Redressing the Balance? Inequality in Chile

Chile’s presidential election offers a chance to tackle inequality levels among the highest in the world but will require a break from the status quo, something the country has struggled to achieve in recent decades.

As the Chilean elections reach the decisive second round, now is a good time to revisit Chile’s historical problem with inequality. The left wing coalition of Frente Amplio (Broad Front) surprised pollsters by gaining 20 per cent of the popular vote, almost beating the centre-left coalition into second place and a potential second round. Since the return of democracy in 1990, Chilean politics has been dominated by a duopoly of centre-left and centre-right coalitions. However, despite steady economic growth since the end of the dictatorship, frustration with the political establishment has grown and numerous sectors of society have questioned how this upturn in national income has, or hasn’t, been distributed across the country.

Statistical analysis shows that high levels of socioeconomic inequality have been constant throughout Chile’s history. While Chile has experienced impressive economic growth during several periods of its history, its extreme concentration of wealth has proved difficult to overcome. Of course, the military coup that overthrew Salvador Allende’s socialist government in 1973 curtailed a series of measures specifically aimed at income and wealth redistribution. However, more than 25 years after the return of democracy, Chile continues to struggle with the problem of inequality.

Socioeconomic inequality in Chile is a many-headed beast, encompassing education, healthcare, institutionalised corruption, ethnic discrimination and geography, as well as a multitude of other factors. Currently topping the list of OECD countries in terms of income inequality[1], Chile is a prime example of how economic prosperity is not always followed by the supposed ‘trickle-down’ effect. The richest ten per cent in Chile has an income seven times as large as that of the poorest ten per cent. As a point of comparison, the same ratio in the United Kingdom is around 4.2. Furthermore, the share of national wealth in the hands of the top five per cent of the population is a staggering 42 per cent.

In 2014, the incoming president Michelle Bachelet proclaimed her desire to tackle inequality. However, like her predecessors, her attempts fell short and her popularity plummeted in light of numerous corruption charges relating to her political allies and  family members. The president she replaced, and who could yet replace her again, is billionaire Sebastián Piñera, who better than anybody represents the inextricable link between the mega-rich and those who occupy the corridors of power in Santiago. According to Andrés Solimano in 2011, the wealth of four families in Chile (including that of former president Piñera) accounts for roughly 25 per cent of Chile’s national income. Piñera is the favourite to return to power after the second round of voting on 17 December, his closeness to industrial and financial lobbies failing to dissuade voters of his suitability for office.

What the likes of Piñera and Bachelet demonstrate is the entrenched nature of inequality in Chile, where an elite social strata has consistently and repeatedly exploited political influence to further and protect its economic wealth. Their enduring political success shows how the population has, until now, accepted this unequal balance of power. This explains the emergence of Frente Amplio amid a wider battle against inequality. Much like with the Podemos movement in Spain, Chileans are channeling resentment towards the political classes and taking their indignation to the polls.

Over the last few years, a number of popular movements have dominated headlines in Chile: student strikes and demonstrations swept the country during 2011 and have continued ever since; mass protests against the national pension scheme (or lack thereof) were held in 2016; indigenous Mapuche communities have resisted land-grabbing and illegal exploitation of forests and rivers; while fishermen on the island of Chiloé protested last year after polluted waters decimated the local economy. These demonstrations, and their political manifestation in the first round of voting, are rooted in deep social and economic inequalities that have plagued Chile since its inception.

Education, for instance, is considered by many sociologists to be the key ingredient in social mobility and therefore structural change. According to a recent study by the World Economic Forum, tuition fees for an average Bachelor’s degree in Chile represent 73 per cent of average household income, placing it fourth on the list of the world’s least affordable education systems. Furthermore, public spending on education continues to be extremely low in comparison with other OECD members. Chile’s reluctance to invest in education and encourage intergenerational mobility reinforces enduringly high levels of inequality. The gains made by Frente Amplio, whose members include former student leaders, suggest that Chile’s students are finding a political voice to manifest their frustration and resentment.

So why is Chile so unequal?

Chile, like most other South American nations, gained independence from the Spanish Empire at the start of the 19th century. Free from paying tributes to the Spanish crown, Chile duly flourished during the second half of the century in the wake of the Industrial Revolution. A close relationship was formed with the United Kingdom and Chile established itself as a major exporter of raw materials.

However, this economic growth didn’t have a lasting impact. A lack of investment in infrastructure and public services meant that Chile, like many other economies at the time, was unprotected against the booms and busts of international trade. According to Luis Bértola, economist at the University of Montevideo, this period represented a missed opportunity for Chile and established a destructive pattern that would be repeated throughout the 20th century. While exports were booming and revenues soared, a closely-knit group of politicians and industrial magnates maintained a vice-like grip over Chile’s new-found wealth as the majority of the population remained on the outside looking in.

