the textbook published by Arrayán Editores contained a
bias toward pro-regulation economic policies.
This study seeks to analyze the new 2005 edition of the Zig-Zag textbook to see how
economic issues are examined and determine whether the changes made to the 2003
version resulted in a more suitably objective text.
Figure 1: First-year high school student enrollment, by type of school, 2003
Type of School
Public
State-subsidized private
Private
Foundations
TOTAL
Enrollment
140,152
116,303
21,971
15,791
294,217
% of total
48%
40%
7%
5%
100%
Source: Ministry of Education statistics, 2003
II. FUNDAMENTAL OBJECTIVES AND MINIMUM CONTENT REQUIREMENTS FOR
FIRST-YEAR HIGH SCHOOL STUDENTS
The curricular reforms in Civics in Chile from 1997 to 2003 led to content changes and
an accent on instruction in democracy. Previously, Civics was taught as a stand-alone
course during the fourth year (12th grade). Prior to the reforms, Political Economics
classes were taught during the third year (11th grade). After these curricular changes,
these two classes were moved to different years and were redesigned to meet new
objectives. Elementary school students now study Economics and Civics within Reading
Comprehension and high school students study Economics and Civics during their
freshman year as part of the History and Social Sciences curriculum.
2.1 FUNDAMENTAL OBJECTIVES
The Ministry of Education sets objectives for the first year of high school studies,
including:
1. Recognizing typical geographic, economic, social and cultural features of the
region, identifying connections among them and exploring their history.
2. Valuing environmental conservation and relating it to human life.
3. Linking the realities of a student’s region to the realities of the country and
analyzing the student’s region within the context of the country, while identifying
features that make the region and the student part of a national community.
4. Learning about regional and national political institutions, the rights and duties of
all citizens as laid out in the Constitution and certain basic principles of Political
Science.
5. Valuing a pluralistic and democratic political scenario, committed to the exercise
of the rights and duties, and seeking the common good in a collaborative fashion.
6. Learning about and analyzing the distinctive features of Chile’s economy and
understanding certain basic principles of Economics.
7. Seeking, organizing and communicating information about the student’s region
and the entire country, in oral, written and graphic fashion, while respecting
rigorous specifications in citing sources and in analyses.
8. Recognizing diverse points of view related to social problems, while respecting
the right to hold and debate different points of view.
9. Understanding oneself as part of a local, regional and national community, with
common institutions and territories as well as shared problems and
responsibilities.
Although students receive a basic outline of Economics and Civics during their first year
of high school, most objectives --and most of the curricula laid out below--focus on
ensuring that students understand and learn about the geography of their country. In
practice, this means that they learn Civics and Economics during the final semester of
study and only after their teachers have covered the geography-related curricula.
2.2 CURRICULUM
The minimum curriculum laid out for the first year of high school education focuses on
the following:
-Natural Surroundings and Regional Community
-Regional and National Territory
-Political Organization
-Economic Organization
This translates into the following syllabus:
1st year program:
Unit 1: Natural Surroundings and Regional Community
a) Natural Characteristics of the Region
b) Demographic Characteristics of the Region
c) Regional Community
Unit 2: Regional and National Territory
a) Urban/Rural Systems
b) Regional Territory
c) Chile’s National Territory and Economic Geography
Unit 3: Political Organization
a) The Rights of Persons and the Constitution of the Republic of Chile
b) Political Participation
c) Organization of the State and the Branches of the Government
d) Civic Action Projects
Unit 4: Economic Organization
a) Economic Systems in Action: Concepts and Problems
b) Economic Coordination
c) Labor and Labor Legislation in Chile
d) Features and Problems in the National Economy
III. THE TEACHING OF ECONOMICS
As noted above, the Ministry of Education distributes the textbook published by Zig-Zag
free of charge to 88% of all enrolled first-year high school students. This text allows
them to study Economics, Civics and Chilean Geography.
The objective of this section is to review the criteria used to teach Economics,
specifically in the new 2005 version of the textbook (Historia y Ciencias Sociales,
Primero Medio [History and Social Science, 9th Grade]. Authors: Dina Cembrano, Luz
Eliana Cisternas, José Manuel Morales. Published by Zig-Zag Empresa Editora S.A.
Third Edition, January 2005) in comparison to the previous, 2003 version (Historia y
Ciencias Sociales, Primero Medio [History and Social Science, 9th Grade]. Authors:
Dina Cembrano, Luz Eliana Cisternas, José Manuel Morales. Published by Zig-Zag
Empresa Editora S.A. First Edition, September 2003).
3.1 THE ECONOMIC PROBLEM
There are no differences between the two texts in terms of the definition of Economics
and the economic problem. Definitions from texts by such well-known authors as
Wonnacott and Wonnacot (Economics. Authors: Wonnacott, Paul, and Wannacott,
Ronald. McGraw Hill, 1993), Begg, Fischer and Dornbusch (Economics. Authors: Begg,
David; Fischer, Stanley; Dornbusch, Rudiger. McGraw Hill, 2002) are all cited. The ZigZag text states that “Economics is the study of questions generated over the conflict
between the relative scarcity of resources on our planet and the satisfaction of multiple
needs and/or desires of human beings” (253), and the economic problem, “therefore,
focuses on our need as a society and as individuals to choose between options allowed
by our scarce resources and our desires for virtually unlimited goods and services”
(254).
