Former President of Chile Ricardo Lagos recently published, The Southern Tiger: Chile’s Fight for a Democratic and Prosperous Future and asserted:
A society that is built on neoliberal economic ideas will indeed foster GDP growth and innovation. But unless it is complemented with public policy aimed at promoting equality, a free-market society will always be inherently unfair.
Really? Capitalism is hopelessly unfair? It’s unfair that everyone in Chile is much more prosperous than his counterparts 20 years ago? Chile is the only capitalist country in the world larger than Hong Kong and Singapore and Chile is the greatest success story of the Americas in the last 20 years, thanks to capitalism. Nevertheless, the socialist movement is strong and threatens to destroy Chilean prosperity.
Lagos frequently enjoys slandering capitalism but his book is an excellent summary of Chile during the last 40 years. The remainder of this post contains short excerpts from the book.
Before long, his wayward allies, Britain and the United States, changed governments, and Pinochet’s fortunes turned around. Margaret Thatcher and Ronald Reagan swept into office with popular mandates to downsize the state and stand up to international communism, and they were ideologically sympathetic to what many in the West were calling the “Chilean miracle.” (Later, Thatcher hailed Pinochet’s “positive legacy” and credited him with overcoming the “chaotic collectivism” of the Allende years and turning Chile into “the model economy of Latin America.”) That “miracle” could never have happened in a democracy. The Chicago Boys’ policies created enormous hardship for millions of Chileans—about half the country, in fact. Textile markets opened abruptly to overseas competition, and 145,000 of the industry’s 175,000 Chilean workers were unemployed over-night. De Castro took a buzz saw to the state, reducing the number of public employees from 700,000 to 550,000. Labor organizations, which had reached the pinnacle of their influence under Allende, were obliterated by arrests, detentions, and just plain fear.
The retribution went further, and as was so often the case under Pinochet, it was the poor who suffered the most. On May 14, the president mobilized the military garrison in Santiago for the first time. Brigades of soldiers flooded into the city’s most crowded neighborhoods, demanding that people leave their houses. Everyone, from teenagers to 60-year olds, was called out onto the streets at 5 o’clock in the morning. The military moved them to football fields or other public places, where soldiers subjected them to a “review.” Were they loyal to the regime? Pinochet inflicted upon the most humble of men a complete humiliation—to be treated like common criminals in their very homes.
Still, no amount of force could stamp out the very real impact the demonstrations were beginning to have. When Valdés was released from prison shortly after the third protest, he galvanized the opposition against Pinochet. He writes in his memoirs that the policeman holding him in detention told him he would be taking the afternoon of the protest off; he had asked for the leave so that he could take part in the demonstration.
At the end of it all, the prosecutor seemed to have melted ever so slightly, showing a bit of empathy even as his face remained cool.“I am going to declare you arraigo,” he told me, a designation used by judges to prevent those who had committed crimes from leaving the country. “Sir, you know that nothing that I have done warrants this,” I protested. The prosecutor didn’t look me in the eye, but simply pulled a pen from his shirt pocket and began saying. “Sir, this is the only option I have. On the phone just now, I have received countless calls instructing me to keep you in prison, detained as the intellectual author of all that has happened. I have refused to do so, but the arraigo is the least that I can do without having problems of my own.” Then, he added, “I only have this,” showing me his pen. “They have guns. That is the reason I have to order you to stay in the country. I am alone.”
By far the hardest part of the campaign was raising money. Luckily, to this day in Chile, campaigns are not terribly costly, since advertising on television is prohibited. Still, radio and newspaper advertisements are not free. I’ve always avoided this part of politics, and in the Senate race, I also put money second, despite the many warnings that this would imperil my chances of being elected. I preferred to get out there and simply meet people.
In the Senate, we also won the election, but Pinochet’s camp would still have more representatives, since added to the right’s victories were those senators appointed by Pinochet himself. Aylwin would have to govern in consultation with the right on many occasions, as would also be the case for his successor, Eduardo Frei, and later my government as well. It was only after the designated Senate seats for presidential appointees and expresidents were finally done away with in 2005 that Concertación could finally win a small majority.
We were unable to change the undemocratic voting system that gives an advantage to minority parties. Nor were we able to lift a very odd, neoliberal rule that prohibited the state from doing business in any sector where private businesses operate. To this day, the Chilean government can’t build solar power plants or craft an updated electrical grid; it’s illegal for us to do business anywhere we might compete with a nonstate company.
It’s the other half of the short term solution, taxation, where Chile falls short. In every other country in the Organisation for Economic Cooperation and Development (OECD) group of developed economies, inequality improves a bit after taxation because the government collects more revenue from the wealthiest than from its poorest citizens. But in our own case, the distribution of income remains the same before and after the collection of taxes.
One of the keys to equitable growth is a country’s labor laws. Minimum wages can ensure that firms offer competitive salaries. But more importantly, workers must have the ability to organize and demand fair working conditions and compensation linked to better productivity. It’s no coincidence that the world’s most equal countries, for example, those in Scandinavia, also have the most developed labor unions, which are adept at negotiating without pushing their demands to confrontation.
This is the first challenge of our coming decades—not just in Chile but across the world. In the United States, for example, the problem is increasingly acute. In the 1970s, the top 1 percent of society earned 9 percent of the country’s income. Today, that number is more than 20 percent. Inequality has more than doubled just in the past 40 years. I’m certain that this stems from the very tendency that is often cited as America’s strength: a reliance on free markets. A society that is built on neoliberal economic ideas will indeed foster GDP growth and innovation. But unless it is complemented with public policy aimed at promoting equality, a free-market society will always be inherently unfair.
Climbing the Economic Ladder in Chile
Chilean President Warns of Danger of Socialism
Income Inequality in Chile, Europe, and the USA
Does the Chile Economic Model Remain Intact?
Is Chile Losing the Battle of Ideas?