Leaders

Let us start this section by presenting a brief sketch of the three leaders we want to focus on and their unique work in Chile: Mariano Egaña, Andrés Bello, and Manuel Rengifo.

While he was born in Chile, Mariano Egaña lived in France and England (between 1824 and 1829), and from there observed the political disorder in his home country during those years (Brahm, Reference Brahm2007). In Europe, he also read extensively and amassed a major library on legislation, philosophy, and politics (Salinas Araneda, Reference Salinas Araneda1982), which changed his world perspective and influenced his work as major author of the 1833 constitution. Egaña was in Europe because he had been named Plenipotentiary Minister, in charge of negotiating the recognition of independence, reviewing the accounts of the Chilean loan of 1822, and attracting “useful men” to Chile (Brahm, Reference Brahm2007, p. 35). In this circumstance, he met Andrés Bello in London and invited him to Chile. Back in Chile he was a “driver” of the codification process that was to take place in the country during the Portalean era, taking part in the drafting of other legislation complementary to the Constitution, including laws on voting, interior government, and other matters (Brahm, Reference Brahm2007, p. 200).

Andrés Bello was born in Caracas, but lived in London from 1810 and worked at the Chilean legation from 1822. Following some disagreements, at some point he decided to leave for the Colombian legation, although Mariano Egaña would later invite him to Chile. Despite some differences with Colombian officials this government was also interested in inviting him there but Bello finally preferred Chile. Before he left England, the American liberator Simón Bolívar is quoted as encouraging Colombian agents in London, in very passionate terms, to do something: “I implore you to not lose our enlightened friend [Bello] to the land of anarchy [i.e. Chile]” (quoted by Jaksic, Reference Jaksic2001, p. 124).

As an “institutional entrepreneur” Bello participated in the drafting of the constitution (1833), where at the very least he was consulted, and held a major role in the design of the Civil Code (1855) (Collier, Reference Collier2003, p. 23; also, Jaksic, Reference Jaksic2001). Having worked with James Mill and Jeremy Bentham in London in the 1820s, Bello was a strong advocate of codification. The argument that Bello was a true leader is thus quite straightforward, and he was fundamental in the establishment of the rule of law in Chile (Jaksic, Reference Jaksic2001).

Finally, Manuel Rengifo was Minister of Finance in two different periods (1830–5 and 1841–4) and had an important role in opening the economy to free trade, and organizing the national public finances.Footnote ⁶ In this sense, he was a crucial figure in terms of establishing an orderly and comprehensible system of public accounts in the country (Bernedo et al., Reference Bernedo, Camus and Couyoumdjian2014, pp. 33–42). Moreover, Rengifo reorganized the customs system in Chile, liberalizing internal shipping and creating free-trade warehousing zones for transit goods; this provided the main foundation of the country's fiscal capacity.Footnote ⁷

Formal and informal institutions in 19^th-century Chile

The formal political institutions of the Portalean era, designed by Egaña and Bello, turned out to be consistent with the underlying ideas, culture, and shared experiences in the country. This was a constraint on their work that they effectively dealt with and, as noted, is an important issue regarding what we known about successful institutional change (also: North, Reference North2005). In the convulsive year of 1848, when he was trying to articulate his views regarding the role of constitutions in a society, Andrés Bello had noted that the fact that a constitution reflects the viewpoints of society is a necessary, yet not a sufficient condition for its success:

The Portalean system was also adamant about generating and preserving political stability, a priority after the disorder in previous years. Portales himself had argued that in this context some authoritarian elements could be necessary, at least in the short run.Footnote ⁹ Given this authoritarian thrust, Loveman (Reference Loveman1993, p. 330) has even referred to the governing elite's ideology, and the institutions they erected during most of the 19^th century, as a “constitutional dictatorship.” So, can we really talk these ideas leading to “good” institutions that generated the conditions for promoting economic growth?

