Is a huge success story going the way of socialist Europe?
Whenever anyone thinks of economic success stories, Latin America doesn’t exactly leap to mind. For the most part, modern Latin American economies have been characterized by corruption, cronyism, statism, populism, boom-bust cycles, failed reform efforts, and colossal meltdowns. There is, however, one major exception to that rule — Chile.
Beginning with General Pinochet’s military regime in 1973 and continuing after the 1990 transition to democracy, Chile’s economy underwent significant liberalization. Today, Chile is officially classified as a developed country. And the benefits have encompassed the less well-off. As the World Bank stated in 2016:
The percentage of the population considered poor (those who live on US$ 2.5 per day) declined from 7.7 percent in 2003 to 2.0 percent in 2014, and moderate poverty (US$ 4 per day) fell from 20.6 percent to 6.8 percent during the same period. Moreover, between 2003 and 2014, the average income of the poorest 40 percent of the population increased by 4.9 percent, a figure considerably above the average income growth of the population as a whole (3.3 percent).
Some nations would kill for these numbers. They are primarily the result of Chile embracing free trade, labor market deregulation, anti-inflationary policies, large-scale privatizations, and strong private property protections.
Undergirding this has been the long-term commitment by intellectuals, such as those associated with the think-tank Libertad y Desarrollo, to making tough-minded and in-depth arguments for market economies and their institutional prerequisites such as rule of law. Above all, many Chileans decided decades ago to stop blaming “the North” and mysterious “interests” “out there” for the country’s problems.
All these hard-won achievements, however, are now under threat. Since 2014, President Michelle Bachelet’s center-left administration has sought to undermine what Chileans call “the model.”
In the name of equality (by which they mean the equalization of starting points and results), Bachelet’s government is trying to turn Chile into a European social democracy. The fact that social democracies are faltering everywhere in Western Europe isn’t, apparently, a relevant consideration.
As I learned during a recent visit to Chile, the word used to describe this dismantling project is retroexcavadora (literally, “backhoe”). It was first used by a left-wing senator, Jaime Quintana, in March 2014 to explain how the government would root out the Chilean model’s political and economic foundations.
In 2016, for example, Chile’s labor market laws were changed to make it harder for businesses to let employees go. The same legislation forbids companies from extending benefits to workers who don’t belong to unions. It also privileges unions as the main bargaining unit, regardless of whether individual workers actually want to belong to them. So much for the right of free association. Instead, it’s back to the redundant “capital-and-labor” logic of the 19th century.
Chile’s educational institutions are also under assault. This involves a concerted drive by Bachelet’s government to undercut a largely user-pays, demand-driven higher education system. The goal is to extend “free” higher education to ever-increasing numbers of students. How this “free” learning will be paid for is, at best, unclear.
Accompanying this measure are efforts to diminish parental choice, private schools, and Chile’s voucher system. Vouchers, it appears, have produced good outcomes for Chilean students across socioeconomic levels. They have also boosted private school attendance. By 2011, about 40 percent of Chilean students from the lower income bracket went to private schools.
Again, however, what matters to the Chilean left is the ideological priority of equalization and its distrust of non-public institutions. Free choice is out. Leveling down is in.
The Bachelet government’s number-one target, however, is Chile’s constitution. First approved via referendum in 1980 and considerably modified through referenda and legislation since then, the Chilean left has never accepted its legitimacy. That’s partly because the constitution was implemented under Pinochet. But it’s also because Chile’s constitution limits state power in ways which are anathema to the left.
Their long-term goal is a new constitution: one that waters-down the present constitution’s strong guarantees of private property and the commitment to the Catholic principle of subsidiarity, which pervades the text. Subsidiarity’s decentralizing implications are especially important, because they ensure that Chile’s constitution attaches a higher premium to limited government than your average Latin American country.
There’s considerable evidence that Bachelet’s government is trying to rig the consultative process for the drafting of a new constitution. Moreover, based upon what Bachelet ministers have said, their preferred arrangements would take Chile closer to the constitutions adopted by left-populist governments in countries like Ecuador and Bolivia in recent years. A quick glance at these documents soon indicates that they are the polar opposite of Chile’s present constitutional provisions — not least because they amount to institutionalized populism.
Retroexcavadora, however, is now encountering problems. Just five minutes of conversation with Chilean parents soon reveals just how they resent the government’s willingness to sacrifice educational choice and quality of education to the god of equality. Angry parents means angry — and motivated — voters.
Another difficulty is that President Bachelet herself is caught up in a series of corruption scandals involving family members. Although Bachelet was once very popular, her approval ratings presently linger in the mid-20 percentiles.
Nor is a perceptible decline in economic conditions helping Bachelet’s government. Chile’s unemployment rate, for instance, is now 6.4 percent. That’s up from 5.8 percent a year ago. In 2016, the Chilean economy expanded at the anemic European-like growth-rate of 1.6 percent, down from 2.3 percent in 2015. This year’s growth projections aren’t that great either.
The question of whether retroexcavadora succeeds, however, ultimately depends on presidential and legislative elections due at the end of 2017. The constitution bars Bachelet from seeking another consecutive term. But it does allow her predecessor, the conservative pro-market Sebastian Pinera, to run. And running he is.
It’s too early to predict the likely outcome. Yet one thing is certain. If Chilean voters decide they want to maintain the model, Chile will continue to show that Latin America nations aren’t doomed to become Argentina, let alone left-populist disasters like Venezuela. On the other hand, if Chileans effectively endorse retroexcavadora, Latin America risks losing the example that shows the entire continent the politics and rhetoric of envy need not be its future.
For 647 million Latin Americans, the stakes couldn’t be higher.
Agência Brasil/Creative Commons