Ignacio Portes: How the Left Underestimates Chile’s Right-Wing Keynesians

Yves here. Please welcome Igancio Portes to NC. He’s a sophisticated young writer who has a sharp eye for power dynamics and is keenly interested in why the left (the genuine left as opposed to the fake version we have in the US) so often fails to achieve its intended results when it gets control of a government. He’ll be providing posts from time to time on Latin America, which is too often covered in a cursory and propagandized manner in the mainstream English language press.

By Ignacio Portes, a freelance journalist who lives in Buenos Aires. He has been published in English at PandoDaily and NsfwCorp

The rise of left wing movements in Chile has led some analysts to believe that the neoliberal model of the country might finally be subjected to a serious challenge. Students have organized demanding that education should be a universal right, not a privilege to compete for; the private pension system has come under question; and the conservative-neoliberal alliance that’s been in government for the last four years has proven to be a false alternative to the limits of the also-neoliberal (but more socially oriented) Christian Democrat + Socialist Party alliance that presided over the country from the end of the Pinochet dictatorship to 2010. A new, slightly more leftist alliance that includes both the 1990-2010 governing coalition and some other parties will now have four years of rule.

These are all positive developments, but a sustainable shift in power is still quite far from materializing. The left might be overestimating its own powers and underestimating the strength of neoliberalism, which has its supporters inside the new ruling coalition, and is also sustained by something that transcends Chile: the power that capital has today to shape the world economy.

The pro-capital, Mont Pelerin-inspired, export-based economy of Chile was installed during Pinochet’s dictatorship, when resistance against it could easily be held back as there was no democracy or human rights to put any limits on the regime or its unpopular reforms. Navigating Chile’s moments of crisis and its negative impacts on living standards was much easier for the Pinochet regime, knowing that state terror ensured there was hardly any chance of massive social unrest. But this doesn’t explain why, after the dictatorship ended and basic liberties were restored, many of the tenets imposed by its neoliberal reformers were kept in place, unquestioned. Inequality, the weakness of organized labor, the idea that the market should be in charge of most of the economy, and that compliance to market logic and an almost unlimited competition are the basis of a healthy society: most of these neoliberal principles were, at best, slightly toned down during the post-dictatorship “Concertation” decades, and at worst, left completely intact.

What alarms me is how the left can’t seem to deal intellectually with one of the biggest reasons for why this happened. Parts of the capitalist tale about Chile are true in a perverse way: capital does flow towards places with lax regulations, low wages, low social spending and weak unions—and that can bring an amount of growth and prosperity to a country under certain conditions, even if life becomes totally dominated by capital, and it’s not too inspiring to live with so little time to dedicate to things in life other than The Market.

Suppressing wages to restrict internal demand is a recipe for Depression if you are a developed European country in the middle of a deep recession—but it’s the reality under which competition to attract capital has forced Latin America and other underdeveloped regions to work with for a long time.

Under Pinochet, Chile set the foundations for exactly that: what was (and is) a relatively educated and healthy workforce was made cheap and disciplined enough under an iron fist so as to attract a lot of capital to Chile, once internal resistance was quashed. By the end of the dictatorship, much of the brutal sacrifices imposed from above to lower wages, destroy labor’s bargaining power and eliminate state interventionism had already been accomplished. And after several horrendous crises, the economy was now attracting a lot of foreign investment and growing steadily, thanks to the work of Chile’s now disciplined workforce.

So the democratically elected government that followed the Military Junta was presented with the following dilemma: “Should we risk our now considerable growth rates by trying to reverse all these changes, making our country less ‘competitive’ internationally? Or do we just take advantage of the fact that we’re now getting lots of investment, exporting massive amounts of raw materials, have decent levels of employment and the ability to import a lot of consumer goods without bankrupting the country to keep the population happy? We could even improve the welfare state a bit without bothering capital too much, using the year-on-year increases of state revenue that growth leaves, without even needing to seriously tax the rich.”

It was hard for Latin American countries to compete with Chile’s love affair with capital, which was all flowing its way. Some tried to do it, but the social consequences of firing people en masse, lowering internal demand, privatizing state assets and so on were so harsh that barely anyone resisted the reforms without having first experienced all kinds of crises that made them unsustainable.

The rise in the prices of the commodities that the continent exports in the last decade has made it a bit easier for everyone, giving some space for governments in the region to develop safety nets, curb inequality or try to develop alternative economic models (without much success in this last department). But the system in place is still a race to the bottom, where labor organization ends up being the big loser. Once installed, the dynamic is hard to escape, and Chile is possibly the one country that has best adapted to it in the region.

Chile’s caste of technocrats is smarter than what the left generally gives it credit for. The country’s post-dictatorship neoliberals, most of them inside the Socialist-Christian Democrat coalition, not only inherited the disciplined workforce of the Pinochet years, they also have read Keynes, and use his recipes all the time to escape the typical problems that the more fanatic and less pragmatic market fundamentalists create on their own economies, although they do it in quite a conservative way.

Every time Chile faces a potential depression, the government spends to get out of it. Every time the economy booms, the governments saves, so there’s money to spend in the next recession. The difference with what the leftist Keynesians want in Europe and the US is that this countercyclical spending is not done with big distributive goals in mind, but mainly as a way to save capitalism from its own recessions without redistributing much social wealth or irking capital too much. This means: in times of boom, don’t tax the rich too much (as a leftist Keynesian would), but save money from other means (spend a little less on social programs, increase interest rates). In times of recession, don’t spend massive amounts of money on the poor, but do spend on someone, do stimulate the economy, to save it from stagnating. It’s a kind of right-wing Keynesianism that doesn’t redistribute income too much, and Chile has mastered it like clockwork. You don’t have to be a fan of the results to see that they’re good at it, that they’ve managed to avoid big scale social reform by avoiding economic crashes better than, say, today’s Europeans, who are simply failing to apply any countercyclical measures in times of bust, and are combining regressive redistribution of income with a recessive economy, while Chile, today, only has the former.

