Creating Competitive Advantage: Forest Policy as Industrial Policy in Chile

Abstract

For 60 years the Chilean government studied, promoted, managed, and subsidized plantations; it bribed, cajoled, and threatened landowners to plant trees; it funded, nationalized, and privatized the industries to process them and then nationalized and privatized them again. The policies were contradictory in their particulars, but consistent in the government's commitment to the forestry sector. Some policies were ineffective, others were effective but blunted by- contradictory policies, and at least one was stunningly successful—the 75 percent reforestation subsidy established in 1974. In a generation Chile has created one of the world's most competitive forest resources, at a relatively low environmental cost. It is not a natural forest capable of supporting multiple use, but as an economic forest it is almost a masterpiece.

Early state activism and recent state withdrawal were both essential. From 1931 to 1973 state promotion expanded the forests, while the state's pulp mills guaranteed a market; without those interventions the industrial and resource base would not exist today. But without the military government's persistent subsidies, privatizations, and guarantees against expropriation, the recent flood of direct foreign investment is equally inconceivable. Finally, the timing was ideal. Competitive advantage in the world market is of use only when a market exists, and the last 20 years have seen the rapid growth of global trade in forest products.

Key words:

• industrial policy
• competitive advantage
• authoritarianism
• neoliberalism
• plantation forestry
• radiata pine
• exotic species
• Valdivian forest