Zack Blumberg: Has neoliberalism run its course in Chile?

Thursday, November 7, 2019 - 5:47pm

–

For the past several weeks, Chile has been rocked by massive protests, mainly in the capital city of Santiago. Traditionally, protests of this scale are the result of major political, social or economic decisions made by a government that citizens feel would dramatically impact their lives. However, in Chile’s case, the uprising was caused by a seemingly innocuous change: the city of Santiago’s decision to raise the price of metro tickets by 30 pesos, or about four cents. While this may seem like a strange catalyst for nationwide protests, the increased metro fare cannot be viewed in isolation. For many Chileans, this is representative of systemic problems with their nation’s society and government which have gone on for far too long. 

Since the mid-1970s, Chile’s socioeconomic identity has centered on neoliberalism, and this free-market ideology helped spur a period of growth which economist Milton Friedman once called the “Chilean Miracle.” However, while some raw data may point to Chile’s neoliberal period as a time of success, this is misleading. In reality, Chile’s economic growth has almost exclusively benefited the social and political elites, and the country’s neoliberal policies have left most citizens struggling mightily. Ultimately, what Chile and Chilean citizens need is not a return to lower metro fares or a reshuffled government, but rather a systematic shift away from the neoliberal economic policies that have propped up economic growth for decades, but have simultaneously failed to provide for the vast majority of the Chilean people. 

To begin, it is important to critically evaluate the Chilean economy’s impressive statistical growth of the past 40 years, since on a purely numeric level, some of the numbers are undeniably strong. In 1980, Chile’s GDP per capita sat at $2,577.32 per person, essentially level with the world average of $2,530. However, by 2013 Chile’s GDP per capita had risen to $15,941.40 per person, substantially higher than the global average of $10,764 per person. In South America specifically, Chile’s economic trajectory has followed a similar path. Around 1980, the nation’s wealth was in line with the regional average, but by 2013, it was one of the wealthiest nations in South America. 

However, these statistics don’t tell the whole story of Chile’s economic development under neoliberalism. First, overall economic growth has been stagnating in Chile in recent years. Since the nation first introduced its neoliberal economic policies in the 1970s, annual GDP increases of over 5 percent have been common. However, in recent years this growth has tailed off, and since 2014, Chile’s GDP annual growth rate has never surpassed 2.5 percent (the five year period from 2014 to today is the only period in which this has happened). More importantly than the country’s overall economic standing, Chile’s neoliberal policies have created massive inequality within the country, which is at the heart of many protesters’ discontent. Today, Chile is the most economically unequal member of the 36-country Organisation for Economic Co-operation and Development, with a greater wealth disparity than countries such as Mexico, Turkey and Hungary. Additionally, while the country’s overall poverty rate has declined, much of the urban population is still impoverished.

Unsurprisingly, Chile’s focus on privatization and market-based policies has created a societal structure which worsens the difficulties already inherently associated with working-class life. The most prominent inequality in Chile’s current political system is the nation’s tax plan, which has two major problems: It both fails to raise sufficient revenue for federal projects and is highly inequitable, frequently foisting a great deal of the nation’s costs onto the lower class. First, Chile has by far the lowest tax revenue of any OECD nation, which prevents the government from effectively providing public services to the people, a problem which is particularly pertinent for lower and middle-class Chileans. Intertwined with this is Chile’s second problem, which is the nation’s extremely unprogressive tax system. Today, Chile only has three income brackets taxed at above 20 percent (for comparison, under President Trump’s tax cut, the United States has five). The nature of Chile’s neoliberal tax system means the nation misses out on a chance to actually raise revenue from society's wealthiest members, leading to limited government spending or disproportionate taxation of the working class, either through increased income taxes or an excessive reliance on regressive policies such as sales tax. 

Taking all this into account, it’s easy to see why protesters across Chile have taken to the street. Their nation’s economic model has promoted growth overall, but has left the vast majority of the citizenry behind. This is not a protest over a particular leader or corrupt government official, but rather over an entrenched economic system that requires substantial overhauling. So far, Chilean leadership seems unwilling to acquiesce to the protesters demands, with President Sebastían Piñera removing some hardline government officials, but not making any drastic changes. Furthermore, the government has cracked down on protests with violence, something that has a very ugly history in Chile. Unfortunately for Piñera and the government, the endemic problems behind the citizens discontent are omnipresent and are unlikely to simply fade away. In order to truly counter these problems, Chile must finally drop its focus on neoliberalism and make a systematic shift toward raising taxes, nationalizing certain goods and services, and focusing on providing for its working-class citizens — then, and only then, will the problems behind this movement be abated. 

Zack Blumberg can be reached at zblumber@umich.edu.