A small 4% hike in peak-time metro fares triggered wide-spread, at times violent, protests in Chile’s capital, Santiago, and other cities in the country. More than 20 people died in clashes with police, instigating the government to impose a curfew, the first time since the end of the Pinochet era in 1990. On October 25th, more than 1 million people descended to central Santiago to express their discontent. Obviously, this is not about higher metro fares (the fare increase was rolled back anyway) but about a wider discontent with government policies. This is somewhat surprising as Chile is often upheld as a poster-child for responsible economic stewardship, having established a free-market economy with a reliable and fair judicial system, respecting property rights, and orthodox fiscal and monetary policies. Chile’s economy has been a success story, especially for Latin America. Chile’s income per capita quintupled since 1990 to USD 15,400, leaving Argentina, Brazil and Mexico, each richer in 1990 than Chile, far behind. However, many Chileans believe that increased wealth gained over these decades is not shared fairly. They simply are asking their government: “where is the beef!”.
Chile’s economy is lacking sizzle in recent years…
Discontent with inequality in Chile is not new. Some years ago, students staged protests to demand free access to universities and dissolvement of private education. In 2017, demonstrations were staged against Chile’s private pension system, which critics say benefits the rich but leaves many citizens with a pension below the minimum wage (the real problem, most likely, is lower returns on investments due to lower real interest rates and longevity as we see in advanced economies as well). However, according to World Bank data, inequality indeed is high but has come down over the years: Chile’s Gini coefficient, a popular measure of inequality, was 46.6 in 2017 compared to 57.2 in 1990 (Argentina has a Gini coefficient of 41.2, although this is set to rise after the return of the Peronists in government).
Chile seems to suffer from two problems. First, Chile’s economic growth is decelerating. Over the last 5 years, growth barely reached 2% per annum, which translated into weak employment growth (unemployment is 6.9%). This is partly due to global economic factors, like the economic slowdown in China (a big importer of copper, which makes up nearly half of Chile’s exports) and the slump in growth in the neighbouring economies of Argentina and Brazil. But, also, low productivity is to blame. Low productivity, like elsewhere in Latin America, is caused by poor training and education (as exemplified by low PISA scores, for example), a low labour participation rate by women and a large informal economy. Lower growth has unearthed inequality more clearly.
Second, Chile still is very much an elitist society with a small group of privileged people being in charge. Chile’s focus on privatization may have, unintentionally, fostered this situation as the privileged few have their own schools, universities and hospitals. Privatization without proper regulation and oversight has led to forming of cartels, stymying competition and R&D. Jobs are offered to those with the right pedigree (very much like in the Netherlands before the 90s where nobility would land you a plush job in a bank, irrespective of skills). The current government of Sebastián Piñera, himself a billionaire (former owner of TV broadcaster Chilevisión and shareholder in LAN, the airline company), basically consists of white males with similar backgrounds. In response to the unrest the economy minister helpfully suggested that commuters should get up earlier to avoid peak fares whilst Mr. Piñera proclaimed that “we are at war” with rioters, apparently not understanding the general pessimistic mood of ordinary Chileans, which take a dim view on their economic future, be it having to live off a pitiful pension (often simply because they did not save enough during working years) or being pushed out of work without a safety net.
Searching for a Big Mac…
Piñera‘s government, in command since March 2018, has taken steps in the right direction. More needs to be done and at a more rapid pace. Piñera announced new measures, including higher spending on pensions and healthcare and an increase in minimum wages by imposing higher taxes on the wealthy (including himself). Unfortunately, his party, Chile Vamos, does not have a majority in congress, which may make it difficult to push through the necessary reforms. Whilst Mr. Piñera tries to deliver the beef, Chileans should be careful to turn their backs to a system that does have serious flaws but that also has provided significant prosperity, albeit not shared fairly yet.