Chile’s technocrats even put some capital controls in place, to weed out the most highly-speculative, unsettling, short term investors who can destabilize an open economy. They are far from blind to the self-destructive limits of free markets, and in this sense they are possibly their best defenders.

Looking at the numbers says a lot. On the one hand, inequality has increased massively in Chile since Pinochet took over, and only slightly improved since, but never went back down to pre-1973 levels.

Screen shot 2014-01-31 at 12.27.53 PM

(source)
The graph only shows the GINI coefficient evolution from 1957 to 1997, but it’s been very stable since then, the latest value available being 0,52.

But now look at the other half of the picture: absolute poverty, as proudly shown by The Economist:

Screen shot 2014-01-31 at 12.27.45 PM

This last graph does obscure some facts, mainly about how poverty had grown significantly during the dictatorship, and about how national poverty lines differ from each other (so comparisons between countries are never as straightforward as the graph makes them seem), but the reduction after the hardship of Pinochet’s years is still impressive: from about 45% in 1987 to around 15% today, much of it thanks to how the capital that every developing country desperately needs decided to go to Chile over other places.

As growth is still there, and so are jobs, food on the table and generally more purchasing power, the demands for a more equal redistribution of income aren’t as big (the fact that organized resistance was crushed by Pinochet obviously helps too). The Socialist Party/Christian Democrat coalition has actually been an excellent center-right capitalist government in this sense. They’ve distributed some crumbs (compared to the Pinochet years, which distributed from the poor to the rich) but left the neoliberal system intact, took advantage of the way it managed to attract capital, and actually improved it by adding security patches to it such as the Keynesian anti-recession countercyclical policies that make it much more stable than it was during the dictatorship. The social divide is similar to what it was in the Pinochet years (crumbs notwithstanding), but demands for reform have been successfully contained for more than 2 decades since the end of the dictatorship, and have only recently started surfacing.

And when they surface, what both the Pinochet/libertarian right and the more neoliberal within the Christian Democrat/Socialist Party coalition tell the wannabe reformers is: if we do what you want and start redistributing wealth, helping the unions and so on, all the growth that Chile has benefited from by being so friendly to international capital—all it’s given us, like boosting construction, mining and other dynamic sectors—will go away. And they are right in a sense, because the world is rigged for international capital, which can boycott any government they don’t like by simply moving elsewhere.

In this context, where national workforces are being played against each other to see which of them can serve the market more effectively, it’s hard to see how a movement of students, a couple of trade unionists and well-meaning citizens and some half-assed center-left politicians inside one country could defeat such an octopus of a system. A homeostatic octopus at that, which has the power to regulate its movements in such a way as to control and eliminate any localized effort to reduce its power. Raise your taxes, raise your salaries? How bad, we are going elsewhere then, good luck paying for all that new infrastructure and investment you needed. Behave like a good boy, do what capital says? Good boy, here, have some of my dollars, have a bit of jobs and welfare, at least for as long as the resource-extracting economy lasts or someone starts behaving better than you.

Chileans didn’t want to get here (most of them favored heavy state intervention and distribution of wealth when they were polled during the last years of the dictatorship)—they were violently forced into this situation. But since the worst part seems over, and they survived and kind of adapted, you can see why they’ve been hesitant to pick a full frontal fight against a rival with such extortive powers—if they pick it, and go alone, it’ll be a massively uneven contest, in which they could lose much of what they’ve earned.

Still, all these extractive, export-based models in Latin America tend to run in the long term into the same problem: whenever the international prices for the commodities they export fall, their highly dependent economies weaken or collapse. When that happens, the masses who more or less kept quiet despite their subordinate position, placated by continued growth, find out they suddenly don’t even have an expanding pie anymore, and even worse, that their rulers are coming for a bigger share of it even if it’s now shrinking, in order to “make the economy more competitive” and re-boot it into profitability and growth, a process which makes class struggle inevitably resurface, exposing the farcical nature of the neoliberals’ harmonious depiction of society, at no small social cost.

So there might be no choice but this: to start thinking of ways of transcending national barriers to stop the race to the bottom, and instead join efforts to confront it.

Print Friendly, PDF & Email
Tweet about this on TwitterDigg thisShare on Reddit0Share on StumbleUpon0Share on Facebook0Share on LinkedIn0Share on Google+0Buffer this pageEmail this to someone

42 comments

  1. sd

    Fascinating article. I follow events in Iceland closely. Much of what is written above about recent events in Chile parallels in many ways what is happening in Iceland. Capital is flowing into Iceland, and consequently ISK is way up against the dollar. But at a price paid by the local Icelander with the extraction and destruction of their natural resources.

    It would seem that there is nothing more destructive than greed, an emotion that can be easily appealed to with very little effort.

  2. Gonzalo Lira

    This writer has no idea what he’s talking about.

    Chile’s Left had an intellectual collapse following the fall of the Warsaw Pact and Soviet Union—a collapse from which the Chilean Left has never recovered. This is why so many “leftists” in Chile are what are called here “Izquierdistas de la boca pa’fuera”: “Leftists from the mouth only.” The neoliberal economic model imposed by the Pinochet dictatorship was indeed resisted by a large segment of the Chilean population—until 1989–1991, when the Soviet model collapsed so completely. After that, the Left had no competing economic ideology. At best, it could critique neoliberalism, but it could not offer a competing vision. It still hasn’t.