Tellingly, the importance of efficiency given the scarcity of resources is mentioned, but
not expounded upon. Concretely the text says that “economizing means reaching a
specific benefit at the lowest cost, in terms of the resources used” (254). Perhaps an
explicit emphasis on the role of efficiency would be useful.
A change has been made in the definition of need. Need is defined as “the experience
of a lack and/or desire that can be indispensable for the conservation of life or for a
better quality of life” (254). Mention of lack or desire “of goods and services” (254) is
omitted. In the older version, need was defined as “the experience of a lack of goods
and services indispensable for the conservation of life or for a better quality of life”
(2003: 254). In fact, the economic problem refers to how the lack of goods and services
can be remedied. It does not, however, incorporate psychological, spiritual or other
human needs addressed by other sciences.
The section entitled “The Satisfaction of Needs, Work and Social Organization” (255)
refers in passing to comparative advantages when it states that “seeking the goal of
satisfying one’s needs in the best way possible, human beings organized themselves
collectively into societies, since they discovered that together they could solve the
economic problem better and more efficiently.”
“Thus, different ways of addressing the challenges emerged, based on the geographic
situation of each society. Little by little, early societies began to organize and divide up
their economic activities according to the aptitudes and abilities of each their members”
(255). However, no explicit reference is made to these abilities, nor are they defined.
Moreover, these comparative advantages are not clearly designated as such. It would
be helpful to introduce such an important definition, since it is key to an understanding
of domestic and international trade, particularly because the book later introduces the
somewhat related concept of cost of opportunity cost.
Subsequently, the text classifies goods and services as economic and free, based on
their features; as consumer or capital goods and services, based on their nature; and as
final or intermediate, based on their function.
Although this classification is correct, the introduction of an additional distinction would
be helpful to permit a better understanding and identification of private goods as
opposed to public goods. Such a distinction refers to the features of rival goods and
excludible goods.
Public goods, by definition, are uncontested, while private goods are contested. The
lack of competitiveness means that when an individual consumes a public good, the
available quantity of that good for the consumption of others does not diminish.
The lack of exclusivity is also unique to public goods in that people who finance a public
good lack a means of preventing others from benefiting from the consumption of that
good. In other words, public goods do not exclusively benefit those who finance them.
An example of this is the presence of police to stand guard over an entire
neighborhood. All residents of the neighborhood will benefit from this police presence,
whether they have helped pay for it or not. Another example is the existence of a
lighthouse to allow ships to find their way, despite the fact that the ship has contributed
neither to the lighthouse’s financing nor its maintenance.
The book could also benefit from a clarification of its mention of air as a public good,
given the existing demand for clean air. Whether clean air is a public good or not is up
for discussion. The respiratory illnesses that occur in the wintertime are evidence in and
of themselves of the fact that access to clean air is not free, for various reasons.
The only difference between the 2003 and 2005 texts in the area of factors of
production is a reference to human capital in the new edition, with an accent on
prioritizing education and experience in the formation and evolution of this type of
capital.
At this point, the text introduces one of the transversal objectives of Chilean education:
sustainable development. It includes the following quote: we ought to “protect the
earth’s biological and natural systems from frequently indiscriminate exploitation by
human beings” (260). It also quotes an Argentinean text: “the manifestation and fragility
of the environment is one of the major concerns of our time. Along with the progressive
destruction of tropical rain forests in South America, Africa and Southeast Asia, the
ozone layer that protects us from various types of radiation is constantly depleting. The
carbon monoxide produced by automobiles is a very poisonous gas and a possible
carcinogen” (Contemporaneidad, Argentina y el mundo: El camino al siglo XXI [Current
Affairs, Argentina and the World. A Road to the 21st Century], by Juan Antonio Bustinza
and Alicia Grieco. Editora A-Z, Buenos Aires, 1998).
Despite the fact that the citation of this Argentine text is shorter in the new edition than
the previous one, the relationship between Economics and the environment is
presented as conflictive: “if the former causes damage to the latter and if said damage
comes without any cost to the producer” (260). Finally, the text states that “Economics
can encourage environmental protection by studying measures that not only protect the
environment, but also improve it. To be truly efficient, pollution should be reduced as
cheaply as possible and economists have much to say and contribute regarding this
issue” (260). This is correct, but a low-cost reduction in pollution should not be confused
with a total reduction in pollution. A total reduction in pollution can be inefficient. The
text ought to clarify that pollution should be reduced as long as the marginal cost of the
reduction is equal to the marginal benefit of pollution, namely the polluting economic
activity.
The proposed activity has not changed from the previous text. Students are invited to
read texts about the conservation of native forests written by Humberto Maturana, a
professor of science at the University of Chile, and by Bertram Husch. Although the two
points of view on the issue are presented, bias persists.
