By Yong Kwon
Mass protests in Chile caught many US observers by surprise last October. The foreign policy establishment in Washington had looked to the Latin American republic as a beacon of stability. In addition to its peaceful transition to democracy after 17 years of military rule, the country was one of the strongest economic performers in the region. Yet much like the United States, an outward sense of economic growth and procedural stability masked rising inequality, a hollowing-out of the welfare state, and the displacement of citizens from the decision-making process.
A brief examination of Chile’s history over the past 150 years reveals the failure of successive governments to proactively address the public’s demand for economic justice. Most of the wealth redistribution in Chile’s history was a consequence of external developments, such as financial crises that moderated the relative wealth of oligarchs, rather than progressive policies that proactively transferred wealth to the masses. The brief exception was during the years between 1937 and 1973 when newly-elected Socialist and Radical Party legislators earnestly, albeit sporadically, introduced policies to redistribute society’s economic gains. But these efforts were cut short by the US-backed coup d’etat in 1973 whose legacy continues to limit the state’s ability to carry out structural reforms. The resulting inequality and feeling of powerlessness underpin today’s popular unrest.
Chile’s experience carries ramifications for the left’s approach to international development. The next US administration should advocate for not only fairer redistribution of resources by all governments, but also broader public participation in drafting economic policies. In particular, empowering unions at home and abroad will help build and safeguard a better future for working people around the world.
History provides many cautionary tales of how economic growth without democratic participation will eventually unravel – a case study of Chile is timely given recent events. Between 1850 and 1973, the country underwent two broad cycles of rising and falling inequality. While the economy grew overall throughout these years, external factors determined how the gains were distributed in society. Public policy played little to no role in ensuring a fair allocation of wealth. As a result, the working class was left in a perpetually precarious position.
Take the 19th century wheat boom, which dramatically increased the value of the country’s agricultural sector starting in 1850. However, this income growth went almost exclusively to a handful of large landowners, and the rising wealth disparity slowed only in 1873, when a debt crisis devastated the financial assets of the country’s landowning elites. Many rural workers gained the opportunity to access wealth in the 1880s, albeit only due to Chile’s wars of conquest and annexation against Peru, Bolivia, and the native Mapuche tribes. The migration of previously unlanded workers to these new frontiers had the unintended consequence of diminishing the economic leverage of landlords in Chilean society, though only as the result of militarism and violence.
The dilution of the elite’s share of the national wealth was temporary. In the first decade of the 20th century, oligarchs consolidated control over newly developed sources of wealth, such as the nitrate industry. Great landowners also used their political influence to displace newly arrived farmers and take legal ownership of land that had been taken from Mapuche tribes. They also relied on the power of the state to suppress efforts by the new urban working class to secure labor rights – most notably in 1907 when Chilean troops fired on nitrate miners who were demanding increases in their nominal wages to match the rising cost of living. At the zenith of their power in 1913, the top 1% of Chileans appropriated 25% of the country’s total annual income – a share that surpassed even their peers in the United States (18%).
Despite the seemingly unchallengeable dominance of the oligarchy, the working class accumulated political influence as industrialization swelled their ranks. Between 1940 and 1970, Chile’s urban population increased from 53% to 75% of the total population. Simultaneously, white-collar workers grew from 14% to 39% of the country’s total labor force – another class whose interests often aligned with blue-collar workers on issues such as public spending for education and healthcare. Reflecting this demographic shift, the government began introducing various redistributive agendas during this period – culminating in the election of the socialist candidate Salvador Allende in 1970.
At this pivotal moment, when the state began proactively addressing inequality through structural reforms for the first time in the country’s history, General Agosto Pinochet overthrew the democratically-elected government in 1973. The coup d’etat would not have been possible without staunch support from the US government, which opposed the Allende government for many reasons – but particularly because Washington opposed the nationalization of American copper assets in Chile. American support for Pinochet demonstrated the capacity of capital interests to collude across national borders – a persistent challenge for labor.
While free elections returned in 1990, economic historian Javier Weber argues that the 17-year military dictatorship rendered the economy beholden to certain stakeholders and made structural reforms difficult to carry out in the new democratic era. Most notably, the institutional strength of labor unions – which had been central to mobilizing voters and shaping workers’ rights laws under the Salvador Allende government – never recovered from the coup d’etat. Collective bargaining was banned outright during the first 6 years of the Pinochet regime. Even when center-left parties returned to power, the government’s economic policies were focused on making the labor market more “flexible” – i.e. beneficial to corporate shareholders at the expense of workers.
The resulting inequality in Chile today is evident in many socio-economic metrics. According to economist Diana Kruger at Adolfo Ibáñez University, the unemployment rate for the bottom 20% of Chileans (by income) is approximately 20% while the national average is only around 7%. In education, nearly 40% of students from the lower 30% of income earners graduate university with debt while the top 25% of the population do not. Chileans at lower income levels are also more likely to rely on the country’s under-resourced public health insurance plan, where the wait time to see a specialist is approximately one year.
In this context, the ongoing protests in Chile are a rebuke of not only these inequalities, but also a social system that historically abandoned the people to the whims of exogenous developments – commodities boom, war, demographic shift, etc.
American readers should empathize with the frustrations propelling the Chilean people onto the streets. The economic history of the United States is not too different: wealth distribution has been largely dictated by external inputs such as the acquisition of new lands from the country’s violent westward expansion, the arrival of immigrants, and the country’s paramount position in the global economy after World War II eviscerated industries in Asia and Europe. The government introduced measures to correct economic and racial inequities in the 1930s and 1960s, creating lasting redistributive institutions like Medicare and Medicaid; and passing legislation like the Civil Rights Act and Voting Rights Act. This, however, led to a reactionary backlash that retrenched the country’s many disparities. For instance, between 1986 and 2012, wealth did not grow at all for the bottom 90% while the top 0.1% appropriated half of the aggregate wealth accumulation in the country. Reflecting the persistent racial inequality in the country, black unemployment in October 2019 was 5.4% while the national average had come down to 3.5%. More viscerally, black mothers are approximately three times more likely to die in childbirth than white mothers.
Both countries need to transfer a greater share of the economic gains to their citizens by expanding public investment in areas like education and healthcare. As demonstrated in both Chile and the United States, these tangible improvements will not automatically emerge from GDP growth when working people do not participate in the policymaking process. In the United States, this will require explicit support for unionization across sectors (including in the public sector) and challenging anti-union legislation in several states.
Abroad, the next US administration should unequivocally adopt the position taken by Oxfam that defeating global poverty will require solutions that have worked in many post-industrial societies: progressive taxation, greater public funding for basic services including health and education, and protection of labor rights. The United States should also push international financial institutions to abandon their support for austerity measures that disproportionately affect people with lower incomes. Simultaneously, the US government should promote the participation of local unions and civic organizations in setting their respective countries’ policy agendas, particularly ones related to welfare and trade. Drafting trade agreements that require unions from both sides to participate in dispute resolution and monitoring represents one way to empower workers outside the United States.
The end goal must be the reduction of poverty and inequality. But history shows that without robust engagement by the global citizenry, whatever gains trickle down to the people are merely a mirage.
Yong Kwon studied economic history at the London School of Economics and moderates the subreddit r/EconomicHistory. He is currently the Director of Communications at the Korea Economic Institute of America. Views in this post are his own and do not represent the official position of the Korea Economic Institute of America.