    (The author’s notion that “repression during the Pinochet dictatorship”—which ended in 1990—still has such sway over people almost a quarter of a century after the fact that today in 2014 they do not act in their economic best interest out of some Pavlovian repression is flat out absurd. People today in Chile are still in favor of Pinochet’s economic policies—even if they hate Pinochet himself—because the dictator implemented measures that people today generally agree with: The private-pension system, the health system, the regulatory framework. If the majority did not, they would have changed the system quite some time ago. They have had the opportunity multiple times during the socialist presidencies of Ricardo Lagos and Michelle Bachelet. This notion by the author that the ghost of Pinochet somehow stopped them is just ridiculous—and condescendingly dismissive to the point of insult as to the political power of the Left in Chile, which multiple times has won landslide victories both in Parliament and for the Presidency.)

    People in the U.S. and Europe do not seem to understand what a profoundly devastating effect the complete collapse of the Soviet model had on the Latin American Left in terms of its economic thinking. The USSR and Cuba ceased being viable alternatives—and that left the Chilean Left adrift in terms of economic thinking.

    Thus neoliberalism—with which I personally am not in favor of for reasons outside the scope of this comment—has had its way in Chile.

    Apart from that, this article makes so many statements and assumptions about the Pinochet dictatorship that, to anyone who lived through it—as I did—even to people who were completely opposed to Pinochet and hated his guts—they just sound ridiculous.

    But I understand the author’s rationale: Identifying neoliberalism with the policies of a fascist dictator automatically makes neoliberalism nefarious and evil. Thus it makes it so much easier to criticize it thoughtlessly and without recourse to facts.

    GL

    1. Jim Haygood

      ‘Every time Chile faces a potential depression, the government spends to get out of it. Every time the economy booms, the governments saves, so there’s money to spend in the next recession.’

      Shocking, shocking! How low will the evil neolibs stoop in following Keynes’s own countercyclical advice? Portes fails to mention that Chile has the highest bond rating in LatAm, and was the first Latin American country to join the OECD club of developed nations. Tragic, tragic!

      ‘But the system in place is still a race to the bottom, where labor organization ends up being the big loser.’

      In Argentina where Portes lives, the concept of industrial unions and collective bargaining is straight out of the 1940s. Meanwhile, former grain silos and chocolate factories in Buenos Aires have been converted into apartments. Trabajo en negro (informal work) employs about 40% of the workforce in Argentina, and a substantial portion in Chile as well.

      If all those informal workers were to be unionized in line with Portes’ obsession, what exactly would they do? Odd that Portes hardly mentions education, a vital factor in a post-industrial, knowledge-worker economy. His pounding of the drum for labor bargaining power has a distinctly nostalgic feel to it, like them old gramophones and portraits of Carlos Gardel that one sees in the San Telmo district.

      My regards to the Widow K., comrade!

      1. Ignacio

        Jim:

        This article is not a chauvinistic attack I make as an Argentinian on Chile, a country I appreciate as much as mine, so no need for the “your president is uglier than theirs” comparisons.

        As for unions, well, I believe in democracy in the workplaces and equal effort for every member of society, not on shifting all social burdens on the shoulders of the working class. If you know of another way to achieve that other than the organization of the workers (not only in unions but in political parties too), I’ll be glad to hear about it.

        That’s not to say any kind of union is automatically great for the workers. In my country, unions are extremely corrupted, divided and respond to a high degree to the interests of the upper echelons of society, in which their generally undemocratic leaders are included, a fact that goes a long way into explaining their anti working class behaviour. Both the constant meddling of authoritarian governments inside unions and, at times, the elitist isolationism from the most well-off inside the unionized working class go a long way into explaining these problems. As you can see, my position is hardly a ringing endorsement of Argentina’s unions. Plus, there’s the factor I talk about in the article: capital just goes away from places where unions (be them democratic or not) become too powerful, which is why I doubt a country can fight that fight to a significant degree on its own without facing huge disinvestment boycotts that weak economies aren’t that well prepared to resist.

        Lots of limitations to organize against, but again, what would the alternatives be if we discard working class organization altogether?

    2. Dan Kervick

      Yes, I agree. The successful left-wing movements of the early 20th century were the outcome of a preceding century of gradually evolving and increasingly sophisticated socialist thinking and organized worker movements. It took a long time.

      At this point in history, there is not yet a compelling egalitarian, left-wing economic model that is capable of attracting the passionate political support of a critical mass of the populations in the developed world. It is always very hard to convince people that vague and abstract programs for change will deliver an outcome that is better than the devil they know. And conditions in the developed world for most people are not sufficiently desperate for them to invest themselves for the long term in a revolutionary program of any kind.

      The social safety net systems constructed by mainstream liberals in the second half of the 20th century are mainly holding, despite the fact that the established and organized left is having to spend a tremendous amount of time and energy fighting off conservative assaults on these systems. Calls for change from the left often only take the form of calls for extending those safety net systems in various ways, such as firming up a minimum subsistence income and even calling for people to be allowed to detach themselves from the formal system of work and production altogether and choose a subsistence life on a universal social dole if that is their inclination. These kinds of approaches are mainly focused on managing social inequality and alleviating its most intolerable effects, but not doing anything to address inequality in any fundamental way.

      One effect of modern capitalism is to cultivate a particular kind of individual: narcissistic, consumption-driven, socially alienated and obstreperous, craving ever more freedom from other people and social structures no matter how much liberty of lifestyle choice they possess. Economic crises and disruptions caused by this cult of individualism often result in calls to double down on individuality and to further deconstruct political community in favor of more laissez faire pursuit of individual goals. The energies at work in this cycle exert a subtle, or sometimes dramatic, anti-social and anti-democratic force, since people strongly inclined toward self-assertion and self-will perceive even democratic social organizations as just one of the forces that are oppressing their all-important individuality.

