The Chilean development model and the limits of Neoliberal economics.

Author:Solimano, Andres

Chile underwent a free market revolution initiated by the Pinochet regime in the 1970s and 1980s. A very similar model, with some amendments, was followed after the restoration of democracy in the 1990s and 2000s by the social democratic governments. This economic revolution released entrepreneurial energy and a capacity for wealth creation and today the country has one of the highest income per capita levels in the Latin American region.

Chile has been portrayed as the development model to follow for emerging economies, as well as for the more mature and crises-ridden capitalist economies. Nevertheless, as emphasized in my new book on the development model followed in Chile during the transition to democracy after the Pinochet regime (1), the positive results at the macroeconomic level, and for growth specifically, of this model are accompanied by the concentration of income and wealth in the hands of powerful and politically influential economic elites. Thus the country still needs to complete a further renewal of its democracy. Under this model 'trickle down' operated modestly, and although the middle class and the poor improved their lot, they still remain vulnerable to economic shocks and face highly segmented marketbased systems of education, housing, and health.

Post-Pinochet democratic governments focused on steering a peaceful return to an (incomplete) democracy, keeping the economy growing and reducing income-poverty. The prevailing consensus is that they did very well on these fronts. However, the country still needs to tackle the more complex problems of entering into a knowledge-based economy, reduce inequality of income, wealth, and opportunity, and undertake political reforms to effectively deepen democracy.

A particularly controversial feature of the model has been the adoption of Friedman-Hayek receipt of full marketization of education, health, and pensions, which were completely transformed in those sectors of the economy guided by the profit motive. This has amplified existing inequalities and social segmentation triggering an evident fatigue of the population with free market orthodoxy. The retreat of the state in the provision of public education, and the lack of regulation of a vast and growing private university system, has complex effects on the quality of education and hampers effective equalization of opportunities and upward social mobility. Both the OECD and the World Bank have shown in their reports that...

To continue reading