Neoliberalisms Fractured Showcase: Another Chile is Possible (Studies in Critical Social Sciences) 9789004188952, 9004188959

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Neoliberalism’s Fractured Showcase

Studies in Critical Social Sciences VOLUME 27 Series Editor

David Fasenfest Wayne State University

Critical Global Studies VOLUME 3 Series Editor

Richard A. Dello Buono Manhattan College, New York Editorial Board

José Bell Lara, University of Havana, Cuba Walden Bello, State University of New York at Binghamton, USA and University of the Philippines, Philippines Samuel Cohn, Texas A & M University, USA Ximena de la Barra, South American Dialogue, Chile/Spain Víctor M. Figueroa, Universidad Autónoma de Zacatecas, Mexico Marco A. Gandásegui, Jr., Universidad de Panamá, Panama Ligaya Lindio-McGovern, Indiana University-Kokomo, USA Daphne Phillips, University of West Indies, Trinidad and Tobago Jon Shefner, University of Tennessee-Knoxville, USA Teivo Teivainen, Universidad de Helsinki, Finland and Universidad Nacional Mayor de San Marcos, Peru Henry Veltmeyer, Saint Mary’s University, Nova Scotia, Canada and Universidad Autónoma de Zacatecas, Mexico Peter Waterman, Institute of Social Studies (Retired), The Hague, Netherlands

Neoliberalism’s Fractured Showcase Another Chile is Possible

Edited by

Ximena de la Barra

LEIDEN • BOSTON 2011

On the cover: The Chilean city of Concepción shortly after the 2010 earthquake. Courtesy of Alberto Muñoz Sims who captured it. This book is printed on acid-free paper. Library of Congress Cataloging-in-Publication Data Neoliberalism's fractured showcase : another Chile is possible / edited by Ximena de la Barra. p. cm. -- (Studies in critical social sciences, ISSN 1573-4234 ; v. 27) Includes bibliographical references and index. ISBN 978-90-04-18895-2 (hardback : alk. paper) 1. Chile--Economic policy. 2. Neoliberalism--Chile. 3. Chile--Economic conditions--1973-1988. 4. Chile--Economic conditions--1988- 5. Chile--Social conditions--1970- I. Barra, Ximena de la, 1944HC192.N47 2011 330.983--dc22 2010048234

ISSN 1573-4234 ISBN 978 90 04 18895 2 Copyright English Text 2011 by Koninklijke Brill NV, Leiden, The Netherlands Koninklijke Brill NV incorporates the imprints Brill, Hotei Publishing, IDC Publishers, Martinus Nijhoff Publishers and VSP. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change.

Dedicated to all those who struggle, who think freely, who rise against injustice, who act in pursuit of better futures.

CONTENTS Acknowledgments ..................................................................................... ix List of Abbreviations ................................................................................. xi About the Authors .....................................................................................xv Prologue: The Tragedy that Was Dressed Up as a Miracle................. xix Raul Sohr Introduction .................................................................................................1 Ximena de la Barra part i how the neoliberal experiment was forced upon the chilean people Chapter One Neoliberalism, a Counter-revolution in Chile ...................................... 13 Manuel Riesco Chapter Two Chile’s Neoliberal Reversion of Salvador Allende’s Copper Nationalization ......................................................................................... 47 Orlando Caputo and Graciela Galarce Chapter Three Chile: Perpetual Transition under the Shadow of Pinochet ............... 73 Roberto Garretón Chapter Four Where was the Chile I had Left Behind? ............................................... 93 Marta Harnecker

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contents part ii the cumulative impact of 35 consecutive years of neoliberalism in chile

Chapter Five Growing Disparities and the Extreme Concentration of Wealth in Chile.................................................................................113 José Cademartori Chapter Six Health Care Ideology in Chile at the Turn of the 21st Century ...............................................................................135 Claudio Sepúlveda Chapter Seven The Struggle for Education and the Neoliberal Reaction .................153 Rodrigo Cornejo, Juan González, Rodrigo Sánchez, Mario Sobarzo and the Opech Collective Chapter Eight Social Security or Plunder?..................................................................179 Manuel Riesco Chapter Nine The World Economic Crisis, Chile and the Free Trade Agreements ................................................................................199 Orlando Caputo and Graciela Galarce Chapter Ten Chilean Social Movements in Confrontation with Neoliberalism ...............................................................................219 Mario Garcés Bibliography ............................................................................................ 249 List of Authorities ................................................................................... 261 Index ........................................................................................................ 265

ACKNOWLEDGEMENTS Beyond the authors and those who surround them, many other people participated in shaping some of the ideas and providing the facts contained in this book. Even more provided the support that will enable all those who struggle to clarify the past and improve the future. The editor wishes to recognize: Gladys Acosta, Diana Ávila, Carmen Dello Buono, Ricardo Dello Buono, Eduardo Bustelo, Alex Godoy, Valentina González, Exequiel González, Miguel Lawner, Carlos Martínez, Isabel Margarita Morel, Isabel Piper, Gustavo Ruz, Ana Sugranyes, and Bernardo Zentilli. Special recognition goes to all of my comrades in the Movement for a Constitutional Assembly. Our many discussions and the popular educational endeavors we have struggled for helped identify and provide substance for the most pressing issues addressed in this book. Coming from the most diverse sectors of Chilean society, their history and struggles provide living proof that “another Chile is possible.”

LIST OF ABBREVIATIONS ACES ACU AD AFAP AFJP AFORE AFP ALADI ALALC ALBA ANDIME APS ATM AUGE BCI BMW CAM CAN CAP CENDA CEPAL CIA CIEPLAN CLACSO COCHILCO CODE CODELCO CONADI CONFECH COPESA CORFO CRUCH

Coordination Assembly of Secondary Students University Cultural Assembly Democratic Alliance Pension Fund Administrator (Uruguay) Pension Fund Administrator (Argentina) Pension Fund Administrator (Mexico) Pension Fund Administrator (Chile) Latin American Integration Association Latin American Free Trade Association Bolivarian Alternative for the Americas National Association of Education Ministry Employees Solidarity Pension Supplement Automatic Teller Machine Universal Access with Explicit Health Guarantees Credit and Investment Bank Williamson Balfour Motors Arauco Malleco Coordinator Andean Community of Nations Pacific Steel Company Center for National Alternative Development Studies United Nations Economic Commission for Latin America and the Caribbean Central Intelligence Agency (USA) Latin American Studies Corporation Latin American Social Sciences Council Chilean Copper Commission Democratic Confederation Copper Corporation National Corporation for the Development of Indigenous People National Confederation of University Students Chilean Journalism Consortium Corporation for Production Promotion Chilean Board of University Chancellors

xii CUP CUT D&S DC DGA DINA DIRINCO ECLAC ECO ENAMI ENDESA España ENDESA ENEL ENERSIS ESMAPA ESVAL EXXON FASIC FDI FECH FESES FICOM FLAPE FONASA FPMR FTA FTAA GDP GNP HMO IANSA IIRSA ILO IMF INE INEDH

list of abbreviations Poor Urban Neighborhoods Unitary Command Workers Unitary Central Services and Distribution Christian Democracy Water Directorate General National Intelligence Directorate Trade and Industry Directorate Economic Commission for Latin America and the Caribbean Education and Communications National Mining Company Spanish Transnational Electricity Company National Electricity Company Italian Transnational Power Company Latin American Private Electric Corporation Maipu Water Company Sanitation Company North American Oil Corporation Christian Churches Foundation for Social Support Foreign Direct Investment Chilean University Students’ Federation Santiago Secondary Students’ Federation Shared Financing System Latin America Forum for Educational Policies National Health Fund Manuel Rodriguez Patriotic Front Free Trade Agreement Free Trade Area of the Americas Gross Domestic Product Gross National Product Health Maintenance Organization National Sugar Industry Initiative for the Integration of Regional Infrastructure in South America International Labour Organization International Monetary Fund National Institute for Statistics Development Strategic Studies Institute

list of abbreviations ING INJUV INP IPoM ISAPRES LAN LGE LOCE MAPU MDP MIDEPLAN MINEDUC NATO NGO NHS OECD OEP OPEC OPECH PBS PC PDVSA PEMEX Petrocaribe PSU SBIF SIMCE SIPRI SISS SITEAL SOFOFA SOQUIMICH SP Telesur

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Savings, Finance, Investment and Insurances Corporation National Youth Institute National Pension Institute Monetary Policy Report Health Insurance Institutions National Airline General Law of Education Organic Constitutional Education Law United Popular Action Movement Popular Democratic Movement Planning Ministry Education Ministry North Atlantic Treaty Organization Non-governmental organization National Health Service Organization for Economic Development and Co-operation popular economy Organization of Petroleum Exporting Countries Chilean Education Policies Observatory Solidarity Basic Pension Communist Party (of Chile) Venezuelan Petroleum Mexican Petroleum Energy Cooperation Agreement University Admission Test Bank and Financial Institutions Superintendence Learning Results Evaluation System Stockholm International Peace and Research Institute Sanitation Services Superintendence Latin American Educational Tendencies Information System Society for Industrial Promotion Chilean Chemical and Mining Society Pension Superintendence Television of the South

xiv Transelec UF UNASUR UNDP UNICEF UNO UP US VAT WHO

list of abbreviations Electricity Transmission Company accounting unit Union of South American Nations United Nations Development Programme United Nations Children’s Fund United Nations Organization Popular Unity United States Value Added Tax World Health Organization

ABOUT THE AUTHORS José Cademartori is an economist. President of the Chilean Students Federation and parliamentarian at 26 years of age, he was re-elected for four periods. He was a professor of economics at the Universidad de Chile and later at the Universidad Central de Venezuela during his exile. He was a staunch campaigner for Allende’s presidential bids, and one of the Central Committee leaders of the Chilean Communist Party. He performed as Economics Minister during the Allende Government until the day of the coup. The dictatorship held him prisoner in Dawson Island from where he later went to Venezuela, Cuba and the former German Democratic Republic, in exile. He is currently in Chile active as a free lance political analyst and writer, member of several editorial boards and founder of ATTAC Chile. He is the author of many books, among them, his latest, La Globalización Cuestionada, published by the Universidad de Santiago. Orlando Caputo and Graciela Galarce are both Universidad de Chile economists and prolific researchers, lecturers and writers as columnists in main communication media as well as in academic circles both in Chile and Latin America. Orlando was the Allende Representative to the National Copper Corporation (CODELCO) Executive Committee and former CODELCO General Manager during the Allende Government. He was formerly a professor at the Post-Graduate School of the Autonomous National University (UNAM) in Mexico. He is currently Director of the Center for the Study of Transnationalization (CETES), member of the working group on World Economy at CLACSO and belongs to the Network on World Economy (REDEM). Graciela is a Social Scientist with a Magister from FLACSO in Mexico. She was a former Chilean Central Bank economist and former professor at the ARCIS University. She is currently a researcher with CETES and CLACSO. They both critically follow the developments in the Chilean economy, especially regarding the copper denationalization process. They have supported the struggles of students and of copper workers with data collection, research and analysis on the crucial issues that affect them.

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Rodrigo Cornejo, Juan González, Rodrigo Sánchez and Mario Sobarzo are researchers from the Chilean Observatory of Educational Policies (OPECH) and from the Psychology and Education Staff of the Universidad de Chile. They are also academics from the Psychology Department and the Education Department of the Faculty of Social Sciences, Universidad de Chile. OPECH constitutes a space where information is compiled and analyzed and proposals are developed in articulation with civil society so as to promote education policies geared towards the inalienable right of all right holders to access quality public education. Product of their research, the authors have multiple publications which have contributed to the public debate on these issues. They promote the strengthening of informed civil society to lead the badly needed changes in Chilean education. Ximena de la Barra is a Spanish/Chilean social scientist initially trained as an architect. She was part of the Allende Popular Unity Government and of the first democratically elected Madrid local government, both in a technical capacity and as a community activist. In New York she was Adjunct Associate Professor at Columbia University in the fields of urban and social policy planning. She later worked with the United Nations, first at UN Habitat and most recently at UNICEF, serving in high-level positions including UNICEF Representative in El Salvador, Public Policy Regional Advisor for Latin America and Senior Global Advisor for Urban Affairs. Recently retired from UNICEF she is now an independent consultant, professor and author. She is also an active member of the Group working towards a Constitutional Assembly in Chile. Her latest publications are on regional integration in Latin America including Latin America after the Neoliberal Debacle: Another Region is Possible, (co-authored with Ricardo A. Dello Buono), published by Rowman and Littlefield of New York. Mario Garcés is a Doctor in History. He is a researcher and professor at the History Department of the Universidad de Santiago in Chile. Among his publications, the following can be highlighted: Crisis sociales y motines populares en el 1900 (Documentas, 1991); Tomando su sitio. El movimiento de pobladores de Santiago. 1957–1970 (LOM Ediciones, 2002); in co-authorship with Nancy Nicholls, Para una Historia de los Derechos Humanos en Chile (LOM, 2005); in co-authorship with Sebastián Leiva, El golpe en la Legua. Los caminos de la Historia y la Memoria (LOM, 2005). He is also Director of the NGO Education and Communications (ECO) from where several

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Workshops on the historical memory of workers and of Santiago popular urban communities have been organized since the 1980s. In the Latin American context he participates in popular education and social citizenship networks at MERCOSUR. Roberto Garretón is a Chilean lawyer, human rights defender during the Pinochet dictatorship and a National Director of the Chilean Lawyers Association (1987–1995; 1999–2001). He was a United Nations Special Rapporteur for Human Rights in the Democratic Republic of Congo, former Zaire (1994–2001); United Nations High Commissioner for Human Rights Representative for Latin America and the Caribbean (2001–2005); Commissioner of the International Commission of Jurists; member of the Office of the Special Adviser to the United Nations Secretary General on the Prevention of Genocide (since 2006). He has undertaken Human Rights Missions in Colombia, El Salvador, Peru, Guatemala, Panama, Mexico, Nicaragua, Indonesia and East Timor, Ruanda, Uganda, Senegal, South Africa, and the Philippines. Marta Harnecker is a Chilean Marxist scholar trained as a psychologist but a journalist at heart. She was the President of University Catholic Action in Chile in her years as a student. She later directed the political analysis weekly Chile Hoy during the Allende government. After the coup d’état in 1973 she has lived in Cuba where she was the Director of the Centro de Investigaciones Memoria Popular, and more recently in Venezuela where she is a scholar and board member at the Centro Internacional Miranda (CIM). A former disciple of Louis Althusser, for her, philosophical and political analysis is inseparable from action. A true internationalist, she has followed and documented the main emancipatory processes in the Third World. She has recently celebrated 40 years of continued writing and publishing during which she has placed in the hands of her public over 80 different titles. She prefers to think of herself as a popular educator, testimony of which is her most well known work throughout the Spanish speaking World: Cuadernos de Educación Popular (Popular Education Notebooks) which she wrote in collaboration with Gabriela Uribe. These have contributed to the political education of generations of Chilean workers and students, and later, in other parts of the world. Manuel Riesco is a Chilean Civil Engineer and Economist, founder and Vice President of the Centro de Estudios Nacionales de Desarrollo (CENDA), in Santiago. He was Vice President of the Chilean Students’

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Federation (1970–1972) and a candidate for the Senate for the Juntos Podemos Mas (excluded left wing coalition) in 2005. He has been External Research Coordinator for the United Nations Research Institute for Social Development, UNRISD (2003–2007) and Director of the School of Economics at ARCIS University (2000–2003). He has worked as a consultant for the United Nations Development Programme, UNDP (2002-2003), for the Fundación para la Superación de la Pobreza (2004-2006) and for the Chilean Government (1990–2009), including the Presidential Council for Education (2006). He is currently a board member at ARCIS University and the Director of the Revista Encuentro XXI. He is a prolific writer and lecturer. Claudio Sepulveda is a Medical Doctor and Anthropologist. He has been a professor at the Chilean School of Public Health and the Chilean School of Social Services. He served as the Chilean Health Ministry Chief of Planning and Budget during the Allende government. He has held the following international appointments: World Health Organization Project Director on Health Planning (Bangkok, 1974– 1977); United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) Chief and founder of the Unit on Health and Development (Bangkok, 1978–1984); UNICEF Regional Planning Officer (Bangkok, 1984–1989); UNICEF Representative to Turkey, 1989–1995; UNICEF Deputy Regional Director, Americas (Panama, 2000–2002). He participated at The International Conference on Primary Health Care (Alma Ata, USSR, 1978). Now retired in Chile, he has been a Counselor of the National Order of Physicians, and sits in the Editorial Board of ‘Vida Medica’ and ‘Cuadernos MedicoSociales.’ Raúl Sohr is a Chilean sociologist and journalist. He works as an international analyst on Chilevision TV station, is a regular columnist for La Nacion newspaper and runs international coverage for the Senate TV station. He studied at the Universidad de Chile, the University of Paris and the London School of Economics. His published books include “Chao, Petróleo,” “El mundo y sus guerras,” “El fantasma del terrorismo,” “Claves para entender la guerra” and “Historia y poder de la prensa.”