      I’m afraid that until large numbers of modern dissidents rediscover a higher level of social solidarity, communal spirit, individual sacrifice, historical idealism and the democratic ethos, they will be lost and flailing: angry balls of ego wondering why they are so oppressed rather than compassionate people with a self-transcending orientation toward others, capable of the highest forms of common purpose and organization.

      We’ll also need to rediscover some cheerfulness. Few people really want to follow someone who is surly, frustrated, cold and miserable. They might commiserate with such people, but they don’t follow them. Even conservatives don’t put crotchety cusses like Rush Limbaugh in charge of anything.

      And I would like to suggest that it is a mistake for the left to look to students as leaders in the next wave of social change. The student-led model of activism made sense in an earlier era when most of the people seeking or needing change were agricultural and industrial workers often lacking even rudimentary education and basic literacy. But in the contemporary knowledge-based economy, that is no longer the case. Young students often possess only a kind of abstract book-knowledge, without the detailed life experience of how economic systems actually work to speak compellingly and convincingly to older people about what is wrong, or to be able to formulate in practical terms plans for changing these systems.

      1. Jim Haygood

        ‘Young students often possess only a kind of abstract book-knowledge, without the detailed life experience of how economic systems actually work.’

        Certainly rings true in Argentina, where the nationalist youth organization La Campora is active not only in government but also in state companies such as Aerolineas and YPF.

        Both Argentina and Chile receive strong solar insolation in their central and northern regions. One might expect a vibrant solar power industry there. But no: with subsidized retail electricity and gas prices set at a fraction of market prices, it doesn’t pay to get off the grid. Likewise, double-paned windows — standard in the developed world for decades — are an imported luxury in Argentina, sold for sound control rather than insulation efficiency.

        New energy-hog apartment towers overload the grid, causing rotating blackouts. But money-losing utilities have no incentive to invest in capacity expansion, unless the government orders and subsidizes it.

        The young, middle-class, college-educated activists who are responsible for this ongoing malinvestment would have served their country better by studying science, engineering and building technology instead of anti-market political ideology.

      2. Paul Boisvert

        The Good, the Bad, and the UBLI…
        Hi, Dan,
        The Good: “Angry Balls of Ego”–imagery doesn’t get better than that…kudos!
        The Bad: Discussing what “the Left” does (or doesn’t) or should do, without defining it. You’re not alone in this, but you need to be explicit: everyone has a different definition of the Left, and without specifying it, almost any generalization about it will disputed by everyone else, not necessarily substantively, but definitionally. It’s unproductive to discuss “the left” uncontextually on a general-interest blog, like almost all the ones you comment on, including your own, RE.

        The most useful definition of “the Left” I know of is “those who oppose capitalism, and wish to replace it by a democratic political economy”. Capitalism is essentially undemocratic, and hence unegalitarian–so to support egalitarian democracy requires opposing capitalism and its ruling class, the owners of capital. Thus, the movements that originally gave rise to the term “Left” involved, as you correctly note, “sophisticated socialist thinking and organized labor movements”. That is precisely what will be required for “the Left” to be successful again–though “again” isn’t quite the right word, since the original success was always partial and, in retrospect, doomed (in the first incarnation), precisely because the socialist alternatives were not democratic. Sophisticated socialists have long since rectified that mistake–all socialists I know are committed fully to democracy, both politically, and, much more crucially, in the workplace.

        That defenders of capitalism, from Obama to yourself, who differ merely in how much they want to make capitalism a little less undemocratic and unegalitarian, are often labelled “leftist”, rather than “centrist clothiers of the capitalist Emperor”, is precisely the measure of how successful the right (i.e., “naked” capitalists) has been in defining the discourse. As Portes cogently reminds us, capitalists aren’t dumb, and will effortlessly co-opt, adopt, and adapt any allegedly (but not truly) “leftist” critique, of the reformist, bandaid variety, to their own purposes. Any, that is, except a real one: requiring real workplace democracy, and eliminating all economic exploitation in favor of egalitarian distribution of claims on the economy according to effort, merit (not luck or raw talent), and time–rather than via rent derived from owning (or collaborating with) capital in any way, including intellectual capital.

        You, of course, obviously disagree with my definition of “leftist”, which is fine–but you need to clarify your own. Because if it is merely “those who wish to ameliorate capitalism’s bad features a bit”, you will fail to generate productive discourse with it. That requires a further step–it’s meaningless without specifying “how much” you want to ameliorate it. You obviously want to ameliorate it much more than Obama–which is of course admirable–but until you specify, both of you are lumped together in “the Left”, which will make generalizations impossible (or at best, vapid and/or endlessly and pointlessly disputatious.)

        And, of course, you can see the trap: once you specify “how much” to ameliorate it, you will beg the question: “why that much, and not more (or less)?” Answers can be given, but in decades of asking that question to fairly sophisticated reformists, every cogent answer I’ve ever gotten has boiled down to the Atlas Shrugged argument: you have to bribe talented people (by X amount) to use their talents, or they’ll…take their marbles and go home. That is certainly a cogent answer, but, I think, a false one, for every positive value of X…

        The UBLI: this is tangential, but I notice you took an (implicit) swipe at Universal Basic Income, in which I’m inserting the (implicit) word Layabout, to get Universal Basic Layabout Income. I’m basically fully in favor of the MMT JG, unsurprisingly for a socialist. Still, I think careful analysis of UBI raises a lot of sophisticated issues, some revolving about what “Layabouts” might do with their time–be political activists? Not engage in consumption of planetary resources? Volunteer? Etc… And some regarding inflation (why so bad? More money is by definition available to chase higher prices; some MMT’ers seem to [pretend to?] fear inflation more than any goldbugs do!) and residual welfare (do rejectors of JG jobs starve?) and minimum wage (UBI schemes can envision lower wage jobs that are still worthwhile to take on top of UBI, much as volunteerism would be) and levels of UBI (what is “subsistence” level), and on and on…

        I’m not saying JG won’t win out here–I think it will. Rather, I think someone pro JG (and you are such a clear expositor and thinker, I always wish it were you) could really develop a lot of great ideas comparing and contrasting them–I think a lot of nuance and sophistication could result. Of course, my main interest would be in applying those results in a socialist society, but they obviously have relevance in a reformed capitalist one as well, if that’s your bag.