Maturana’s text states that “the issue of native forests is an ethical problem; it is a
matter of human responsibility, and therefore, it is a spiritual issue. The issue has to do
with the world in which we would like to live and the one we want for our children and it
is a matter of our own ethics.” (261)
Furthermore, the text cites a column written in July 1994 in the El Mercurio newspaper
by Bertram Husch of the Chilean Board of Forestry Engineers, where Husch writes that
“we ought to manage the ecosystem of the forest to minimize negative impacts and
maintain the integrity, character and ecological benefits of the forest, while at the same
time satisfying the socioeconomic needs of society for the products and services of the
forest. […] If we treat our forests according to these principles, we can achieve the
objectives of all Chileans: a rational and sustainable use of the forests, as well as the
maintenance of environmental and ecological values.” (262)
Professor Maturana asserts that since the issue of native forests is an ethical one, “it is
not scientific, economic or political.” Therefore, there should be “a moratorium on the
deforestation of native trees until the country gains more unequivocal knowledge about
how to use, replace, expand and conserve native forests.” (261)
The problem is that his proposal is not viable in practice, because the time will never
come when Chile “unequivocally” meets all of those conditions. For all the parties
involved, this “unequivocal” knowledge will never, ever be attained. Meanwhile, if we
perceive the problem as an ethical one, the discussion becomes more subjective and
reaching consensus becomes more difficult.
The rational management of natural resources needs to be highlighted more.
3.2 ECONOMIC AGENTS
The text makes reference to economic agents: families, businesses, the State and the
external sector and focuses on the circular flow of the economy. This is the same focus
as the previous version of the text. Definitions of the economic sectors also remain
unchanged as compared to the previous edition.
The text mentions how businesses have adapted to changes over the course of the
globalization process and maintains a distinction between the “Fordist” model and the
“Post-Fordist” model. Specifically, the text states that starting in 1973, during the oil
crisis, businesses created different crisis-management strategies. “Instead of
maintaining large factories employing thousands of workers, in the Fordist tradition (the
classic model of assembly-line based, mass production that dominated the previous
era, introduced by the Ford Motor Company), many businesses in richer countries
moved to poorer countries like Brazil, Taiwan or Singapore, in which State regulation
was less pervasive and taxes were lower.”
“Meanwhile, technological innovation based on the information revolution transformed
business management. While the Fordist revolution was based on the replacement of
physical human labor with machine-based manufacturing, this revolution meant, in
many ways, a substitution of the mental activity of daily life.” (267)
This is the first time that any classification of Fordism and Post-Fordism is made in the
literature. The distinction is taken from a book (En las sociedades y los espacios
geográficos [In Societies and Geographic Spaces], by D. Durean, C. Baxendale, G.
Buzai, L. Pierre, Editorial Troquel, Madrid, 1997). In our opinion, this classification
merits closer analysis. For example, it states that the Fordist model is characterized by
a rigid business organization, with hierarchical relationships among personnel. PostFordist business organization, in contrast, has a more flexible structure, with faster
communication among workers thanks to the Internet, fax machines, and telephones; it
is more impersonal, however” (this comes from last year’s paper; the section has not
changed).
As for the family, the new edition of the text eliminates the section entitled “Families and
Consumption, Today’s Reality in Chile,” along with a table produced by the Santiago
Chamber of Commerce that showed the number of consumer credit cards and their
average debt. This section has been replaced by another one entitled “Consumption: Its
Role in the Economy” (271), which is fairly objective in its acknowledgement of
consumption as not necessarily bad (as the previous edition had done), but rather as a
way of “offering a satisfactory response to problems created by the existence
of…needs.” Here, the text appears more pluralistic and objective.
There is also a section entitled “Responsible Consumption: The Relationship between
Consumption and Consumerism,” which attempts to show the need for consumers to
remain informed and trained to recognize quality in the products that they acquire and to
demand the quality promised them. Consumption is acknowledged as a fundamental
element of economic flow “in terms of its generation of demand and, therefore, as
fundamental in the activation of businesses and, consequentially, employment” (270).
The difference between consumption and consumerism is made explicit, which
constitute an important progress over the previous version; readers are invited to be
responsible consumers.
As for SERNAC, the Chilean National Consumers Service, and the rights of consumers,
the new text shows no modifications with respect to the previous edition. We maintain
our criticism, therefore, that the book does not address potential problems with solutions
derived from more transparent markets, but rather by advising consumers to exercise
their rights via administrative authorities such as SERNAC.
3.3 ECONOMIC MODELS
As for economic models, the text presents three models: a free market-based economic
system; a centrally planned, or collectivist, economy; and a mixed economic system.
The recent edition of the text includes a new form of presenting the models; the
previous edition presented a capitalist, or market economy system (now presented as a
free market-based economic system) and a mixed or Keynesian economic system (now
presented solely as a mixed system). This is a positive change, given that the previous
edition tended to confuse the titles and content of the mixed economic system with
Keynesian thought. In the new edition, the difference is now clear in terms of the titles,
but not content.
The text establishes that the free market-based economic system “is grounded in the
principle of the private ownership of the means of production” (279), adding that “a
second guideline can be added to the first: economic freedom, free competition and
freedom of labor” (279).
