Socioeconomic Inequality in Chile

HIR Issue: 
Pressing Change

For the past generation, Chile has been graced with the most stable democracy and economy in South America. Chileans boast some of the highest standards of living in Latin America, a fully functioning democracy, and one of the least corrupt and most efficient governments in the region. Nevertheless, in spite of the rapid expansion of civil and political rights since the country’s democratic transition in 1990, the presence of resolute and efficient institutions, and  prolonged economic growth, socioeconomic inequality still abounds, a problem attributable to previous regimes’ failure to guarantee equal social services to all strata of society.

Inequality in Latin America is a social ill stemming from colonialism. During the colonial era, royal monopolies dominated the economic landscape, accumulating vast amounts of wealth in few hands and creating a wide gulf between the ruling class and the working class. This pattern of dual societies persisted long after independence and frequently generated social pressures that undermined the stability necessary to sustain a prosperous, modern-day, working democracy.

Chile is no exception to this pattern. In the 1960s and 1970s, the duality that afflicted the country generated great pressures for redistribution that were met with resistance by more affluent groups. When the Socialist Salvador Allende was elected as president in 1970, he swiftly moved to enact redistributive policies and to nationalize and collectivize many sectors of the economy to tackle inequality. These efforts eventually led to economic chaos, in part because of the bad implementation of the measures themselves, but also because of covert interventions by the US Central Intelligence Agency (CIA) through the infamous Operation Condor. As declassified documents relating to the coup in Chile note, US President Richard Nixon ordered the CIA to “make the economy scream.” As the economy continued to plunge, elite and right wing leaning groups demanded an end to this downslide, while poor and left wing groups demanded stronger actions by President Allende. On September 11, 1973 the Chilean military bombarded the presidential palace, initiating the Pinochet dictatorship.

During the dictatorship of General Augusto Pinochet, the structure of the Chilean economy was radically altered and the basis for its current economic model was set in place. Immediately following the military the coup, Chile’s economy continued to struggle, so the military junta appointed a group of Chilean economists who had graduated from the University of Chicago to overhaul the country’s economy. Pinochet’s team of expert economists, “the Chicago Boys,” made Chile into one of the world’s most extreme experiments in neo-liberalism. They implemented tight monetary policies to tackle inflation, deregulated the economy, virtually abolished tariffs and other forms of trade barriers, and shifted the economy toward an export-based model. But what truly made these neoliberal policies stand out was their implementation in areas of social spending that had generally been considered the state’s responsibility: the privatization of healthcare, higher education, and the pension system.

The reforms initially did not have the expected results. In 1982 the Chilean economy collapsed, partly because of a region-wide debt crisis, but also because a total lack of regulation led to the collapse of the banking sector. Unemployment soared above 20 percent, while real wages fell and even more cuts were made to government spending on social services. Only after Finance Minister Hernan Buchi made key reforms did the economy recover, hitting its highest-ever annual growth rate in 1989.

In 1990 Chile finally returned to democracy. The Concertación de Partidos por la Democracia (Concertación), a bloc of center-left parties, assumed power with Patricio Aylwin, the first elected president since Allende, as their leader. The Aylwin government decided to continue the market based model established by the Pinochet regime, but to add more social protection to curb the effects of a purely neoliberal model. Since the democratic transition, Chile has experienced the highest average growth rate in its history, while increasing social spending and fully expanding civil and political rights to its citizens. Chile has thus been governed by moderate leaders who have learned to avoid the populist and extremist tendencies of other leaders throughout the region. 

Despite this good governance, Chile has faced a paradox of economic growth coupled with persistent inequality that can be traced to social services of variable quality. Despite the expansion of coverage by social services over the last generation, the quality of services still varies by socioeconomic status. Without greater redistributive actions by the Chilean government, inequality will likely persist.