Currently the President of Chile, Socialist Party leader Ricardo Lagos began his career as an economist and lawyer. He strongly denounced Gen. Pinochet's regime, and has served as minister of education and minister of public works.
- Globalization Without Governance
- Establishing Rules of the Game for Globalization
- Toward Greater World Integration
- The Argentine Crisis
- Defeating Gen. Pinochet
- The Need for Evolving Economic Theories
- What It Means to Be from the Left in Chile Today
Globalization Without Governance
INTERVIEWER: What do you think people are protesting about outside of Seattle? Can you understand that?
RICARDO LAGOS: That's another fascinating story, because up to now, we have been talking about our internal economies in our own countries, and we have not said anything about the global world. I mean, let me put it this way: International relations far away in Europe was a process of equilibrium of nations, and the Cold War was the last part of that equilibrium. You have equilibrium between Russia and the British, and the British and France, etc. Then you have the U.S. and the Soviet Union, another kind of equilibrium. Small countries like Chile used to do some equilibrium. In the first world war we were neutral; in the second world war we were neutral up to 1943, and we declared war on Japan after Hiroshima and Nagasaki. Today we are living in a world where, after 300 years, there is only one military power. This is a tremendous change. In the conference in Quebec I had the opportunity to talk on the issue with President [George W.] Bush, and I said: "You are the first president that has the tremendous responsibility of being the head of a country that is the only military power." Now you have at least three major economic areas of the world: Europe, America, and Asia. Okay, that's fine. And ... you have a tremendous amount of financial capital going from one part to another. Who regulates that? Nobody. You have some control, but not all. In other words, we are moving to a global world, but we have been unable to provide in that global world some kind of rules about how are we going to manage in that world. After the second world war we had the United Nations. There was a tremendous discussion in San Francisco, but in San Francisco you had 50 countries. Twenty of those 50 countries were Latin Americans. We have a different voice, don't you think so? ... What happened 50 years later, you have one military power, but in addition to that, where are we going to discuss economic matters? In Chile, more than 50 percent of our gross domestic products are represented by export and import. This is really an open economy. Therefore, it is essential for us, what's going to be the growth of Europe or America or Japan. Depending if they decide to have growth instead of inflation, then we are going to have growth also. I remember reading the memoirs of President Carter saying that one of the first times that he went to a G7 meeting, there was a tremendous discussion between Valery Giscard d'Estaing, the president of France, and Chancellor Helmut Schmidt from Germany, and what they were fighting about was that France complained that because the Germans decided to fight inflation, they decided not to have growth and Giscard d'Estaing said, "If you don't have growth, I [can't] export [my goods], and If I can't export my economy's going down." And he didn't add, "If my economy's going down I may lose the next presidential election." So there the things are.
And at the other level, where are we going to discuss what's going on on the global stage? What can I do as a president of a small country with an open economy? Well, [I can] read every day the Financial Times or the Herald or the Wall Street Journal -- that's it -- to see what's going on. ... If we are going to be in a global world, it is going to be essential to have either the UN or some other areas to discuss these real issues, because now the only way to discuss those issues is in the G7, which is fine, but the decisions of the G7 are the decisions being taken by the more developed countries, the more rich countries, the more important countries from the economic point of view. But mankind has a six billion people. How many of those six billion people are represented in the G7? And the decisions that they take may produce a tremendous impact in the standards of living of the rest, and therefore, here I think is something extremely important in the way that we are going to build the international institutions in this 21st century. The United Nations was a tremendous advance, but ... what's there going to be ... for a global world now? What happened in Seattle is very important. The people that complained in Seattle finally accept that they are connected through the Internet; they are globalized also. The question is not to be or not to be globalized; the question is, how are we going to shape this global world, or is it going to be only through market mechanism or probably the political will of those superpowers? This is really the question. And it's my impression that this is a long road that we have to walk. We are in just the beginning of the discussion.
Establishing Rules of the Game for Globalization
INTERVIEWER: We were just talking about the choice that the world faces, and where there's no globalization. Where do you see the pendulum swinging? Is the world going to embrace more free markets, or are we going to go to a bit more state control?
RICARDO LAGOS: It seems to me that on the global stage now you have only markets, and therefore some kind of rules will have to be applied. ... You have a successful country, then all the financial money would go there. But because you have so much money, the rate of exchange is going to be down, and because the rate of exchange is going to be down, then the country's going to lose competitivity, and probably the money is going to be taken out. Then you have a crisis. And who is going to define during a crisis? Some people in Wall Street, some risk analyst that said, "This country is very good; put your money here," and you're on the upturn. And then they'll say, "That country is not very good now"; then there's the downturn.