PROLOGUE THE TRAGEDY THAT WAS DRESSED UP AS A MIRACLE Raul Sohr Chile has an unenviable record as the country that has suffered the least mitigated shock ever inflicted by neoliberal policies. The unholy trinity of policy doctrines – privatization, deregulation, and drastic cuts in social spending – proclaimed by Milton Friedman, high priest of the Chicago School of Economics, were applied dogmatically throughout the ’ 70s and ’ 80s. These policies were presented as a program to modernize the state, but in fact this was nothing more than an ideological wrapping to justify dismantling a state that was considered one of the most successful in Latin America at providing quality public education and health. Chile might have been seen as a test lab for applying neoliberal policies, but fortunately in this case it has no great value as an example to others; the historical circumstances and the particular conditions could hardly be reproduced elsewhere. Salvador Allende, a Marxist Socialist, made headlines in 1970 when he was elected President of Chile at the head of the Popular Unity alliance of the Communist and Socialist parties and several minor left wing parties. He won in a fully democratic and participative election, defeating conservative and Christian Democrat rivals. This victory was a first of its kind, and rapidly became an example with major strategic implications, as “the peaceful road to socialism.” The French and Italian Communists, for example, with strong electoral bases, began to look at forming similar alliances with their Socialist rivals. But then US National Security Adviser Henry Kissinger declared: “I don’t see why we have to let a country go Marxist just because its people are irresponsible” (Weiner, 2008). To make it abundantly clear that it was Chile’s example and not its regional impact that worried him, Kissinger also characterized Chile as “a dagger aimed straight at the heart of Antarctica.” But he and then President Richard Nixon ordered the CIA to create such havoc as to “make the economy scream.” Between 1971 and 1973 the CIA spent nearly US$10 million to sow political and economic chaos in Chile.

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During the Allende government, there was complete freedom of the press, and his opponents made full use of it. The main opposition paper, El Mercurio, was heavily subsidized by the CIA which gave a total US$ 1.95 million directly to Agustin Edwards (owner of El Mercurio) (Weiner, 2008). Congress and the courts enjoyed total independence while Chile was one of the most democratic regimes in the region. But the growing economic demands of millions of poor Chileans, together with a radical new land reform program and the nationalization of the US-owned copper companies without compensation, confirmed the worst fears of the local oligarchs, and of Washington. In this respect, Chile was not simply another chapter in the Cold War, where local leftists were persecuted in the name of holding the line against communism and fighting the influence of the Soviet Union. In this case it was the Chilean oligarchs, the ruling class, who feared for their very existence, both economic and physical. They were determined to re-model the country and destroy forever the organizations that had allowed their enemies not only to take control of the government but, as they saw it, to threaten the foundations of the state. On 11 September 1973 the Chilean armed forces with the active support of the center and right wing parties, the business community and the USA, overthrew the Popular Unity government. The coup was unusually violent, even by Latin American standards. The presidential palace was bombed by the air force while President Allende was still inside. He chose to shoot himself rather than surrender. From that moment, the fate that awaited his supporters was clear: thousands of Chileans were killed or “disappeared,” and many thousands more were tortured and fled into exile. The new regime set out to eliminate its enemies on two fronts. In the political arena, all political parties were banned, along with the trade unions, a range of social organizations and the opposition media. The University of Chile was targeted for special attention, because of its role in promoting a progressive intellectual middle class with no religious affiliations. Dismantling all political opposition was fundamental to achieving the new economic policy goals, and the regime of political repression allowed the economic agents to operate with complete laissez faire. This reality made nonsense of Milton Friedman’s dictum that “while economic freedom facilitates political freedom, political freedom,

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once established, has a tendency to destroy economic freedom” (Friedman, 1991). Initially the economy was in the hands of right wing politicians, economists and members of the military, and their blueprint was a weighty document known as el ladrillo (“the brick”). This document had been drawn up from 1971 onwards by a group of opposition economists under orders from the Chilean Navy. But the key ideologues who in 1975 took formal control of economic policy were a group of some 25 economists who had been formed at the Catholic University (owned and run by the Vatican), and at the University of Chicago, under Professors Friedman and Arnold Harberger. The two universities had signed an agreement back in 1956, engineered by the US State Department, to promote free market theory in opposition to the developmentalist policies being promoted by the UN regional economic think tank, ECLAC. Under General Augusto Pinochet these economists finally had a free hand to impose the model they had studied. Friedman preached minimal interference in the markets, which should be regulated by free competition, or, put another way, by the economic incentives that would allow the various market operators to maximize their profits. Pinochet’s Chile would echo a later dictum by President Ronald Reagan, in his inaugural speech in 1981: “The government is no solution to our problems, it is the problem.” Trade union or consumer rights were nowhere to be found on the agenda. The first public move by the “Chicago boys” was a radical austerity program, a macroeconomic “shock treatment” that meant drastic cuts in the money supply and in government spending, along with widescale market deregulation, and free trade. This sudden and drastic opening up of the economy to free trade was a true shock in an economy long accustomed to significant levels of protectionism and incentives for import substitution. For the “Chicago Boys,” it was crucial to identify and strengthen Chile’s comparative advantages. So many industries were thrown up against the wall while raw materials and agriculture were favored. Professor Friedman followed the progress of the model closely. In March 1975, he flew to Chile and was received almost like a head of state. He promised Pinochet an “economic miracle” if they followed his advice. Inflation would be defeated within a few months, high unemployment would drop equally swiftly, and the economy would

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be on its feet in no time. Pinochet simply needed to act fast and decisively – Friedman spoke repeatedly about the importance of the “shock” (Klein, 2007). Chile’s dictator lost no time in cutting public spending – by 27 percent that year. The cuts continued until by 1980 it was down to half the level previously reached during the Allende government. The social costs were brutal. Incomes and social services both dropped drastically between 1973 and 1989. Wages, for example, fell by eight percent and family allowances by 72 percent, between 1970 and 1989. Government spending on education, health and housing decreased on average by 20 percent. Under the dictatorship, labor’s share of national income fell from 52.3 to 30.7 percent. By all measures, the average worker was worse off in 1989 than he had been in 1970. But the pain of the new model was not distributed equally. On the contrary, the top ten percent of the population, who in 1980 accounted for 36.5 percent of national income, saw their share increase to 46.8 percent by 1989. By contrast, the bottom 50 percent of wage earners saw their share fall from 20.4 to 16.8 percent over the same period. The level of income inequality was among the worst in the region. But the dominant role of the economy over all other considerations and the necessary submission of the state to the private sector had been raised to the level of dogma. It was enshrined in the 1980 Constitution that was created and approved during the dictatorship and which, with some changes, continues in force today. It established an electoral system that virtually guarantees the right wing parties representing onethird of the electorate, the same number of seats as the center-left coalition, who represent more than 50 percent of the electorate. Since constitutional reforms require the approval of three-fifths of the Congress, the right wing minority in effect exercises veto power over any changes. Enshrined in the Constitution is the principle of the subsidiary role of the state which may not undertake any economic initiatives. The conservatives defend this principle with tooth and nail, arguing that the slightest modification could open the floodgates for state intervention in areas that belong to private capital. Often this creates dog-in-amanger situations, for example in the field of energy. Chile, as part of the “Pacific Ring of Fire,” has a number of active volcanoes whose molten rock could produce steam to drive turbines and generate geothermal energy. The big private energy generators are not prepared to risk

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money and time to explore this option nor are they prepared to allow the state to invest in this sector. Chile, a country with no oil or gas reserves, has still not begun to explore its geothermal options (Sohr, 2009). Is Chile a shining example of a model economy as it is so often presented? In one respect, it has clearly achieved a significant accumulation of capital, in the hands of a few, which has funded the “take-off ” of the export sector. But the brutal social costs of the model never seem to appear on the balance sheet. In Chile today – as many chapters in this book will describe – economic considerations prevail over all others. Profitability is the dominant criterion and only the well off can afford good services. In the health sector, those able to pay can enjoy state of the art medical care while the public sector struggles to close the breach. But in education, the gap between private and public services continues to widen. This is the Achilles’ heel in the model: the poor quality of the state schools undermines the “accumulation” of its most significant capital, which is the skills reservoir of its own people. Two decades of democratic governments have seen some of the worst faults corrected. Poverty has been reduced from 40 to 14 percent of the population. But the gap between those who have more and those who have less continues to widen.

INTRODUCTION Chile falls short in the face of injustice (Chile limita al centro de la injusticia) Violeta Parra1

We, the Chilean people, within our flawed electoral system and thanks to our severe democratic deficits, decided to elect the extreme right to govern us for the opening years of this century’s second decade. Forced to choose between two different right wing coalitions, we decided by a thin margin to punish the one that had pretended to be progressive and democratic as it governed us for the preceding 20 years. Chile, promoted as the showcase for neoliberalism by the international financial institutions and by the globalized oligarchic media, ended two decades of “transition” in 2010 as those who designed, implemented and locked neoliberalism in during the dictatorship returned to govern. The losing electoral alliance, the Concertación,2 had in reality amounted to nothing more than a legacy of “neoliberal continuity.” The articles presented in this book will help readers understand how all of this could be possible in a country that 40 years earlier had been one of the most politically sophisticated in the region and indeed the world. The authors consistently expose the ways that the Concertación skillfully administered and exacerbated the model earlier imposed by force, and failed to counteract it when there were windows of opportunity to do so. It will become clear to readers that the Concertación systematically failed to comply with its much publicized government programs. Far from being successful, Chilean neoliberalism registered some impressive records that have tainted our reputation. We are the only country among those that suffered under dictatorship in the Southern Cone of Latin America, where the forces backing the dictatorship actually managed to recycle themselves into a political party and become a majority political force under a “return to democracy.” Emir Sader of 1

A revered Chilean popular musician. Concertación por la Democracia, the governing coalition of Chile between 1990 and March 2010. 2

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CLACSO and various other Latin American intellectuals have labeled Chile as one of the most neoliberal countries in the world. The authors of this book (all of them Chilean) offer interesting insights regarding the uniqueness of this deeply neoliberal process. Far from making us proud as the propaganda would have it, we become bearers of the most shameful of records. José Cademartori dwells on the facts that make Chile one of the world’s most unequal countries, with the longest working hours and the lowest state participation in GDP in the world. The February 2010 earthquake unearthed those disparities that had been carefully and purposely hidden. Graciela Galarce and Orlando Caputo show how the Full Concession (of mineral rights) does not exist in any other mining legislation in any other country in the world, enabling Chile to become the first country in Latin America to enter into the 21st Century’s first major recession. OPECH researchers claim that Chile could become the only country in the world with a 100 percent privatized system of higher education. It could likewise become the only country where the education finance system is based entirely on subsidies rather than being a mere complement. Manuel Riesco shows how before the current crisis in pension fund administration, Chile managed to operate the only purely private pension system in the world for more than a quarter of a century. That is not the only bad news. We also know from SIPRI (Stalenheim, et al, 2006) that Chile is the Latin American country with the highest per capita expense rate on defense as well as the country with the highest military burden as a percentage of GDP. This has been made possible thanks to funding by the constitutionally mandated ten percent levy on our copper export sales. What needs to be recognized, and has been profusely praised by the media, is that the Concertación did indeed use state financial resources (from the small proportion of copper still in the hands of the state) to temporarily improve the lot of the poor with subsidies, as well as to reactivate the economy during the latest global crisis. The current government is so far following the same pattern on earthquake reconstruction. Unfortunately, there was no attempt at structural change that would have consolidated these initiatives by turning them into public policy, or that would address the most important pending issues of national development. The authors of this book point directly at the heart of the matter by providing us a detailed analysis of some of the pending issues

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confronting Chileans. These include: a) the need for a Constitutional Assembly to end the dictatorial decree that continues to rule us; b) an electoral system reform that would lead us towards genuine democracy; c) the recovery of our natural resources now in the hands of transnational corporations, enabling Chilean resources to be used by the Chilean people; d) the need for human rights compliance including indigenous rights so that the native peoples such as the Mapuches will no longer be robbed of their history and territory while suffering from repression and massacres; e) the reform of the Labor Code so as to end injustices and exploitation; f) the enactment of education and health reform that would provide equal opportunities for all; g) the return of the pension system to the state so that it could be managed on the basis of solidarity and shielded from the greed of speculators; h) the recovery of the role of the state both in the economy and in the social sectors; and i) the recovery of common and public goods. Additionally, the authors in this book relentlessly question Chile’s status as a successful and exemplary democratic country as the 2010 earthquake so violently exposed. Their analyses complement one another in explaining the various facets of the Chilean reality such as the political conditions that have kept right wing political parties in power. They examine the results of the neoliberal emphasis on creating markets and businesses out of exclusive concern for their short term profitability. They question the indiscriminate opening to foreign trade and investment that resulted in the loss of mineral and other natural resources. They demonstrate how the lion’s share of resources become channeled to the highest income earning quintile and how this generates a society with one of the highest income disparities in the world. They also challenge the prevailing neoliberal wisdom that it is possible and even convenient to continue constraining social demands and dismantling the role of the state. This was a state that proved totally unable to prevent the worst consequences of the February 2010 earthquake and tsunami as well as to deal with the emerging humanitarian issues. Likewise, it has proven incapable of reconstructing the strategic services that were earlier privatized and which failed catastrophically. The authors do not lose sight of the fact that a conscious concentration of the mass media rests in the hands of the Chilean oligarchy, an arrangement that enjoyed a certain complicity of the Concertación. There is a mass schizophrenia in Chile based upon what we are and what we are told we are. This book examines our tendency towards reform without changing any basic substance. The authors examine our crisis