A quote from a book by Silvia Vásquez Fernández (El mundo, América Latina y
Argentina: Desde fines del siglo XIX hasta el presente [The World, Latin America, and
Argentina: The 19th Century to the Present], Editorial Kapeluz, Buenos Aires, 1998) has
been eliminated from the newest edition of the book, but the content of that text persists
even though it is less explicit. The citation about the psychological vision of the system
has been deleted, however. Lastly, the text states that “one of the fundamental features
is the search for profit. It operates based on the mechanism of prices, which is where
the name free market economics comes from: producers bring their products to market,
where consumers express their wishes. A certain price results from this encounter of
supply and demand, and this price plays an essential economic function: through its
variations, it guides production” (279).
The description of the centrally-planned, or collectivist, economy remains intact. From a
psychological perspective, according to the text, the centrally-planned, or collectivist
economy has “an essential difference: the driving force of economic activity is not the
search for individual profit, but rather the stimulus for a service offered to the
community. As in a closed economy, production is oriented towards the needs of the
collective and not a smaller group. Public officials set needs, and the means to satisfy
them, in an authoritarian way, and establish plans to regulate economic activity over a
certain period” (279, a quote from Silvia Vásquez Fernández, El mundo, América Latina
y Argentina: Desde fines del siglo XIX hasta el presente [The World, Latin America, and
Argentina: The 19th Century to the Present], Editorial Kapeluz, Buenos Aires, 1998).
From a psychological perspective, the text continues to present a more selfish model—
the free market—as opposed to a centrally planned economy that serves the
community. In our view, the text thus lacks a critical analysis of the centrally planned
economic model, which historically has not been very successful. This model does not
encourage or respect freedom or individual initiative, but rather tends to eclipse these
factors with power and centrally planned decisions. In the long term, this creates
baseless, impoverished societies that only benefit those who exercise power.
In the case of the mixed economic system, some modifications have been made since
the previous edition, such as the explicit statement that the State and the private sector
interact to solve economic problems. The assertion is made, however, that the State
controls an important portion of income via taxes, transfers and the provision of certain
services. Despite these modifications, Keynesian thought is presented once again as a
substitute for a mixed economic system. Nothing is said about other mixed systems,
such as neo-liberalism or market-based social economics. The State’s role in offering
subsidies also goes unmentioned.
The biography of Karl Marx has been eliminated from this section, replaced by an inset
titled “Entrepreneurial Spirit and Social and Economic Development,” which talks about
the features of entrepreneurs and their importance for society. This is a positive change
and should be emphasized in the text even further, given the importance of the
entrepreneurial spirit in free market economics and mixed economic systems.
Finally, there is no mention whatsoever of the three basic questions of economics: what
to produce, how to produce and for whom to produce. These questions form the basis
for the fundamental differences among different economic systems.
3.4 THE ROLE OF THE STATE
Just as in the previous edition, the text states that there are different opinions regarding
the role of the State in the economy and refers to neo-liberalism for the first time: “Neoliberalism calls for a reduced role for the State and a large one for private enterprise; the
social issues derived from adjustments to the economy need to be solved mainly within
the market, in the free interplay of supply and demand.” On the other hand, the text
points out that Keynesian thought “promotes private enterprise and free competition, but
assigns the State a leading role in the determination of national economic policies,
based on the principle of subsidiarity.”
The principle of subsidiarity is unique to social market economics and neo-liberalism,
which the text does not clarify, either in its current or previous editions.
The new edition maintains that the function of the State is to “establish price controls in
certain industries” (283). We insist that the State should not establish price controls and
should instead regulate certain prices on services offered under the conditions of
natural monopolies.
On the other hand, the text once again points out that the State’s function is to provide
public goods and services (defense, transportation, education) and produce goods for
consumption or production (automobiles, water, energy). It should also pay for pensions
and other social security measures and promote investment in impoverished areas, etc
(283).
We maintain the same commentaries as before on this point: apply the principle of
subsidiarity of the State. Give the private sector the opportunity to offer those public
goods and services it is better poised to provide, such as education, and circumscribe
the action of the State to areas where it has comparative advantages, such as defense.
As for consumer goods, the text can be expected to confuse students, since goods such
as automobiles, water and energy have been provided by the private sector—not the
public sector—with great success.
3.5 THE EXTERNAL SECTOR
The new text does not provide a better, more complete, analysis of this issue. In fact,
this matter is addressed rather superficially; for example, the text does not explain what
the comparative advantages of different countries are, and instead suggests an activity.
The level of difficulty of the activities included in this section is disproportionate to the
information offered. For example, one activity on analyzing and interpreting graphs and
statistical charts requires students to observe a chart of exports and imports in different
Latin American countries and answer questions such as why they think Mexico’s
exports have risen and which international agreement explains the situation in Mexico.
The information needed to answer these questions is not provided.
3.6 GLOBALIZATION
The new text maintains the definitions of globalization contained in the previous edition,
such as “the tendency of markets and businesses to expand, reaching a global
dimension that surpasses national borders” (from the Royal Spanish Language
Academy dictionary) and “the increasing economic interdependence of all the countries
of the world, caused by increases in the amount and variety of cross-border
transactions of goods and services, and international capital flows, with a simultaneous
accelerated and generalized spread of technology” (from the International Monetary
Fund).