I can't resist telling you a small anecdote. President Gonzalez [Spanish prime minister and president Felipe Gonzalez] told me that once the peseta was going down, and he called the Central Bank as he didn't know what was the explanation. The next day he has to go to Germany, and he went to Germany, and he gave the orders to defend the peseta, and the Central Bank was selling dollars, dollars, dollars to defend the peseta. On the plane from Madrid to Bonn, half a billion was lost by the Central Bank; late in the afternoon, another half a billion. Finally he has to talk with Karl-Otto Pohl [president of the Bundesbank, 1980-1991], and then the Bundesbank went to defend the peseta.
In short, more than $4 billion were used to defend the peseta. He arrived in Madrid; nobody had an explanation what happened with the peseta. He was very mad. Finally somebody arrives and says, "Mr. President, I have an explanation -- but do you know anything about economics?" "Yes, but I know a little bit about the real world. A woman in Hong Kong decided that probably the peseta was going to be devalued, and therefore she recommended if you have friends to sell pesetas, and after she decided this, well, the selling of the peseta was taking place over and over." The question is, she has the right to sell the pesetas on advice from that, but some kind of institutionality has to exist. Look what happened with some friends in Argentina or in Turkey or in Russia or in Mexico in '95.
Well, who is going to make the judgment? Because it's very difficult. Let me give you an example of my country. We are suffering because now the terms of trade are against us. Copper is going down, paper is going down -- that's it. "I'm sorry; that's the market." "Okay, that's the market."
Two, what happened with foreign investment? Well, foreign investment is going down because the measured markets are not very good these days. Therefore, the investment is coming down.
Three, what about the financial money coming down? Well, financial money also is not coming in the amount it used to come. Now it's true -- the market makes a differentiation; I cannot complain. We are able to [trade] in New York, one week, one month, after September 11, that's fine. But all that I'm trying to say is it's going to be very difficult to think it is possible to have a global world without some kind of rules about how that world is going to behave, either in terms of foreign investment, double taxation. I mean, all the rules of the game that normally have to be applied within the country now will have to be at the world stage.
What else is the last discussion of the World Trade Association? What else is the discussion of the International Monetary Fund? What else is the discussion of the World Bank? And I think that the time has come to have a global discussion on all these issues -- on trade, on investment, on taxation, on financial flows going from one country to another. It's a simple question of are we going to be able to have some kind of orientation, or are we going to be simply taken for what the market makes a decision? And the market does not always make the right decision, as the example of Mr. Gonzalez explains.
INTERVIEWER: So in a new globalized world, we also need new rules of the game?
RICARDO LAGOS: That's right. I think we need new rules of the game. Now, there is an effort to produce those rules by the year 2007. ... It may be that some areas of common ground have to be established. We try to do our task, and I think that Chile has been doing our task, and we have our economy in order. What we can perceive around the region is not very good from the point of view of the region. And therefore, we are for trying to take some measures, you know, what to implement and not to have a crisis in the way that we have now. It's possible to prevent those crises if some kind of rules or some kind of regulations are established.
Toward Greater World Integration
INTERVIEWER: So is capitalism in crisis?
RICARDO LAGOS: I wouldn't say that it's in crisis. I would say that capitalism is going through another stage, from the country level to the global level. And when you go through one step to the next one, then you will need to have some kind of institutionality according to that. What is the meaning of the discussion between Boeing and Airbus, between the United States and Europe? About what kind of industry are you going to have in the area of air carriers, of the new planes that are going to be built? Can you imagine Europeans saying no to a merger between two American firms? That is the best explanation of a global world. The Europeans can say that. Can we? And a small country, 50 million people. ...
All that I'm trying to say is this: Look, there are some particular areas where some kind of coordination is going to be essential in this new world. In the same way, let's go back to the Middle Ages. Before you have the national state, before you have France or you have England, what do you have? Dukes? Counts? The feudal system. And when you have the state, then you need to have rules. Before that each feudal state owed money. It was easier to have one single currency. Look what the Europeans did with the euro. Are we going to have just one single money? Probably it's too far away to think that. But there's a tremendous advantage for a country to have the money that is the only international money that you have in the world. Don't you think so? When you have a deficit or a surplus in your budget, that is a tremendous advantage to know what happened with that.
