Government and Institutions

Neoliberalism in Chile – the unpopular success story

After a long delay of more than four decades, the Chilean people are finally rising up against neoliberalism. They demand an end to the economic legacy of the Chicago Boys, the US-trained liberal economists who occupied key economic policy positions during Pinochet’s dictatorship. The socialist project of Salvador Allende, the Marxist president who headed Chile’s Popular Unity government, was brutally cut short in 1973. But now, at long last, the Chilean people are ready to resume that project.

That, at least, is the Western Left’s reading of the large-scale protests currently shaking the country.

In an article entitled “Chile Awakens”, the trendy Jacobin magazine argues:

“Chile’s mass mobilizations challenge the neoliberal model and have raised expectations for millions of Chileans. With the country’s explosion of protests in recent weeks at its back, the fledgling left coalition could fight back against the decades of neoliberalism that have immiserated so many Chileans. […]

The Chilean people are demanding an end to the private pension system, a reduction of the workweek to forty hours, deprivatizing water, a new Labor Code, […] direct financing to public health care institutions, strengthening public education at all levels, making public transportation free”

Open Democracy adds:

“The supposed ‘economic miracle’ of Chile, which received its name from American economist Milton Friedman, was a set of liberalising economic measures put in place during the dictatorship of Pinochet, that imposed a free market in the country […] This economic system […] has benefitted the economic elites whilst creating inequality and suffering for the majority. […]

Tired of the economic policies of the government, students and citizens took to the streets of Chile to protest against the rise in price of the metro ticket, but in reality this was just the tip of the iceberg. They are in fact protesting against many other social issues.”

And the Canadian Centre for Research on Globalization claims:

“Neoliberalism is all about serving privileged interests at the expense of ordinary people, exploiting them so the wealthy and powerful can benefit.

It’s about dominance over democracy, profits over populism, and private interests over the public welfare – a zero-sum game benefitting monied interests over all others, societies made unsafe and unfit to live in for ordinary people. […]

Ruling authorities and business partner for their own self-interest at the expense of the rights and welfare of working class people […]

For the past two weeks, millions of Chileans have been protesting against exploitive neoliberal harshness, inequality, and deep-seated corruption.”

It is very hard for an outsider to judge the political mood in a foreign country, so I won’t even try to speculate on what “really” motivates the protesters in Chile. But let’s just take these claims at face value. Is Chile really the neoliberal hellhole of the Left’s imagination?

It is true that under the influence of the Chicago Boys, the Chilean economy was substantially liberalised. It is also true that after the return to democracy, that legacy was not just retained, but deepened further.

In 1975, when the military junta began to promote Chicago Boys to top positions, Chile’s Economic Freedom score stood at 3.5 (on a scale from 0 to 10). By 1990, it had increased to 6.7, and today, it stands at 7.9. That makes Chile by far the freest economy in the region, even if it is not in the Top 10 globally. For comparison, Venezuela, which used to be the Left’s poster child until a few years ago, saw its Economic Freedom score decline from 6.1 in 1975 to to 2.6 today (with most of that decline happening in the Chavez/Maduro years).

Since then, Chile’s real GDP per capita has quadrupled, while Venezuela’s has fallen by more than half. Put differently, in 1975, Venezuela was three times richer than Chile. Today, it is almost exactly the other way around.

This is mostly the result of productivity changes, rather than, say, Chileans working longer hours, or until later in life. Chilean labour productivity has more than trebled since 1975, while in 2006 Venezuelan productivity was 17% below its 1975 level. Mercifully, their time series stops there.

But these are just macro figures. What does this all mean, for the people who live in those places?

In Chile, average life expectancy has increased by 14 years since 1975, from 66 years to 80. It increased in Venezuela, too, but not by nearly as much. In 1975, the average Venezuelan lived a year longer than the average Chilean. Today, the average Chilean lives five years longer than the average Venezuelan.

In Chile, infant mortality has fallen by almost 90% since 1975, from 54 per 1,000 live births to 6 today. In Venezuela, it only dropped by 40%, from 42 per 1,000 live births to 26. Put differently, in 1975, a Venezuelan new-born had a better chance of surviving their first year than a Chilean new-born. Today, a Venezuelan new-born is four times more likely to die before their first birthday than a Chilean new-born.

In 1975, about four out of ten Chilean children, and six out of ten Venezuelan children, did not get a secondary education. In Chile, secondary education is now universal. In Venezuela, there are still about one in ten children going without it.

