The ridicule of so-called "economic inequality" is rife among critics of Chile's economic model. Chile's economic achievements over the past 40 years have not been enough to silence the loudest critics. To find loopholes as much as possible, they often cite inequality in Chile as concerns.
Complaints of inequality have been at the heart of Chile's political protests over the past decade — from student protests in 2011 to nationwide protests last year.
No matter how much Progress Chile has made, critics insist that lingering inequality is enough to prove that the market-oriented reforms advocated by the Chicago School have failed and must repeat the old path of centralized power.
Does inequality be Chile's Achilles heel?
On inequality in Chile
The truth of the matter
Chile's much-maligned inequality (the gap between rich and poor) has remained high for centuries, but according to the World Bank, this gap has narrowed significantly since the 1990s.
Chile's Gini coefficient in 1990 was 57.2 per cent. In OECD (Organisation for Economic Co-operation and Development) countries, the Gini coefficient measures income inequality. 0 means full equality and 1 means complete inequality.
Chile's Gini coefficient started above average, much to the concern of international observers and raising questions about the sustainability of market-oriented policies. However, many who doubt Chile's development achievements often overlook the prevalence of inequality throughout Latin America's political economy.
In fact, in 2018, the United Nations Economic Commission for Latin America found that Chile's inequality ranking had fallen below the Latin American average. Chile is now less unequal than countries such as Brazil, Colombia and Mexico.
Former President Michelle Bachelet's Finance Minister Rodrigo Valdés also found that from 1990 to 2015, the income of Chileans at the bottom increased by 439 percent, while the top 10 percent of Chileans increased their income by only 208 percent.
Research by Laudio Sappelly, a professor at the Catholic University, also shows that Chile's inequality gap is narrowing and may be in the same range as countries such as Spain and the United States.
Debate on inequality
Not so black and white
Around the issue of inequality, people become hysterical. But if you want to discuss, there is still a constructive approach.
The general belief that capitalism creates inequality is misleading. Inequality is a characteristic of human beings, and no matter how policies are adjusted, inequality will exist in some form.
The economist Ludwig von Mises understood that inequality is not a flaw in the capitalist system, but a feature that should be accepted in some cases:
"Inequality in wealth and income is a fundamental feature of a market economy. It is this means that makes consumers supreme and powerful, so that all those engaged in production must obey their orders. It drives producers to do their best to provide services to consumers. It makes competition work. Those who provide the best service to consumers make the most profits and make a lot of money. ”
However, public policies can also create various forms of wealth inequality. Free-market proponents should not immediately ignore concerns about inequality.
Ryan McMacken draws attention to the fact that inequality is not "merely the result of processes that benefit the market (...). So there is no need to study it carefully." Instead, "determining what can be attributed to beneficial market freedoms and what can be attributed to government intervention in the market" as a way to analyse inequality is a more sober-headed approach.
In today's world, the "managed state" note is almost everywhere; its tentacles extend to every part of the private sector, distorting it everywhere.
In this context, it makes no sense to ignore inequality and try to label it in a black-and-white manner.
A variant of the concept of the managerial state, including the therapeutic state, the welfare-war state, the executive state, and moderate totalitarianism, represents a historical trend in which "laws were replaced by executive orders, federalism replaced by executive despotism, and limited government replaced by unlimited states." "It acts in the name of abstract goals such as equal or positive rights and uses its power of moral superiority, taxation rights, and wealth redistribution to maintain its own power."
Discussions about inequality should
Question the role of central banks
The example of central banks is particularly striking. Louis Roisne noted that central banks play an important role in rapidly creating wealth inequality. Consider the "Cantillon effect." The effect is named after a French-Irish economist. He was Richard Cantillon.
In the early 18th century, Cantillon witnessed the inflationary effects of the fiat system under John Law. The Cantillon effect details how the first entrants to new money enjoyed an increase in income, and how the last proponents of new money experienced a decline in purchasing power as inflation emerged.
Central banks, once viewed with skepticism by many classical liberal thinkers, are now arbitrarily accepted by intellectuals and policymakers around the world as a normal feature of a well-functioning economy.
Ironically, many of these advocates of loose monetary policy are also complaining about inequality, completely ignoring one of the biggest institutions that exacerbate inequality – the central bank.
I bet the vast majority of Chilean protesters and left-wing pundits are not talking about the "Cantillon effect," let alone calling for the Central Bank of Chile to close its doors.
Much of their discussion of inequality is trapped in a simple program that makes a superficial critique of capitalism and inequality , whether it's real or imagined.
Chile is not laissez-faire —
A paradise of non-interventionism
As mentioned earlier, data suggest that inequality in Chile is declining, but people are still protesting the country's crisis of deep inequality.
Unsurprisingly, protesters demanded that the government take more aggressive action to address these pressing issues. But if we are intellectually honest, there is no reason to succumb to the left-wing narrative that the market is the source of this discontent.
The idea that Chile was a laissez-faire Gilded Age country is misleading at best.
Over the past decade, especially during The Bachelet presidency (2014-18), the country has expanded considerably. Axel Kaiser, executive director of the Chilean Progressive Foundation, noted that the Size of the Chilean government has grown by 50% over the past decade.
Chile has also seen a decline in the World Bank Group's Doing Business rankings. Currently, Chile ranks 57th. By comparison, Chile ranked 33rd in 2012. Chile's economic freedom has experienced a similar decline, according to the Heritage Foundation's Economic Freedom Index.
In 2012, Chile was also the 7th free economy in the world, but in 2019, it fell to 18th place. This decline does not represent an apocalyptic scenario, but it does show that Chile is increasingly receptive to the government's idea of greater economic control.
In fact, over the past few decades, chile's level of centralization has been increasing.
In a separate report, the OECD found that between 2000 and 2016, the Metropolitan Area contributed as much as 40 percent to national GDP growth.
In terms of public spending, Chile's local governments account for only 12.5%, while the OECD average is about 56.9%.
This centralization of power suffocates many Chileans. They had to squeeze into the capital's subway system like sardines, and traffic congestion was getting worse.
It is also widely believed that much of the government's generosity was given to Santiago, while the outlying areas received only scraps of food.
Addressing Chile's expanding centralization may be a wiser choice than traditional strategies that may involve creating more government programs to address inequality.
Themes like inequality require thoughtfulness and cannot be reduced to repeating clichéd scrawled views.
However, throwing a tantrum at perceived inequalities and then using the state recklessly to try to solve problems demonstrates a lack of maturity and foresight.
In Latin America, instability caused by the short-sightedness of leaders abounds. On this continent, there is a veritable sample of political instability.
Chile certainly does not have to add another chapter to this already familiar collection of sad essays.