Q&A Rolf Lüders Schwarzenberg

DIANA SAVERIN spoke to Rolf Lüders Schwarzenberg, an Economics professor at Pontifica Universidad Cátolica de Chile. He was the Minister of the Economy and Finance under Augusto Pinochet (1982-1983). He was a member of the “Chicago Boys,” a group of neoliberal young Chilean economists taught by Milton Friedman of the University of Chicago. When Friedman saw the work of Lüders and the “Chicago Boys” during the Pinochet dictatorship, including the privatization of water, which has given foreign companies rights to rivers such as those in Aysén, he coined the phrase, “The Miracle of Chile.”

Q: What happened that led to the privatization of the 1970s and 1980s?

A: What one has to understand is that in Chile, we developed quite well compared to the rest of the world in the 19th century, but we did very poorly in the 20th century… So when the military took over they looked around and asked what have we not done to help our development? And they looked at us here at Católica [a Chilean university]. They called us the Chicago Boys. They said, these guys are proposing a very liberal economy…everything else has failed, so we have to try this system. So they invited us Chicago Boys to come join the government to reform the economy. And what we did was to free prices, to free international trade, to free international capital flows, to privatize enterprise. And the economy has been up since then.

Q: Clearly Chile’s GDP has grown enormously since the ‘70s, but in Aysén, the people say it is all concentrated in Santiago and they do not feel these effects.

A: Aysén is growing faster now. When we protected industry, industry tended to concentrate in cities where there are large labor supplies, Santiago grew, Concepción grew, Antofagasta grew. The big cities grew, and not the more rural areas like Aysén, but we changed this policy. After industry, it is the exact opposite, you tend to develop natural resources and related activities, which are in the regions, so the regions are developing today much faster than before. We are still changing from a high emphasis on industry to a high emphasis on natural resources and Aysén is benefiting, like the north’s benefits with mining and copper.

Q: In Aysén, people in the region don’t own their resources, though, or even their own water. Do you think that is the best system?

A: From a strictly economic point of view, it’s rational to use water where it’s worth the most. It’s like potatoes or cars; water is not a special thing. It’s just another good. I don’t see the problem. The only problem is if the electricity company has the rights to the water, and the private guy wants to use it, and he has to buy it. But if the value is higher making electricity than in the city, then it makes sense to keep it with the company. If the value is higher in the farms, he can buy it from Endesa (the energy company). Endesa will sell it—I’m sure. They’re not irrational.

Q: You don’t think water is a special good in any way—that we need it more than others, and should treat it differently?

A: If you really need it, you should be willing to pay for it. We need electricity, too. We need water, electricity, we need many other things. I actually have a farm close to Santiago, and we have had a problem with our water and Endesa, and they have agreed to use the  water to make electricity, then pump it up to our canal. And it works fine.

Q: In the case of Aysén, the argument over what to do with the water revolves around different perceptions of the value of the region—energy or industrial potential, and more of an aesthetic value of it.

A: I have a lot of sympathy for the aesthetic value, personally. Many economists not, but I have a lot of it. If there is a cost to the value of aesthetics, it should be compensated, but up to the value of aesthetics, not unlimited. Because the value of the aesthetic is limited. If you destroy value in some place, you create some more in another, like make a park, for example. I think it’s stupid to say let’s not change anything. Then we couldn’t live.

Q: How do you prevent development from overtaking all of the wilderness?

A: Imagine you have all wilderness, which is Aysén. It’s all wilderness. You say how much is wilderness worth, if I want to make this park? Not much right now, because you have a lot of wilderness. But if it’s the opposite—if you have a lot of development in a region, and only a little wilderness, that wilderness is going to be worth a lot. So in the beginning, it’s going to be relatively easy, or relatively cheap, to destroy some of this wilderness to replace it with development. But eventually, it’s going to be very expensive for whoever wants to do a development project in a wilderness area. It always becomes more and more and more expensive. And if you do it well, it will work.

Q: That balance is within the boundaries of Aysén. Do you think that in terms of Chile as a country, or maybe the world, the value of Aysén’s wilderness should be higher since there aren’t as many places like Aysén left?

A: In the case of Chile, the wilderness is worth more because we have destroyed so much everywhere else. I don’t know about the world. In the case of Chile, we can handle it—we are a unified country, we don’t have states, you can handle it from Santiago. In the world, I don’t know. If the world wants us to keep that wilderness, they should pay us for it, just like I think they should pay the Brazilians for keeping the forest. If you say ‘don’t destroy that wilderness,’ great, but pay us for it. Otherwise it’s completely unfair. The rest of the world is asking Brazil to keep its forest, and they, correctly I think, say no, pay us for it, otherwise, no.

Q: If HidroAysén creates value with energy today, does time play into that value? For example, the dams won’t work forever, while something like wilderness has a more stable value if you protect it.

A: You don’t know that. Maybe we won’t value wilderness in the future. It has a value now, we don’t know the future. The dam might have a higher value in the future—I don’t know, you don’t know, nobody knows.