An observation made by President Ricardo Lagos is cited as well: “economic
globalization today is undoubtedly an irrevocable reality, and the countries of our region
have no choice but to find a way to efficiently and competitively insert themselves into
the globalized economy” (293).
He continues, saying that “this new reality must be accepted in an integral manner:
embracing globalization in the case of free markets but not in the cases of culture and
justice is unfair. Proposing a partial or segmented globalization is unrealistic.” This
quote appears in the book Globalización XXI: América Latina y los desafíos del nuevo
milenio (Globalization in the 21st Century: Latin America and the Challenges of the New
Millennium, Heraldo Muñoz, Ed. Editorial Aguilar, Santiago, 2000).
Despite the fairly objective definitions, the activities for students are the same as in the
previous edition of the text, and are rather difficult to carry out, based on the tools
provided. For example, students are asked to demonstrate examples of the following
statement: “Globalization is a phenomenon that goes beyond economics, affecting our
culture in various arenas.”
In the previous edition of the text there was a section following this called “The
Consequences of Globalization” which cited both the book Economía (Economics) by
Cristián Larroulet and Francisco Mochón and a study by Jacques Chonchol. Students
were then asked to write a comparison of the two texts, establishing similarities and
differences. This section has since been modified and although the citation of the book
by Larroulet and Mochón remains, along with a quote from the World Bank, the citation
of Chonchol was replaced by a citation of a text by Alejandro Foxley, the Finance
Minister for former president Patricio Aylwin. The new quote favors globalization,
showing a fairly optimistic view of the phenomenon. It states that “we need to learn to
legislate for the future. We need to reconcile our need for a society of opportunities, in
order to be more just, pluralistic and competitive, but also more secure” (296).
The section about the problems of globalization in the previous edition—including a
discussion of consumption and the gap between the rich and the poor—was removed
from the new one.
3.7 GLOBAL INCOME DISTRIBUTION
The definitions of gross domestic product and per capita income contained in the
previous edition remain unchanged in the new version. Gross domestic product,
according to the text, “represents the total earnings in a country, from the different
factors that intervene in production: wages and social security for workers, business
profits, amortization of capital, etc.” (304). Per capita income is defined as “the amount
obtained by dividing the gross domestic product by the number of inhabitants of that
country” (304).
Data from the previous edition indicating that the gap between the incomes of rich
countries and poor countries has grown remains in the newer edition: “it is a fact that if
we compare the global income in the 19th century with that of the 21st, the amount has
risen. In 1877, 30% of the world’s population lived in countries with low incomes, and
this number has decreased. […] However, the divide between low-income countries and
wealthy countries in quality of life and well-being continues to widen” (304).
3.8 LATIN AMERICA’S RESPONSE TO NEO-LIBERALISM AND ECONOMIC
GLOBALIZATION
This section has been modified quite a bit as compared to the previous edition of the
text. First, the title has changed to “Economic Advances and Challenges in Latin
America Today.” Second, all references to the military governments in power during the
period under analysis have been eliminated and the text instead recounts facts without
analysis, which constitutes progress over the previous edition.
However, there is one paragraph that attracts attention: different events from the period
are described, such as “policies to privatize public services, the reduction of the State’s
contribution to education and health care and laws regarding labor and monetary
flexibility.” The text continues, adding that “however, Latin America is a young continent,
due to its history and the average age of its inhabitants…” It is rather curious that the
paragraph immediately following a section describing certain facts would begin with a
“however,” as if the fact that Latin America is young could somehow compensate for the
previous text. There is an implicit bias against what the text describes.
Comparing this edition with the previous one, we noticed that there was another
paragraph in the former between the two paragraphs just described, affirming that the
events described led to high unemployment, the concentration of wealth, increased
inequality and social exclusion. The “however” that follows thus made sense to the
reader in the previous edition, but not in the new one. This shows carelessness in the
revision of the text, in addition to an implicit value judgment in an area about which no
consensus has been reached (310).
3.9 CHILE AND ITS CURRENT ECONOMIC CHALLENGES
This section was reformulated. It now consists of a reprint of articles by Patricio Aylwin
and Cristián Larroulet. The suggested activity for students to complete is a comparison
of the conclusions of the two articles, “finding common ground in the two articles about
the great challenges our country faces in furthering economic development.”
3.10 INCOME DISTRIBUTION
In the new edition of the text, this section does not reflect the context of the prior version
that noted that Chile had experienced setbacks rather than progress in terms of income
distribution.
The new text focuses on defining the sources of information about income distribution
most often used, as well as the most important variables in the determination of national
income distribution. It talks about the same variables in the new edition as it did in the
previous one, namely:
-The level of income correlates positively with the number of years of schooling.
-The increased participation of women in the workforce correlates positively with
decreases in poverty and more equitable income distribution.
-Unemployment increases inequality.
-More social spending is directly proportionate to greater well-being among the
poorest sectors.