And I do think that some kind of discussion in this area is going to take place in the near future. Informally, there has been a discussion on these issues that is beginning now. Where is the discussion going to take place? In Bretton Woods. Bretton Woods set the agreements for the world in 1944, with Mr. Keynes and Mr. White [Harry Dexter-White, assistant secretary of the Treasury under FDR]. And today many people probably hearing of the missions will say probably Mr. Keynes was right, but Mr. White was much more important because he represented the U.S. All that I'm trying to say is, are we in a position now to go to Bretton Woods, and who is going to participate in this new Bretton Woods? One hundred and eight countries. How realistic is that? Or probably the major countries, and the major countries plus some other countries. This is going to be like the discussion in Seattle in the World Trade Organization that, at the end, you know, you have a group of 10 to 15 countries making the discussion on behalf of the different areas of the world. Something of that sort has to be thought of if we want to be able to live in a world that is going to be much better.
Technology is introducing us to new areas that we never saw before, and therefore I think that if we do the right thing, we can defeat the famine. We can defeat those things, and protect human rights but also understand that we need to live in a world that is much more secure. And secure means not only to fight against terrorism. Secure means to fight against unemployment, fight against diseases, fight against etc. And it seems to me that some consensus now is emerging, some consensus in terms of how we are going to keep our environment. Can we introduce some rules about the environment at the international level? And these more and more are going to be areas of international talk in a world economy, and this is new.
INTERVIEWER: So even within globalization there's tremendous inequality. I mean, how does it affect a country like Chile? Do you feel left out from the process?
RICARDO LAGOS: I wouldn't say left out, because we participate in the process. In a sense we are part of the world. More than 50 percent of our product has to do with either our export or our import, so from that point of view we feel comfortable. The question is not to be against or in favor of globalization. Globalization is a fact. The question is that I wouldn't like that, because of that fact, some countries perceive that they are -- how can you say in English? -- [passive]. There are those that globalize and those that have to accept the fact that they are going to be globalized. This, I think, will be very, very bad. And I think that globalization represents an opportunity for everybody. And I think that globalization has arrived and is going to stay, and we are going to be living in a global world.
INTERVIEWER: So what do you say to the demonstrators?
RICARDO LAGOS: That they are right in a sense; that they are asking for rules. At the beginning the demonstrators were against globalization. Now they are not against; they realize that that it's a fact. They are asking for some rules, and I think that they are right. I mean, some rules have to be established.
INTERVIEWER: What do you say to those that say that what happened in Argentina shows that market reforms just don't work?
RICARDO LAGOS: I'm not sure that the situation in Argentina is only an economic one. I think that to some extent there is also some kind of political inability of the political leaders to agree in what are the major areas of concern, from the point of view of Argentina. They have a federal republic, and as such then, this state has also a position to have their own budget and therefore go abroad and ask for credit. And this is a little bit different in our countries. If you don't have a central economy that will authorize the credit from the public sector of the economy, not only the central government but also the other, the provincial governments. But more important, it seems to me that in the case of Argentina, it's also a question that, if the [International Monetary] Fund keeps saying always "You have to adjust, adjust, adjust," and that's the only answer, that I guess is not going to be the right answer at the end.
When we were talking about who is going to classify the risk of the country, the deficit of Argentina is not bigger than the deficit of some European countries. And what happened in Europe, they have confidence. What happened in Argentina is they do not, and therefore it's not only an economic problem. I would say it's more today a political problem.
INTERVIEWER: So what happened there was that they didn't implement enough reforms? There was no willpower?
RICARDO LAGOS: No, I think that it's not a question of implementing reform. I guess it's a question of trying to live according to your means. I mean, it's like a family, you know. If you earn $3,000 per month and you want to live like you have $5,000, at the end we're going to have some problems. It seems to me that that's really part of the story of Argentina.
INTERVIEWER: What happened to you while Pinochet was the president of Chile? Give me that stage.
RICARDO LAGOS: Well, I went abroad. I got a nice offer from the University of North Carolina, and I spent one year in Chapel Hill. Then I went to work with the United Nations on a project about a postgraduate training, social sciences in Latin America. I was very much in academia rather than in politics. And finally I returned to Chile in 1978 with the United Nations. But at the same time I realized that I was fortunate enough to be allowed to return to Chile. I was never on that list of those that were prevented, and I have a sense of responsibility of what to do.
And then in 1983 there was the beginning of the protest against the regime. There was some political formation of the Christian Democrats and the Socialists. Historically, Socialists and Christian Democrats fought each other very much, and I thought that the time had come to work together in order to recover democracy. And this was very difficult to explain to the socialist world in Chile. Finally, they understood, I think, and we were able to form a political coalition in order to restore democracy. At the time I had to leave, of course, the United Nations, and I went to the political arena. Well, it was difficult, because political parties were not recognized in Chile.
