In Chile, a Political Revolution 30 Years in the Making
For over 30 years, Chile’s predictable politics and free-market economics have made it a beacon of stability in an often turbulent region. Recent developments, however, suggest that may soon change.
In May, Chileans elected a left-wing body to draft the country’s new constitution — a concession offered by the government after massive demonstrations in 2019 saw calls for social and political change. And on Dec. 19, Chileans will head back to the polls to elect either a solidly left- or right-wing president after more moderate candidates were eliminated in the first round of the presidential vote on Nov. 21.
The polarized presidential race, along with the ratification of a new constitution (and the appointment of a heavily slanted assembly to draft it), reflects the extent to which Chilean politics have changed in recent years. But this shift has been a long time coming.
30 Years of Centrist Politics
Chile transitioned to democracy in March 1990 with the election of President Patricio Aylwin, ending the 17-year reign of General Augusto Pinochet’s repressive military dictatorship. Aylwin kept the 1980 constitution, which favors private sector procurement of infrastructure projects and social services. He also continued economic liberalization and fiscal discipline, which began under the Pinochet regime with heavy influence from U.S. economic schools of thought. Aylwin led a coalition of center-left political parties that would go on to govern Chile for 24 of the past 31 years.
In response to growing left-wing influence in Alwyn’s coalition, Chilean politics shifted to the center-right in 2010, seeing pro-business Sebastian Pinera elected for two separate presidential terms in 2010 and 2018. During this period, Chile’s political spectrum oscillated between center-right and center-left coalitions, with the former promoting free-market ideals and the latter implementing social programs benefiting the poor and the growing middle-class. The dominance of the two centrist blocs kept Chile’s political risk relatively low, as neither was interested in fundamentally changing the pro-market policies that had helped fuel the country’s rapid economic growth following the ousting of the military dictatorship.
Chile’s GDP grew an average of 5% per year between 1990-2020. With fiscally disciplined governments at the helm, the Chilean economy benefited from low public-sector debt and low inflation rates. Leveraging its long coastline and access to Pacific markets, the country signed free trade agreements with global economic powerhouses such as the United States and China. Foreign capital also flowed into the country to take advantage of the abundant copper supply. Domestic investment, meanwhile, flourished under government subsidies.
During this three-decade boom, Chile’s middle class grew and its poverty rate fell from 40% to 10%. But many still felt that the country’s free-market system was essentially unequal, as the windfall of foreign investment largely benefited the wealthy while increasing the cost of living for everyone else.
The Chilean government sold land and water rights to private firms and placed the country’s pension system, healthcare and education sectors under the care of the private sector — which charged sky-high service fees. Exorbitant out-of-pocket health and education bills, in turn, drove many middle-class Chileans into massive debt — fueling fears that they may end up living in poverty like their parents.
The Breaking Point
Beginning in 2009, a series of widely publicized scandals over price-fixing of basic necessities like chicken and toilet paper sullied Chileans’ views on private sector dominance. The scandals also contributed to the growing perception that the country was being ruled by a corrupt political elite. Student groups and blue-collar workers protested over perceived societal inequalities, while Mapuche Indigenous collectives began to organize to reclaim their ancestral lands from foreign firms.
Student protests over a subway price hike and police violence served as the catalyst for
massive nationwide demonstrations that began in October 2019 and lasted up until early 2020. Chile’s protest movement saw violent clashes between the country’s militarized police force and protesters, damage to critical infrastructure and the looting of shops and businesses. Over 1.5 million people, just under 10% of Chile’s population, attended a protest on Oct. 25, 2019, calling for the resignation of President Sebastian Piñera.
Though the protests were originally organized by youth leaders, several subsets of society joined, including Indigenous groups. Members of the now-large Chilean middle class also took to the streets, frustrated at paying premium rates for road and water use.
Chile’s Mapuche Peoples
Despite making up 12% of Chile’s population, the Indigenous Mapuche peoples are not formally recognized by the current constitution or the state. Their presence in the country has contributed to societal divides along racial lines. The private sector’s continued refusal to sign over land rights has pushed the Mapuche to resort to violence against business infrastructure, specifically the logging industry.
To quell the protests, the Chilean Congress approved a referendum to rewrite the country’s constitution in October 2020. During the referendum campaign, the anti-establishment left took advantage of the public's discontent to push a message of societal change and a broadened social safety net, growing a following among youth and the middle class.
