If you want to examine a flourishing Latin American economy, look no further than Chile. In a new article, Samuel Gregg capitulates an economic success story in Chile. The country has thrived by embracing liberal principles and respecting property rights and open markets. However, Gregg is wary of Chile’s future; he suspects it may be headed in the direction of European socialism.
Gregg begins by recognizing the unique place of Chile in the Latin American economy, praising it for its steps towards achieving economic flourishing:
Beginning with General Pinochet’s military regime in 1973 and continuing after the 1990 transition to democracy, Chile’s economy underwent significant liberalization. Today, Chile is officially classified as a developed country. And the benefits have encompassed the less well-off. As the World Bank stated in 2016:
The percentage of the population considered poor (those who live on US$ 2.5 per day) declined from 7.7 percent in 2003 to 2.0 percent in 2014, and moderate poverty (US$ 4 per day) fell from 20.6 percent to 6.8 percent during the same period. Moreover, between 2003 and 2014, the average income of the poorest 40 percent of the population increased by 4.9 percent, a figure considerably above the average income growth of the population as a whole (3.3 percent).
Some nations would kill for these numbers. They are primarily the result of Chile embracing free trade, labor market deregulation, anti-inflationary policies, large-scale privatizations, and strong private property protections.
The steps towards free trade and privatization are a reason for the economic flourishing that Chile has enjoyed in recent years. However, Chile may drift away from its liberal foundations and embrace a democratic socialism akin to Western Europe:
All these hard-won achievements, however, are now under threat. Since 2014, President Michelle Bachelet’s center-left administration has sought to undermine what Chileans call “the model.”
In the name of equality (by which they mean the equalization of starting points and results), Bachelet’s government is trying to turn Chile into a European social democracy. The fact that social democracies are faltering everywhere in Western Europe isn’t, apparently, a relevant consideration.
As I learned during a recent visit to Chile, the word used to describe this dismantling project is retroexcavadora (literally, “backhoe”). It was first used by a left-wing senator, Jaime Quintana, in March 2014 to explain how the government would root out the Chilean model’s political and economic foundations.
Gregg is wary of Chile adopting the Western European economic models because these social democracies of the West have been faltering. Additionally, he warns of impending constitutional reform that could lead to greater government control and further restriction of freedoms:
There’s considerable evidence that Bachelet’s government is trying to rig the consultative process for the drafting of a new constitution. Moreover, based upon what Bachelet ministers have said, their preferred arrangements would take Chile closer to the constitutions adopted by left-populist governments in countries like Ecuador and Bolivia in recent years. A quick glance at these documents soon indicates that they are the polar opposite of Chile’s present constitutional provisions — not least because they amount to institutionalized populism.
Gregg concludes with an affirmation of uncertainty, yet hope in the face of Chile’s upcoming election:
The question of whether retroexcavadora succeeds, however, ultimately depends on presidential and legislative elections due at the end of 2017. The constitution bars Bachelet from seeking another consecutive term. But it does allow her predecessor, the conservative pro-market Sebastian Pinera, to run. And running he is.
It’s too early to predict the likely outcome. Yet one thing is certain. If Chilean voters decide they want to maintain the model, Chile will continue to show that Latin America nations aren’t doomed to become Argentina, let alone left-populist disasters like Venezuela. On the other hand, if Chileans effectively endorse retroexcavadora, Latin America risks losing the example that shows the entire continent the politics and rhetoric of envy need not be its future.
In Becoming Europe, Samuel Gregg examines economic culture - the values and institutions that inform our economic priorities - to explain how European economic life has drifted in the direction of what Alexis de Tocqueville called "soft despotism", and the ways in which similar trends are manifesting themselves in the United States.