Historians such as Jaksic and Serrano (Reference Jaksic and Serrano2010) have qualified this type of claim, noting that even though Chilean governments throughout the mid-19^th century were authoritarian, they were deferential to the constitutional system (p. 74). Furthermore, the major liberal reforms undertaken during the 19^th century impeded revolutions. Therein the “peculiar” nature of Chilean liberalism, specifically in terms of “the absence of radicalism and its emphasis on reform,” such that “transformations were made via reform, not revolutions, or new constitutional experiments beyond that of 1833” (p. 102).Footnote ¹⁰

Contemporary liberal thinkers would disagree with some of these assessments (e.g. Lastarria, Reference Lastarria1896), yet as Collier (Reference Collier2003), Jaksic and Serrano (Reference Jaksic and Serrano2010), and Safford (Reference Safford and Bethell1985) note, the existing Constitution was able to accommodate to a new liberal environment. As the so-called “conservative settlement” waned towards the mid-19^th century, liberal values became more widely accepted, and the Constitution was able to adjust and change, although electoral intervention would persist throughout the 19^th century. It is difficult to know if this was an element that the institutional framers had foreseen, although it is important to keep Bello's deep institutional design in mind here. As he noted regarding the Constitution's role in protecting individual liberty:

An analytic narrative

We have proposed a causal relationship between ideas, institutions, and economic performance, and that leaders as statesmen and mentors (in terms of human capital) played an important role in this process. But it is important to review the mechanisms in operation here in greater detail. We note three channels through which leaders are important. These are related to the ways in which institutions are important to economic growth, which we have reviewed above.

They are related primarily via political stability and the creation of “state capacity,” which we oppose to the notion of “failed states,” a modern term and a big problem in 19^th century Spanish America. Political stability was possible to a large degree because of the harmonious balance reached between the newly designed formal institutions and the existing informal norms, and was an important goal of the Chilean Constitution of 1833, in the context of a process of political learning and nation building. State capacity involves several dimensions, including the capacity to tax and provide public goods while also providing order and delineating a legal system within which markets can develop (Besley and Persson, Reference Besley and Persson2011). In the Chilean context, Egaña, Rengifo, and Bello are crucially important in these dimensions, both directly as well as indirectly through the transmission of institutions and the implementation of policies via the creation of human capital. The direct influence of Egaña was mainly through his approach to the problem of political order, while Bello was fundamental in creating the institutions supporting markets, which we will refer to in greater detail below. The role of Rengifo merits further inspection here. The creation of the free-trade warehousing zones mentioned above propelled the development of Valparaíso as the most important port (and distribution center) on the Pacific coast of the Americas and, by improving the control of the traffic of goods and increasing tax revenues, it represented the main foundation of the country's capacity to provide public goods. On the other hand, the opening of the Chilean economy to international trade represented the beginning of the country's very successful process of export-led growth, in the context of a relatively stable macroeconomic environment (Bernedo et al., Reference Bernedo, Camus and Couyoumdjian2014).

It is important to note that fiscal capacity and economic progress also generate a military capacity that makes it easier to suppress dissent (Safford, Reference Safford and Bethell1985, p. 417). Contra the legacy of “blood and debt” attributed to wars (Centeno, Reference Centeno2002), in the Chilean case the war against the Peruvian–Bolivian Confederation in the mid-1830s may have had a positive effect in terms of the provision of common-interest public goods (on this episode, see: Collier and Sater, Reference Collier and Sater1996, pp. 63–9). Then again, with economic progress liberalism expanded (Collier, Reference Collier2003; Jaksic and Serrano, Reference Jaksic and Serrano2010), and thus the demand for more public goods: international trade and the diffusion of public education may also be important here (on these issues see, e.g. Will, Reference Will1960).

The country's strong statistical building capacity is another evidence of the nation's unique state capacity. Estefane (Reference Estefane2012) has used the expression “count what is governed” to capture the political impulse behind the organization of a national statistical system in Chile in the first decades after independence. These efforts were realized in 1843, when a Central Statistical Office was organized in a provisional manner. That very same year a law establishing regular censuses was promulgated; while early censuses were undertaken in 1813 and 1835, this law institutionalized a 10-year interval between such surveys.Footnote ¹¹ The work associated with the Anuario Estadístico, which would publish a rich assortment of indicators, would require important adjustments in the country's administrative organization and in the arrangement of the bureaucracy; the first volumes, published in 1860, contained information going back to the 1840s.

The development of Chilean railways in the 19^th century must also be mentioned here, specifically in terms of building new networks in the country. The early railway lines had an important private investment component, sometimes as a joint-venture with the state; such was the case of the railway between Valparaíso and Santiago, and the railway along the country's central valley. These lines were, however, eventually taken over by the state, who also provided technical assistance (Oppenheimer, Reference Oppenheimer1982), as well as providing a basic legal/institutional setup that made these ventures possible.