While protests came to a stop, societal tensions remained strong. Chile’s economy shrunk 5.8% in 2020 amid the onset of the COVID-19 pandemic, exacerbating the existing inequalities. The upper class was able to continue working remotely, while the nearly 6 million Chileans with informal jobs in the service sector (most of whom middle- and low-wage workers) struggled to make ends meet.
Against this backdrop, Chilean voters appointed a left-wing body to draft the new constitution in May 2021, fueling fears among the business class about the country’s economic future. In the face of a constitutional rewrite, center-right voters have also grown more extreme in their commitment to protecting Chile’s free-market principles.
One Country, Two Visions
In the aftermath of the pandemic, Chile has seen two political movements on opposite ends of the spectrum gain significant public backing. On the left, the student and Indigenous leaders have become prominent political figures, pulling the ideology of the Concertacion coalition further from the center. And on the right, many voters have abandoned the traditional center-right coalition in favor of the far-right Republican Party, which defends pro-business policy and is starkly against immigration.
These developments are representative of two competing visions for Chile’s future. The first is the leftist dream of a country where the government would provide an expansive safety net by reallocating services such as education, health care and the pension system into the public sector — even if it means greater global isolation and less foreign investment. Funding this vision would require raising taxes and tariffs on industry at the risk of violating several free trade agreements (most notably the Trans-Pacific Partnership) and prompting global powers like China to reduce their reliance on the country’s exports. Ownership of Chile’s natural resources — including water and land rights — would also be restored to the state and Indigenous communities, stripping private firms of these assets.
The right-wing's dream, by contrast, is of a country that remains globally open to business but closed to immigrants. Under this vision, social services and land rights would remain in the hands of private firms, which would ensure Chile retains its liberalized trade and global economic reach. Additionally, the state would increase security measures in an effort to combat the growing influence of regional criminal groups in the country. Chile would also adopt nationalistic policies, including stricter immigration laws, as Chileans seek to protect their jobs and resources from regional waves of migrants. Politicians would likely acquiesce on some social issues, such as formally recognizing Mapuche Indigenous and ensuring gender parity among leadership, but would refrain from substantive action to reallocate resources.
An Uncertain Future
This clash of visions will be on full display during the Dec. 19 presidential runoff election, with Gabriel Boric from the “Apruebo Dignidad” (I Approve Dignity) coalition representing the left-wing’s dream of expanded social services funded by corporate taxes, and Jose Antonio Kast from the Republican Party representing the right-wing’s dream of a free-market economy with fewer illegal immigrants.
But regardless of who wins the presidential race, the proposed constitution is likely to fall in line with the leftist vision for Chile, given the ideological composition of the body currently drafting it.
The new constitution, which the assembly is expected to unveil in late 2022, will probably strip away many private sector benefits and address pressing issues of Indigenous representation, land and water rights. After the draft is ready, Chile will then hold a final referendum to reject or approve the draft. This will provide another trigger for political clashes, as the extreme-right camp will likely rally against the ratification of the draft, in favor of keeping the Pinochet-era constitution and its private-sector protections.
Households, companies and investors in Chile — once one of the most stable countries in South America — will increasingly find themselves in the throes of uncertainty.
These upcoming events portend a period of political and social instability in Chile with increased economic and security risks. The country’s growing polarization will make it harder for politicians to reach agreements, which will almost certainly disrupt and potentially stall the policymaking process. In the short term, this is likely to pose an increased threat to the country’s macroeconomic policy and demonstrations will heighten the threat of the country’s security outlook. Political polarization may also inhibit lawmakers’ ability to face long-term challenges such as ensuring sustainable economic growth and adapting to endemic COVID-19. It could threaten the country’s ability to take full advantage of the global energy transition as well, as the growing threat of climate change increases global demand for Chile’s abundant copper and lithium resources, which are key to electric vehicle production. But legislative gridlock resulting from clashes between increasingly polarized left- and right-wing politicians may threaten Chile’s ability to move up the value chain beyond raw materials exports.
Chile will also likely see the reemergence of frequent protests as the two visions compete. Should the far-right gain political prominence (by, for example, Kast winning the presidential election), the country’s far-left student movement and Indigenous groups are likely to reignite nationwide demonstrations. And if the new leftist politicians are unable to deliver policy or collaborate often with centrists, Chile’s extreme-left anarchist, Marxist and Indigenous groups are likely to increase the frequency of targeted attacks against the state and industry — furthering the country’s instability. As a result, households, companies and investors in Chile — once one of the most stable countries in South America — will increasingly find themselves in the throes of uncertainty.
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