At the beginning of the 20th century, the unequal balance of power and wealth was further aggravated and, by 1913, the wealth of the top 1 per cent of the population represented 25 per cent of national income (higher than the United States, Germany and France at the time). Deemed the ‘Oligarchic Republic’ by economic historians, this period was marked by continued suppression of worker rights and a growth in inequality to even higher, unprecedented levels. Economic crisis and the birth of an urban labour movement eventually brought radical change in the corridors of power. In 1938, a coalition under the banner Frente Amplio assumed power and set about attempting to redress the balance.

From 1938 onwards, a series of governments, culminating in Allende’s 1970-1973 administration, sought to reform Chile’s economic structure, promoting industry and reducing dependence on international  trade. Structuralism, as the economic policy was known, attempted to strengthen Chile’s internal institutions and infrastructure by investing in transport, education and industry. These changes produced an increase in wages and a reduction in income inequality. However, the Allende government’s reforms went too far for Chile’s wealthy elites and their allies in Washington. The 1973 military coup handed control back to the elites.

Although more than 40 years have passed since the coup, it is impossible to separate Chile’s current relationship with inequality from the Pinochet regime. Pinochet’s economic policy, implemented by the notorious Chicago Boys (a group of Chilean economists who studied at the University of Chicago), consisted of the privatisation of national industry and a return to the emphasis on exports  that had previously characterised the Chilean economic model. As demonstrated in numerous studies by journalists such as Daniel Matamala and Maria Olivia Mönckeberg, the main beneficiaries belonged to a small economic elite with close links to the military regime. This same group of wealthy individuals and families continues to dominate the political and economic scene in Chile, mirroring the oligarchic tendencies of the early 20th century.

Will the success of the Frente Amplio merely serve to reinvigorate the political elite of the centre-left or could it signal the arrival of a new force in Chilean politics? Frente Amplio view themselves as an ‘antisystemic’ movement which represents an alternative to the post-dictatorship power-sharing of the centre-right and centre-left. Their relative success demonstrates that Chileans, 80 years on from their rejection of the first Oligarchic Republic, might finally be ready to try to redress the balance once again.

[1] GINI coefficient 2015, Decile Ratio (P90/P10) 2015 OECD (2017), Income inequality (indicator). doi: 10.1787/459aa7f1-en (Accessed on 30 November 2017)

 

Chile’s presidential election offers a chance to tackle inequality levels among the highest in the world but will require a break from the status quo, something the country has struggled to achieve in recent decades.

As the Chilean elections reach the decisive second round, now is a good time to revisit Chile’s historical problem with inequality. The left wing coalition of Frente Amplio (Broad Front) surprised pollsters by gaining 20 per cent of the popular vote, almost beating the centre-left coalition into second place and a potential second round. Since the return of democracy in 1990, Chilean politics has been dominated by a duopoly of centre-left and centre-right coalitions. However, despite steady economic growth since the end of the dictatorship, frustration with the political establishment has grown and numerous sectors of society have questioned how this upturn in national income has, or hasn’t, been distributed across the country.

Statistical analysis shows that high levels of socioeconomic inequality have been constant throughout Chile’s history. While Chile has experienced impressive economic growth during several periods of its history, its extreme concentration of wealth has proved difficult to overcome. Of course, the military coup that overthrew Salvador Allende’s socialist government in 1973 curtailed a series of measures specifically aimed at income and wealth redistribution. However, more than 25 years after the return of democracy, Chile continues to struggle with the problem of inequality.

Socioeconomic inequality in Chile is a many-headed beast, encompassing education, healthcare, institutionalised corruption, ethnic discrimination and geography, as well as a multitude of other factors. Currently topping the list of OECD countries in terms of income inequality[1], Chile is a prime example of how economic prosperity is not always followed by the supposed ‘trickle-down’ effect. The richest ten per cent in Chile has an income seven times as large as that of the poorest ten per cent. As a point of comparison, the same ratio in the United Kingdom is around 4.2. Furthermore, the share of national wealth in the hands of the top five per cent of the population is a staggering 42 per cent.

In 2014, the incoming president Michelle Bachelet proclaimed her desire to tackle inequality. However, like her predecessors, her attempts fell short and her popularity plummeted in light of numerous corruption charges relating to her political allies and  family members. The president she replaced, and who could yet replace her again, is billionaire Sebastián Piñera, who better than anybody represents the inextricable link between the mega-rich and those who occupy the corridors of power in Santiago. According to Andrés Solimano in 2011, the wealth of four families in Chile (including that of former president Piñera) accounts for roughly 25 per cent of Chile’s national income. Piñera is the favourite to return to power after the second round of voting on 17 December, his closeness to industrial and financial lobbies failing to dissuade voters of his suitability for office.