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of participation in the context of a tutelage democracy. Importantly, they investigate Concertación expertise in co-opting or criminalizing popular movements instead of joining strength with them to the end of managing parliamentary approval for substantial change. So too do the authors examine the tendency of union leaders to accept conditions imposed by the government in contraposition to union bases that rapidly learn to organize horizontally so as to avoid such concessions. The authors explain how Chilean politics became delinked from popular movements and how the political class has betrayed its political bases and how neoliberalism has atomized them. And they explain how neoliberalism was there to deal with the large majorities even as there was state interventionism in favor of big capital. Moreover they will explain how “democracy” was built without the Chilean people and how it turned its back on them. The authors also coincide in vindicating the great achievements made during the brief Popular Unity government under President Salvador Allende. This embodied the golden age for state involvement in societal transformation and regaining national sovereignty. The Popular Unity as a political alliance and the government of Salvador Allende which it produced is seen as a historical breaking point. This is particularly important given that during the dictatorship this role was denied and the Left was either denigrated or decimated. The Concertación, rather than recovering the past, instead decided to overtly or covertly support the thesis that the dictatorship rescued the country from the “chaos generated by the Allende period.” Galarce and Caputo argue that we should still be thankful to the Allende government since without the resources provided by the copper industry nationalized by Salvador Allende, there very likely would have been a social explosion. While the Allende government obtained control of nearly 100 percent of Chilean copper production, only 26.2 percent remained under Chile’s control by 2008 when the economic crisis began to deepen. Without this control over strategic resources, the Concertación would have had even greater difficulties fending off the effects of their errors and the global financial crisis. Sebastián Piñera, the presidential candidate who defeated the Concertación in the elections of 2009, should be thankful for the impressive budget he inherited due to an extraordinarily high price of copper. Even so, the privatization of all remaining copper resources will remain a real possibility. As Manuel Riesco argues, developmentalism and the popular governments created the necessary social accumulation and infrastructure

introduction

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to allow the installation of a “successful neoliberalism.” On the other hand, the “neoliberal social democratic transition,” as he calls it, has accumulated enough discontent to allow the “return of Pinochetism.” While some blindly think of the Concertación as a center left coalition, others prefer to establish the difference. It was not that the extreme right “returned” to power after 20 years. They were always there under the umbrella of an agreed upon transition and legitimized by an undemocratic Constitution. The government coalition (Coalición por el Cambio) that replaced the Concertación in 2010 signifies not only a regression in human rights terms, symbolized by ensuring immunity to perpetrators of the most vicious dictatorship crimes and by increasing the existing repression, but also an exacerbation of the issues that remained pending for the Concertación. This means a further increase in the already existing and perverse linkages between politics and business. Nevertheless, it is in the international arena where change shifted substantially for the worse. The tepid and nationalistic Concertación role in Latin America gave way to dangerous alliances at the service of the Empire. Any outward sign of Latin American sovereignty and dignity went out as a friendly voice became added to the coalition of governments determined to undermine genuine, solidarity-based regional integration in favor of the plunder of Latin American natural resources via FTAs with the United States, by IIRSA, and by the Association Agreements with the European Union. In order to consolidate moves in this direction, the Coalición will necessarily have to govern with the support of the old coalition (Concertación) in Parliament. It is even possible that some Concertación members will be invited to join the new executive structure (several of whom would fit perfectly in such a role) so as to buy into their cooperation. Roberto Garretón’s description in this book of the constitutional and electoral flaws forcing negotiated politics makes this point crystal clear. Mutual support between the Concertación and the extreme right was a foregone conclusion as the endless, unfinished negotiated transition unfolded. For years, it was not explicit having been negotiated behind the backs of the Chilean people. As Mario Garcés argues in his chapter, social movements have suffered from the effects of their exclusion from the new governability pact as well as from the effects of confronting their own weaknesses, tensions and dilemmas in order to act in the “new” Chilean society. Edgardo Boeninger, the former Christian Democrat designated senator, Minister of the first Concertación government and main ideologist

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behind the Transition, once stated that the Concertación leadership had from the onset reached an economic ideological convergence with the right wing and that it had no intention of complying with its campaign program (Boeninger, 1997). Graciela Galarce and Orlando Caputo’s article on copper thoroughly details the huge gap between what the Concertación program promised and what the reality of their four governments meant for our economy. Copper offered no exception to the broken promises. As José Cademartori documents well in his chapter, the revolving door between public service and big business aligned with imperialism during the Concertación deepened the commonality of interests between both coalitions. It is therefore of little surprise that socialist president Ricardo Lagos was labeled by the Chilean business community to be “the best right wing president of all times” (Portales, 2010). The near future will undoubtedly bring new surprises. The Concertación may disintegrate even further and some of its leadership might join the Coalición government to help build up a neo-Pinochetism stage. In the meantime, the Chilean people seem to be stretching the distance between popular movements and political parties as Mario Garcés so aptly explains in his article. Similarly, the younger generations increasingly show no interest whatsoever in electoral politics. The fragmented Left has no common project, with scarce voting power and remaining confined to the opposition under the Sebastián Piñera Coalición Government in order to shake things up for the next electoral period. We learn from Manuel Riesco, Claudio Sepulveda and OPECH researchers’ articles how seriously limited the reforms of the Concertación remained since they failed to address what is fundamental. Where new reform is out of the question, as argued by Roberto Garretón, there is an imperative to transform the Constitution so that it can start anew in consulting a sovereign people. The challenge is to enable the emergence of a popular, democratic alternative that will favor the people rather than big capital. Just as there will be no socialism without democracy, there will not be any democratic progress without a socialist perspective. A minimal common program for all those opposing both the overt and the covert Right is necessary and this book definitively provides some clues about how to proceed. As Marta Harnecker explains in her article, the nearly 40 years of neoliberal ideological hegemony has produced a huge shift in the mentality of the Chilean masses, distancing them from their traditional

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communitarian ideas and directing them towards a liberal and individualistic ideology. Indeed, media-created wants prevail over needs as Sepulveda argues in his article. Enhanced marketing and profit-making have turned into the main philosophical orientations of our times, creating huge challenges for the reconstitution of a cooperative value system. Nevertheless, while the powerful are finding business opportunities in earthquake reconstruction, the people are left to fend for themselves and have begun to slowly and painfully find their way back into organization and solidarity. They must confront the effects of dual earthquakes: neoliberalism and the revenge of Mother Earth. Mario Garcés states in his chapter that the Chilean Left needs to relearn social change and enable the practices of social construction by social movements from the base to emerge in the public space. Marta Harnecker concurs and in her article reaffirms the tremendous responsibility for educating the public and forging a powerful coalition with a common project. If that project is developed from the base, it will lead not only Chile to a better future but likewise play a significant role in building solidarity across Latin America and help open the door to a more genuine regional integration. Once again, it is our moment to undertake the historic role of struggle in the reconstruction of hope and the dream of social transformation. We cannot let it go by. There is a need to re-mobilize the Chilean people and to form the largest and strongest political opposition coalition under a common banner. This banner could very well find itself articulated around the need to put an end to the military decree posing as a constitution that presently governs us and pave the way to a constitution forged by a popular assembly. This could for example provide us with a legal framework to defend what is left of our copper resources and demand they be used to improve the lots of the the victims of neoliberalism and to strengthen the ability of the Chilean state to protect people from the violence of nature. Some OPECH researchers are placing their hopes on important, excluded, but nevertheless empowered popular youth sectors to lead the social re-enchantment process. Much potential rests with the more than 40 percent of young and unregistered Chileans as well as those who currently reside in exile or who are otherwise impeded from voting, or that protest by annulling their vote, or leaving their votes blank. In spite of the daunting challenge, the contributors to this volume assert that breaking the status quo is possible, urgent and necessary. Moreover, they provide timely proposals on how to go about it.

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Throughout history, the Chilean people have only advanced through struggle. Understanding the process of neoliberal entrenchment will provide important insights to guide the struggles to come. The enemy is now clearly identifiable and no longer hides as in other decades behind the progressive medley of the Concertación. We need to be able to see once more what really is and not what we are induced to see. Our hope is that this book will contribute to that liberating educational process and help empower those who struggle for a better future. Ximena de la Barra, editor Santiago de Chile

A new housing development in the Chilean city of Concepción shortly after the 2010 earthquake. Courtesy of Alberto Muñoz Sims.

PART I

HOW THE NEOLIBERAL EXPERIMENT WAS FORCED UPON THE CHILEAN PEOPLE

CHAPTER ONE

NEOLIBERALISM, A COUNTER-REVOLUTION IN CHILE Manuel Riesco1 Chile transformed itself completely during the 20th century in a single process, presided over by the state. However, the successive strategies that guided its action divide it sharply in two periods violently confronted against one another, usually known as “developmentalism” and the “Washington Consensus.” Nevertheless, both periods also seem to share significant aspects of continuity especially considering that developmentalism generated the social capital enabling neoliberalism. Successively, through both of them, the long and painful socioeconomic transformation that took place in the background gave birth to modern Chile. Within that context, traditional peasants, who represented half of the population in the 1930 census, have for the most part been transformed into precarious salaried urban workers. Their painful process constitutes the dominant epic of the century. The importance of revisiting the developmentalist period and its strategies is due to the fact that it has been demonized, while much of the neoliberal model has been loudly heralded worldwide as a miraculous success story. At the same time, one country after the other adopted the second strategy throughout the underdeveloped world. All the more surprising, neoliberalism was also adopted with great initial enthusiasm by several countries that had integrated the socialist camp, including none other than the former Soviet Union. Historian Eric Hobsbawm remarks that when such massive historical phenomena take place, they may be explained in part by the practices of political parties and personalities, among many others causes. However, as the great historian argues, it seems reasonable to look for their explanation in the deeper changes in the way millions of people

1 The author is the Vice-President of CENDA and this article draws substantially from the CENDA database .

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live and work (Hobsbawm, 1994). This basic assertion of historical materialism seems far more fruitful and it is one of Marx’s legacies that have become a generalized understanding. It seems indeed quite plausible that what has happened in Chile is that developmentalism left in place the basic foundations upon which neoliberalism took hold.

Chilean Developmentalism The concept of the Latin American Developmental Welfare state tries to capture the character of the central political institution that presided over Latin American development throughout most of the 20th century. Coming into being around the 1920s in most of the region, it embraces development, both economic and social, as a central state matter, and creates the necessary institutions to promote it. The fact that the socio-economic structure at the time was mainly pre-modern agrarian became its main predetermined factor. A decisive majority of the population was in fact traditional peasantry, in a major part subordinated to latifundia, in most countries, throughout a good part of the 20th century. In that environment, developmentalism confronted the dual challenge of promoting both economic development and social change. The state had to build by itself most of the main landmarks of economic development – infrastructure projects, industrial complexes, universities, etc. – because the dominant actors in civil society at the time had proven to be largely unable to assume these tasks by themselves. Nevertheless, in parallel, the strategy promotes social change, nurturing, educating, and protecting both the nascent modern entrepreneurs as well as the salaried classes. Compared to other Latin American countries, the significant legacy of the early “Developmentalist Chilean State” of the 19th century included an early independence and a strong centralized administration. Important early developmentalist achievements were present especially during the governments of Presidents Santa María (1881– 1886) and Balmaceda (1886–1891). The main developmentalist landmark was the national railroad network, which in 1907 spanned all the territory from Arica on the northern border to Puerto Montt in the southern frontier. It was an astounding engineering feat. Some advances in education included the foundation of the University of Chile and the elite Instituto Nacional high school. This period represents the pre-history of developmentalism in Chile (Illanes and Riesco, 2007).

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The Chilean developmentalist experience in pursuit of economic and social progress spans over half a century. In September 11, 1924, a rather progressive military movement inaugurated the strategy. Almost exactly half a century later, on September 11, 1973, a brutal counter-revolutionary military coup imposed the second model, which, decades later, was to be generalized across Latin America and the underdeveloped world under the name “Washington Consensus.” In the wake of the 1930 crisis, developmentalism consolidates and extends in its two dimensions, economic and social, under democratic governments of diverse signs that adopt the banner of progress. After the Great Depression, developmentalism presides over four decades of accelerating growth rates that follow a relatively smooth path, with no major economic crisis, which would last until the early 1970s. During this period, the country quite fully migrates away from being a predominantly rural society, as the proportion of peasants in the population as a whole falls dramatically. At the same time, state institutions are built and develop rapidly over this long period. Fiscal expenditures as a whole, which had been very small at the beginning of the century, both in absolute as well as in relative terms, start to grow by the mid1920s, and especially in the wake of the Great Depression, to ultimately peak at record levels during the early 1970s. Social policy constituted an integral part of developmentalism in Chile since the mid-1920s. Looking at the overall picture as far as social policies may be represented by public social expenditure, the period witnessed their very fast increase. This was especially so after the Great Depression, and particularly during the period’s culmination in the late 1960s and early 1970s as the period reached its climactic end. However, even at its peak, at less than 14 percent of GDP, it was not very high at all. By the mid-2000s overall public social expenditure increased to over 16 percent of GDP, still low even by modest Latin American standards. Nevertheless, as will be further explained, over 41 percent of the present public social expenditure is dedicated to finance the transition to the private pension system. In contrast, at the beginning of the 1970s most of public social expenditure was dedicated to education and health, as well as housing. By the end of the period, during the early 1970s, these items attained levels that have not been achieved in Chile ever since, even including the period during the 1990s where intense efforts made to recover public social expenditure from the severe cutbacks suffered during the Pinochet dictatorship (Illanes and Riesco, 2007).

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The political forces that backed governments during this period represented virtually every significant social group in the country. They integrated varying alliances that succeeded one another in government and opposition and confronted each other constantly and quite harshly all along. Because of this, they were hardly similar to one another. There is little in common, for example, between the conservative governments of both Arturo and Jorge Alessandri, the frankly progressive governments of Pedro Aguirre Cerda, Juan Antonio Ríos, and Eduardo Frei, and the revolutionary government led by Salvador Allende (Riesco, 2008a). Despite the great differences among governments, all of them more or less adhered to the developmentalist strategy and assumed its central banner of progress in its two dimensions of the economic and social. All of them tried to somehow replicate the economic and institutional feats that modern capitalists and urban workers had achieved in advanced countries. But the large landowners and peasants that predominated in Chile at the time were unable to match such feats despite being nurtured to become such modern actors. The evolution of developmentalism in Chile is divided into two main phases, each one with short singular periods. The Early Phase of Developmentalism (1924–1950) Two long economic cycles may be identified during this early phase of Developmentalism. The first spanned from 1918 to 1929, and the second from 1929 to 1946, which included the Great Depression. Within the long cycles, there were also minor economic peaks, for example, in 1920 and 1925. The 1920s witnessed both the highest point and a cataclysm in the basic pillars of Chilean economy during the previous period, namely, nitrate and agricultural exports. The decade coincided with a long economic cycle that began in 1918 and experienced oscillating, export-led growth that averaged slightly less than four percent a year up until the 1929 crisis (Illanes and Riesco, 2007). State efforts during this phase were limited to relatively localized and nascent economic and social institutions along with a few development projects. Social policy reached out to a relatively minor part of the population that excluded most of the peasantry. Public social expenditures increased but remained relatively modest. Social change as represented by the rate of rural migration, more than doubled during this phase in relation to the previous period, although it remained fixed at relatively moderate levels in relation to the periods

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that followed. For the first time, urban dwellers barely outnumbered peasants. Two shorter periods can be distinguished within this first phase, representing all kinds of political orientations. The first period includes the military dictatorship headed by General Carlos Ibáñez (1924–1931) where many basic institutions were created.2 It was followed by a period of instability (1931–1932) and then by the liberal orientation of the second Alessandri Palma government (1932–1938). The second short period within the phase is marked by the formation of a Popular Front. In the backdrop of the worldwide struggle against fascism and of the Spanish Civil War, Chilean popular forces united with the centrist parties and elected Presidents Pedro Aguirre Cerda (1938–1941) and Juan Antonio Ríos (1941–1946). Their governments were led by the Radicals (social democrats) with the participation of Socialists and Communists at different moments. The Popular Front governments were followed by the government of President Gabriel González Videla (1946–1952). The initial period of the early phase of developmentalism was inaugurated with the first 20th century military coup in Chile that took place on Sept 11, 1924 and installed a Military Junta. In that exceptional moment, a progressive alliance of young military officers and an enlightened group of professionals with a high concept of public service, many of them medical doctors, participated in the government. In the wake of the Great War and the Russian Revolution, and over the backdrop of widespread popular agitation, they assumed power to reform what we now call the liberal-oligarchic state. Arguing that the unhealthy and ignorant condition of the population was an obstacle for the creation of wealth and the defense of the Nation, they established a social welfare state (Illanes, 2002). A similar argument would be presented decades later in favor of what became called “State Developmentalism” by Raul Prebisch, ECLAC3 Secretary General between 1950 and 1963.

