Neoliberalism Created the Crisis in Chile

Decades of free market fundamentalism are the root cause of the ongoing crisis in Chile. Addressing the staggering levels of inequality will require a break with neoliberal dogma — an inconceivable move for the country’s billionaire president.

People affected by gas walk in front of a mural of Gabriela Mistral during a protest against President Sebastian Piñera on October 29, 2019 in Santiago, Chile. Marcelo Hernandez / Getty

The color red in the Chilean stock market and the plummeting value of the peso have not been caused by fiscal deficits, economic bubbles, or the political stance of the government. On the contrary, Chile has long been praised for the soundness of its macroeconomic and fiscal policies, as well as the strength of its financial and banking sectors. Its current right-wing government, headed by the billionaire President Sebastian Piñera, is a champion of foreign investment, and has gone so far as to pledge benefits for corporate taxpayers.

The origins of the current economic malaise are social. Chile’s fundamentalist free market economic model, with its extreme inequalities, rising costs of living, and volatility, has pushed people in Chile to desperation. With the government seen to be growing ever closer to corporate interests, a growing sense of injustice has driven people out onto the streets. It will take deep structural change to satisfy their needs.

The Neoliberal Agenda

Chile’s economic model, with its “responsible” monetary and fiscal policies, fundamentally encourages inequality. It is built on low social spending, weak redistributive measures, an economy based on the extraction of economic resources, the privatization of water, and strong private sector responsible for the provision of social services.

While private pension funds, health insurers, and universities have been reporting record earnings, Chilean households have experienced the inverse: long working hours, poor services, extremely low pensions, rising prices, and growing household debt. Exporters of salmon, avocado, and lumber are doing well; the rest face pollution and severe water shortages.

Chile has one of the highest inequality coefficients in the world, for which it has attracted broad criticism. The World Bank and the OECD — and even business consultants — have for years been calling for greater redistributive measures in Chile, but the country’s economic growth and high-performing stock market have made it convenient to turn a blind eye to the social consequences of Chile’s economic model.

Chile’s inequalities rose sharply during the Pinochet dictatorship (1973–89). The unprecedented liberalization of trade and finance in the 1970s was accompanied by a remarkable decline in corporate and wealth taxes and the elimination of value-added tax exemptions for basic commodities through introducing a flat rate, which made the tax system extremely regressive.

Over the course of the 1980s, aggressive policies were rolled out which helped to concentrate wealth in the hands of Chile’s elite. High public subsidies were used to rescue failing local banks and economic groups in the aftermath of the 1982–83 financial crisis; public service provision (education, health, and pensions) was privatized; labor market reform virtually eliminated the right to collective negotiations and strikes; and further benefits were granted for corporate tax payers and buyers of luxury goods.

Concertación and Nueva Mayoría, the center-left coalition that governed Chile for most of the post-dictatorship period (1990–2009; 2014–17), did succeed in providing some relief for the country’s poorest, pulling them just above the poverty line (households in extreme poverty declined from 10.6 to 3 percent between 1990 and 2011; those in poverty from 22.7 to 6.2 in the same period). They also managed to slightly curtail the country’s rampant social inequality (between 1990 and 2011, the Gini coefficient moved from 52.1 to 49.1. That being said, this decline was not steady: In 2000, the Gini hit as high as 54.9, before coming back down again)

But inequality in Chile is not just measured by income levels. State services are in peril. For those in low-paid jobs — half Chile’s workers receive the equivalent of $500 or less, in one of the most expensive countries of Latin America — a very basic, severely underfinanced public health care is available —of a very low quality.

Access to social security, which is provided through private companies, is only available to those working in the formal labor market. For those working informally (almost 40 percent of the working population), there is only the most basic coverage: 50 percent of pensioners receive a pension that is worth less than half the minimum wage (currently set at $400). This practical lack of social security has meant that most Chileans live in a permanent state of stress and uncertainly.