When referring to this fourth variable, the text states that “at the beginning of the 1970s,
Chile was among the most socially developed countries in Latin America. Its level of
education, public health system and massive school nutrition program were among the
most advanced in the region.”
This quote is a distortion of reality. The high level of poverty in Chile at that time, as well
as the widespread lack of focus of social programs—both of which greatly improved
with the social policies implemented in Chile starting in the 1980s—are well-known.
In fact, during the military government in the mid-1970s, the first Map of Extreme
Poverty was drawn up in Chile, based on the 1970 census, in order to determine the
situation of extreme poverty in the country. This map showed that 21% of the population
(about 1.9 million people) lived in conditions of extreme misery in 1970. The map also
showed several other problems: 43% of children living in extreme poverty did not go to
school, despite large funding increases for education; 15.5% of people living in extreme
poverty suffered from malnutrition; people living in extreme poverty had gone to school
for an average of 4.5 years; and 12% of those living in extreme poverty were illiterate.
As for basic services, only 34% of people living in extreme poverty in rural areas had
access to potable water, and in urban areas, that number was 31%.
Another general indicator of the level of poverty is the infant mortality rate per 1000 live
births. In 1970, Chile had one of the highest infant mortality rates in Latin America: close
to 80 infants per 1000.
Meanwhile, social programs in effect at the beginning of the 1970s were unfocused, and
did not reach the poorest sectors of the population. For example, the highest-earning
sectors of the population received more than 40% of fiscal spending in 1968. This
percentage had been halved by 1986, at which time close to 47% of fiscal spending on
housing was targeted on the poorest 30% of the population. Spending on housing and
education was also untargeted. In 1968, the poorest 30% of the population received
less than 30% of social spending on education, while the wealthier part of the
population received almost 45%. This situation had also been reversed by 1986, thanks
to measures implemented to better target social spending.
Social policies implemented in Chile during the 1980s include mother-child primary
care, supplementary food programs, medical care for non-school-aged children, care
and training programs for at-risk juveniles, housing, drinking water and sewer
construction programs, and programs to regularize deeds. Special employment
programs were implemented in times of economic crisis, as well as subsidies for
pensioners and families. In terms of housing, interest rate subsidies were ended, the
construction of public housing was privatized and a system of directly subsidizing
housing by rewarding those with previous savings was established. The government
also established a program to offer families prefabricated sanitary restrooms.
These programs allowed the government to reduce extreme poverty from 21% of the
population in 1970 to 11% of the population in 1990. During the same period, the
number of people living in extreme poverty was reduced from 1.9 million to 1.4 million.
Average life expectancy rose from 62 years in 1970 to 72 years by 1990, while the
infant mortality rate dropped by 72.3% during the same period, to 16 per 1000. The
percentage of people suffering from malnutrition during that period dropped from 15.5%
to 8%.
The government made substantial inroads in the area of education as well. The average
number of years of school attended doubled from 4.5 years to 9 years, and whereas
43% of poor children did not attend school in 1970, 5% did not in 1990. Meanwhile, the
literacy rate rose from 88% to 94.6%.
The text also makes other statements on this issue that deserve attention. For example,
it says that the following policies offer explanations for the current (unequal) situation of
income distribution:
-Changes in the tax system in 1975 to eliminate taxes like capital gains, as well
as a substantial reduction in taxes on utilities. A value-added tax (VAT) was
implemented, and tax exemptions on basic items of consumption were eliminated.
-Public spending was reduced.
-The majority of state companies were privatized. The text states the following in
relation to this measure: “The process was carried out amid a recession, with very high
interest rates. Therefore, only a few private consortia had access to the sale, reinforcing
the concentration of ownership” (319).
-Changes in labor laws that negatively impacted workers, reducing the minimum
wage and benefits.
-Reforms in the social security systems (particularly in terms of healthcare).
-As for pensions, the text states that “in 1981, private Pension Fund
Administrators (AFPs) were set up, marking a transition from a system of distribution to
a system of individual capitalization. The State received less income, but it had to
continue with its responsibility to cover existing pensioners” (319).
-“The opening of Chile to foreign capital, leading to an increasing requirement for
a qualified labor force and higher unemployment among unskilled workers” (319).
This analysis omits relevant information and therefore offers a biased, one-sided view.
This is inappropriate for a textbook used by the immense majority of first-year high
school students in our country.
The role of the State is frequently understood to be the realization of primarily social
tasks, along with the regulation of markets and the operation of certain nationalized
companies. However, the latter is not appropriate for a modern State. The true role of
the State is to facilitate the participation of the private sector by formulating clear,
objective norms that permit and encourage that participation in the context of
competition.
In the case of Chile, empirical evidence demonstrates how positive the privatization
efforts carried out at the end of the 1980s have been. In fact, in 1985 the incidence of
state ownership of business in our country was substantive (see Figure 2). The
incidence of the State reached 25.7% of GDP (combining the percentages of the
different sectors and the two types of businesses). In sectors like communications, it
reached 96.3% of gross national product (GNP) and in mining accounted for 83%.
