From Model to Muddle: Chile’s Sad Slide Into Upheaval
Chile’s government has sought for years to fix inequality problems that date to free market reforms under Pinochet. It just wasn’t nearly enough.
SANTIAGO, Chile—Chile’s most diehard protesters may be young people, but their grievances possess a long lineage, one decades in the making.
A previous manifestation of the present turmoil occurred nearly a decade ago. Thanks in large part to a new program offering government-backed student loans, in 2007, 70 percent of students in Chile’s expanding higher education system were the first generation of their families to reach college. It was a widely lauded achievement, one more sign that Chile was a cut above the rest in its Latin American neighborhood. But then a few years later, these same students began to realize that, even if they did graduate, they were headed for huge student loan debts and lousy, low-paid jobs, because most were unable to get into the top universities. In May 2011, their anger swelled into mass protest, exposing the downsides to privatized education and the stark inequalities in Chilean society.
Those student protests—until now—were the largest demonstrations the country had seen since the return of democracy 30 years ago. And Chile’s president then, as now, was Sebastián Piñera.
With Chile’s inequality gap still unsolved, last month the protests were back, this time in greater strength and more violent, causing Piñera to send soldiers into the street and call off two major global summits scheduled for Chile for the end of this year: the annual leaders summit in mid-November of the Asia-Pacific Economic Cooperation and the December meeting of COP25, the annual United Nations climate change summit. “When a father has problems, he must always put his family before all else,” Piñera said in late October in announcing the cancelation of the international conferences to focus on restoring “public order, security, and social peace.”
A small protest in mid-October by dozens of high school students jumping subway turnstiles over a hike in transit fares has quickly exploded into a full-bore Chilean uprising that has become the most significant chapter in this nation’s history since the October 1988 plebiscite that put an end to the 17-year Augusto Pinochet military dictatorship. From Santiago to other cities and towns such as Concepción and Valparaiso, anger over long-festering economic inequality issues, low wages, meager pensions, and a rising cost of living have Chileans pouring into the streets in protest.
The irony is that, until recently, this South American country of 18 million people has been often dubbed “the Latin American tiger” by international technocrats and others for its political stability and consistent economic growth. In mid-October, just days before he decreed martial law in an attempt to quell the protests, Piñera boasted in an interview with the Financial Times that the country is an “oasis” in a Latin America region that has long been rife with social unrest.
Even more than that, what the economist Milton Friedman once called the “miracle of Chile” has been for years touted as a long-successful experiment in deregulation and open markets by University of Chicago economists and other free-marketeers. After the 1973 military coup, the country would become a living experiment for Friedman’s neoliberal free market ideas, with the economist and some of his former Chilean pupils urging Pinochet to implement them as a “shock program” to pull the country out of economic malaise.
These same market principles would later become central as well to the Washington Consensus, the economic policies that the International Monetary Fund and World Bank have often foisted upon developing countries as part of their structural adjustment programs as conditions for loans. The harsh austerity measures often involved in their plans have been, as in today’s Chile, the object of fierce street protests in many countries.
Were all the international pundits and experts wrong?
Overall, several macroeconomic indicators do show that Chile’s market economy has had remarkable success since the country’s return to democracy three decades ago. Moreover, the Chilean government has moderated its policies since it was known as a free market haven under Pinochet. After Pinochet’s fall, the country moved from an orthodox neoliberal economy to a “growth with equity” agenda. Chile continued an emphasis on fiscal responsibility, stabilizing inflation, aggressively pushing for free trade and export expansion, and deepening economic privatization that has seen the economy grow, on average, about 4 percent annually since 1990. The country now has the highest GDP per capita in Latin America, and the World Economic Forum ranks it by far the region’s most competitive country. Most significantly, steady economic growth together with creating modest social support programs cut extreme poverty by more than 30 percent, to 8.6 percent in 2017.
Still, those numbers only tell part of the story. Privatizing health care and education has led to more choices and greater access, but it also left the poor and middle class saddled with mounting debt. Chile’s privatized pension system will leave many Chileans nearly destitute in old age, with average pensions below the paltry minimum monthly wage of 301,000 pesos (about $400). And the cost of living in Chile has gotten increasingly expensive while wages have remained low. Half of Chileans earn below just 400,000 pesos per month (equivalent to $500), and the distribution of household income in Chile shows that just the top 20 percent earn more than they spend each month on food, transport, housing, and basic services.
“We are talking about large portions of the population that are not benefiting. The precarious middle class is especially angry,” said Rossana Castiglioni, a political scientist at Diego Portales University in Santiago. She said effective social nets are missing in Chile, because the center-left coalition governments that followed the dictatorship made only tepid attempts to make structural changes to the economic model. “Some thought the model worked … others simply did not fight for things they thought they would lose in the Congress.”
