Politics are mainly about how to distribute wealth. In democracies, despite the lobbying influence of plutocrats, occasionally the people will vote for radical changes to laws and institutions to tear down existing structures and accelerate progress towards more egalitarian and socially progressive outcomes. This has now happened in Chile where the recent constitutional referendum and local elections have resulted in a cataclysmic earthquake for the conservative establishment.
In agreeing to a constitutional referendum, Chile’s President Sebastian had hoped to calm social unrest, under the assumption that traditional conservative forces would retain enough power in a constitutional assembly to moderate the result. The results of the May referendum have shown this to be a huge and costly miscalculation.
Pinera’s conservatives were obliterated in the election by an alliance of highly progressive candidates from the left, including traditional leftist (socialists, communists, etc…) and independents (greens, feminists, native Indian, LGBT).
This progressive coalition has a solid mandate to put a close to an era defined by the military regime of Augusto Pinochet, the “Chicago Boys” neo-liberal economic reforms of the 1970s and the conservative constitution of 1980.
The circumstances in Chile are reminiscent of the process that resulted in Brazil’s “peoples” constitution of 1988, with its 70,000 pages defining “citizens rights.” The fiscal commitments enshrined in the new constitution have burdened the economy since then and are a major reason for decades of low GDP growth.
The Brazilian constitutional reform was led by leftist politicians who felt aggrieved by the policies of the military regime. Now, in Chile, the new wave of progressives are determined to do away with the legacy of Pinochet.
The primary grievance of Chile’s progressive is that the previous model was structured to benefit the conservative elite and its economic interests. Chile’s pro-business neoliberal model, which promoted open markets and low corporate taxes, will almost certainly be revised with a focus on social distribution. Also, Chile’s innovative privately-managed pension fund system is likely to be unwound and replaced by an expanded social security benefits.
The evolution of the private pension system over four decades of existence is emblematic of the sclerosis that came to characterize the Chilean conservative movement as policy makers came to be captured by the business elite. Initially considered a thoughtful innovation, the system over time has been ineffective because of high costs and low returns. The system should have been reformed years ago but was not. The final nail for the AFPs was the dismal returns over the past decade, as shown below.
In fact, much of what has happened with the AFPs and with Chile in general should be seen in the context of the aftermath of the commodity super-cycle which ended in 2012. Chile, like most commodity producers, underwent a typical boom-t0-bust economic cycle and the consequent “Dutch Disease”: first, financial speculation (e.g. real estate), debt accumulation, overvalued currency, complacency of policy makers; followed by over-indebtedness, currency weakness and capital flight. The bust-phase of the past ten years has caused a deep social malaise for a young and educated population with high expectations, leading to a feeling of disenfranchisement and the recent street protests.
The irony is that a new commodity upcycle may now have started. Pinera’s gambit will have been tragically mistimed.
Excellent article Jean
Very good points, Jean. With Mexico and Argentina already frontally destroying the neoliberal legacy and Peru at the verge of doing so, it seems that this is a regional (maybe global) wealth redistribution movement. Brazil’s Bolsonaro is bucking the trend – in large part due to the populistic nature of Bolsonaro’s conservative approach, highlighted by massive spending during the Pandemic. Tragically, as you point out, the economic models with heavy state hands in Latin America have a dismal growth track record. To distribute wealth, you must first create it. The new populist leftist leaders in Latam seem to have forgotten, or chose to ignore, the historical failure of the model they sponsor. The “neoliberal” leaders ignored for too long the effects of local mismanagement, corruption and globalization on inequality and social exclusion. They still dont have an aswer.
Jorge. Latin America is in a strange time-warp. I recently read a biography of Raul Prebisch which made it clear the exact same sterile debates were going on during his long career from the 20s to the 70s.
Jean, I think it is important to note that the socialist party did very badly in the election, as did the other traditional parties, so one has to be a little careful with the statement “alliance of highly progressive candidates from the left, including traditional leftist (socialists, communists, etc…) and independents (greens, feminists, native Indian, LGBT)” . The only “traditional”leftists who polled well are the hard core communist party who had lost space in Chile in the past . Unlike Brazil, where the traditional politicians were very much in the saddle, for better or worse, the open question here is regarding all these independents, and what will they do. I do not disagree with the gist of your article, though I think it is fair to say Pinera had no choice except to call a constitutional assembly.
James. Thanks for your insight. I think what matters is that the the assumption that the conservatives would have enough votes to moderate the process turned out to be wrong. If Pinera had no choice, as you say, that’s because he was played by the left and cornered himself. I don;t think Chilean history will see him in a good light.