Chile and globalization

Challenges for the future

Santiago de Chile at sunset
Santiago de Chile at sunset
29 NOV 2016

The Chilean experience over the last quarter of a century has been and is constantly being analyzed from different perspectives. Many focus on the success of the economic policies implemented at the time of the military dictatorship. Others stress the process of Chile’s integration into world markets through the network of trade agreements signed after the return to democracy. More critical voices point out the existing inequality within the rigid frame of the neoliberal model imposed by the dictatorship since when, they say, “all remains the same”. My brief presentation shall include both visions; this is the light and the dark areas of the Chilean experience of integration into this globalized world.

Chile, located almost at the end of the world and with only 17 million inhabitants, is a country that was craving for globalization after the isolation it had suffered during the 17 years that the military dictatorship, which you all know, lasted. The history of Chile in the 20th century, despite our provincialism, features several unique traits like counting on a strong organization of trade unions, supported by leftist movements, and by the swift creation of a communist party already in 1921. In 1932 we had the first “socialist republic” of America, whose short life span lasted only 12 days. We are proud of two Nobel Prizes, both in the field of literature, to be exact: poetry: Gabriela Mistral in 1945 and Pablo Neruda in 1971. In 1970 and for the first time in history, a Marxist candidate, Salvador Allende, wins democratic elections to become President of Chile, starting a process of social transformation –a Chilean revolution without a single gunshot- with a taste of “empanadas and red wine”, as Allende loved to put it.

In 1973, his revolutionary government was overrun by a ferocious dictatorship which changed the social landscape in Chile in the 17 years it lasted, pushing for privatizations in the areas of mining, agriculture, industry, education, health and social security, among others. What made the Chilean path different from other Latin American dictatorships that could be defined as “protectionist” in what concerns their industries, Pinochet entrusted the “Chicago Boys” – followers of Milton Friedman’s school – the economic reforms and, on a larger scale, the reforms of the State. The basis for a neoliberal model was set, which would expand across the world. In the unprecedented plebiscite of 1989, Pinochet was dethroned and had to abandon the Presidency, staying, though, for another 8 years in charge of the military.

In 1990, Chile initiated a period of transition which for many still has not come to an end. From then on, the country regained democracy paralleled by the accelerated process of worldwide globalization, the fall of the Berlin wall, the liberalization of the international financial system and the politics of macroeconomic balances impulse by the so-called “Washington consensus”. Chile opened its arms to the world and foreign capital started pouring in on a massive scale, finding a very favorable labor legislation, scattered trade unions, a legal frame which protects investors and an economy which starts a process of sustained growth that has lasted already 25 years showing signs of a strong integration into the world market and contributing to a reduction of poverty rates of 41% at the end of the military dictatorship, to 7.8% in 2014 according to figures provided by the ECLAC and the traditional methodology used by the Planning Ministry, “CASEN” (Nacional Socioeconomic Characterization). The Chilean per capita incomei s the highest in Latin America, with 25.415 US$ in 2015, as per the International Monetary Fund. Chile is the only country classified with an “A” by the transnational risk evaluation companies. Together with Mexico we are the only Latin American countries which belong to the “Club of the Rich”, such as the OECD (Organization for Economic Cooperation and Development).

Well, I could give many more figures that talk very well about the economic results, like internet connectivity, decrease in infant mortality, number of cars or cellphones – to stay with the metaphor of “light”. However, where there’s a lot of light, there’s also a lot of shadow in Chilean society.

I already mentioned that for some the transition process is not finished, which is due mainly to the fact that the Constitution is a legacy by Pinochet. With amendments, obviously, but essentially it is what dictatorship left on key aspects like, for example, the concept of subsidiarity of the State. We keep up a private pension system which for many has more shadow than light; college education is paid for even at public universities; a public health system coexists with the private one, in which the latter is subsidized by the former. We have unresolved problems with our indigenous minorities, especially with the Mapuche. Although much has been done, there is still a long way to go.

Over the last years we have seen many huge demonstrations and young people rallying the streets of Santiago and other cities demanding public, free and quality education and, in 2016, there have been protests also against the private pension system. The general state of discomfort has extended, like in many other countries, against corruption, politicians, the Catholic church with its accusations of pedophilia and even against the -sacred!– football managers involved in financial scandals. The abstention rate in the last presidential election of 2014 came close to 50%, in the municipal elections last Sunday October 23 even to 65%.