        I mention the above because Ed Dolan and Wray on Economonitor just anlayzed UBI and JG respectively, but not in comparison to the other’s favorite. Then Dolan commented to Wray “let’s compare”, but Wray dismissed the notion pretty snippily. I find Wray brilliant and cogent and clear and usually right, but…way too much of a chip on his shoulder for someone whose goal should be to educate people other than the choir. I told him this once, and he seemed to take the critique seriously (after some initial dismissiveness!), but…seems to be back at it. Oh, well… Dolan’s effort was quite thorough and sincere, for a mainstream economist, though he didn’t mention what low wage jobs on top of UBI would involve, nor did Wray in his riposte to Ed’s comment. Precisely where a generous, inclusive dialogue could help… Interestingly, Wray also wrote extensively about “the Left” opposing the JG, quite uselessly, I thought, precisely because he failed to define the Left.

        Finally, as always Dan, please keep up the good work. Always a pleasure to read you, even (especially) in the (few) aspects with which I disagree.

      3. Banger

        Great comment. I have been saying that the left is moribund made up of hobbyists who have a certain cultural identity but no clear vision of the alternatives to the dominant narcissism. The only voices that have made some attempt to bring it are the people associated with the Zeitgeist movement which the left studiously ignores as it ignores any new ideas or perspectives.

    3. Ignacio

      Gonzalo: I’m not sure you paid much attention to what I wrote. The fact that Chile’s population acted against their best economic interested is something I never said. My point was the opposite actually: that they didn’t defy the more basic tenets of Chile’s neoliberalism when democracy kind of allowed them to because, amongst other reasons, the cost could have been too high. A country so adapted to and dependent on international capital’s flows could be badly hit if it tried a frontal attack on capital, which is why Chilean’s never picked that fight and only chose small, more tactical battles, for a bit more of welfare and a bit more of stability.

      I actually agree with some other points you make about the disorientation of the left after the fall of the Berlin wall, that lasts until today. That certainly is another factor on why Chilean’s don’t go further to the left: there are no clearly-drawn alternatives, and that’s because of the left’s own failures. But that is going a bit beyond the scope of this article, which, anyway, still criticizes the left for not seeing it is more limited than it thinks at the moment.

      In any case, I see no point in debating what the article never said.

  3. armchair

    Cool post. Good Latin American coverage is hard to come by. While the New York Times does an impressive job of covering China, its coverage of Latin America appears to be written by a 60’s CIA station chief. Its a shame that not enough has been written about Latin America in the U.S. press, and it would be easy to imagine causes, but the key point is that it is an open frontier, and we NC readers are lucky to get a thoughtful post like this.

    I struggle with my emotions and observations about Latin America. I love the fact that the left seems like a genuine political force in many countries, even if that means that it freaks out the New York Times. However, the next commodities bust is never more than a few years away, and the neoliberals are waiting to cackle and boast as soon as soon as it hits. You can practically write out their comments right now about how short-sighted the Kirchners, Lulas and Correas all were. It seems like Chile will be insulated from such contempt, since it has carefully followed the strictures imposed by international capital.

    My great hope is that enough good things happen while the times are good to help these countries weather the next crisis as well as they can. There must be some value in using the good times to better educate people, to better nourish them, to get them job skills, and so on. Perhaps, some kind of a virtuous cylce will have been started and investment in the populace will shorten the duration of the next bust. Mr. Portes’s post leaves us to wonder what can break the commodity dependence. Chile appears to have managed life on resource extraction as well as any country could, but if there is a way out of that economy, it won’t be Chile’s current model that finds it.

  4. Crazy Horse

    In the end the Doctor will have his way with Chile. Copper is still the backbone of the Chilean economy and its prices are directly tied to the level of construction and state of manufacturing growth in places like the zombie cities that undisciplined and corrupt lending has built in China.

    http://www.bloomberg.com/news/2014-01-31/copper-set-for-biggest-monthly-loss-since-june-on-china-outlook.html

    Chile’s other exports— grapes, wine, fake farmed salmon— are luxuries, not necessities for the North American and European consumer who lives paycheck to paycheck or subsists on food stamps.

    In Chile the legacy of Friedman economics has built a consumption-based economy that cannot stand alone and lives or dies on its commodity exports. And hand and glove with the benefits of two decades of relative prosperity and growth goes a level of wealth distribution that is the most unequal in the Western Hemisphere. (exceeding even the bankster kleptocracy in the USA)

    That which cannot be sustained will not be sustained.

    1. Econ101

      Crazy Horse,
      Please help me understand “Friedman economics built a consumption-based economy.”
      What are the other options and what countries are examples? The U.S. has a consumption-based economy.

  5. digi_owl

    What corporations did inside USA, playing states against each other in a race to the bottom to offer less regulations and taxes, have since been repeated on a massive scale via globalization.

  6. financial matters

    Very insightful article. I think the term ‘right wing keynesians’ is useful but as mentioned doesn’t really belong to one political party. Very similar to ‘new keynesians’ which would include Krugman who also incorporates some neoliberal ideas.