We wish to underscore the role of third-party enforcement and the rule of law as the second channel linking ideas, institutions, and leaders (North et al., Reference North, Wallis and Weingast2009). While this is related to the provision of order and the supporting markets dimension noted above, it merits an independent mention. In terms of the generation of an environment that provided secure contract-enforcement with low fear of expropriation (with a strong state that would not be extractive), Andrés Bello (and Mariano Egaña) played a crucial function. As details are important here, we should note that not only was the Civil Code vital in terms of detailing the rules for the acquisition, use, and circulation of property, and establishing the foundations of civil equality, including the abolishment of entailed estates (mayorazgos) in the country.Footnote ¹² The Constitution of 1833 also afforded a strong protection of private property. Consider, for instance, Art. 12 No. 5, which stated that the Constitution guarantees to all inhabitants:

Here we must also include the protection of inventions (in Art. 152 of the Constitution), an almost unique element in the region (apart from Brazil and the US), and where Mariano Egaña played a vital part (Escobar, Reference Escobar2014). This represented a vital incentive for new innovations in the Chilean economy.

And still, this is not all. The impersonal nature of government, as underscored by Alberdi (Reference Alberdi1852), and Bello himself,Footnote ¹³ is an important feature of the Chilean political system. Compliance with the laws is also critical; here it is important to consider Andrés Bello's influential (earlier) essay on the “Observance of the Laws”:

Bello's system, with his successful merge of formal and informal norms, made this conciliation possible. In turn, this could be expected to reduce uncertainty in economic activities, a fundamental attribute of a successful institutional arrangement.

The third channel relates to the role of human capital both in terms of institutional design as statesmen build institutions and establish political order as examined above, and also in terms of policy choices. Here, Andrés Bello was important as a channel of good policymaking and transmission of good institutions. His role at the University of Chile, established in 1843, is crucial; Bello was the first president of the university, and held that office till his death in 1865. In fact, the University of Chile played a fundamental function in forming the Chilean elite and in terms of thinking about the nation's problems (Serrano, Reference Serrano1994). Bello was also the editor of El Araucano, the nation's official newspaper, since its creation in 1833, to 1853, thus cementing the intellectual environment in the country. And yet, we acknowledge that the Chilean bureaucracy was limited in the 19^th century and, in this sense, institution building was incomplete (e.g. López Taverne, Reference López Taverne2014).

The human capital formed at the university promoted an expansion of primary education in the country. In 1842 the Normal School for Preceptors, in charge of forming teachers, was created, and a law on primary instruction was promulgated in 1860. The state thus assumed financial responsibility on this issue (Monsalve, Reference Monsalve1998), in what was a leading program in Latin America (Newland, Reference Newland1991). This was a result of a political consensus between conservatives and liberals; possibly, the solution of first-order political problems and a favorable economic environment, also facilitated these agreements.

Another important figure in this respect is Jean Gustave Courcelle-Seneuil, the first true professor of political economy in the country, who lived in Chile between 1855 and 1863, with an interlude in 1858–9 (Couyoumdjian, Reference Couyoumdjian, Peart and Levy2008). Courcelle-Seneuil shares some of the characteristics we have ascribed to Bello, Egaña, and Rengifo: his influence in the country includes a direct role in policymaking, for example, in the (Free-) Banking Law of 1860, and also involves an intellectual influence, in terms of (liberal) economic thought (Will, Reference Will1960). In the latter sense, his impact endured much longer than his tenure in the country (Couyoumdjian, Reference Couyoumdjian2015). All of the above being said, we do not include Courcelle-Seneuil as one of our statesmen since the men we have been examining created the main Chilean institutions of an earlier period: the 1830s and 1840s (regarding the Civil Code, it is important to note that Bello was named part of a Commission that would prepare such a code as early as 1840, and had started writing about this much earlier).

The role played by Mariano Egaña as Attorney General of the Supreme Court between 1830 and 1846, on the other hand, ties more directly with the achievement of political stability proper. In effect, it was in this capacity that he helped imposed order during the “Portalean era.” For his part, Manuel Rengifo was key in terms of having ordered and refinanced the government's internal public debt, which had been a burden in the country (Couyoumdjian, Reference Couyoumdjian and Lira1989). This was a major step in allowing the country to return to the international capital (debt) markets, and in progressively more favorable conditions helping to maintain a stable exchange rate (Bernedo et al., Reference Bernedo, Camus and Couyoumdjian2014).