2 The list of some of institutions founded in this short period shows the magnitude of achievements in this respect: Banco Central, Fuerza Aérea, Línea Aérea Nacional, Cuerpo de Carabineros, Tesorería General de la República, Superintendencia de Seguros y Sociedades Anónimas, Superintendencia del Salitre y Yodo, Contraloría General de la República, Caja de Crédito Minero, Caja de Crédito Agrícola, Instituto de Crédito Industrial, Caja de Fomento Carbonífero, Junta de Exportación Agrícola, Caja de Colonización and the Ministerio de Agricultura. 3 Economic and Social Commission for Latin America and the Caribbean.

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Among the first measures of the Junta included the establishment of income taxes and social legislation. Both policies were former projects of the Alessandri government that had been delayed for years in a parliament dominated by the landed oligarchy. The Social Ministry was created in 1924, initially headed by Dr. Alejandro Del Rio. It encompassed policies regarding health, social assistance, social security and labor. The semi-autonomous Caja del Seguro Obrero Obligatorio (compulsory workers social security program) was also created. It would manage the social security contributions that were set at six percent of salaries and were to be paid by the employers (three percent), the workers (two percent) and the state (one percent). The School of Social Services was also created to help bolster professional public service. Labor legislation established the 8-hour workday, among other measures, and obligatory social insurance, which became law by force under the Junta. These constitute two basic pillars of social legislation that marked a new phase in Chilean history. The importance of social policies is evidenced in the large increase in social public expenditures, which tripled, and educational expenditures, which grew by two and a half times during the 1918–1929 economic cycle. Educational policy became the cornerstone of the new welfare state. The Ministry of Education was created in 1927 making pupils’ health and nutrition the responsibility of school superintendents. Generalized illiteracy started to fall and school enrolment increased rapidly. The Universidad de Chile also experienced important growth during this period (Illanes and Riesco, 2007). The new Constitution promulgated in 1925, also under military pressure, established public health as the primary interest of the state (Illanes, 2003). General Carlos Ibánez governed with military force, imposing all these measures against the opposition of the landed oligarchy and even against the initial resistance of the workers movement, which as historian Illanes recalls, considered that the public social welfare could undermine its own role in this area and menace its class independence. The former Secretary General of the Communist Party, Luis Corvalán wrote in his history of the Communist Party that the Ibañez dictatorship persecuted members of every political party that were not unconditional to him. The Federación Obrera de Chile (Chilean Workers Federation) and the Asociación General de Profesores de Chile (Chilean Teachers Union) were persecuted. The Communist Party was

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outlawed, its newspapers closed, its leaders put to jail, relegated, tortured and several were murdered (Corvalán, 2007). The Ibañez dictatorship fell in 1931 under the pressure of widespread popular agitation amidst the economic crisis. It was followed by a short period of anarchy that included the establishment of a Socialist Republic headed by General Marmaduke Grove on June 4, 1932. It lasted only 12 days, but was able to enact some decrees that were to be utilized by successive governments, including Allende, to control prices and nationalize foreign corporations. Starting with the second government of Alessandri Palma (1932–1938), the Chilean developmentalist period was about to be presided over by democratic governments. Some of them did not quite fit these credentials, such as Gonzalez Videla (1946–1952), “the traitor of Chile,” as Nobel Laureate poet Pablo Neruda called him. He outlawed the Communist Party that had helped elect him and had ministers in his government and its leadership relegated, and exiled Neruda who was a senator at the time, among other repressive undemocratic acts (Riesco, 2008a). The most relevant figure among the already mentioned progressive doctors, Salvador Allende, was baptized under fire in the struggles to depose the dictatorship of Ibañez. In 1931, he participated as a leader of medical students in the FECH student federation and of the Socialist Party of which he was a founding member in those days. Young Doctor Allende joined the Aguirre Cerda government as Minister of Health. At that time, he published a book on the Chilean public health which contained the program that successive governments were to apply (Allende, 1939). In 1950, Dr. Mardones Restat, another member of this group who was health minister at this time, presented parliament with a law that created the National Health Service. This project was almost identical to the one the young health minister of the Aguirre Cerda government had prepared over ten years earlier. At this point in time, he had been elected President of the Senate and from this position managed to get unanimous parliamentary approval of the project. As a result, health and social security coverage was extended from one to three million from an overall population of five million at the time. “I have the intimate conviction,” he said as President of the Senate, “that we are not able now to appreciate the full significance of this initiative. Time will give them the projections that they have in my vision, for the defense of the race, the protection of human capital, and what they mean to

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reduce the huge injustices that arise from the division of our society in different social strata” (Illanes, 2003). The Second Phase of Developmentalism (1950–1973)4 By the time of the second phase of developmentalism, the world had recovered from the Great Depression and defeated fascism in World War II. The Welfare State was promoted by Roosevelt’s New Deal and by several European parties of social-democratic inspiration. The world economy experienced rapid and more or less continual growth across four decades. In Japan and several East Asian countries, the future tigers and dragons were being born out of post-war agrarian reform, under the leadership of authoritarian developmentalist governments with a conservative discourse. Socialism in the USSR showed impressive achievements on every front. Revolutions and national anti-colonial wars extended throughout Asia, Middle East and Africa, most of them inspired by the socialist ideals and many led by the Communists. They reached the shores of America in the Cuban revolution of 1959. While it got stuck in Viet Nam, the USA on the defensive proclaimed an Alliance for Progress in Latin America. Youth rebelled everywhere, embracing the peace movement and the hippie values and students took to the barricades in Paris in May 1968. The world lived through the post-War “Golden Age” as Eric Hobsbawm (1994) has called this extraordinary period. Latin America continued to embrace developmentalist ideas under many different forms and flavors according to the surprisingly diverse historical paths and levels of advance of each country. One of the aspects of the developmentalist period that has been largely disregarded up to now was its visionary commitment to Latin American integration initiatives. The first of these began around 1958 but the major one was the free trade association Asociación Latinoamericana de Libre Comercio (ALALC, soon ALADI) created by the Montevideo

4 The list of some of institutions founded in this short period shows the magnitude of achievements in this respect: Banco Central, Fuerza Aérea, Línea Aérea Nacional, Cuerpo de Carabineros, Tesorería General de la República, Superintendencia de Seguros y Sociedades Anónimas, Superintendencia del Salitre y Yodo, Contraloría General de la República, Caja de Crédito Minero, Caja de Crédito Agrícola, Instituto de Crédito Industrial, Caja de Fomento Carbonífero, Junta de Exportación Agrícola, Caja de Colonización and Ministerio de Agricultura.

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Treaty on February 18, 1960. It encompassed all of the most important Latin American economies and managed to remain a major activity throughout the decade, establishing successive tariff reductions and several institutions including a Secretariat that resembles its European Union counterpart. ECLAC under the inspiration of Raul Prebisch and Chile, first under President Frei Montalva and later under President Allende, figured among the main promoters of integration initiatives together with progressive governments from throughout Latin America, including Mexico. When conservative military governments took power in Brazil and Argentina, Chile signed the even more advanced Acuerdo de Cartagena (Cartagena Agreement) with the democratic governments of Ecuador, Colombia, Venezuela, and also the progressive military rulers of Peru and Bolivia. It established the Andean Community of Nations (CAN), among other institutions, following the European model (Riesco, 2009c). Figuratively, Latin American Developmentalism reached its climax on November 29, 1971. It was that day in the beautiful and imposing circular auditorium of ECLAC in Santiago which had just been recently completed where the great Argentine economist Raúl Prebisch offered the floor to Fidel Castro. The Cuban President had been invited to Chile by President Allende. Facing an audience of the most distinguished Latin American intellectuals, United Nations and Chilean authorities, and all the diplomatic corps, Fidel delivered a remarkable speech where he reviewed the way in which revolutionary Cuba had been fulfilling ECLAC’s developmentalist program (Castro, 1971). After each one of his assertions related to nutrition, health, education, industrialization, energy, etc., and a rousing allusion to the urgency of Latin American integration, Fidel paused and asked for the acknowledgement of Raúl Prebisch seated by his side. “Isn’t this true, Dr. Prebisch?” asked Fidel once and again. “Yes it is, Mr. President!” replied the distinguished founder of ECLAC and main theoretical inspiration of Latin American Developmentalism (Prebisch, 1971). By then, the Latin American developmentalist welfare state was reaching its peak in Chile where the strategy turned increasingly universal, both in the scope of its economic development projects and in the coverage of social policies for the population as a whole, particularly over formerly excluded peasants. Social change accelerated dramatically, especially towards the end of the period, as rural emigration tripled in relation to the previous phase, which was already advancing.

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Two major economic cycles took place throughout this second phase, one from 1946 to 1958, and another from 1958 up to 1971, with minor peaks in 1953 and 1964. At the beginning of this period, General Carlos Ibáñez won a second presidential term, this time through elections (1952–1958). He finished his second presidency by overturning the so-called Law of Defense of Democracy that had outlawed the Communist Party. In its place, a new electoral law was promulgated in 1957 that put an end to the extended practice of electoral bribery, drastically curtailing the already declining political power of large land-owners. He was followed by conservative president Jorge Alessandri Rodriguez (1958– 1964), the son of former President Arturo Alessandri Palma. He was elected by a coalition of Liberals, Conservatives and Radicals, defeating candidate Salvador Allende by a razor-thin margin in the 1958 election. President Jorge Alessandri enacted the first agrarian reform law in 1962. This law, dictated under pressure from the United States, was very limited and generally ridiculed as the “flowerpot reform.” It nevertheless helped to open the way for the more advanced reform that was to be enacted during the following government. The culmination of the period was marked by the election of President Eduardo Frei Montalva (1964–1970), a Christian-democrat who by a wide margin defeated Allende’s third attempt to reach the presidency. Frei offered a “revolution in liberty” that was backed by the United States and Chilean right wing political parties as an alternative to Salvador Allende’s socialist program. Nevertheless, he was indeed followed by Socialist President Salvador Allende (1970–1973) who led the Unidad Popular (Popular Unity) coalition of left wing parties to electoral victory. This started a revolutionary process in which peasants, workers, students and the middle classes, among other popular sectors, together with the state bureaucracy, supported by the military until right before the coup, all became leading political actors. The social landscape of the country during the late 1960s and early 1970s was thus completely and irreversibly altered (Illanes and Riesco, 2007). Developmentalism reached its climax in Chile during the Frei and Allende governments. Between 1964 and 1973, the state completed the basic economic and institutional infrastructure, carried out agrarian reform and fully recovered the ground rent of natural resources which up to then had remained mostly in foreign hands. At the same time, rather spectacular results in nutrition, health, education and income

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distribution were achieved that seem to have paved the way for a subsequent period of economic dynamism in Chile. The Frei government initiated an ambitious educational reform that in just a few years doubled school enrolment and instituted distribution of school meals as double shifts were established in all public schools. Additionally, the reform improved educational programs and elevated the basic level of schooling from six to eight years while reducing the secondary level to four years and introducing an alternative of technical training. One by one, universities were shaken by a vast reform process led by the student movement aimed at achieving the democratization of the university’s government and radically modernizing the academic curriculum. A new admissions test measuring aptitudes was introduced and a strong impulse was given to research and university social extension following Andrés Bello’s5 inspirational lemma “Our North is Chile and its People.” The impressive achievements of the reform movement may be summed up by the fact that the Chilean university system doubled in size from 1967 to 1973. The 1950 public health law that had created the National Health Service was augmented in 1952 by the preventive medicine law and again in 1968 with the creation of the employees’ national health service Servicio Médico Nacional de Empleados (Sermena) targeting white collar workers. The Allende government integrated all these services under the Unified Health Service that covered the entire country’s territory and offered universal access for many services such as maternal care and childbirth. In November 1970, practically the first measure undertaken by President Allende after his election was to start distribution through this national health network of half a liter of milk a day for every Chilean child. Even now, Chilean children are entitled to this benefit although it was at one point watered down by Pinochet’s Finance Minister Hernan Buchi during his brief stint in the Health Ministry who had the “brilliant idea” of replacing it with cheaper soya. The pension system, created in 1924, was reformed in 1952 with the creation of the National Social Security Service. Pensions and benefits were improved and extended successively to new groups of workers, culminating when Allende included informal workers, peasants, small retailers, and others, transforming it into a universal system. This last 5 Andrés Bello was a distinguished 19th century Venezuelan intellectual, founder of the Universidad de Chile.

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reform was limited because the military coup took place just a few months after its enactment. Nonetheless, many independent workers still receive benefits up to this day as a result of this reform. The public pension system still gives pensions to three out of every four elderly (women over 60 and men over 65) and nine out of ten seniors over 70 years old, two-thirds whom are women. The amounts of these pensions are usually double those delivered by the new private system to retirees with similar labor histories. Given its commitment to economic development and social policies, the developmentalist state turned increasingly confrontational with the traditional landed oligarchies and foreign companies in control of the mineral enclaves. “Change in socio-economic structures” as it was called, was increasingly, actively and explicitly promoted. At the same time the state fed, housed, educated, protected, and promoted, the masses of peasant migrants that surrounded rapidly expanding cities – mainly the capital. The urban salaried force started to emerge among them, together with the young entrepreneurs who hired them. These, in turn, with emergent urban middle classes, became the main political backers of the developmentalist strategy. Towards the mid1960s, peasants gradually started joining this alliance, as they slowly began to awaken to social and political agitation. The main milestones of this process were the peasant labor union legislation and the agrarian reform laws, both approved in 1967 under President Frei Montalva, and the copper nationalization law approved in 1971 under President Allende. These radical reforms were approved by parliament by an overwhelming majority for the first two, and unanimously for the latter. These remarkable expressions of national unity took place at the same time that the confrontation turned increasingly violent among the very political forces that concurred on their approval. These laws enabled the legal expropriation of practically all the land and water, as well as nationalization of all mineral resources and of the large foreign companies exploiting them. Small farms and mines were spared with few exceptions. The whole process took place in a very short period spanning from 1969 to 1973, however, most of it took place in just 18 months following Allende’s ascension to power in November 1970. It was rapid, massive and drastic in order to avoid further disturbance in production. What is not well known is that these laws were respected almost to the letter by the Pinochet dictatorship, although in his brutal style. Moreover, it may be argued that these

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gigantic socio-economic transformations by the Chilean developmentalist state in its reformist and revolutionary climax established solid foundations for the remarkably dynamic capitalist development of the country during the following decades. In addition to the above, the Allende government nationalized the banking system and many of the large industrial monopolies that had grown under the protection of the import substitution policies of the developmentalist state. Some of the more extremist participants in the Chilean process managed to take over a few medium and even small firms, including some small farms. However, their number seems ridiculously small when contrasted with the boisterousness with which they were headlined by the powerful anti-Allende propaganda machine. Contrary to copper nationalization and agrarian reform that proved largely irreversible, all these smaller expropriations were immediately overturned in the wake of the coup. Developmentalism during the revolutionary process led by the Unidad Popular irreversibly established the foundations of modern Chile. It was the culmination of its rather magnificent inheritance of social and economic development under democratic rule. Up to this day, everything that has happened since carries its imprint. The historical achievements within such a short time could only have been done in the revolutionary manner that they were. For all its quite formidable expediency, however, the Chilean revolution went along mostly with full respect for individual and public liberties and human rights. It was quite scrupulously legal and notably orderly and peaceful for what revolutions tend to be. At the same time, its violent termination on September 11, 1973 was to have deep and lasting consequences over economic and social policies adopted in the following decades. Because of this purely historical phenomenon, the emerging neoliberal paradigm that was to be applied in Chile assumed a form that was both pioneering and extreme. The Neoliberal Counter-Revolution The defeat of the Chilean Revolution fostered the earliest, longest, and most extreme and destructive version of the “Washington Consensus.” As with developmentalism, the Washington Consensus period in Chile was divided into two very different phases: the dictatorship and the eternal transition to democracy. During the Pinochet dictatorship his