What the likes of Piñera and Bachelet demonstrate is the entrenched nature of inequality in Chile, where an elite social strata has consistently and repeatedly exploited political influence to further and protect its economic wealth. Their enduring political success shows how the population has, until now, accepted this unequal balance of power. This explains the emergence of Frente Amplio amid a wider battle against inequality. Much like with the Podemos movement in Spain, Chileans are channeling resentment towards the political classes and taking their indignation to the polls.

Over the last few years, a number of popular movements have dominated headlines in Chile: student strikes and demonstrations swept the country during 2011 and have continued ever since; mass protests against the national pension scheme (or lack thereof) were held in 2016; indigenous Mapuche communities have resisted land-grabbing and illegal exploitation of forests and rivers; while fishermen on the island of Chiloé protested last year after polluted waters decimated the local economy. These demonstrations, and their political manifestation in the first round of voting, are rooted in deep social and economic inequalities that have plagued Chile since its inception.

Education, for instance, is considered by many sociologists to be the key ingredient in social mobility and therefore structural change. According to a recent study by the World Economic Forum, tuition fees for an average Bachelor’s degree in Chile represent 73 per cent of average household income, placing it fourth on the list of the world’s least affordable education systems. Furthermore, public spending on education continues to be extremely low in comparison with other OECD members. Chile’s reluctance to invest in education and encourage intergenerational mobility reinforces enduringly high levels of inequality. The gains made by Frente Amplio, whose members include former student leaders, suggest that Chile’s students are finding a political voice to manifest their frustration and resentment.

So why is Chile so unequal?

Chile, like most other South American nations, gained independence from the Spanish Empire at the start of the 19th century. Free from paying tributes to the Spanish crown, Chile duly flourished during the second half of the century in the wake of the Industrial Revolution. A close relationship was formed with the United Kingdom and Chile established itself as a major exporter of raw materials.

However, this economic growth didn’t have a lasting impact. A lack of investment in infrastructure and public services meant that Chile, like many other economies at the time, was unprotected against the booms and busts of international trade. According to Luis Bértola, economist at the University of Montevideo, this period represented a missed opportunity for Chile and established a destructive pattern that would be repeated throughout the 20th century. While exports were booming and revenues soared, a closely-knit group of politicians and industrial magnates maintained a vice-like grip over Chile’s new-found wealth as the majority of the population remained on the outside looking in.

At the beginning of the 20th century, the unequal balance of power and wealth was further aggravated and, by 1913, the wealth of the top 1 per cent of the population represented 25 per cent of national income (higher than the United States, Germany and France at the time). Deemed the ‘Oligarchic Republic’ by economic historians, this period was marked by continued suppression of worker rights and a growth in inequality to even higher, unprecedented levels. Economic crisis and the birth of an urban labour movement eventually brought radical change in the corridors of power. In 1938, a coalition under the banner Frente Amplio assumed power and set about attempting to redress the balance.

From 1938 onwards, a series of governments, culminating in Allende’s 1970-1973 administration, sought to reform Chile’s economic structure, promoting industry and reducing dependence on international  trade. Structuralism, as the economic policy was known, attempted to strengthen Chile’s internal institutions and infrastructure by investing in transport, education and industry. These changes produced an increase in wages and a reduction in income inequality. However, the Allende government’s reforms went too far for Chile’s wealthy elites and their allies in Washington. The 1973 military coup handed control back to the elites.

Although more than 40 years have passed since the coup, it is impossible to separate Chile’s current relationship with inequality from the Pinochet regime. Pinochet’s economic policy, implemented by the notorious Chicago Boys (a group of Chilean economists who studied at the University of Chicago), consisted of the privatisation of national industry and a return to the emphasis on exports  that had previously characterised the Chilean economic model. As demonstrated in numerous studies by journalists such as Daniel Matamala and Maria Olivia Mönckeberg, the main beneficiaries belonged to a small economic elite with close links to the military regime. This same group of wealthy individuals and families continues to dominate the political and economic scene in Chile, mirroring the oligarchic tendencies of the early 20th century.

Will the success of the Frente Amplio merely serve to reinvigorate the political elite of the centre-left or could it signal the arrival of a new force in Chilean politics? Frente Amplio view themselves as an ‘antisystemic’ movement which represents an alternative to the post-dictatorship power-sharing of the centre-right and centre-left. Their relative success demonstrates that Chileans, 80 years on from their rejection of the first Oligarchic Republic, might finally be ready to try to redress the balance once again.

[1] GINI coefficient 2015, Decile Ratio (P90/P10) 2015 OECD (2017), Income inequality (indicator). doi: 10.1787/459aa7f1-en (Accessed on 30 November 2017)

 

2017-12-20T14:22:25+00:00 16/December/2017|Categories: Articles|Tags: , , , , , , |
Orr Yoeli-Rimmer is a writer and translator specialising in Latin American Cultural and Economic History.

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