44 The Americas The EconomistMarch 14th 2020
21hemisphere summer holidays. But now
they have resumed, while vandalism never
really stopped.
Several other countries in Latin Ameri-
ca saw street protests last year, though not
on the same scale. But Chile? Over the past
30 years it came to be viewed as the one
country in Latin America on the path to de-
veloped-country status. The protests are a
big blow to that confidence, and threaten to
halt Chile’s progress. But they might also be
the spur by which it finally joins the global
top tier.
Chile “could become a country with a
more solid and sustainable social contract
that resolves the legacy issues [left by the
Pinochet dictatorship],” as Mario Marcel,
the president of the Central Bank, puts it.
He notes that those obstacles have contrib-
uted to what economists call the middle-
income trap, in which sociopolitical short-
comings slow growth and prevent coun-
tries reaching developed status.
But if violence continues and the state
is unable to contain it by democratic
means, and if conservatives block change,
others fear a darker future. Chile could face
“a classic Peronist moment in which a
country successful in growth has contra-
dictions it can’t manage”, says Óscar Land-
erretche, an economist aligned with the
Socialist Party, referring to the period in
the 1940s in which Argentina embraced
populism and dictatorship.Middle-of-the-road rage
In many respects Chile has been a success
story since democracy returned in 1990.
Governed by the centre-left for 24 of those
years, it has combined economic growth,
political stability, fairly strong institutions
and expanding social services. Those be-
low the official poverty line (of $206 per
month) fell from 45% of the population in
the mid-1980s to 9% in 2017. Some 65% of
Chileans are middle-class, up from 24% in
1990, according to the World Bank’s income
criteria. Since Chile joined the oecd, a club
of mainly rich countries, in 2010, its elites
have taken to suggesting that it has little incommon with its neighbours.
What, then, prompted the social explo-
sion? “There are many theories,” says Mr
Piñera, a billionaire businessman. “I agree
with all of them, and they are contradic-
tory, which means we lack a shared diagno-
sis.” The first theory, favoured on the right,
is the slowing of economic growth since- In Mr Piñera’s first term (from 2010 to
- growth averaged 5.3% a year, boosted
by reconstruction after an earthquake. He
won his second term in 2017 by promising a
repeat but failed to deliver it. A second, re-
lated theory concerns rising expectations.
It sees discontent as the consequence of
Chile’s success in creating a middle class
that demands more of government.
A third view, common on the left, is that
the country is rebelling against inequality,
which, it is claimed, is entrenched by Pino-
chet’s “neoliberal” economic “model”. This
gave private enterprise free rein and con-
fined the state to a subsidiary role, even in
providing social services. By oecdstan-
dards, though not those of Latin America,
income inequality is indeed wide (see
chart 1). “You can’t go through a process of
rapid growth and capitalist modernisation
and persist with pre-capitalist levels of in-
equality and absence of meritocracy and
social mobility,” says Mr Landerretche. Yet
income distribution has improved this
century.
A fourth theory highlights political fail-
ures. During the second government in
2014-18 of Michelle Bachelet, a Socialist,
much of the left disowned its own past
work of gradual, consensual reform, prop-
agating the view that it was a failure. As for
Mr Piñera, he and his team, who come from
a privileged slice of society, lack political
skills and empathy with the masses. In
their first 18 months in office, they failed to
get promised tax and pension reforms
through Congress, where the opposition
has a majority. Polls now put the presi-
dent’s popularity at 6-12%. But they reveal a
broader abyss between the people and the
system: trust in institutions, from the po-
lice to the press and the politicians to the
churches, has evaporated (see chart 2).
“It’s not [about] 30 pesos, it’s about 30
years of abuses,” goes a popular slogan.
Considered more broadly, inequality is in-
deed at the heart of the matter. It “isn’t just
about income, it’s about place, gender, skin
colour, where you live, what school you
went to, what surname you have,” says Her-
aldo Muñoz, who leads the centre-left Party
for Democracy. “The explosion is against
the arrogance of the elite.” More concretely,
discontent is focused on pensions, health
care and the privileges of a small minority
(see chart 3 on next page). These mean that
being “middle-class” in Chile often means
receiving second-class services.
One of the trademarks of Pinochet’s
model was a pension system of individual
savings accounts in private funds known
as afps, with no contributions by employ-
ers or governments. It was imposed in 1981
by José Piñera, the current president’s (es-
tranged) brother, who calculated that it
should deliver pensions averaging 70% of
final salary. Widely praised and copied, the
system provided Chile with a deep capital
market and cheap financing for big firms.
Andrés Uthoff, a member of a consulta-
tive committee on pensions under Ms Ba-
chelet, points out that José Piñera’s calcula-
tion depended on three conditions being
met: continuous employment with a
steady income, interest rates above 5% and
no increase in life expectancy. None has
been: Chile’s labour market is Latin Ameri-
can, not European, featuring low wages,
high churn and, for about a third of the la-
bour force, informal work. For every ten
people in the workforce, only four pay into
their afpfor their whole working life, ac-
cording to Ignacio Briones, who became fi-
nance minister in October. In recent years
millions of Chileans have reached retire-
ment age. Four-fifths of all pensions are
less than the minimum wage (301,000 pe-
sos per month, or $378) and 44% are below
the poverty line, according to Mr Uthoff.
Ms Bachelet introduced a safety net in
the form of a basic pension for the poor of
110,000 pesos. Following the protests, the
government has raised this to 160,000 pe-
sos. That does not help middle-class retir-
ees. Significantly, Pinochet did not require
the armed forces to join afps. The govern-
ment spends more on pensions for the se-
curity forces and on those who remained in
the pre-1981 system (more than 2% of gdp)
than it does for the whole of the rest of the
population (less than 1%), points out Ro-
berto Zahler, a former Central Bank presi-
dent. Government and opposition are close
to an agreement that would add employer
contributions to pension accounts.
The dictatorship set up a segregated
health service. All those in jobs pay a con-
tribution of 7% of salary for health care. In
theory, they are free to use that to join priv-
ate health schemes (with no waiting lists)Trust busted
Chile, public confidence in institutions, %Source: Centre for Public Studies2Political partiesCongressThe governmentNewspapersThe Catholic churchThe police6050403020100August 2015 December 2019Some are more equal than others
Gini coefficient*, 0=everyone has the same income,
1=one person has all the incomeSources: OECD; ECLAC *Post tax and transfers10.55
0.50
0.45
0.40
0.35
0.30
0.25052002 10 1815Latin American averageChileOECD average