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“Chicago Boys”6 proudly exhibited their quasi-religious allegiance to an extremist neoliberal school of thought. During the second phase, the model acquired increasingly moderate features, similar in many ways to the ones it presented in other countries in the region. However, the neoliberal basic orientation has continued, even in social policies. Because of this, it seems justified to define the whole period after the 1973 coup as having adopted the general development strategy that in Latin America eventually became dubbed the “Washington Consensus.” The Dictatorship The military usurped power in the middle of a political climate that favored the most extreme rightist positions, as the imperative of the moment was to suppress a strong socialist inspired revolutionary movement. The government they overturned and the president they pushed to death had been the target of vicious attacks from powerful internal and external enemies. The desire for revenge was widespread among the Chilean upper classes that had been deeply hurt by years of reform and revolution. It was aimed against the supporters of Unidad Popular, but also against all of those whom they considered accomplices in what had happened. Likewise, important sectors of the middle classes had been pushed to share the rage of the upper classes against the Allende government, albeit for quite different motivations. They felt increasingly upset, afraid, and tired, by the course of events, which they perceived as ever more chaotic. Destabilization strategies of the US intervention and the right wing were increasingly embraced by all the opposition. They did everything within their reach to provoke a climate of chaos, and especially the feeling of it in the population. As is well documented, Nixon ordered Kissinger to ensure that the CIA should make the economy “scream.” They were helped in this intent by the most extremist among the partisans of the revolutionary process who certainly played into the destabilization effort of the opposition. Although their real role was quite minor, it was overblown daily with great pleasure by the potent opposition media. The government seemed incapable of reestablishing a certain order, beginning with its own partisans and then, especially, over the increasingly bold rightist insurrection. 6

Certain Chilean economists who graduated from the University of Chicago.

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To put it in simple words, hate was common currency among those who opposed Allende by the time of the coup. It was directed primarily against the revolutionary and socialist ideas, and understandably so since the developmentalist ideal in Chile had come to be considered quite socialistic and revolutionary. But this growing aversion was also directed against moderate progressive ideas and, of course, against all those who had sympathized with these ideas. In this political climate it is no wonder that those willing to act more brutally against the government and its followers may have easily gained the upper hand within the armed forces – starting with Pinochet and his clique. For the same reason, it is not strange that the new military leaders would move away from the developmentalist strategy that they had been pursuing until then. The new leaders soon lent their ear to a group of rightist economists that presented them with an elaborate and complete alternative development program, one which they had been preparing since the Frei government. It was directed against the developmentalist paradigm that they blamed for what they perceived to be the Chilean “decadence” of the 20th century. Many were siblings of the expropriated landlords and had studied at the University of Chicago where they embraced Milton Friedman’s ideas, especially those anti-state ideas of bourgeois libertarianism with its defiant and cruel anti-worker positions. Even in this heated political climate, however, the alternative program would not have had the slimmest chance of being imposed had it tried to question the main achievements of the previous period such as agrarian reform and copper nationalization, much less overturn them. Those achievements, therefore, mostly survived the military coup. Secondly, the program showed certain coherence with the new socio-economic structure that had emerged as a consequence, mainly, of the policies of the previous half-century. Finally, the program was in lockstep with the emerging wave of globalization that started to spread throughout the international economic space. The “Chicago boys” program satisfied these three conditions, especially the last two, while they reluctantly accepted the first, though it was probably the most important. A fairly modern social structure had already emerged in Chile as the old agrarian regime degenerated and had finally been forcibly suppressed. The emergent social composition proved to be fertile ground for the new policies, as those with higher incomes became a lasting political base for the new development paradigm. They now enjoyed

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an economic status that was frankly quite good and maintained a fervent adherence to “the model” even though, at plain sight, it was leaking by many holes. The new entrepreneurial elites nurtured in such conditions would adhere to neoliberalism with unflinching persistence and religious fervor. This is not the case in other Latin American countries such as Brazil. There, the acceptance of neoliberalism by the entrepreneurial class was lukewarm at best. They have instead maintained a long standing support of developmentalist policies, perhaps because they were pursued until the end by conservative military authorities rather than by revolutionary leftists. The upper segments of the middle classes, for their part, also offered lasting support to the new model. They soon benefited from the attractive variety of new products and services – including social services some years later – which they could afford to buy. Very soon they were able to pay for them, as they promptly grabbed the lion’s share of national income. A power elite that has managed to outlast the dictatorship and still maintains a firm grip over national matters was thus conformed. However, they owe their existence to, and sustain their activity and economic power on the shoulders of the other social actor that has arisen out of all this process (which is overwhelmingly numerous and determinant), namely, the urban masses that constantly go in and out of highly precarious salaried jobs and who work informally in between. This is how the radical success of Chilean developmentalism in its process of renovating the old agrarian structure seems to have given birth to its own gravediggers. The dictatorship ended in 1989 after a long struggle throughout the 80s where popular rebellion frequently turned bloody. In this climate and under US pressure, Pinochet was forced to negotiate a way out with the most moderate sectors of the democratic movement. The opposition managed to expel the dictator through a democratic plebiscite and to elect four successive democratic governments. At the same time, the negotiated agreements managed to isolate the most radical democratic forces and gave the former dictator an additional decade in command of the armed forces. Moreover, the Constitution that Pinochet imposed in 1980 remains in force to this day, albeit with some amendments. The eternal transition to democracy During this second phase conducted by democratic governments, all of them directed by the center left coalition Concertación de Partidos

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por la Democracia (Concerted Parties for Democracy), right wing political parties with a de facto veto power, exercise control over the Parliament, the economy and the media in an environment where the role of the state has been reduced significantly. In addition, neoliberal ideology has maintained its hegemony over academia, government and public policies, especially over social and economic policies and those related to state management and modernization. The fundamental lines of the neoliberal development strategy have been kept in place. Mainly, the unilateral emphasis on creating the best possible short term environment for markets and business in the framework of indiscriminate openings to foreign trade and investment – which again took hold of the major part of mineral and other natural resources. An additional bias has become entrenched: that it is possible and even convenient to continue constraining social demands and dismantling the role of the state. Certainly, however, this bias has been moderated considerably when compared with the “Chicago Boys.” Even though the Concertación have continued to promote business quite unilaterally, especially for foreign capital, they have tried to re-establish the role of the state to a certain extent, especially in relation to social public expenditure and certain regulations that were established during the initial years. However, in the big picture, some of the basic state functions, such as providing social services and capturing mineral ground rent, have suffered continued dismantling. Economic growth has also played an important role in the prolonged transition. During the Concertación governments, starting in 1990 and up to 1997, there was rapid growth. After that, Chile entered into recession which extended up until 2003. However, the impressive growth during the 90s allowed almost everything to multiply by two, by three and even by four during this extraordinary period. GDP grew by 80 percent between 1989 and 1997, according to a baseline of 1986 and another 25 percent between 1997 and 2004, measured against a 1996 baseline. The GDP was again able to manage yearly growth of over six percent in 2005 and somewhat less in 2006. This means that GDP more than doubled – growing approximately 2.3 times between 1990 and 2005 (Riesco, 2007). Public expenditure grew even faster than GDP from 1989 to 2000, and slightly under it up to 2005, during the Lagos government. The same happened with social public expenditure. As a result, the state almost tripled in size during that period and public expenditure grew 2.8 times between 1990 and 2005, although it still represents less than one-fifth of GDP, which is considerably low even for Latin American

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standards. Moreover, public expenditure in health more than tripled (3.4 times) and in education it more than quadrupled (4.4 times) in that same period. Infrastructure development has been equally impressive. In the meantime, population has grown only 22 percent in this period. From 13 million in 1990, it increased to 16 million in 2005, which means that goods and services availability has grown significantly more than the population. Poverty was reduced from approximately half of the population in 1990 to less than one fifth in 2003 while extreme poverty fell to around six percent of the population. Health and education indicators as well as the Human Development Index – as calculated by the UNDP – also have improved impressively during the period. In other words, the visible Chilean face changed significantly and for the better, during the transition. However, the larger part of GDP growth landed on the pockets of the higher income segments of the population. Real average salaries recovered by 53 percent from 1990 to 2004, quite less than half of GDP growth in the same period in which as was already said it more than duplicated. Additionally, the average remuneration level was still so depressed by the end of the dictatorship – approximately 25 percent below the levels prior to the 1973 coup – that only just before the century ended in December 1999, did Chilean workers begin to recover the average purchasing power they had prior to the coup. However, salary levels for teachers and other state employees, receiving salary increases similar to GDP increase levels (2.6 times from 1990 to 2004), were so low by the end of the dictatorship that they still did not recover their pre-coup purchasing power. In the case of teachers, their 1990 salaries were approximately one-third of their pre-coup levels. That is two-thirds less than what they used to earn in the early 1970s. Considering both the average salary recovery and the growth in employment, it can be proven that salary participation in total income has dropped significantly. For example, from 1993 through 2004 (a period in which comparable statistics are available) real salary increases averaged 36.1 percent and employment grew by 31.4 percent. Nevertheless, GDP grew by 90.3 percent in the same period which means that the participation of salaries in domestic product was reduced by 11.5 percent in those years. As a result, income distribution deteriorated heavily during that period if only autonomous

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family income is considered. According to the Planning Ministry (MIDEPLAN) calculations, in 1990, autonomous income of the five percent of the population with lower incomes and the five percent with higher incomes was one to 130, while a decade later by year 2000, it had become one to 209. Compensated in part by the increase in monetary state subsidies during the same period, the relation between monetary incomes of the mentioned segments practically was maintained at one to 90 in the course of that decade. That can be verified if only non-contributory pensions received by the extremely poor are considered. However, if contributory pensions, military pensions and fiscal transfers to the SFP system are considered, social public expenditure then turns regressive (Riesco, 2007). This state of affairs has survived during a transition period that has prolonged itself as much as did the dictatorship it replaced. The transition pact was reluctantly backed, but supported nevertheless by an ample majority of the population, especially in the union movement. Labor has opted for a low profile and has been manifestly moderate in its demands for reparation from the decades of postponement. The neoliberal fervor of the Chilean elite for Pinochet, whom they always held as their hero and paternal figure, has started to diminish timidly, and only very recently, as Pinochet’s moral and political demise intensified and finally his death occurred. Change really only started when the Dictator was detained in London during his visit to an arms dealer and to a London clinic for medical treatment. In the meantime, his finances were subject to a much more effective “treatment” as had been unveiled after the discovery of his dollar accounts in the Riggs Bank, nurtured by his hosts’ bribes. The downfall of the former dictator paved the way for the judicial power, under pressure from human rights movements, to prosecute hundreds of criminals against humanity, starting with Pinochet himself and the heads of the much feared secret police. Today, an extended understanding of the limitations of neoliberal social protection schemes exists. After 25 years of experiments with these schemes in Chile, their virtues and especially their serious weaknesses and limitations have become quite visible. In general terms, the main limitation is that they have channeled their benefits to the population quintile with the highest incomes. Even in those cases, however, there is a high level of dissatisfaction and there are demands to control the high costs of privatized health, education and pension systems.

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Additionally, the resources targeted to the poorest population segments from poverty alleviation programs and the like, even though effective in improving indicators and the conditions of the poorest, have proven to be insufficient. They hardly stretch to cover the poorest quintile and do not reach the following quintile which is also needy. At the same time, these schemes have proven to be of little efficacy for the great majority of the population who are now severely unprotected or have returned to the weakened state system whenever possible, as in cases of health. Over a quarter of a century later, the Washington Consensus and the development paradigm it inspired has created a general environment that enhances the climate for business, especially for foreign investors. Under that ideological hegemony, a huge mentality shift has taken place among Chilean masses that effectively distances them from their traditional communitarian ideas and orients them towards a liberal and individualistic ideology. However, neoliberal fundamentalism has proven to be extremely harmful to large population sectors and to the economy as a whole. In addition, the Washington Consensus has introduced modern standards of living, including differentiated social services for those few who can afford them and can do so because they appropriate most of the income. Unfortunately, this achievement has been obtained at the expense of the larger poor majorities. From an optimistic outlook, the future could bring with it the emergence of a totally new strategic direction. Substantive change is happening in key countries in Latin America as well as in the post-crisis global perspective. A new development strategy – Latin American Welfare Neo-developmentalism – guided by the state could probably spread throughout a broader and more integrated Latin American region. An inclusive social policy linked to the integration process could become the basis for this new stage (Riesco, 2007). Results from State Strategies of the 20th Century7 Chilean 20th century history occurs against the backdrop of the country’s quite fast and turbulent transition from an overwhelmingly rural,

7 This section draws from the CENDA database and from Lúders et al., 2000. Economía Chilena 1810–1995. Estadísticas Históricas. Santiago de Chile: UC. The author is a CENDA team member.

