KLEIN SAKS MISSION: BACKGROUND, CAUSES, WHY IT FAILED? - HISTORY - 2025

The Klein Saks Mission was a commission made up of a group of US experts hired by the Colombian government to try to improve the country's economy. The president who decided to contact this consultancy was Carlos Ibáñez del Campo, in 1955, during his second term.

The Chilean economy suffered from a series of serious structural problems. These had become enormously worse after the Great Depression of 1929 hit the country in the following years. After this global crisis, the attempt to implement a model based on Import Substitution Industrialization did not give the expected results.

President Ibáñez del Campo - Source: Alejandro Hales Archive under the Creative Commons Attribution 3.0 Chile license

Controlling inflation became one of the great challenges of the country. By the 1950s, prices increased by up to 80%, while unemployment rates also increased considerably.

Faced with this situation, Ibañez del Campo decided to hire a US consultancy to analyze and try to find solutions. The Klein Saks mission produced a series of recommendations, although not all were implemented. The strong social response caused that they did not give the desired result.

Background

For several years, Chile had implemented an economic model based on import-substitution industrialization, influenced by Keynesianism. This system wanted the State to promote industrialization, but the result was the creation of deficits and the imbalance between the city and the rural world.

Furthermore, the consequences of the world economic depression, which hit Chile in the 1930s, caused prices to behave erratically.

Carlos Ibáñez del Campo

Carlos Ibáñez del Campo was one of the most prominent figures in Chilean politics for forty years. During his period of influence, and not only as president, he sought to strengthen the role of the State in society.

His first presidential term began in 1927, after the resignation of Emiliano Figueroa. Upon taking office, Ibáñez held the presidency with an authoritarian style, repressing the opposition and establishing censorship of the press.

However, his government was widely accepted by part of the population, favored by the increase in the prices of nitrate and the benefits obtained from the exploitation of copper.

Ibáñez took the opportunity to undertake a great program of public works and to promote production through protectionist credits and tariffs.

Exit from government

Ibáñez's policies ended up causing a high level of public debt. This, and the mistakes made in monetary management after the crisis of 29, caused a great economic crisis to occur.

By 1931, the demonstrations against him were massive and the president had hardly any support. Faced with this, Ibáñez was forced to resign and, shortly after, the military took power.

Ibáñez returned from exile in 1937 to stand in the elections that were to take place the following year. His candidacy was supported by the National Socialist movement, but an attempted coup led by a group of young Nazis and the massacre of the Seguro Obrero made him desist.

Before regaining the presidency, in 1952, Ibáñez had run for the 1942 elections, although without success. In 1949, he was elected senator for the Agrarian Labor party.

Economic management

In his second presidency, Ibáñez maintained the developmental policy initiated by the radicals. Thus, I try to boost production, supporting public companies such as the Pacific Steel Company (CAP). Also, he founded the National Sugar Industry (IANSA), being one of the last presidents to create companies for CORFO.

Besides, he was the creator of the Banco del Estado de Chile and modified the statutes of the Central Bank of Chile.

On the social front, Ibáñez set a minimum wage for peasants, which lifted thousands of farm workers out of poverty.

All this policy meant very high public spending, which caused a rise in inflation. The situation got so bad that, in 1955, Ibáñez called on the economic consultancy Klein-Sacks to help clean up the economy.

Causes

The economic model adopted in much of Latin America, based on “Keynesian statism”, showed its limitations during the 1950s of the 20th century.

This model was sustained by the search for internal development, substituting imports for industrialization. In practice, the governments promoted the promotion of national industrialization oriented to the internal market.

Crisis of 29

The Great Depression of 1929 began in the United States, but ended up affecting the entire planet. In Chile, its consequences caused enormous social instability. An example was the immigration of nitrate workers to Santiago due to the poverty they were facing.

Chile, like other Latin American countries, turned to the Kemmerer mission to try to correct the imbalances created. However, the introduction of the gold standard and the contract between the Chilean government and the Guggenheim family to found the Compañía de Salitres, measures recommended by the Kemmerer, only worsened the situation.

Inflation

Inflation was the great headache for the Chilean economy in the decades prior to the arrival of the Klein-Saks mission.

The first two years of the Ibáñez presidency, before hiring the American consultancy, presented very negative numbers. Thus, between 1953 and 1955, inflation reached figures of 71.1% and 83.8%.

Deficit

The aforementioned inflation caused significant imbalances in all economic sectors. During the two years prior to the arrival of the mission, the public finances had a significant deficit, mostly due to the increase in current spending, in addition to the ineffectiveness of the tax system.

Finally, to finance this deficit, the government had to use resources from the Central Bank and, to a lesser extent, from private banks.

Other causes

In addition to those already mentioned, there were other reasons that led to the hiring of the Klein-Saks mission. Among them, some bad harvests and the instability of economic policies. All of this led to an environment of uncertainty that was very unfavorable for investments to arrive.

Similarly, Chile suffered from fluctuations in the copper market, one of its only export products. Unemployment, for its part, grew considerably during the first years of the Ibáñez government.

Why did it fail?

Initially, the Klein - Saks was very well received by the Chilean right. The left, on the other hand, rejected their presence.

The first step of the mission was to analyze the country's economy. The conclusion was that the problem was structural: Chile consumed more than it produced. This was what caused the increase in inflation, since it caused a shortage of currency and increased social spending.

The mission's recommendations, among others, were to make salary adjustments for some sectors, especially public employees, and increase prices, eliminating government control over them. It also emphasized the need to improve the country's administration.

These measures were contrary to the populist policies, according to experts, of the Ibáñez government. In practice, they amounted to raising taxes and lowering wages. However, it did accept some of the recommendations, managing to reduce inflation.

Neoliberal model

The mission recommended completely changing the Chilean economic model, introducing a neoliberal system.

The suggestions were to reduce the fiscal deficit and limit bank credit to the private sector; eliminate automatic wage increases and that these be negotiated directly between companies and workers; increase imports and diversify exports; seek foreign capital; and reform taxation.

Social effects

The social effects of the measures did not take long to provoke protests. The wage freeze generated strong resistance from the unions, which called general strikes.

On the other hand, the new foreign trade policies ended up harming small businessmen and their workers. The reduction in social spending slowed the reduction in poverty rates and increased social inequality.

Protests

In April 1957 the Chilean streets were filled with protesters against the new economic policy. The immediate cause was the increase in the prices of public transport, although the reasons, as indicated above, were deeper.

The university students and the workers were the ones who took the initiative of the protests. Microbus burns and looting episodes occurred. An estimated 20 people were killed and the government had to send in the army to control the streets.

All this caused the weakness of the government of President Ibáñez. To try to recover, he decided to attend to social demands and not to renew the contract with the Mission.

References

1. Schoolchildren. Klein-Saks Mission. Obtained from escolar.net
2. More than history. The KLEIN-SAKS Mission and The First Signs of Economic Deregulation. Retrieved from morethanhistoryblog.wordpress.com
3. Simunovic Gamboa, Pedro. The failure of economic policies in Chile: The

   Kemmerer Mission and the Klein-Saks Mission (1925-1958). Recovered from Estudiosnuevaeconomia.cl

4. Edwards, Sebastian. The Role of Foreign Advisors in Chile's 1955–1958. Stabilization Program. Retrieved from nber.org
5. The Editors of Encyclopaedia Britannica. Carlos Ibáñez del Campo. Retrieved from britannica.com
6. Global Security. Carlos Ibáñez del Campo. Retrieved from globalsecurity.org
7. US Library of Congress. Economic Policies, 1950-70. Retrieved from countrystudies.us