Does the Chile Economic Model Remain Intact?

German newspaper compares Chile student protests to Europe in 1968. Photo courtesy of Germán Póo-Caamaño via Flickr.

Miami Herald Columnist Andres Oppenheimer claims that although the Chile economic model is shaken, especially by Communist Party leaders such as Camila Vallejo of the student protest movement, it remains intact. He cites:

• Chile is planning to become the first Latin American country to join the world’s most advanced economies — those that have a per capita income of more than $25,000 a year — by the end of this decade.

• Despite suffering a devastating earthquake in early 2010, Chile’s economy grew by 5.2 percent last year, and a whopping 8.2 percent during the first six months this year.

• Inflation is at about 3 percent, one of the lowest rates in Latin America.

• Credit rating agencies rank Chile with an A+, while most rankings of political stability, rule of law, and corruption control place Chile way ahead of other Latin American nations.

• Chile ranks No. 1 in Latin America in the PISA student achievement test of 15-year-old students in math, science and reading comprehension.

Is that an outlook similar to Pangloss in the Voltaire’s book, Candide, where no matter what tragedies hit Pangloss, all is best in the best of all possible worlds? In other words, will Chile follow in the steps of Europe and the USA and commit suicide with expanded government?

The reason that Chile is prosperous is that a dictator, Pinochet, imposed by force something resembling capitalism, and it worked so well that even their opponents retained most of it during their 20 years of power. Unfortunately, all democracies eventually kill themselves the same way: as soon as the voters figure out that they can enrich themselves by voting rather than working, the polity degenerates until everyone steals from everyone else.

Democracies usually don’t kill themselves quickly, as Japan and Germany did in WWII by attacking stronger countries. Instead, legislators please one faction today, say mothers who want to increase their handout period to six months, and another faction a year later, such as students who persuade legislators to force taxpayers to reduce tuition. No new handout generates much outrage, but like software cruft, it is eventually fatal. Columnist Oppenheimer illustrates the tendency:

My opinion: Chileans rightly support the students’ specific demands for more affordable higher education, but won’t support “changing the economic model” that — largely thanks to responsible left-of-center governments — has led Chileans to live better in recent decades.

You can’t have it both ways! You can support the demands of the faction and change the economic model, or you can oppose them and retain the model that led to prosperity. My guess is that Chile economic growth will descend to resemble Europe and the USA in 30 years, but I hope growth lasts longer.

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