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traditional agrarian society, to a contemporary, modern emergent kind of socio-economic structure. The process of change involved all realms of society that were strongly interlinked, mainly including the economy, the labor market, social service provisions and, most especially, the role of the state. Population migration and the labor market Since 1929 the overall population multiplied four times (3.9), reaching 16.4 million in 2006. At the same time, the population of the main cities multiplied by six (6.2), and the inhabitants of Santiago by seven (7.1). In reality the capital grew even faster than that. Former Santiago neighborhoods Puente Alto and San Bernardo are now statistically considered separately and have become the second and fifth largest cities in the country. Population concentration in the five largest cities peaked in 1980 (41.1 percent of total population). Since then, their population share has decreased slightly (39.8 percent), because some medium and small cities are growing even faster. Rural population remained stagnant in Chile during the 20th century, as it inched up from 1.6 million in 1900 to 2.2 million while their proportion decreased from 50 percent in 1929 to 13 percent in 2006. In other words, all the increase in population migrated to the cities and towns, or originated there. Seen from another angle, at least half of contemporary Chileans were born peasants themselves, or their parents or grandparents were. The proportion of rural inhabitants has fallen from near 60 percent of total population during the first decade of the century, to under 15 percent in the last, and it is still falling very rapidly. The percentage of rural workers within the economically active population also fell dramatically. Nevertheless, even today around one in every ten inhabitants remain in the rural areas, which is still a huge number when compared with advanced societies, where peasants represent no more than two to three percent of the overall population at the most. Additionally, those who live in the rural areas today are quite different from previous times, and the vast majority lives and works quite differently from their forefathers. Most hold precarious salaried jobs at least part of the time and they continue migrating to the cities at a very fast rate, especially among the youth (Riesco, 2008b). The modern Chilean labor market has been conformed as such through a painful saga in which economic and political struggle have

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been determinant. The 1973 coup was a dramatic break in workers’ power and influence that still has not rebalanced itself. In turn, changes in the labor market had major migratory consequences. The 1930 census noted that at that point, for the first time the number of city and town dwellers equaled the number of peasants. At that moment, the prevailing labor relation was inquilinaje (lessee), some forms of which were transferred to a certain extent to the mining enclaves where peasants were more or less forcefully enganchados (hooked in), and where the oficina (mining company) provided them with everything the same as had happened earlier in the haciendas (ranches) (Illanes and Riesco 2007). The 1930 crisis was the first great earthquake to shake the traditional labor regime. Within a couple of years, it had expelled five of every six nitrate workers, which constituted the largest concentration at the time (Illanes and Riesco, 2007). In parallel, migration to the cities intensified and peaked by mid-century. It remained very rapid until the 1980s when it started falling and is still ongoing. The second great earthquake, in the wake of the 1973 coup, was the massive expulsion of peasants suspected of actively supporting the agrarian reform process. They numbered over 100 thousand including their families. Hundreds were simply murdered in the days following the coup. Their names are the majority on the list engraved in stone at the monument to those killed and disappeared. However, other peasants who were considered “loyal” to the old landowners received around 40 percent of the expropriated lands, much in accordance to the agrarian reform law. About 30 percent was restored only to the landowners or their sons, under the also legal form of quite small reservas (reserves), and the rest was auctioned to forestry companies. The latter also proceeded immediately to expel most of the peasants who lived there (Riesco and Draibe, 2008). Labor force, productivity, salaries and wages During this period, the labor force – which measures the working age population in disposition to be hired – multiplied by five (4.7) and is comprised today overwhelmingly by salaried workers, mostly urban, holding extremely precarious formal salaried jobs which they constantly rotate with informal work “on their own.” The labor market expanded significantly more than the population, mainly because women workers multiplied by eight (8.3). Really their expansion is even larger because they constantly cross the quite ethereal frontier

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between working in the market and at home, which means being counted or not within the labor market (Riesco and Draibe, 2008). In any given instant, around a third of the work force held informal jobs and usually one in ten was unemployed in the case of men. At the same time, almost one- third of the women remained outside the workforce. However, almost every one of them moved constantly in and out of each one of these categories. No more than one in ten held stable salaried jobs and less than three in every 100 worked all the time on their own (CENDA, 2006a). The immense anguish of facing family obligations without being able to find a job was compounded by the fragility of social protection systems especially during the second period. There was certainly a nucleus of stable salaried workers, among whom the largest groups were public employees and command line employees in medium and large private companies. There was another stable group of workers “on their own,” conformed by independent peasants, independent transport workers such as taxi drivers, small retailers, liberal professionals, and the like, often working with close colleagues and family members (Riesco and Draibe, 2008). Most of those entering the labor market went into construction, which multiplied by nine, commerce by 8.6 and other services by 8.9. In the meantime, labor force in agriculture and fisheries only grew by 1.6, and mining by 1.1, and are not very different in number today from what they were in 1930. Labor force in manufacturing grew four times, more or less the same as the overall population. However, the growth of each of these sectors varied widely in the different strategic periods (Riesco, 2008b). For example, the privatization and dismantling of public services in general and social services in particular during neoliberalism had a significant impact on the formation of the current labor structure. ECLAC statistics as processed by CENDA show that the proportion of state employees decreased from 20 percent to ten percent of the workforce, approximately. These phenomena were compounded by the severe economic crisis of 1981–1985, when unemployment reached one out of every three members of the workforce, including emergency public employment programs, causing huge worker displacements (Illanes and Riesco, 2007). The results of changes in labor relations and employment structure during the past century have had dramatic consequences over wage policies and over the share of the workforce in GDP and consequently over income distribution. From 1929 to 2006, average real

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wages multiplied more than four times (4.3). However, this improvement took place only during the developmentalist period. Wages were later slashed by half in the wake of the coup and remained very low all throughout the dictatorship. They have recovered slowly after the return of democracy and only recently have slightly surpassed their pre-coup levels. In spite of this, overall labor remuneration – measured as the increase in average real wages times the increase in the number of workers – increased over 20 times between 1929 and 2006. During developmentalism, this was achieved mainly by the fast increase of real wages which multiplied 3.5 times from 1929 to 1971, and on a lesser scale by the increase in the number of workers which multiplied 1.9 times. During the Washington Consensus, in contrast, the increase in the remuneration of the workforce as a whole was explained mainly by the increase in the number of the workforce that compensated in part for the slashing of real wages during the dictatorship. Insufficient recovery after 1990 led to wage stagnation during the period as a whole. Significant exceptions to this norm have been the wages in the public sector, as well as the minimum wage. Both had been slashed even lower after the coup. In real terms while average wages fell by one half, they were reduced to one-third of their pre- coup levels and remained very low until 1990. In both cases, wage increases during the 1990s were significant, averaging ten percent a year. The general average real wages recovered their pre-coup levels only in December 1999 near the turn of the century. The general real wage average in 2006 was only 20 percent over the level attained before the 1973 coup. Even so, the wages of important segments of public employees, such as teachers for example, still have not recovered their pre-coup levels (CENDA, 2006b). The increase in workforce remuneration as a whole relative to GDP is by far the factor which determines income distribution the most and explains its huge fluctuations along the century. From 1929 to 2006 GDP multiplied almost by 14 while the remuneration of the workforce as a whole increased over 20 times. That is, there is an extraordinary increase in the participation of the workforce in GDP. This is explained in part because productivity per worker has almost tripled (2.9). However, the main factor behind GDP growth is simply the expansion in the number of workers producing for the market, which has multiplied almost five times (4.7), significantly more than the population, mainly because, as we have seen, women workers increased more than eight times.

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However, the significance of each of these factors is very different in the two strategic periods. Improvements take place entirely during developmentalism, when GDP multiplied by 3.7 times from 1929 to 1971, stemming mainly from intensive growth in worker productivity (1.6 percent a year), while the remuneration of labor as a whole multiplied by 6.8 times in the same period. This means their share of GDP almost doubled during the period. As developmentalism reached its peak, the advance in workers’ remuneration was extraordinary. During the 1958–1971 economic cycle, GDP achieved record growth rates (4.1 percent a year) and the remuneration of workers as a whole grew even faster (7.1 percent a year), mainly because real wages increased considerably and rapidly (5.8 percent a year). Improvements in productivity during developmentalism in part may be explained because peasant migration takes place mostly during the first period, while female participation accelerates during the second. While peasants remained in their traditional condition, their number was accounted for in the labor force. But their product, destined largely to self-consumption, was not accounted for in GDP. When they migrated into the cities and towns, the number of workers remained unchanged, but most of their work was now dedicated to produce goods and services to be sold in the marketplace and consequently be accounted for in GDP. This is how average worker productivity grew considerably. On the contrary, when housewives joined the workforce the number of workers and GDP increased simultaneously, although not necessarily on the same magnitude. Both the numerator and the denominator of the productivity equation increase so its value does not significantly change. Additionally, the increase in productivity depends mainly on the qualification of the labor force, which in turn is related to nutritional and educational levels of the population. This is why rapid productivity increase during developmentalism may be explained as well by the quite extraordinary achievements of the state regarding the improvement of health and education of Chileans. This effort was significantly reduced during the following period as will be seen, especially during the dictatorship. On the contrary, the slightly faster GDP growth during the Washington Consensus (3.8 percent a year) is explained mainly by the growth of the labor force. Moderate during developmentalism (1.5 percent a year), it explodes during the second period (2.6 percent a year), mainly because women moved massively into the labor force

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(3.9 percent a year). This rhythm slows down considerably during the following period (1.2 percent a year). During the Washington Consensus while GDP again multiplied by 3.7 times from 1971 to 2006, the remuneration of labor as a whole multiplied only by 3.0, implying a significant reduction in their share. The explicit goal of increasing wages less than worker productivity was formulated by the democratic governments and translated into a decline in worker participation in GDP. The stagnation of wages, which expanded just 1.2 times from 1971 to 2006, was so severe that growth of workforce remuneration as a whole (3.2 percent a year) fell behind GDP growth (3.8 percent a year) in spite of the rapid increase in the number of workers. This is verified even without consideration of the fact that unemployment increased greatly as well during this period, making the result even worse. Nevertheless, the improvement of income distribution in favor of labor during developmentalism was so large, that even though it deteriorated considerably during the following period, it still remained much better than before the Great Crisis. All of the above contradicts a recent study by the World Bank that argues that inequality in Latin America would be a secular problem without much change since colonial times and that the Washington Consensus policies did not affect it significantly (de Ferranti et al, 2004). At least in Chile it was not like that. The precariousness of employment in Chile is exacerbated by the permissive “labor flexibility.” Current legislation permits employers, for example, to hire workers for periods of less than four months practically without paying social security contributions. Until recently, an extended practice was that large firms subcontracted significant parts of their workforce to small companies labeled “meat providers” which offered practically zero labor rights. In 2007, the law regulating subcontracting was modified to forbid this practice except in qualified cases. The application of the new law has generated all kinds of legal confrontations between firms and the Department of Labor, which has determined that thousands of subcontracted workers should be hired by the “mother” firm. Even state owned CODELCO has had to confront the regulator for this reason. Currently, all workers hired after October 2002 have the right to unemployment insurance. The system functions on the base of individual capitalization accounts, which are complemented by a solidarity fund. It is financed by contributions of three percent of salaries,

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of which the worker contributes 0.6 percent, the employer 1.6 percent to the individual account and 0.8% to the solidarity fund. The state contributes to the latter in an amount determined yearly by law and which has been very small until now. As of December 2007, when practically all work contracts were in the system, less than one in every five unemployed workers had a right to receive payments from it and its monthly amount was less than the legal minimum wage (INE, 2008; SAFP, 2008).8 The Chilean labor movement was a remarkable social and political actor throughout a good part of the 20th century. It climaxed in assuming a leading role during the revolutionary upsurge at the end of the 1960s and early 1970s. This enabled the implementation of gigantic progressive reforms in a very short time by President Eduardo Frei Montalva and especially by President Salvador Allende. However, it was reduced to a minimal expression in the wake of the coup by the brutal repression of the Pinochet dictatorship. Multiple restrictions were imposed as state of siege dispositions during the 1970s, and later legalized by the 1981 so-called Plan Laboral (Labor Plan). The right to unionize and to strike was severely restricted, prohibiting industry-wide collective negotiations and permitting the replacement of workers during legal strikes, among many other dispositions (Volker, 2002). Workers reassumed a protagonist role towards the mid-1980s. Under the impact of a huge economic crisis during which they led the widespread protests that created the conditions to end the dictatorship, the labor movement assumed a notably moderate role. It agreed to a tripartite framework agreement with employers and the government, promoted by the latter. Thus, wage demands have been notably restrained and include the acceptance of regular wage increases below productivity gains (Murillo, 2005). Labor has consistently voted for the governing coalition in successive elections and supported the democratic governments, albeit in an increasingly disaffected mode. However, 2007 witnessed a strike activity unprecedented since the coup. What is more significant is that the largest mobilizations managed to break the labor legislation in place since the dictatorship,

8 Elaborated with data from INE data base and from SAFP data base http://www.spensiones.cl/safpstats/ stats/.

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which prohibited industry-wide negotiations. It is possible that the reanimation of this massive and strategic actor, which many thought dead, may in the end originate the conditions for a new correlation of power that can lead the country into the new development strategy that seems to be gathering force in Latin America in the 21st century (Riesco and Draibe, 2008). Production trade and growth Chile modernized and diversified its production quite extraordinarily. Measured from 1929 to 1971, and then throughout 2006, all peak years in the respective economic cycles, manufacturing output grew quite fast during developmentalism – 4.3 percent a year on the average from 1929 to 1971, and slower during the following period, 2.5 percent a year on average from 1971 to 2006. It increased approximately as much as GDP did (13.6 times) especially due to its fast growth during developmentalism, while it stagnated during the following period. Electric power generation increased almost 60 times at a fairly constant rhythm. Physical production of copper grew 16 times (16.7), silver more than 32 times (32.4) and iodine more than 11 times (11.7), while coal fell by half since 1929 (0.5), and nitrate even more (0.4). Wheat and barley production remain similar today to what they were in 1929, while corn has increased over 20 times (20.4).9 As would be expected, foreign trade, representing 40 percent of GDP in 2006, grew faster during the Washington Consensus (also called the outward-looking period) than it did under the previous strategy (sometimes known as the import substitution period). The main export items continued to be raw materials with scarce elaboration (copper, fruit, fish, forestry), which is considered an important weakness (Ffrench-Davis, 2007). Exports grew 20 times (19.9 times), and imports somewhat less (17.8 times). They have diversified constantly, as the proportion of mining exports has fallen from almost 90 percent before the Great Depression (86.9 percent) to less than half today (48.4 percent). Agriculture has not changed and represents today almost the same ten percent of total exports as it did then. Manufactured exports have increased constantly, from less than 4.6 percent

9 Elaborated with data from CENDA database. http://sites.google.com/a/ cendachile.cl/cenda/Home/cuadernos-cenda.

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before the great depression to 42.3 percent today. However, the products that topped the list of manufactured exports in 2006, as we have seen, are still in fact raw materials with a minimum degree of elaboration: salmon and trout (13 percent of manufactured exports), white cellulose (7 percent), wine (6 percent) and methanol (5 percent).10 The relative foreign trade increase in the second period would also have been expected because tariffs (6.7 percent on average) were lowered to less than one-third of their previous level (21.7 percent on average). It is surprising however that tariffs averaged almost the same (17.2 percent) during the outward development period that followed the import substitution policy adopted in the wake of the Great Depression. However, the total volume of exports plus imports as a proportion of GDP is similar today to what it was during the so called oligarchic period, before developmentalism. The sum of exports plus imports averaged slightly less than half (44.7 percent) of GDP during the long period from 1884 to the Great Crisis. This proportion was reduced to about one-quarter (26.2 percent) during the developmentalist period, increased again during the Washington Consensus (38.8 percent), and then recovered the levels of a century ago during the most recent economic cycle (43 percent). These facts are important in that they somewhat reflect the interlinking of the economy with the rest of the world. However, it must be noted that the comparison is between numbers that represent quite different values. In effect, while one of them measures the total value of exports and imports, GDP only represents the added value of domestic production, not their total value. Well measured, the net impact of foreign trade does not depend upon the sum, but rather upon the difference of exports minus imports, also known as the trade balance. Measured in this way, surprisingly the contribution of foreign trade is reduced to a very low proportion of GDP. In fact it becomes negative every time the trade balance is in deficit. More interesting yet, there is a constant decrease in the proportion of foreign trade in GDP as the economy develops over time. Measured as trade balance, net trade represented a significant part of GDP during the oligarchic period (6.1 percent on the average), which is reduced to a third during developmentalism (2.1 on the

10 Elaborated with data from the Chilean Central Bank database

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average), and much further still during the Washington Consensus (0.3 percent on the average). Even during the last economic cycle witnessing the largest trade surplus in history, the share of exports minus imports with respect to GDP (3.0 percent on the average) is half of what it was before the Great Depression. This decrease reflects the evolution of the relative prices of exports and imports, decreasing during the developmentalist period (-0.9 percent per year on the average), and continuing to do so during the Washington Consensus period (-0.6 percent per year). This means that during the 20th Century, not without constant cyclical fluctuations, prices of exports fell faster than those of imports. Certainly, in the case of Chile, this ratio depended largely on the price of nitrate, at first, and then of copper – that is, it depends on the evolution of the ground rent of its main natural resources (Riesco, 2008b). The role of the State State action and especially social policies achieved quite remarkable results that remain until today in spite of the relative retrenchment by the extreme form adopted by the Washington Consensus strategy. From 1929 to 2006, while GDP multiplied almost 14 times, as we have already seen, public expenditure increased almost 30 times and social expenditure over 100 times (108.9). The largest increases were in health (110 times) and in education (36.7 times). Public expenditure in pensions practically did not exist in 1929 and, although it increased vastly during the following decades, it was financed amply by wage contributions, rendering a significant surplus until 1981.11 Since that year, however, after the privatization of social security contributions, these were diverted entirely to the private Pension Fund Administrators (AFP). The fiscal deficit ballooned enormously as the state continued paying public pensions to the vast majority of elders, absorbing a good part of the recovery of public social expenditure since 1990, around 40 percent of public expenditure from the depressed levels left over by the dictatorship (CENDA, 2005). In the case of education, student enrolment increased over six times (6.2), especially at the high school level (25 times), and shot up in tertiary level (151 times), while enrolment in basic education increased the 11

Elaborated with data from CENDA database. .

