Running the Economy November 1970 to Mid-1972
T he initial short-run economic policy of the UP government was largely determined by the state of the economy it had inherited. For four years, the economy had been stagnating. On top of this, the disruption created by the enemies of the UP after the election caused an economic decline. The index of industrial production ( 1968 =100), which had been 116 in July, plunged to 100 in September, and remained at 107-108 during October through December. Unemployment in Greater Santiago, already 6.4 percent in September, jumped to 8.3 percent in December. Given this situation, the initial economic policy had to be one of stimulating the economy, increasing production and reducing unemployment. For a government representing the workers, any other policy would have been inconceivable.
Idle resources created conditions favorable for a policy of stimulation. As a result of the post-election slowdown in sales, inventories were large. Thirty percent of manufacturing capacity was idle. The ordinary statistics on unemployment understated the true reserve of labor power available -- one estimate, taking involuntary part-time work and other forms of disguised unemployment into account, put true unemployment as equivalent to