The only indicator on which Venezuela has caught up is literacy, however, this is simply because in both countries, literacy was already fairly high in the 1970s, and both have since come as close to universal literacy as one can realistically get.

For most other indicators, we don’t have long-term time series covering the whole period from 1975 to today. But we have something to go by.

If we use a poverty line of $3.10 (PPP) per day, then in 1987, 22% of Chileans lived in poverty, compared to 10% of Venezuelans. By 2006, Chile’s poverty rate had fallen to 5%, while in Venezuela, it had risen to 15%. This was at the height of the country’s oil price boom: for them, those were the good days. Again, the time series stops there, but I have an inkling what has happened since then.

In Chile, the number of people without access to electricity fell from 1 million in 1990 to virtually zero today. It also dropped in Venezuela, but 125,000 people still go without it, and that is without considering their now regular power cuts.

The Healthcare Access and Quality Index is an estimate of the number of premature deaths that could have been avoided through better healthcare. It is specified in such a way that a country where everyone can access state-of-the-art healthcare would get a score of 100, and a country where nobody can get decent healthcare would get a score of 0. A country which offers great healthcare, but only for the rich, is not going to get a high score, and neither is a country where healthcare is universal, but universally bad. Chile scored 59 in 1990, and scores 78 today, which means that it is roughly in line with a typical Eastern European country. Venezuela scored 53 then, and scores 68 today.

The Human Development Index (HDI) was about the same in both countries in 1980, when it stood at 0.64 in Chile, and 0.63 in Venezuela. They diverged soon after, as Chile made big strides, while Venezuela was slow to follow. Today, it stands at 0.84 in Chile, and 0.76 in Venezuela.

Chile’s maternal mortality rate was already lower (57 per 100,000) than Venezuela’s (94 per 100,000) in 1990. But the gap has since grown wider, because the Chilean rate continued to plummet, while the Venezuelan rate stagnated. The latter is now more than four times as high as the latter.

It is true that Chile is an unequal country. But this is not exactly a new phenomenon, and inequality has come down over the years, if from a high level. In the late 1980s, the Gini coefficient stood at 0.55 (on a scale from 0 – 1). Today, it stands at 0.43, which is more or less the same as the Venezuelan level in 2006 (when their time series ends).

If the story of Chile’s relative economic liberalisation is such a huge success story – is it not baffling that it remains so unpopular?

Not at all – unless you buy into the naïve assumption that popular ideas are popular because they ‘work’, while unpopular ideas are unpopular because they ‘don’t work’.

But if that were so, the world would be a very different place. There is a long list of policies that have failed multiple times, in many different versions, and that nonetheless remain hugely popular. This is because, as Ed West rightly points out,

“the best ideas don’t necessarily triumph; what matters are how much prestige ideas carry, how much they are associated with high status people, and how much social proof their believers have.”


Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

5 thoughts on “Neoliberalism in Chile – the unpopular success story”

  1. Posted 30/10/2019 at 23:08 | Permalink

    Is Dr Kristian Niemietz a fan of Ayn Rand at all?

  2. Posted 31/10/2019 at 18:41 | Permalink

    The Myth of the Rational Voter by Bryan Caplan illustrates why bad ideas remain popular.

  3. Posted 03/11/2019 at 11:09 | Permalink

    You people and your capitalism vs communism. XD
    It’s about not wanting a society where some live in luxury that escapes the imagination of any regular person, while others are born to barely survive, and most work to exahustion to pay their bills. In a country with horrible public transport, child services, public education, health and pensions systems, housing, etc…, a country with collusion among most big companies, helded by the economic and political elite. 1% of the people owns 26% of the wealth, and they own the goverment, the parlament and the media.
    And then you can add that Chile still lives in an authoritarian state in disguise. Maybe you got a glimpse these days of the obsene violence used against protesters, that were injured, tortured, raped and killed. That’s what happens when people time and time again over the years protest for some justice and equality in Chile. And then a small fixup, but nothing really changes. And rich people keep amassing wealth.
    It’s not about wanting socialism. Even if the right thinks it is, or if the few socialists wish it.
    They are not the movement.
    It’s about being a decent society.

  4. Posted 03/11/2019 at 22:00 | Permalink

    All the delusions of orthodox economics in one article backed with all the skewed statistics you’d expect from white male western privilege.

  5. Posted 04/11/2019 at 07:47 | Permalink

    What is a “decent society”? No inequality at all, or at a certain level? Who will politicaly decide?

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