Figure 2: Incidence of the State as Business Owner (as % of GNP)
Sector
Mining
Industry 12%
Energy and Water
Transportation
Communications
Financial Services
Construction
Trade
Total Value Added***
State Companies*
83%
75%
21%
96.3%
28.3%
--17.1%
Nationalized Companies**
-9.6%
-9.2%
-34.3%
.8%
14.9%
8.6%
*Includes State companies created by statute and the subsidiaries of CORFO, the State development company.
**Includes companies taken over after the 1982 crisis. The total value added for State companies does not come
from the same source as the sectoral incidence.
***Source: Larroulet, C. “Efectos del Programa de Privatizaciones: El Caso de Chile, 1985-1989” (Effects of
Privatization Measures: The Case of Chile, 1985-1989), Subscribers’ Report No. 46, December 1993.
Objectives considered in the definition of privatization policies during this period
included the need to increase economic growth and consolidate the market economy.
Sectors like mining, telecommunications and electrical energy were fundamental in the
increase of the country’s rate of growth. They needed further dynamism.
In 1985, the process of privatization was focused on three main programs: the
privatization of banks and pension fund administrators (AFPs) that had been intervened,
intervened companies and State companies. The most important sectors were included
among the State companies, such as electricity, mining, telecoms, airlines, steel, etc.
One of the multiple problems that had to be resolved at the time of privatization was the
assessment of these companies’ value. Many were operating at a loss and the decision
was made to hire better executives in order to improve their economic situation and sell
the companies later.
One of the criticisms of the first phase of privatizations that took place was that they had
led to the concentration of a large amount of power in very few hands. So in 1985, the
decision was made to disperse the property via so-called “popular capitalism,” a
process that consisted of allowing workers in those companies to buy shares in the
newly privatized companies.
Therefore, no set privatization scheme was followed for the State companies; rather,
each case was studied individually. However, workers received priority in the purchase
of 30% of the shares, and the AFPs were given priority on an additional portion.
As for the effect of the privatizations on employment levels, Figure 3 shows an average
increase of 10% in the employment rate of those companies after they were privatized.
Figure 3: Employment in Privatized Companies*
State Property
Private Property
%
CHILGENER
CHILQUINTA
CHILMETRO
ENDESA
CTC
CAP
IANSA
SOQUIMICH
ENTEL
Laboratorio Chile
799
958
2352
2917
7280
5359
2066
4412
1394
589
861
970
2689
2953
7442
6845
2083
4864
1458
650
8%
1%
14%
1%
2%
28%
15%
10%
5%
10%
TOTAL
28126
30815
10%
*The average annual employment rate during the two years before the privatizations was compared to the average
annual employment rate during the two years after companies came to be at least 51% privately held. Source: R.
Luders and D. Hachette, “La Privatización en Chile” (“Privatization in Chile”), CINDE, Panama.
The privatization process helped increase the efficiency of the companies and the
markets in which they operated and allowed for greater employment and investment.
This all led to economic growth and validated the strategy of development based on the
free market and free trade.
Figure 4 reflects the results of the action taken during that period, such as the
privatizations carried out, open international trade policies, the role of the market,
macroeconomic equilibrium, etc. Domestic savings rose to 17.2% of GNP during by
1989, and investment stood at 20.3% of GNP.
Figure 4
Year
1984
1985
1986
1987
1988
1989
Domestic Savings (as % of GNP)
2.9
5.4
7.7
12.6
16.3
17.2
Investment (as % of GNP)
13.6
13.7
14.6
16.9
17.0
20.3
Source: Larroulet, C. “Efectos del Programa de Privatizaciones: El Caso de Chile, 1985-1989” (Effects of
Privatization Measures: The Case of Chile, 1985-1989), Subscribers’ Report No. 54, Fall 1994.
Meanwhile, previously State-owned companies that were subsequently privatized
showed positive results in terms of profit gains. As can be observed in Figure 5,
profitability rose after privatization.
Figure 5: Profitability Percentages in Privatized Companies
Company
1984 1985
1986
1987 1988
1989
1990
CHILGENER
CHILQUINTA
ENDESA
CTC
CAP
IANSA
SOQUIMICH
ENTEL
3.5
5.1
2.4
9.2
0.8
-4.2
10.8
16.8
7.1
8.5*
-19.0
15.0
2.1*
5.8
29.5*
42.4
3.1*
8.7
9.2
12.1
4.5
7.3
34.9
42.9
8.4
19.5
7.6
17.8
11.3
68.6
25.1
73.7
9.38
19.5
6.4
12.9
4.84
43.56
5.43
52.7
3.2
5.1
-19.0
15.5
1.5
-9.0
28.2
21.3
7.6
12.2
12.9*
19.0*
8.3
42.6*
43.4
49.5*
1991
7.41
21.6
10.4
16.2
3.58
11.77
1.54
50.5
1992
7.33
42.34
13.53
19.38
3.69
1.91
6.39
49.74
Source: R. Luders and D. Hachette, “La Privatización en Chile” (“Privatization in Chile”), CINDE, Panama.
* Year in which private ownership rose above 51%.