Breaking Point

It is no coincidence that Chile’s mass protests erupted during Piñera’s time in office. Piñera won the presidency in 2017, largely on the promise of a return to the exceptionally high economic growth levels seen during his previous term in 2010–13 (Michelle Bachelet’s left-leaning coalition governed in the interim). In the context of the slowdown of the global economy, notably the fall in natural resources prices on which the Chilean economy depends, it was a promise that could not be kept; wages and employment rates both fell under Piñera.

There is now plenty to inspire rage. Corporate collusion has forced consumer prices to rise (recent examples have involved diapers, toilet paper, medicine, and chicken); the diversion of public funds for private expenditure (often by members of the police and armed forces) is a common case; and corporate tax evaders go unpunished — those brought to court are simply sentenced to compulsory ethics classes.

If these complaints were not uncommon throughout the post-dictatorship period, the Piñera government’s proximity to corporate interests has made it harder to look away. Treating the public with an arrogance verging on parody makes matters worse. See, for example, the Minister of Finance, who in the weeks leading up to the insurgency called on Chile to “pray for the economy.” Meanwhile, faced with popular criticism over the transport fare hikes, the Minister of Economic Development counseled Chileans to wake up early to avoid the more expensive rush-hour fares. This in a city where a nine-hour workday does not include a lunch break, and public transport commutes often takes between one and two hours each way.

Spontaneous Reaction Against a Utopian Project

The protests erupted on October 18 in response to the government’s decision to use armed police to crack down on high school students evading fares. Piñera’s imposed curfew and reports of disproportional police violence and torture revived trauma of the Pinochet dictatorship and popular rage has at times been expressed by way of arson, the looting of supermarkets and pharmacies, and violent clashes with the police.

Since October 18, a new popular movement has emerged. With no centralized leadership and articulating only the broadest demands (justice, dignity and, more recently, the resignation of Piñera), it has focused on maintaining popular unity through regular marches — with the banging of pots and pans — and encouraging self-organized neighborhood meetings. From all accounts, the movement does not seem to be driven by any particular ideological project; rather they express a pragmatic spirit and a broad range of social interests affected by the economic model.

As well as various left-wing forces that have been supporting the demonstrations, certain businessmen have also come forward to speak about the need for change. There are reports that their involvement has produced tension among key business associations; it’s possible that the popular explosion has broadened certain fissures within the dominant classes.

Dissatisfaction with Piñera is mounting across society, even as the government attempts to sow division. Piñera has attempted to paint the protests as either pure violence — thereby divesting it of its political content — or as the work of a powerful enemy, such as Maduro’s Venezuela.

Nonetheless, polls show that support for Piñera’s administration stands at just 14 percent — a historic low in Chile. On the other hand, more than 85 percent of respondents back the protests. Seeking to respond to the popular backlash, the government has reversed the repudiated transport fare hike, as well as rolling back the recent increase in electricity prices. But nothing more substantial has been proposed.

The government has now promised to work on the social agenda, though it wrongly interprets the current crisis as a problem of income that it can solve through modest direct cash transfers. It promises to increase the basic pension by 20 percent, to introduce a new compulsory (and private) medical insurance for serious diseases, and to increase the minimum wage from $400 to $470 through a public subsidy.

All this essentially implies public transfers of wealth to private providers of social security, who already extract high profits from the services they provide. In any event, the government’s proposed reforms have little bearing on the social security of almost half the population, who exist in the informal labor market.

Look to the Streets

Addressing social demands will require increased public spending, which will mean a break with neoliberal dogma — a concept alien to the current government. Necessary measures would put a limit on the exponential wealth increase of Chile’s dominant classes, which would in turn reduce economic growth and involve some capital flight.

But blinded by its fundamentalist economic liberalism, the government perceives planning, regulation and control as inherently dangerous to the economic system. It is unlikely to change course, even though such inflexibility itself threatens destruction of all it holds dear. At the same time, opposition parties have struggled to engage the movement, and members of parliament are suffering critically low public confidence ratings.

The greed inherent in market liberalism is destructive of the social foundations on which the global economic system was erected. Where these contradictions cannot be resolved, violence and political instability are likely to intensify. In Chile, these social foundations are under so much strain, the system threatens to collapse entirely. It shows that neoliberalism’s attacks cannot continue indefinitely.