Some of the anger by citizens has also been aimed at Chile’s longtime rich-poor gap. According to World Bank data, 1 percent of Chileans hold 33 percent of the country’s wealth, making it one of the 20 most unequal countries in the world.
And with the slow buildup of inequality, Chile has gone from model to muddle. Subway stations, pension offices, buses, and more have been lit ablaze almost daily—even historic churches have not escaped. Supermarkets, pharmacies, and shops have been ransacked. In the center of Santiago, building after building has been plastered with graffiti and slogans denouncing the government or frequent declarations that “Chile despertó ” (Chile has awoken). Thousands of Chileans have engaged in a Latin-style form of protest called cacerolazos, banging pots and pans from the balconies of apartments or at spontaneous gatherings in the streets. One day last month, some 1.2 million people came together in a demonstration at a city square in Santiago that has since been renamed by protestors as “Dignity Plaza.”
One month later: 22 people are dead, and more than 2,200 have been injured, including 230 people who have lost their eyesight from the rubber bullets, pellets, and tear-gas bombs fired by state police at protesters. Well over 6,000 people have been arrested and jailed, according to the Chile’s National Institute for Human Rights, which has filed 365 lawsuits over illegal detentions, beatings, torture, and other human rights violations they say have occurred due to the conflict.
The lesson is obvious, some analysts say. “Countries need to take much more seriously how to reduce inequality at the very top if they want to become more successful and stable economies,” said Diego Sánchez-Ancochea, the head of the University of Oxford’s Department of International Development.
A global commodity boom from 2003 to 2013 is frequently credited with reducing inequality across Latin America and allowing 100 million more Latin Americans to join the middle class. But Sánchez-Ancochea said the region’s reliance on primary goods and income levels of the region’s rich elite remained unchanged. In the meantime, the redistribution of income instead occurred from the middle class to the poor. A new lower middle class formed—one with new demands and expectations. He said that while economic growth does contribute to tackling inequality, it’s not enough to prevent crises like that of Chile spreading to other countries.
“Tax systems need to become much more redistributive, and wages need to increase in labor markets,” Sánchez-Ancochea said.
Chile’s economy and infrastructure are suffering greatly right now, and it has forced the center-right Piñera government and the private sector to make concessions they had brushed aside repeatedly in the past. “We see that the people are tired,” Alfonso Swett, the president of Chile’s largest business group, the Confederation of Production and Commerce, told reporters last month. “We heard a loud collective cry that maybe before we heard only in muted tones, and this is a call that we must meet with humility.”
Initially, the Piñera government moved to calm Chile with a series of measures targeted at the poor and middle class grappling with the rising cost of living. The government announced it would immediately increase government-subsidized pensions by 20 percent, raise the minimum monthly wage to 350,000 pesos ($440), cancel a recent 9.2 percent increase in electricity bills, and cut the prices of medicines for the elderly. But Piñera’s social agenda was received by most Chileans as too little, too late, and the protests only grew in scope and size.
But late last week, a “social pact” was reached among representatives of Chile’s main political parties to hold a referendum in April on whether to write a new constitution. Many are cautiously optimistic.
David Altman, a political science professor at the Pontifical Catholic University of Chile in Santiago, believes democratic reforms through replacing the constitution fashioned by the Pinochet dictatorship in 1980 will ultimately help diminish unrest. “Chile has lacked the means to hear and process popular demands,” he said. “Citizens have no meaningful tools to change their situation unless they throw a couple of Molotov cocktails or block a road. Unless there is violence, the political elite don’t want to hear.”
Eight years ago, Giorgio Jackson, as president of the student union at Pontifical Catholic University, helped to lead protests for reforms of Chile’s education system that also raised inequality issues. In a meeting with the Chilean senate education commission, the then-student leader told politicians they ought to be more concerned with being “a guarantor of rights and not of consumer goods.”
Today, Jackson, 32, is a congressman and a leader of the Chilean left. He also represents a new generation of Chilean youth that are unencumbered by the country’s harsh, authoritarian past under Pinochet and eager to change the status quo. He sees forging a new constitution as opening the way toward dismantling a system that has privatized health care, education, and water resources but says there is a lot of distrust among Chileans. “The political parties in this country always seem to reach agreements that don’t make much of a difference,” Jackson said.
Surprised as anyone about the scale and scope of Chile’s social crisis, Jackson said social and economic conditions here had long been ripe. “The economic model has been benefiting only the few,” he said. “The Chilean family now realizes most workers in this country are stuck in a cycle of poverty and marginalization that is unacceptable.”