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same as overall population (3.8 times). Public expenditure per pupil, in turn, increased over four times in basic education (4.3 times), but less than two times (1.9 times) in high school and remained constant in tertiary level (1.2 times). As was the case with income distribution, most of the advances in social policies took place during developmentalism when the state built universal public social services that achieved a remarkably wide coverage in relation to the population as a whole. During developmentalism, the increase in public social expenditure almost doubled GDP growth. Nearly all the improvements in education are explained by the extraordinary increase in both enrolment and public expenditure during that period. Public expenditure in education and health grew twice as fast during the first period in relation to the second. On the contrary, these advances were severely dismantled during the dictatorship and stagnate during the Washington Consensus period as a whole. Public social expenditure grew significantly less and the concept of universality was abandoned in favor of targeting a diminished social expenditure on the poorest. Social services were partially privatized and severely dismantled, especially in the case of pensions and education, and only slightly less so in health. Public expenditure contraction after the coup meant, in the case of education, slashing it in half. This brutal deterioration has not yet been reversed, in spite of the efforts undertaken since 1990.12 It can be argued that this factor is relevant to the stagnation of labor productivity experienced during the Washington Consensus period. Conclusion As the current neoliberal stage seems to have arrived at its decline and fall, it is appropriate to evaluate the results of the overall transformation that has occurred over a century, as well as within each of the two great state strategies that presided over it. The changes in the underlying social structure in the course of historically determined successive development strategies provide important clues to understand the evolution of the country and may help us understand the present situation and project it into the future. 12 Elaborated with data from CENDA database. .

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The success of developmentalism in its dual purpose of bringing forth economic and social progress put into place the basic, yet never explicit, foundations that enabled market based strategies: the previous existence of social actors that make market economies possible in the first place. This precondition has been completely disregarded by the promoters of the neoliberal strategy who have tried to enforce it, with dire consequences, even in countries so backward as to be considered underdeveloped and certainly lacking these foundations. As with developmentalism, neoliberalism has been adopted in many different forms. In several countries, the passage from one to the other has been relatively smooth and controlled, without any significant destruction of the achievements of previous periods. In others, however, it has brought painful disruptions. This was the case in Chile where the form it adopted as a consequence of being implemented by a counter-revolution, was one of the most extreme and destructive. Additional to the social costs it brought with it, as we have seen, the supposedly “miraculous” GDP growth during the Washington Consensus was only slightly faster than the one achieved during developmentalism. This is explained on the one hand because developmentalism included the Great Depression, and on the other hand because during neoliberalism women entered the workforce en masse. The neoliberal period currently presents clear symptoms of exhaustion, reaching the point of crisis with respect to social policies. Along a quarter century, Chilean neoliberalism had been lauded as a miraculous success that the whole world should consider imitating. Pension system reform and educational reform were emblematic in that process. Very few countries had in fact reformed their own pension systems in part by following this model. In mid-2005, all presidential candidates agreed on one point: the urgent need to reform the failed privatized pension system. At the beginning of 2006, just a few months into the government of President Michelle Bachelet and with pension reform already underway, the Chilean myth received another blow. A million students took to the streets and occupied their schools. Their movement, labeled “the march of the penguins” in reference to their white and dark blue school uniforms, was demanding reform for the largely privatized school system. What had failed? The privatization of public social services remitted its benefits to the financial markets, private service providers, and only a small high income minority of the Chilean population. Additionally, the targeting of diminished public expenditure on the

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poorest alleviated their condition in part, especially in the case of the extremely poor, but left the massive emergent salaried middle sectors unprotected and forced them to increase their out of pocket payments to the flourishing private social services industry. At the same time, the indiscriminate opening of the economy to globalization made their employment more precarious and their general livelihood more insecure. In the local political sphere, the institutional and political bondage left in place by the dictatorship finally seems to be unraveling after almost two decades of “transition to democracy.” The simultaneous disarticulation of all political forces since the election of President Bachelet, over the backdrop of a renewed social mobilization not seen since the end of the dictatorship, together with the reformulation of public policies, constitute the clearest positive signs. In a longer term perspective, it seems possible that Chilean society may be facing yet another paradigm shift in its development strategy. Whenever called upon by history, Chilean workers and simple people have responded firmly and energetically albeit with singular prudence, illustration and democratic behavior. During the revolutionary climax of the developmentalist experience, they enabled the paramount and irreversible transformations that the state made in an astonishingly brief moment, clearing the way for the definitive modernization of the country. A renewed social and political activity may quite possibly be exactly what is lacking to open the way to the new strategy that seems to be in the making. There are signs suggesting the emergence of a new model in which the state once again assumes the responsibility of leading economic development under new socio-economic conditions, while offering at the same time a new deal to the population through the construction of a modern welfare state. The new model may well evolve over the wider space of an increasingly integrated Latin America now oriented in that direction. It seems desirable that in the new period that may be taking shape, all members of Chilean society come to agree on a new social contract that distributes wealth and power more equitably. As may be appreciated from the historical comparative analysis that has been presented above, the immense progressive achievements of the developmentalist period emerge in force. Many of its fundamentals may serve as an inspiration to the new strategy that seems to be in the making today in the underdeveloped world.

CHAPTER TWO

CHILE’S NEOLIBERAL REVERSION OF SALVADOR ALLENDE’S COPPER NATIONALIZATION1 Orlando Caputo and Graciela Galarce The Importance of Chilean Copper Chile only has 0.5 percent of the world’s territory, but holds 35 percent of the world’s copper reserves. Copper constitutes Chile’s main natural resource and its export represents more than 60 percent of total Chilean exports of the last several years. The importance of Chilean copper can be best visualized when it is compared with OPEC2 and with oil from Venezuela and Mexico: – The 11 OPEC countries produce 37.5 percent of world oil. Chile produces 36 percent of world copper. Saudi Arabia, the main OPEC producer, produces 11.2 percent of the world’s oil. – In 2006, PDVSA3 exports from Venezuela amounted to US$ 51.59 billion. Exports of Chilean copper and of copper sub-products amounted to US$ 36.48 billion, equivalent to 70 percent of Venezuela’s oil exports. – In 2007, PEMEX4 exports amounted to US$ 37.95 billion. Chilean copper and sub-products were close to US$ 43 billion at that time (Caputo and Galarce 2008).

1 This article draws upon fragments from the paper by the authors “La Nacionalización del Cobre Realizada por Salvador Allende y su Desnacionalización en Dictadura y en los gobiernos de la Concertación” in Lawner, Miguel, Hernán Soto and Jacobo Schatan, eds., Salvador Allende, Presencia en la Ausencia. Santiago de Chile: LOM, pp. 151–179. That book was offered by surviving high officers of the Salvador Allende Government, to honor Salvador Allende and to celebrate his 100th Birth Anniversary in 2008. The authors dedicate their paper (in the referred to book) to all those comrades who were murdered by the Dictatorship for having been the visible leaders of Copper Nationalization, best represented by the following names: David Silberman, Carlos Berger, Arnoldo Cabrera, Ricardo García and Benito Tapia. 2 Organization of Petroleum Exporting Countries. 3 Venezuelan Petroleum. 4 Mexican Petroleum.

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Copper was and is so important to Chile that former President Eduardo Frei Montalva5 (Frei, 1964), labeled it “The Girder” and Salvador Allende named it “Chile’s Salary” (Allende 1971a). The Importance of Sovereignty over Natural Resources We find it instructive to present the following selected paragraphs of the Preamble of United Nations Resolution 1803 (XVII) of 14 December 1962: Permanent Sovereignty over Natural Resources (United Nations, 1962), which state: Bearing in mind its resolution 1515 (XV) of 15 December 1960, in which it recommended that the sovereign right of every state to dispose of its wealth and its natural resources should be respected, Considering that any measure in this respect must be based on the recognition of the inalienable right of all states freely to dispose of their natural wealth and resources in accordance with their national interests, and on respect for the economic independence of states, Attaching particular importance to the question of promoting the economic development of developing countries and securing their economic independence, Noting that the creation and strengthening of the inalienable sovereignty of states over their natural wealth and resources reinforces their economic independence, Desiring that there should be further consideration by the United Nations of the subject of permanent sovereignty over natural resources in the spirit of international co-operation in the field of economic development, particularly that of the developing countries,

The Declaration itself, in selected articles states: 1. The right of peoples and nations to permanent sovereignty over their natural wealth and resources must be exercised in the interest of their national development and of the well-being of the people of the state concerned. 2. The exploration, development and disposition of such resources, as well as the import of the foreign capital required for these purposes, should be in conformity with the rules and conditions which the peoples

5

The President of Chile during the 1964–1970 period, immediately prior to the Salvador Allende Government.

chile’s reversion of allende’s copper nationalization 49 and nations freely consider to be necessary or desirable with regard to the authorization, restriction or prohibition of such activities. 3. In cases where authorization is granted, the capital imported and the earnings on that capital shall be governed by the terms thereof, by the national legislation in force, and by international law. The profits derived must be shared in the proportions freely agreed upon, in each case, between the investors and the recipient state, due care being taken to ensure that there is no impairment, for any reason, of that state’s sovereignty over its natural wealth and resources.

The last two articles declare: 7. Violation of the rights of peoples and nations to sovereignty over their natural wealth and resources is contrary to the spirit and principles of the Charter of the United Nations and hinders the development of international co-operation and the maintenance of peace. 8. Foreign investment agreements freely entered into by or between sovereign states shall be observed in good faith; states and international organizations shall strictly and conscientiously respect the sovereignty of peoples and nations over their natural wealth and resources in accordance with the Charter and the principles set forth in the present resolution.

Why Was Copper Nationalized? North American copper mining corporations, in addition to appropriating profits from their investments in Chilean copper, appropriated a substantial part of ground rents from mineral deposits. Their earnings from Chilean copper were considerably larger than from similar subsidiaries in other countries. Chile only benefited from the part of copper surplus that was captured back from workers and employees by the state on behalf of Chilean society. During the 1960s, Chile needed to increase its overall exports, and among them, copper played a major role. US copper corporations operating in Chile did not sufficiently increase exports or investments, however, they increasingly appropriated copper surplus. This double process created a scarcity in foreign exchange, also called “external strangling,” which was one of the elements leading to the demise of the country’s industrialization process. Academic circles linked the need to add a new impulse to the industrialization process with the use of financial resources from copper surplus. Reports emanating from those circles supported the formation of a consensus at the political

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level leading to the unanimous approval of copper’s nationalization (Caputo, Galarce and Radrigán, 2003). The clamor in Chile concerning copper nationalization was a process that evolved over decades. The early demands for copper nationalization began in the 1950s when worker organizations and social movements incorporated this demand into their struggles. It went parallel to the many legislative changes that expressed Chilean interest in obtaining more resources for the country from copper exploitation. The clamor reached the highest levels of Chilean society and became one of the main measures included both in the Salvador Allende Presidential Program as well as in that of Radomiro Tomic.6 This clamor achieved its purpose with the unanimous approval of Copper Nationalization on July 11, 1971 by all Deputies and Senators assembled at the National Congress. Salvador Allende would refer to July 11 as the “Day of National Dignity and Solidarity.” In an historic speech (Allende, 1971b) to the Chilean people, President Allende declared the following: Today is the Day of National Dignity and of Solidarity. It is the Day of Dignity because Chile breaks free from the past; rises with faith in the future and starts the definite road towards its political independence.

Allende also called it the day of Solidarity because, as he was constantly stating, financial resources coming from copper should be utilized for the present wellbeing of the Chilean people and for that of future generations. For this to be possible, copper should reach its maximum level of processing within Chile, including copper manufactures. Copper surplus should be utilized to diversify the country’s productive base so as to overcome the primary exporting nature of the Chilean economy. President Salvador Allende’s Message to the National Congress Accompanying the Constitutional Reform Project for Copper Nationalization Salvador Allende’s message argued that because copper is the main Chilean basic resource, and because copper nationalization leads to

6 Radomiro Tomic was the Christian Democrat candidate who lost the presidency to Salvador Allende in the 1970 electoral process. A former Senator, he had been the main promoter of the ‘Chileanización del Cobre’ (copper chileanization) which

chile’s reversion of allende’s copper nationalization 51 the “Second National Independence,” it should be enacted within the Constitution. The message stated: When presenting this constitutional reform to the consideration of the National Congress, we are affirming that we are no longer willing to tolerate this situation and that from now on in our own Main Charter, we are establishing our decision that Chilean wealth should belong to Chileans and will be for Chileans who based upon them will build a new life and a new society. We know that all free peoples in the world will accompany us in this endeavor (Novoa, 1972).

Emphasizing and accentuating this statement he added: The circumstances cannot escape the honorable congresspersons’ perception, that only with very justifiable reasons has this Government opted for constitutional reform as a way to achieve copper nationalization. Indeed, powerful reasons convinced the Unidad Popular (Popular Unity)7 that this was the necessary and convenient road. In the first place, the importance that this nationalization has, for the free independent and sovereign existence of this country, demands that it be made, with all due solemnity and with the adoption at the highest conceivable juridical level, by the people acting in sovereignty as a constituting power who express their will. This is how we would like to emphasize and highlight, nationally and internationally, that we have a clear conscience of what this nationalization signifies. If the birth of political independence is marked by a Main Charter, we believe it to be indispensable that the birth of Chile to economic independence should also be registered in the Constitution.

Contradictions among National and Foreign Transnational Interests In an earlier speech (Allende, 1970), Salvador Allende analyzed the contradictions existing among transnational corporate interests (such as Anaconda and Kennecott, owners of the great copper mining operations in Chile) and Chilean interests. From them we highlight the following: Chile benefits from high prices for its natural resources. Foreign monopolies benefit from low prices by reducing costs at their manufacturing plant levels.

gradually transferred decision making power from the American copper companies to the Chilean State, precursor of the Allende Government ‘Copper Nationalization.’ 7 Coalition of leftist parties supporting President Allende.

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orlando caputo and graciela galarce Chile benefits the greater the degree of processing within the country. This integrates the national economy, creates higher employment, more industrial processing, higher salaries, more tax collection and more national procurement. Monopolies benefit when not transforming in Chile. Then the value that industrial processes, involving huge industrial and commercial activity and high salaries, add to the price of metal reverts to their own locales. We are interested in taking care of our reserves and making best advantage of them, as we need them. They are interested in taking as much copper as possible out of our country, at the lowest price and in the least time as possible.