In the end, there are several contemporary assessments that suggest that Chile was quite exceptional in an institutional sense that it is important to consider. One representative view is that of the Argentinean leader Domingo F. Sarmiento, who lived as an exile in Chile, and who, writing in 1842, noted that:

All of this can be expected to be associated with better institutional quality (and policymaking); Bello's confidence in codification endured. The Patent Law of 1840, where Chile was a leader in the region, is one important example (Escobar, Reference Escobar2014). And during the 1850s several other legislative proposals were implemented that had long-lasting economic consequences: the Joint Stock Act of 1854 (Ley de Sociedades Anónimas), the Mortgage Bank Act of 1855, and the Banking Law of 1860 must be especially highlighted, as the development of the financial sector is a condition for investment and growth (e.g. Beck and Levine, Reference Beck, Levine, Ménard and Shirley2005; Rajan and Zingales, Reference Rajan and Zingales1998). And yet, market developments in some of these areas occurred independently of some of these statutes, which suggests the supremacy of Bello's Civil Code (Islas, Reference Islas2013; also, Couyoumdjian et al., Reference Couyoumdjian, Millar and Tocornal1993).

In turn, all of the above led to the development and expansion of private value-creating entrepreneurial activities and growth. The success of Chile's export-led growth process in the 19^th century can be surmised from the Chilean economic history: the evidence provided by Silva Vargas (Reference Silva Vargas, Durán, Vargas, de Arce, S-M, Cáceres, Ojeda, Huneeus, Sanfuentes, Vicuña, Valdés and Prieto1977), Cavieres (Reference Cavieres1988), Couyoumdjian et al. (Reference Couyoumdjian, Millar and Tocornal1993), Lüders (Reference Lüders1998), and Ortega (Reference Ortega2005) is consistent with the theoretical arguments by Baumol, Litan, and Schramm (Reference Baumol, Litan and Schramm2007) (more recently: Larroulet and Couyoumdjian, Reference Larroulet and Couyoumdjian2017). An additional piece of contemporary evidence may also be relevant here. In 1882 Benjamín Vicuña Mackenna published a list of Chilean “fortunes,” from which we can gather the important role of a “new” prosperity, related to mining, industry, trade, and banking, versus old agricultural wealth.Footnote ¹⁵ The importance of immigrants in this context is also very interesting to note, and suggests the development of a new entrepreneurial elite in the country (Nazer, Reference Nazer, Bonelli and Stabili2000).

As we continue with our narrative we now wish to underscore the operation of the causal links we have proposed regarding the role of ideas, institutions, and development as mediated by statesmen. We also want to rule out the effect of other independent variables that may be at play here, and discuss our representation of Chilean exceptionalism as a quasi-natural experiment.

On the issue of the exogeneity of the “shock” we are considering, we should keep in mind how Andrés Bello came to Chile: Mariano Egaña visiting Europe and meeting Bello is consistent with an exogenous event in a context of similar initial conditions. (The same could be said of how Jean Gustave Courcelle-Seneuil came to Chile, hired by the Chilean government, as examined by Couyoumdjian, Reference Couyoumdjian, Peart and Levy2008.)

Regarding the uniqueness of the statesmen we have focused on, one could wonder whether any type of leader would have also led to similar outcomes. On this point, it is important to note that Simón Bolívar (who happened to leave Caracas for England together with Andrés Bello in 1810), also tried to implement a Code Napoleon in newly independent Spanish America, specifically in Colombia in 1829, but he failed; in this respect, it has been argued that his program was not one of liberal nation building (Mirow, Reference Mirow2000). At any rate, transplanting Bello's Civil Code, and the rule of law, to other countries in Spanish America was not automatic. As Jaksic has argued:

Let us examine some of these points. The importance of political institutions, including political order, in the “rise and progress of the arts and sciences” was raised by Hume (Reference Hume1987); this is a type of argument that has also been made in the literature on development economics and institutions (e.g. Besley and Persson, Reference Besley and Persson2011; North et al., Reference North, Wallis and Weingast2009), and is one where Chile was indeed exceptional. Regarding country size, if we compare similarly populated countries between 1800 and 1850 (using Maddison's data), we find that Chile was quite similar to Argentina and Venezuela, and yet political stability was very different in these countries. Maybe the problem has more to do with heterogeneity of the population, but Chile and Argentina were quite similar in this dimension.