    ‘Post-keynesians’ seem closest to Keynes’ original ideas which I think the author would be more in agreement with. Keynes believed in sustainable investment and the idea of ‘enoughness’ in inequality of income. At one point he considered that buying a stock should be considered as serious as getting married to it. Very different than viewing high frequency trading/hot money flows as sources of productive investment.

  7. Marc

    Igancio, welcome to NC. I like your writing style and the connection between some of the political economy dynamics of Chile and those of international capital. I think your point that Chile’s “neo-liberals” do things to prevent capital’s tendency to generate crises is important. As you said it enables them to avoid positive social reforms in response to a crisis, but it also allows them to avoid/minimize the externally imposed “extreme” forms of structural adjustment austerity reforms in response to a crisis. I’ve seen similar approaches followed by “neo-liberal” oriented elites in Asia. Yves, thank you for adding him to your team.

  8. Ulysses

    I have far too little knowledge to assess the accuracy of this analysis, although the strength of neo-liberal attitudes even among self-described “left” elites is certainly not unique to Chile. I wholeheartedly agree with the author’s sentiments expressed at the end of the piece:
    “So there might be no choice but this: to start thinking of ways of transcending national barriers to stop the race to the bottom, and instead join efforts to confront it.”

  9. Dan Kervick

    The difference with what the leftist Keynesians want in Europe and the US is that this countercyclical spending is not done with big distributive goals in mind, but mainly as a way to save capitalism from its own recessions without redistributing much social wealth or irking capital too much.

    It’s not much different in the US and Europe either. Keynesianism focuses on countercyclical stabilization and restoration of full employment or something close to it. Worthy goals both, but to make a serious dent in socioeconomic inequality one needs to consider much broader structural reforms that go beyond Keynesian economics as such: income policies, corporate governance reforms, direct wealth redistribution, reconstruction of private and public finance systems, socialization of health and retirement systems, more restrictive inheritance laws, etc.

    1. Ruben

      You did not include the most important structural reform: access to good quality education. As the recently named minister of education has said, the business elites in Chile are full of complete idiots that got their positions thanks to family connections that are made at the school and college level. Social mobility is kept nearly paralyzed and better development models do not take off because of weak competition for decision-making posts.

      So in spite of the very insightful article I see a weakness in not mentioning that although it is true that the centre-left political bosses have devised a quite clever system to avoid real social reform by counter-cyclical adjustments, it is also true that the left have been very smart by attacking the core of the system by means of the student movement.

      The president elect got a landslide victory by promising educational reform as well as tax reform and several of the leaders of the student movement have taken positions where they can have influence.

      We need to see if the president deliver as promised. There is cautious hope.

      1. Ignacio

        Yeah, the middle classes in Chile are pushing the elites for the first time in ages. It’s not a big, consolidated middle class, but it’s demanding things (absolutely fair things) that mean the elites would have to give up some privileges, so there’s bound to be a clash. I agree there are some positive developments but that was being said in different outlets, and I thought this was a part of the problem that couldn’t be ignored for longer. Cheers.

    2. Calgacus

      Worthy goals both, but to make a serious dent in socioeconomic inequality one needs to consider much broader structural reforms that go beyond Keynesian economics as such: income policies, corporate governance reforms, direct wealth redistribution, reconstruction of private and public finance systems, socialization of health and retirement systems, more restrictive inheritance laws, etc.

      Nope. True Keynesianism, the barest bones of MMT, of sanity, of morality, the JG, full employment is rather more than enough. Historically, the US becomes more equal during good times, booms and less during recessions/depressions. So with the eternal quasi-boom of full employment, the JG, all indications are increasing equality. We had a relatively lousy full employment policy in the postwar era, compared to other countries, but that’s what happened by the 70s, which terrified the “elite” a-holes and led to decades of stagnation since. Grover Norquist understands this perfectly well. He has said that if the US gets real “socialized medicine” – real national health care, then it is time for his side to pack up, go home, and admit they lost. Let alone the JG, which by itself would make the “elites” entirely irrelevant in short order, although it would almost certainly lead to those other Good Things too.

      1. F. Beard

        TINA to justice. The population deserves restitution, not make-work to re-earn what was stolen from them.

        Ignore justice if you will but Justice will NOT ignore you when the time comes. Progressives, thy name is busybody. Repent while you still can.

          1. F. Beard

            Restitution for what is the question. To the extent that all bank deposits are not 100% covered by reserves less borrowed reserves, the entire population has been cheated via unethical purchasing power creation. However, some have been net winners, no doubt. Exclude those if you wish but universal restitution with new fiat would not increase their wealth by much anyway and would preclude cries of “Unfair!” Indeed, many of the rich should be embarrassed by restitution checks and refuse to cash them till they expire.

            But justice is coming one way or another. Why should I risk dirtying my hands (actually my soul) trying to correct a problem I did not cause? Why not instead wait for the Rapture so I can watch with satisfaction the smiting of those who’d replace justice for the victims with pathetic, patronizing make-work or job training for their oppressors?

            1. F. Beard

              The restitution should not stop there though since the equal redistribution of the common stock of all large corporations might easily be called for as well as land reform so that everyone at least has some land to live on and farm.

        1. Calgacus

          F Beard, justice is exactly why your proposals fail, why they need more baking. MMT pays more attention to justice, understands it better, hence the JG. MMT thinkers have noticed that every human enterprise and institution except monetary, national economies use the logic of the JG. But because of wacky hallucinations about what money is, national economies are run in an insane and entirely destructive way.

