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Commentary

Chile Rises


During the last couple of years, it became popular to say that Chile, once the star of Latin America, was falling out of fashion.

A student uprising led by Camila Vallejo, a telegenic communist, had engulfed Chileans in a traumatic conflict that was widely reported. The radical Left seemed to have won the war of words, spreading its disdain of the free market to Chile’s large middle class. Polls indicated there was sympathy for the students’ demands: the reversal of privatization and free choice in education. The president’s low approval ratings appeared to foreshadow the unraveling of the considerable progress Chile had made during previous decades.

It was all smoke and mirrors, however. Contrary to the conventional wisdom, Chile is doing well, and support for its free-market model remains robust.

I recently spoke to President Sebastián Piñera and found him to be exuberant. The economy is roaring, his popularity is recovering (although he knows likeability will never be his forte), and his education initiatives have managed to isolate the communists and left-wing anarchists from the middle class.

Inequality continues to drop, thanks to the seven hundred thousand private-sector jobs created in the past two years, coupled with safety-net subsidies targeting the poor.

And support for the free-enterprise system remains high. According to a recent survey conducted by the Center on Public Studies (CEP), an academic foundation headquartered in Santiago, the vast majority of Chileans continue to support the country’s free-market model.

As to why some people do well and others remain poor, half of the respondents attributed poverty to a lack of education. Others blamed it on laziness and lack of initiative, or to personal vices, such as alcoholism. Only 28 percent of the respondents, however, attributed poverty to flaws in the free-market model.

Indeed, Chileans seem to accept income inequality as a fact of life, more so perhaps than in the United States.

But they do so with qualification. Half the CEP respondents said they accept inequality as long as opportunity exists for families to improve their lot. Some 73 percent of the respondents said it was important to “reward individual effort” even if it results in differing levels of income, and 77 percent supported the idea that the principal responsibility for society’s economic well-being should rest on “the people themselves,” not on the government.

Such attitudes toward wealth are not those of a Third World country; they are the attitudes of an advanced, developed country. In fact, there are advanced, developed countries—especially in Europe—where a similar survey would not produce such clear results in favor of freedom and responsibility.

It is unlikely, then, that Piñera’s policies will trigger a fierce backlash against free markets, pushing Chile back to radical socialism.

To the contrary, Piñera told me he’s confident that by the time of the next presidential election in November 2013, extreme poverty—which has already declined from 3.7 percent to 2.8 percent—will have disappeared from his country, meaning that fewer than 1 percent of Chileans will be unable to afford a basic basket of foods. “If we keep growing at 6 percent a year,” he added, referring to the last two years’ economic growth rate, “by the end of this decade our GDP per head will surpass $24,000. If Europe were to remain as it is now, we would surpass Greece and Portugal. While Brazil is decelerating and Argentina is entering a crisis, Chile and Peru are the fastest economies in the region.”

When Piñera assumed office in March 2010, Chile had just suffered an earthquake that devastated one-third of its hospitals and schools and much else. Eighty percent of those buildings already have been reconstructed. Unemployment was nearing double digits, poverty had increased by two percentage points and the country was tired—despite then president Michelle Bachelet’s popularity (which is still high, says Piñera, because she has remained aloof from political fights since leaving office).

The overall poverty rate has now dropped to 14.4 percent again, a significant accomplishment when you consider the fact that Chile’s poverty line is higher than the World Bank standard used by most of its neighbors.

Chile is not a free-market paradise by any means. Spurred by the student protests, the Piñera government has done some things Latin Americans don’t usually associate with the political Right, such as expanding the education budget by 40 percent and increasing scholarships for college students by a factor of four to give more students a choice as to where they attend college.

Piñera also has adopted a Chilean version of the social-aid program that the Left has put in place in other parts of Latin America—involving conditional subsidies—and has provided food bonuses to people to help offset recent price increases. But the essence of the Chilean model is still free enterprise and, to a large degree, personal responsibility.

Chile is back—although it would be more accurate to report that it never went away.

Will this be enough to ensure the governing coalition wins the presidential election next year? Probably not. But it’s also unlikely that the person who does win will dare reverse the Chilean socioeconomic model.

Isn’t life boring, dear Camila Vallejo?


Alvaro Vargas Llosa is Senior Fellow of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. His Independent Institute books include Global Crossings: Immigration, Civilization, and America, Lessons From the Poor: Triumph of the Entrepreneurial Spirit, The Che Guevara Myth and the Future of Liberty, and Liberty for Latin America.

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