And yet it is possible that other countries had similar constitutional provisions to those of Chile. According to data from the Comparative Constitutions Project (CPP; Elkins et al., Reference Elkins, Ginsburg and Melton2014), respect for private property and protection from unjustified restraint appears in most constitutions in the region in the early post-independence period. But these effects are mediated by acquiescence to the laws in each country (recall Bello's emphasis on the observance of laws), and political instability as manifested in revolutions and “constitutional cycling.” The evidence of Halperín Donghi (Reference Halperín Donghi and Chasteen1993), North et al. (Reference North, Summerhill, Weingast, de Mesquita and Root2000), and especially the figures on civil unrest in the region collected by Dean (Reference Dean1970) are very eloquent in this sense. On the other hand, we can examine the constitutional chronology in the region using the CPP. Looking back from (arbitrarily) 1880 and considering only new constitutions, not amendments, we find that Brazil, Uruguay, and Chile have had the longest-lasting constitutions in Latin America.Footnote ¹⁶ This points to significant experimentation and an evolution of constitutional thought in the region and to an appreciation of the Chilean model both in terms of its main features and its flexibility, successfully merging formal and informal institutions within the context of an impersonal government, opening the path to a more liberal ideology (Halperín Donghi, Reference Halperín Donghi and Chasteen1993). All of the above being said, there are other important dimensions where Chile's constitution was quite distinctive; the protection afforded to inventions noted above is especially noteworthy in this sense.

Can it, on the other hand, be said that Chile was unique because of a favorable economic cycle? On this issue, Saylor (Reference Saylor2012) has proposed an argument in the sense that Chile's economically progressing elites (in the context of its dynamic agricultural and mining export sectors) brokered for state-supplied public goods. Saylor is actually proposing a reverse-causation argument as to the relationship between institutions and development (à la Glaeser et al., Reference Glaeser, La Porta, de Silanes and Shleifer2004), while also putting forward new “motivators” for the build-up of state capacity, focusing especially on the role of (economic) interests. Yet as Rodrik (Reference Rodrik2014) has forcefully argued in a more general context, and as we have been arguing here, ideas also matter, and Saylor tends to dismiss the importance of these effects. While the relationship between the economic elite and politics is a significant issue, the limited weight that Saylor gives to the early institutional constructions is noteworthy. The development of transportation (railway) networks was important in terms of the country's modernization, but the legal developments that made such developments possible must be considered; note, for example, the possibilities for the formation of joint-stock companies (and the availability of human capital in the country). The lack of attention given to the build-up of fiscal capacity is also significant especially since, in comparative terms, his analysis actually highlights the primary role of such capacity; the Colombian case is relevant in this sense (e.g. Deas, Reference Deas1982).

All of the above suggests that Chile was unique because of its unique leaders. But in light of the data limitations we face, which may fail to make our analysis fully conclusive, we propose next to complement our argument with an explicit counterfactual analysis. We once again build on Jaksic's argument.

Had Bello migrated elsewhere (maybe to Colombia?), would Chile have imported his Codes? Probably yes, but the relevant point to consider here is whether this transplantation would have worked out, given that Chile may have been different without the constitutional and economic framework built in the country. We take the conservative victory in 1830 as a given. But in this case, the “Portalean era” may have been different as it is not clear a successful merge of formal and informal institutions, in a system flexible enough to allow for successive adaptations that provide it with greater legitimacy, would have taken place. Thus, there is no guarantee that Chile would have been much different from the rest of Spanish America.

If the institutions built by the statesmen we have studied made Chile exceptional, Chile was unique because it had an early start (in terms of such institution building). As the Argentinean politician and intellectual Juan Bautista Alberdi noted in the early 1850s:

It is thus that Argentina started catching up with Chile from the 1850s. The intellectual role of Alberdi who, notwithstanding the previous comment, considered that the Chilean constitution was not a model for Argentina, is significant here (Botana, Reference Botana1997). Once again, this argument points to the importance of the combination of ideas, leaders, and institutions as generating the conditions for economic development.