          Sure, do whatever you want about banking. Who cares? What then? For Beard’s USA is unjust, immoral. It does not perform restitution, It does not see what needs restitution. If there is one unemployed person in Beard’s USA, and there will be, then he has every moral right to “rob” the state institutions, the monetary authorities and the geniuses who dreamed up and imposed this nightmare utopia on him. And I have every right to be accomplice, burglar tool provider and getaway car driver. He has every right to take up to the amount of a minimum wage for every hour he is unemployed and is performing and planning the “robbery”, the gas for my car, the burglar tools’ cost etc.

          The right to a job in a monetary economy follows from the right to life. This (non-)theft “work” is the “make-work” that the policies you propose make him do. It would be a great deal more intelligent for people to plan together on more sensible work.

      2. Dan Kervick

        Historically, the US becomes more equal during good times, booms and less during recessions/depressions.

        I don’t think that’s necessarily true at all – not unless those good times are also accompanied by government policies that support the growth of equality: support for labor, high marginal tax rates at the top, high spending on infrastructure and public goods.

        The Clinton administration was our most recent period of good times, and it laid the foundation for the high inequality and economic dysfunction that followed.

        1. Calgacus

          Not necessarily true, but historically, empirically true. If there had been a JG during or after Clinton, the high inequality and dysfunction would not have happened, the JG encompassing some of the other good things mentioned, and being more important than the rest.

  10. Binky Bear

    The notion that there could be a “leftist” Keynesianism simply demonstrates that the right wing narrative has won. A left wing would not countenance Keynesian approaches because they are meant to allow market capitalism to overcome some of its more glaring faults; it would be like putting new sparkplugs in a car whose body and frame were rusted away. More a milquetoast liberalism that complains as it participates in a system that is self-corrupting, injust by conception and at its worst contributory to authoritarianism and fascism.
    If you train people to jump when you reach for your whip, they will keep that training forever. After Milton Friedman, the CIA and ITT have taken over your country and killed your democratically elected prime minister and his allies and party members, what native source of even moderate social democracy will spring forth ex nihilo to create a new “left?” Is the “left” simply those who remain who request not to be beaten so frequently?

  11. F. Beard

    They are far from blind to the self-destructive limits of free markets …, Igancio Portes

    What free market?! What is free about a government-backed credit cartel except its ability to loot the rest of the country?

  12. allcoppedout

    A worthy attempt on how we might overthrow the chains of habit that oppress us. One can argue the techniques are available to left and right – Thatcher, for instance, was a ‘fine Gramscian’, the rich have long provided themselves with far more welfare than anyone we might normally think deserving of it.

    My own view is the problems are essentially biological and we make the mistake of thinking the biological “natural”. Most of us know much called ‘left’ or ‘communism’ has been bogus and probably just another form of state capitalism. The “communism” of Plato’s free table was based on a slave economy and so on. Lord knows what terms like free trade really means, or why we operate with a concept of comparative advantage that cannot work under a system, talk of which we keep off the table, of staying ahead economically, technologically and militarily.

    Neo-liberal arguments remind me of those that blame the demise of Easter Island on the original inhabitants’ ecocide when the real evidence is that they had quite a decent society and the problems came via European diseases, slave-taking (for South American mines) and then genocide and sheep mono-culture – reducing the Rapa Nui to 36 survivors at one point.

    The left wants honesty, an easy policy to undermine via Gresham’s Law. Finance is at the heart of this. Here, as soon as we seek to take control of it (even if to make it honest), problems start in that we have to be trusted with it and fail. The lies of Sino-Soviet production targets are replicated all over public and private organisations these days via performance management, tax stealing and subsidies (once direct grants, now QE and other dodges like ‘military research’). Transparent finance, actually controlled by all the people, might be the left’s best implementation plan.

  13. JohnnyGL

    Ignacio,

    Interesting read. You seem to paint a picture of Chile as having a short leash, as provided by the lords of capital. I’d like to see you get more specific about exactly what FDI flows Chile has benefited from and also what the country is at risk of losing. If Hugo Chavez were reincarnated and elected president of Chile, the world would still need to buy copper from there, just as the world continued to buy Chavez’s oil. I don’t see Chile’s diverse and impressive agricultural industries being particularly capital intensive. They can’t really just pull up and leave very easily. Also, Chile’s standard of living isn’t notably better than Argentina’s, or am I wrong? Income per head is similar, and inequality (gini) is a little worse in Chile (according to CIA World Factbook).

    And suppose there was a little less investment in the mining sector? Is that such a bad thing? There’s plenty of academic literature on how big inflows from commodities can cause outbreaks of the so-called “Dutch-disease” by pushing up the currency of a country and ‘crowding out’ other industries, stunting the development of a more diverse industrial base. I don’t think it’s a stretch to argue there’s a political element to the Dutch disease where politicians can be bought more easily and roped into doing favors for the industry at the expense of broader society. After all, just ask the Canadians and Australians who visit the site if their elected reps mostly take orders from the oil/gas and mining industries, respectively.

    JohnnyGL

    1. Ignacio

      Hey Johnny. I’d say “infrastructure” sums up a lot of what Chile is at risk of losing, as well as all the capital intensive industries it developed, which can’t be underestimated in terms of exports and dollars brought into the country. Even agriculture has turned into a more capital intensive activity than it used to be.

      Transport infrastructure has taken bigger leaps in Chile than in neighbouring countries. The housing situation is quite dependent on the avilability of private credit too: there’s state subsidies to complement it for the poor or for the middle classes that want to build something a bit bigger than what the banks allow them, but mostly it’s the banks handing out lots and lots of credit to build or buy your house, which with the help of that bit of state intervention, has helped improve Chile’s housing infrastructure quite a bit. I mean it’s much better than Argentina’s today, for example, where shanty towns are more common. I don’t know how sustainable it will prove to be in the longer term, but it’s been working for a couple of decades. Maybe there’s a bubble that might burst at some point, I’m not qualified for an opinion on that, but for the moment there are lots of families that are thankful to all that capital availability that, after being distributed a bit, has helped them build a decent home. You can see why people in the middle of that would be scared of seeing the wheels of that system come off.