Discomfort in Chile is serious, very serious, also because there is no renovation of the political class in sight. The traditional parties, center left and center right, have witnessed the surge of 2,3 or more parties or movements seeking for a space of expression. The juvenile leaders of the student protest some years ago have now moved into Parliament, but are still too young to run for the Presidency…yes, you heard right. Because the Constitution requires candidates to be at least 35 years old to become the President of the Republic.

In the same way in which I quoted the ECLAC figures regarding the decrease in poverty rates to 7.8%, I also must say that when applying the methodology of the last CASEN poll, much higher figures arise: 14.4% when taking the income as a baseline, and 20.4% under the concept of multidimensionality, in which we measure access to the labor market, education, health, housing and social security. These figures are positive in a way, because they reflect the urge to improve public policies and a greater commitment with a sustained raise in the quality of life for those with less opportunity.

Despite all the advancements and the extraordinary improvement of the living conditions of Chileans, the expansion of the middle class, we still face the severe problem of the concentration of wealth, in which the richest 1% owns almost 35% of the national income. Per Thomas Piketty, author of “Capital in the Twenty-First Century”, one of the highest worldwide. This concentration is created, among other reasons, by the utilities of the capital, which are higher than the economic growth rate, therefore producing the rise in inequality. And even worse: this 1% of the richest Chileans -0.1% or 119 Chilean families– are the owner of assets for over 100 million US-dollars, in other words of 15% of the national wealth.

Has the process of globalization been positive for Chile? No doubt: yes, above all with regards to the integration of the Chilean economy into the world. The policies of an open regionalism applied since 1990 have translated into 64 free trade agreements with the world’s main economic players and have opened a market for Chilean exports to 64% of the world’s population.

I have already made mention of the different socio-economic indicators, including the reduction of poverty, however I would like to stress the notable expansion of the so-called middle class, which today comprises almost half of the country’s population (47%), the one classified by sociologists as C2 and C3; whereas another 16% belongs to ABC1 – the higher income sectors. This is using the corrected CASEN poll methods. We face the typical problems of medium-growth countries, where the expectations of the emerging sectors increase much faster than the benefits of economic growth can possibly reach them. It is mostly in the inequality of access to opportunities and income where the basis for the discontent or discomfort of the Chilean society lies.

Many people ask themselves what globalization is good for within the realm of the economic agreements with the big countries like USA, China or the European Union itself. Chile has already signed the TPP or Trans Pacific Partnership, only its ratification by our Parliament is pending now. The fundamental reason for us, a small country in the system, is that if we’re not there, it’s others who impose the rules for trade and worldwide exchange of goods. You may say now that they will do so anyway, but these very agreements already which were negotiated and signed by us, have offered Chile many, like many, more advantages than disadvantages. These agreements are Treaties and therefore must be respected, and through them we secure access to important markets to our products, which mean workplaces for thousands of Chileans.

Let me say a few words on the agreements on regional integrations. Since the Jamaica Letters by Simón Bolívar, Latin America talks about integration. We have spent over 200 years talking of integration and have created numerous instances, but only a few have functioned. We should point out that the intra-regional trade volume is less than 15%, whilst the commerce with the European Union reaches almost 60%. Only a month ago I listened at the University of Bologna to the words of former President Ricardo Lagos, when he asked himself how Latin America can possibly stand up for itself whilst facing “continent-countries” like Canada and the US, China or India, if our countries are not integrated on an economic and on a political level. Could the associated Latin American countries ever speak separately for themselves? For the smaller ones, association and integration are mandatory and this is why Chile has participated actively and will keep participating in all available instances of integration that take place in our region: Mercosur, Unasur, CELAC, ALADI , the Pacific Alliance and many more.

Integration must respect the individual diversity of our region, because it is the only way to advance. Each country has its own history and vision of how to integrate into the world market in these years of accelerated globalization. We must respect the timing of each of them. Let’s discuss the more complex issues in the future and concentrate on those ones in which we can reach agreements. This has been and will keep being one of the principles of the foreign policy that has driven Chile’s democratic governments.

Speech read by Mr. Fernando Ayala, Ambassador of Chile in Italy, on the occasion of the XII European Centre for Peace and Development International Conference, Belgrade, 28th October, 2016.