I remember that in the press Juan Gabriel Valdes, the leader of the Christian Democrats, was mentioned as the "former Foreign Minister Valdes," and I was presented as the "economist Mr. Lagos" -- never, never a reference to political views. But anyhow, I mean, then we decided that it's necessary to have some kind of opposition to Pinochet. Well, the question of who is going to make opposition is difficult to say. But at least they don't understand that. They put me in jail once, but that was for a short period of time. Then ... we defeated Pinochet, and so on and so forth.
After that then, we supposed that this was going to be a short-term coalition, just for the transition. But in the process of ruling the country with the Christian Democrats, we discovered, as I said at the beginning, that more important than the transition from dictatorship to democracy was the transition of a backward to a more modern country and to a more just country. And therefore they would keep together the coalition, and we were able to introduce the changes that are essential to live in a better world.
Now, 17 years of dictatorship is quite a number, and therefore Chile was extremely divided during those days. Violation of human rights existed, and to some extent, Pinochet became a symbol of many things in the world stage. And it seemed to me that we had been fortunate enough to demonstrate to the world that it was possible, also in Chile, to judge Gen. Pinochet, and this is what our tribunals did.
Some friends abroad on many occasions told me, "But don't you think that you're going to be unable to do that?" And therefore we had to do it. And I say, if that is the case, our democracy is not working. And I think that the fact that now I have been in a position to nominate a woman, a Socialist and a daughter of a general that was tortured by Gen. Pinochet, as the head of the armed forces demonstrates to the world that things in Chile have changed.
INTERVIEWER: Have you had a chance to speak to Pinochet over the years and tell him what you think about him?
RICARDO LAGOS: Yes, to the first part, not to the second part. And let me say, when I was minister, he was commander in chief, and therefore on two or three occasions, social occasions, we had an opportunity to talk. I was introduced to him by President Aylwin when I was minister of education. We talked about normal things that you talk about in a social circuit, but we never had a chance to have a more profound talk.
INTERVIEWER: What would you say to him if you could tell him more of your thoughts?
RICARDO LAGOS: Well, I think that he knows what I think. I had an opportunity once to talk to him through the TV, as a typical type of a political discussion, you know -- how to use TV for a political discussion.
INTERVIEWER: So once upon a time on PBS you told Pinochet what you thought. Could you give me that anecdote?
RICARDO LAGOS: ... What happened was that I said straight to the camera, to Gen. Pinochet, what I thought that it was necessary to say -- you know, not to continue the violation of human rights. I did it with more strength and force than what I'm saying now to you. But I think that was an important part in terms of making people sure that it was possible to register, to vote. And therefore it was possible to defeat him.
When you are living under a dictatorship, normally the sense that it is impossible to defeat those that are in power is very important. And I think that we thought it was essential to defeat with a pencil, saying "no" in a vote. And we succeeded in that. And I think that was the most important part in our transition, that with a pencil we defeated the general.
The Need for Evolving Economic Theories
INTERVIEWER: You were an economist, and now you're a president. What economist has had the greatest influence on you?
RICARDO LAGOS: Well, it's difficult to say.... Some liberal economists have been of some influence. But at the same time you have to learn that since the world changes, then new economic theories have to evolve. And therefore it seems to me there has to be written yet the economic theory of a global economy. Up to now what we have is an economic theory that applies to a particular country, and what is the meaning of a monetary theory, about the rate of interest, if you're living in a global economy? Is the rate of interest that the president of the Central Bank of Chile fixes more important, or is the rate of interest of [another economy] more important? What is more important? In the past, I would say those in Chile.
... I remember once Keynes said never, never the Bank of England; that what is the most important demonstration of economy of a country is to establish the rate of interest. I remember the last time that I was in England I talked with the president of the Bank of England, and I said, "Do you remember the sentence of Mr. Keynes?" He said, 'Yes, I remember.' "What do you think now that it's an old sentence?" That's it -- it's part of history, not of the new world.
What It Means to Be from the Left in Chile Today
INTERVIEWER: Being from the left is also part of what's different. What does it mean to be from the left now? What is different?
RICARDO LAGOS: The difference with regard to the right? With regard to the right, the major differences are, how are we going to define public services? Who is going to provide for that? And how are we going to finance those things? And the answer for them will be that the market will take care and trickle down. Once you have growth, the trickle-down will go to all sectors in the economy. For me, the trickle-down, if it works, is going to work in so many centuries, but I would like to be in a better world now and not wait for the trickle-down.