This is clear proof that greater efficiency is achieved in private companies. Further
evidence of the success of this process comes from the fact that other countries have
attempted to emulate the Chilean pension scheme, which has been implemented in
other countries, albeit with minor adjustments.
All of this analysis is omitted from the textbook examined in this study.
3.11 THE LABOR MARKET IN CHILE
Both editions of the text are alike in this section; there were no modifications for the new
edition. Several things therefore need to be pointed out.
First, the book states that “although labor is one of the factors of production, it is not
simply a commodity; labor has to do with people and, as opposed to other factors of
production, it should thus be subject to regulations that ensure workers’ rights, while
enumerating their duties and obligations. The State intervenes by regulating the
relationships between business owners and workers” (320).
The text asserts that regulation is the way to compensate for flaws in the market (which
could be disadvantageous for workers), rather than mechanisms to make the market
more efficient. There is no reference to regulations to protect business owners from the
opportunistic behavior on the part of workers.
Second, the text heavily emphasizes the current lack of job security, citing paragraphs
from the 2002 book Desarrollo Humano en Chile: Nosotros los chilenos, un desafío
cultural (Human Development in Chile: We Chileans, a Cultural Challenge). This study
will cite some of them:
“The results of the 2000 Casen survey point in the same direction: 23.3% of salaried
workers—about a million people—did not have a work contract.
“The degree of job insecurity caused by the extension of temporary or no-contract work
increased in all productive sectors, affecting not only income levels, but also workers’
quality of life.
“The new social inequality, aside from income distribution, lies in the inequality of job
security” (322).
It is important to note that at the beginning of the section where these paragraphs are
cited, the textbook states that “for a long time, Chileans found important meaning in
their jobs on a daily basis” and later makes a comparative analysis between the past
and present situations. Curiously, in so doing it cites numbers showing that people do
not feel fulfilled by their jobs—they do not find meaning in them—and that they would
prefer jobs that guarantee income rather than jobs that respect their rights as workers.
Although this situation is cause for concern, there are no statistics demonstrating these
sentiments; all comparative analyses to this effect can be subject to criticism on the
basis of subjectivity.
One of the activities in this section of the book asks students to create a chart, and—
with the help of their teacher—analyze whether their own experience is reflected in the
UNDP report.
Finally, the text discusses several rights of workers in Chilean labor law, such as the
length of the workday, overtime pay rates, daily and weekly time off, and the right to a
paycheck. The text also makes reference to the role of unions, asking students—in an
activity that examines a situation rather far from the reality—to read the article “How
businesses successfully operate with unions, published in the Economics and Business
section of the El Mercurio newspaper on April 26, 2003. Students are then asked to
research the following questions in collaboration with their families:
-Have they ever belonged to a union? What memories do they have of that
experience?
-Have they ever participated in collective bargaining? How was it conducted?
Finally, they are asked to interview a union leader, asking the following questions:
-Why did you want to be a union leader?
-How did you train to be a union leader?
-What traits do you think a good union leader should have?
-What is your role as a union leader?
-What is your perception of the current situation of unions?
IV. CONCLUSIONS
In the new, revised edition of the textbook published by Zig-Zag in 2005 and distributed
free of charge by the Ministry of Education, important progress has been made in the
teaching of economics as compared to the earlier version in that many biased views
have been removed. However, favoritism persists on certain issues, such as the
environment and sustainable development. The new text also offers incomplete
information that could lead students to draw inaccurate conclusions on certain topics
(on the reasons for the country’s unequal income distribution, for example).
Although progress has been made in the way the economic models are presented,
particularly in that the absolutely pessimistic—and almost egotistical—view of the
capitalist system and consumption has been abandoned, the biases of the earlier
version remain, albeit less intensely. It is noteworthy that the analyses of different
economic systems are not based on the three basic questions of economics: what to
produce, how to produce, and for whom to produce.
The explanation of the role the State should play the area of subsidies is also unclear.
The book notes that the State should be active in defense, transportation, education,
cars, water and energy. All but defense are incorrect.
Lastly, the text ignores many concepts and issues, such as externalities, competitive
advantages and public goods, among others.
V. BIBLIOGRAPHY
-Ministry of Education website (www.mineduc.cl)
-Historia y Ciencias Sociales, Primero Medio [History and Social Science, 9th Grade]. Authors:
Dina Cembrano, Luz Eliana Cisternas, José Manuel Morales. Published by Zig-Zag Empresa Editora S.A.
Third Edition, January 2005.
-Education Statistics. Ministry of Education, 2003.
-Larroulet, C. “Efectos del Programa de Privatizaciones: El Caso de Chile, 1985-1989” (Effects of
Privatization Measures: The Case of Chile, 1985-1989), Estudios Públicos (Public Studies) No. 54, Fall
1994. CEP (Center for Public Studies).
-Larroulet, C. “Efectos del Programa de Privatizaciones: El Caso de Chile, 1985-1989” (Effects of
Privatization Measures: The Case of Chile, 1985-1989), Subscribers’ Report No. 46, December 1993.
Libertad y Desarrollo.
-R. Luders and D. Hachette, “La Privatización en Chile” (“Privatization in Chile”), CINDE,
Panama, 1992.