      As for the standard of living: yeah, Argentina’s is similar and more equal but it’s been getting worse in the last three decades (more or less since the last dictatorship to be precise, with ups and downs of course, but down overall), while Chile’s been getting better in terms of absolute poverty. Argentina emerged from its dictatorship in worse shape than Chile, with an unpayable debt, skyrocketting inflation and lots of unfulfilled social demands from an angry society, while Chile managed to set up a more stable system (the one described above). It hasn’t changed much since, even if the government in Argentina is more populist now, it hasn’t worked too well either, the country is back in crisis now, capital flight being a big part of it, infrastructure is older as there hasn’t been much investment, people who got out of poverty risk going back into it again and so on. As for Venezuela, well, inequality went down significantly but it’s suffering from the same problems than Argentina, although in a bigger scale. Massive capital flight to Panama, Colombia and Miami is hurting the economy badly, and what’s worse: to maintain high purchasing power of the working classes the government has decided to keep an artificially high currency, thus creating its own (kind of) dutch disease with no need for capital investment but with a massive balance of payments crisis to make ir worse.

      I wish it was easier but the power of capital is enormous, often bigger than the power of our votes, as the latter are limited to individual countries, and capital flows as it pleases.

      1. Nathanael

        Capital doesn’t flow. Capital is very, very hard to move.

        There’s often a confusion between real capital (equipment) and financial capital. Movement of capital can be stopped with capital controls, period. Movement of real capital… is difficult.

        Dig down to details and you’ll see what’s really going on. The underlying problem is one of building infrastructure when you lack the specialized equipment and manfucturing facilities and expertise all the way down the supply chain… in short, the problem of being import-dependent.

  14. Abe, NYC

    Thanks for a very interesting and insightful article, on a region with scant international coverage.

    BUT, Latin America is often cited as one region where inequality has been falling in recent years – see Brazil for example, and Chile does not look so bad either – this in a world where practically everywhere inequality has been on the rise. Of course, it’s still very high in both countries. My Mexican friends who moved to Chile were shocked by the inequality they saw there. Still, the story is complex.

    So there might be no choice but this: to start thinking of ways of transcending national barriers to stop the race to the bottom, and instead join efforts to confront it.

    “Workers of the world, unite!” :) Except it’s wrong of course, it’s really about the 99% including the hated petite bourgeoisie. It will take many more crises though to undo the effects of a 40-year long assault on civic values.

    1. Robert Frances

      My sense is that most Central and South American countries are highly feudalistic, with a relatively small number of families (less than 10%) controlling most of the economic resources, including land and mineral wealth. Combine that with the families who have access to well-paying government positions and military leadership roles – often the same extended families – and it becomes very difficult for the lower 90% of families to gain much upward mobility.

      It’s a similar issue in the Philippines, where education levels are quite high. Also being a former colony of Spain, the land and natural resources were gobbled up by a small percent of the families before the country acheived “independence.” Since then, there has been relatively litte redistribution of the country’s wealth resources. Thus, increases to the country’s economic output are concentrated with the financial owners, land owners and government job holders, with little trickling down to the rest of society.

      These countries also rely on VAT as a significant source of tax revenue, often near 20%. VAT and sales taxes significantly reduce the purchasing power of the working population much more than it affects the families collecting most of the country’s rents, dividends, interest income, royalties and capital gains.

      1. Nathanael

        Feudalism is stable if the feudal lords keep the peasants fed and clothes (and so on).

        When it falls apart is when they don’t.

  15. Chauncey Gardiner

    Thank you, Ignacio Portes, and to Yves for featuring his work, as well as opening the discussion to constructive observations by other readers.

    The raw brutality of the Pinochet regime, of Argentina during that time period, and that of their backers cannot be overstated IMO. The ripples of the aftershocks are still being felt to this day.

    Those relative few who control money, markets, military/police powers of nations, and media/information – all human constructs – continue to control natural resources and the dominant ideology.

  16. D. Mathews

    I’m always glad to see Latin America covered, so I will be looking here more often in the future. I’m late to the discussion, so I won’t add much except to suggest that Brazil would make an interesting comparison/contrast to Chile. Lula arguably succeeded in bending his predecessor’s neoliberal policies to benefit the poor. I use Dr. Afonso Fleury (and his wife’s) book for my IB class and recommend it to anyone that is curious about Brazil’s success (from an IB perspective) over the years.

  17. Nathanael

    The thesis of the essay is that the Chilean right-wingers aren’t idiots.

    Well, frankly, after what we’ve been dealing with here in the so-called “developed world”, I think I would prefer right-wingers who aren’t idiots. We have right-wingers who ARE idiots and who are just blundering their way into a French Revolution scenario — at best! Frankly, an aristocracy which keeps food on the table is better than a deranged elite who are dragging us to starvation and war.

    I would ask how Chile’s right-wing elite has managed to avoid *becoming* idiots. Veblen’s _Theory of the Leisure Class_ asserts that after a few generations, they *will* become idiots, as the idiots will rise to the top. Is this avoided, or is Chile just early in the cycle? If the latter, Chile will be as bad off as us in a decade or two.

  18. Caoilte O'Connor

    This is a lovely little gem. I skimmed it when it came down on my feedly and I just re-read it again with wry pleasure while looking for something recent by Ignacio on Venezuela.

Comments are closed.