The Beginning of Copper De-nationalization by a Simple Law during the Dictatorship With a simple law in 1981 approved by the four members of the Military Junta who wielded the legislative power, along with a consultation with the Constitutional Tribunal, designated by Pinochet himself, and with his signature, new minerals were handed over to private property. Copper nationalization had been, without any doubt from the political, economic and social points of view, the most towering event of the 20th Century in Chile. However, a simple law during Dictatorship buried at least four fundamental aspirations that were earlier fulfilled with copper nationalization (Caputo and Galarce 2008a): First: With this dictatorial act, decades of struggle of the Chilean people for copper nationalization were disregarded. Second: With this dictatorial act, there was an attempt to banish the figure of Salvador Allende and his message to integrate nationalization of the most important basic resource of the country into the Constitution. Third: With this dictatorial act, there was an attempt to annul popular sovereignty that had become solemnly elevated to the highest conceivable juridical level. That is to say, at that level which Constituent Power is sovereign, the people had Copper Nationalization integrated into the Constitution by unanimous decision of the National Congress. Fourth: With this dictatorial act, mineral deposits were handed over as property to private hands, contradicting the Constitution that specifies “the state has absolute, exclusive, inalienable and non-prescriptive domain over all mines.”

chile’s reversion of allende’s copper nationalization 53 Law 18,097 known as the “Constitutional Organic Law of Mining Concessions,” had been deemed unconstitutional8 but was imposed under the Dictatorship. It was developed by José Piñera9 and Hernán Büchi, and transformed mining concessions into “full concessions” (Piñera, 1982). The latter are defined with the same and with even better conditions than those of private property. This is how deposits of copper, gold or other minerals, or water, become the private property of those who obtain such concessions without having to pay for the value of the resources in those deposits.10 The difference is that deposits designated as private property end when the resources in those deposits are exhausted. Full concessions, however, allow for the trading of the resources in those deposits. An example was the sale by EXXON (one of the main North American corporations) of La Disputada de Las Condes mine, where part of the sales price corresponded to the value of the mineral deposit which had cost them nothing. This unconstitutional law that turns mining deposits into private property is a primary incentive for large transnational mining corporations. These corporations then are given the opportunity to obtain not only normal profits from their capital, but also “mineral rent.” That is to say, the value of copper and gold in the mineral deposits is turned into extraordinary gains. Attendant tax legislation permits them to deduct their gains through several items all of which definitively allow them to pay extremely reduced tributes.

8 As they could not modify the Constitution due to the strong popular social and historical support behind nationalization, they invented a law at the constitutional level in order to twist the text and the intent of the Constitution. Prominent professors of constitutional and mining law have proven the unconstitutionality of this law. 9 Former Mining Minister during the Dictatorship and brother of the current Chilean President. Both are members of one of the most powerful economic groups in Chile. 10 Prior to full concession, what had been granted was the use (whether paid or not), but not the property, of the mineral deposits. By adding the word ‘full’ to the law and rule, concession becomes equivalent to property with all its characteristics. In other words, full concession allows foreign companies to exploit the mineral deposits till depletion. Before full concession they could exploit minerals without paying mineral rent. Now, those who have full concession can also sell or lease out the mineral deposits. It is quite common that one company holding full concession of a mineral will lease the mineral deposit for its exploitation to another company of the same investment Group, charging a rent proportional to the value of the mineral deposit. If a deposit is calculated to last twenty years, yearly rent is one twentieth of its worth.

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During the 1980s, foreign mining corporations invested very little in Chile. They understood that the Dictatorship constantly risked being overturned by reformist or revolutionary movements. Mining corporations were bearing in mind what Radomiro Tomic had publicly stated: Not even in the poorest African states could such laws prevail, so contrary to national interests and to the course of history. They cannot guarantee the first of all demands: stability. They will not prevail in Chile! Sooner rather than later, copper will again be Chilean (Tomic, 1988: 22).

Radomiro Tomic declared that the Constitutional Organic Law of Mining Concessions that enabled copper de-nationalization was as great a blunder as Chile’s devaluing of Patagonia. Just as it was an error for Chile to have considered Patagonia to be worthless, Tomic argued that the assumptions being wielded to support the de-nationalization of the largest and best copper reserves in the world were totally false and hopeless. Furthermore, Tomic pointed out that the procedures used to get the Constitutional Organic Law of Mining Concessions negotiated and approved were done in secret. Tomic lambasted the Dictatorship’s Mining Minister, José Piñera, for this gift of guarantees and privileges offered to national and foreign transnational exploiters of Chile’s most valuable resource. He described how the legislation was irrevocable, without deadlines, un-modifiable and clearly in opposition to the best interests of Chile. He deplored the devaluation of Chile’s important mineral deposits and dreaded the value of future payment flows to Chile. Radomiro Tomic reiterated, in his statement “Who Controls Copper, Controls Chile” (Tomic, 1984), that unacceptable extremes had been reached by the Dictatorship with its imposition of the Constitutional Organic Law of Mining Concessions: From here onwards, it will not be the Chilean State but foreign interests – mainly Chilean competitors in all phases of the mining and industrial processes – who will have the decision making power over Chilean copper production and commercialization. CODELCO11 will become cornered. How to deny that who controls copper controls Chile?

11 Corporación del Cobre (CODELCO) is the public enterprise which took charge of the nationalized copper companies corresponding to what is called the Greater Copper Mining.

chile’s reversion of allende’s copper nationalization 55 Tomic emphasized that the “Rule of Full Concession” inexistent in any other legislation in the world, was absolutely irreconcilable with Chilean policies regarding copper. For “Full Concession” meant that the “Full Concession holder” could proceed as it wished, anytime, with any partners it chose, to take these rights granted with Chilean mineral deposits free of charge. And then to sell them, offer them for lease, transfer or trade them anyway they wanted. Copper De-nationalization: The Biggest Political and Economic Corruption of the 20th and 21st Centuries With the imposition of the Dictatorship starting on September 11, 1973, Chile’s main social, economic and political achievements of the 20th Century started their involution. Copper de-nationalization has been supported and made effective by the Concertación12 Governments that followed. A great part of “Chile’s Salary” is again in the hands of foreign companies. Enterprises nationalized by Salvador Allende used to control 100 percent of Greater Mining production in Chile. Now they participate in approximately 30 percent of copper production. Big transnational mining companies now control 70 percent of production, mainly through new companies. They control formerly unexploited mineral deposits even though information about the resources has been available since the Allende period. These deposits have been handed over with similar, or even better, rights and privileges attendant than those of private property. Rather than increasing copper transformation in Chile and diversifying its production, what has been increased is the production and exporting of copper concentrates (with only 30 percent copper content) for processing abroad. Due to a mistaken economic policy, rather than diversifying production as sustained by Salvador Allende, the primary exporting nature of the Chilean economy has intensified. The huge foreign exchange resources generated by copper have severely decreased the dollar exchange rate, causing the loss of competitiveness in other productive sectors. It has also meant the loss of

12 Concertación por la Democracia, the coalition of parties that defeated the dictatorship and governed up to 2010.

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competitiveness of enterprises producing for the national internal market due to the decrease in the price of imports. In 1992, at the beginning of the Concertación governments in Chile, a 1987 recipient of the Nobel Prize in Economics named Robert Solow was invited to the Universidad de Chile. He is one of the most outstanding contemporary theoreticians of neoliberalism. He was awarded the Nobel Prize for his work on “Growth Models,” among them, a growth model based upon non-renewable basic resources. Many Chilean economists participated in his Conferences at the Universidad de Chile. Among those participants were several of his former students in the United States, who are now well respected in academia, or were Concertación Ministers at different state institutions. Robert Solow, even as an un-orthodox and pragmatic neoliberal economist, had to acknowledge the paradoxical results of copper denationalization and how it reversed what was previously nationalized by Salvador Allende. Here are portions of his statement proposing a more rational productive diversification of the Chilean Economy: After traveling 10,000 km. to be a speaker at this encounter, I could not possibly choose a subject of restricted interest. What is called for is to address a subject of long term interest to the Chilean economy. Doubtless, this country faces short-term problems… But I wish to refer to longer term problems of enormous transcendence to Chile and its economy that relate, not to a two to five year temporal horizon, but to two to five decades. Chile is lucky to have a valuable base of natural resources as a starting point. Among the non-renewable resources, copper and nitrate can be highlighted while among the renewable includes forests and fisheries. It would be easy for Chile to opt for playing a primary producer role and leave the advanced manufacturing industry to countries like Taiwan or Japan, which are unfortunate in that they lack natural resources to exploit. But that would not build a good future for Chile. In part this would be due to the fact that natural resource exploitation could not provide enough good jobs for the population of the country. It would also be partly due to the fact that the primary exporting role constitutes a risky occupation. This is why the long term issue for Chile consists in utilizing its resource base in an intelligent way while it turns into a more versatile and diversified economy. The main message I want to convey to you is that a formula of that type can be the best way for Chile to transit from being mainly a primary resource producer and exporter to become a country with high industrial productivity, or at least to an economy firmly based upon industry, successful regarding its competitiveness and also successful as a society (Solow, 1992).

chile’s reversion of allende’s copper nationalization 57 In order to fully understand Solow’s recommendations, it must be understood that income generated by productive activities, after discounting the costs of intermediate products and services utilized, are distributed as follows: salaries to workers; rents generated by natural resources to the owners of those resources; and profits to the owners of capital. In Chile, as we shall see, under the umbrella of an unconstitutional norm, copper, gold, silver, and molybdenum are transferred to private hands, mainly to foreign investors allowing them to appropriate both mining rents and profits. In February 2001, Robert Solow inaugurated the “III International Meeting of Economists” in Havana, Cuba. We pointed out to him that in our country, what was being implemented was precisely the opposite of his conference recommendations a decade earlier. His verbal comments were as follows: What I can remember of my observations during my visit in Chile and of some of the conversations I held there is that some people forgot the basic fact that the huge Chilean copper deposits are and should be property of the Chilean people. They should be used in the best possible way in order to accelerate the growth of the country. Of course this does not mean that Chile has to exploit its own copper deposits. That could end by being the best solution. But if there are foreign financial resources that can be invested, the surplus generated by those investments can be captured. What I mean by this is that there is no excuse to give away resources that belong to Chilean people and especially, or in that same measure, to transfer them within Chile either. Instead, the total value should be used in the benefit of Chilean people. Chile must capture its mineral rents.

What was happening in Chile was difficult for many to believe. The results of copper de-nationalization were being downplayed and kept somewhat concealed from the eyes of the world. Late in 2006, Professor Noam Chomsky visited Chile and commissioned University Professor Germán Westphal, a Chilean academician, to request from us information regarding the results of copper nationalization. Responding to this request we sent him our article ‘Desde la Nacionalización del Cobre por Salvador Allende a la Desnacionalización del Cobre en Dictadura y en los Gobiernos de la Concertación’ [From Salvador Allende’s Copper Nationalization to the De-nationalization undertaken during the Dictatorship and under the Concertación Governments] (Caputo and Galarce, 2006). We had prepared this document for the 35th Anniversary of Copper Nationalization on July, 11, 2006. Professor Westphal’s reaction of great surprise was expressed as follows:

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orlando caputo and graciela galarce … I have just given it a quick reading and can only say that the indignation is such that I can hardly concentrate enough to write these few lines. I skimmed through it, skipping lines. What you denounce is simply incredible, but what is most incredible is how these facts are hidden from public opinion.

The Concertación Program: National Autonomy and Sovereignty Over Copper The Concertación Government Foundational Program of 1989 (Concertación, 1989) sustained precisely the contrary of what has been done during the Aylwin, Frei, Lagos, and Bachelet governments. This program includes: “The right and duty of implementing a Chilean copper policy to develop the sector,” and to obtain “more fiscal resources preserving national autonomy and sovereignty in the management of resources.” With the guarantees implied in the Foundational Program, and the proposal of national autonomy and sovereignty over copper, the Chilean citizenry voted against the Dictatorship and supported the Concertación and its Foundational Program during the electoral processes. What the Concertación Foundational Program stated is the following: 1. The defense of the national mining patrimony 2. Preservation of the autonomy and sovereignty over copper 3. The regulation of the rhythm of the Chilean copper production expansion 4. Stabilization of copper prices in foreign markets 5. The search for the most appropriate transformation level for mining products 6. The dynamic development of CODELCO 7. The reinforcement of ENAMI13 in the support of small and medium sized miners 8. Foreign investment adequate to national development requirements

During Concertación governments, what has been done has been the opposite of what was stated in each one of the points included in the “Foundational Program.” Systematically, starting the mid 1990s, from many documents on copper we have developed with a certain detail and with the necessary statistical information, the following conclusions can be drawn: 13 Empresa Nacional de Minería (ENAMI) is the public sector company promoting and supporting small and medium sized mining. It has smelting plants and refineries.

chile’s reversion of allende’s copper nationalization 59 The defense of national mining patrimony Rather than undertaking the defense of the national mining patrimony, the Concertación governments have applied the anti-constitutional law emanating from the Dictatorship regarding copper, which recognized the private property of copper deposits (Government of Chile, 1982). They have also perfected the concept of “Full Concession” and other aspects of mining legislation benefitting foreign corporations with new incentives. During the first Concertación governments, the decrease in taxes on mining companies and the reduction of the tax base were approved. Also during those first governments, laws were dictated which facilitated the sale of mineral deposits among private companies. In addition, an authorization was issued for CODELCO to hand over the non-exploited copper deposits which used to constitute CODELCO copper reserves to foreign companies. The Free Trade Agreement (FTA) with Canada signed by Eduardo Frei Ruiz Tagle (1994–2000) intensified world copper overproduction. Chilean trade with Canada is almost negligible. Canadian investments in Chile are huge, being the second largest after the United States. They are mostly concentrated on the mining sector. This is why the FTA is geared towards promoting, protecting and benefitting Canadian investments in Chile. Canadian company ownership over Chilean mines is amply protected. In the FTA with the United States,14 the text of the FTA with Canada was perfected, recognizing Chilean copper, gold and other minerals deposits as part of foreign investments. American Corporations can deduct as capital depreciation the mineral deposit reduction due to its exploitation so as to reduce the taxable revenues (Government of Chile, 2004). These treaties are so disgraceful that they even establish a principle that if Chile proceeds to nationalize the companies in accordance with its national interests, it must pay at market prices the mineral deposits that were first handed out without cost. The discussion of this Treaty was initiated during the Aylwin government and continued during the Frei Ruiz-Tagle government. It was approved during the Lagos government and finally was promulgated by President Lagos midway through his mandate. 14 The FTA between Chile and the United States entered into force January 1, 2004.

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In 2004 and 2005, the majority of society was posing the need for a royalty to capture part of the mining rent or the value of the mining deposits. The Lagos government caved in to the pressure from foreign corporations and right wing political parties and presented a project which consisted of a simple additional five percent tax on revenues (Ministerio de Hacienda de Chile, 2005). This tax was misleadingly presented as a “royalty.” The reality is that once again the unconstitutional Pinochet legislation was recognized because the false royalty guarantees foreign corporations their private property of Chilean copper deposits. Moreover, in order to approve the additional five percent tax, the prior existing tax was reduced by seven percentage points. Both are calculated over different tributary bases. It is probable that in reality, the total fiscal collection received by the state from foreign copper corporations, including the misleadingly labeled “royalty,” is less now than it used to be under the prior tributary regime. This false “royalty” caused Chileans such indignation that President Ricardo Lagos will now go into History as the President who crowned the copper de-nationalization that had been nationalized by President Allende. Instead of defending the national mining patrimony as stipulated in the Concertación Foundational Program, a large part of the mining patrimony has been handed over as private property to big transnational mining companies. Preservation of the autonomy and sovereignty over copper Rather than preserving the autonomy and sovereignty over copper, the Concertación governments stimulated and promoted foreign investments in the mining sector, so much so that this sector comprises the majority of foreign investments. Additionally, as can be easily deducted from statistics published by the Comisión Chilena del Cobre (COCHILCO), foreign investments in the mining sector were mostly realized during the Concertación governments (COCHILCO, several years). The Concertación Governments accepted and promoted the proposals of the transnational mining corporations that led to the ChileanArgentinean Mining Treaty. In an historical perspective, this was by far the most serious and transcendent event to accelerate the natural resource de-nationalization initiated by the Dictatorship. It was a

chile’s reversion of allende’s copper nationalization 61 consummate example of neoliberal fundamentalism. The ChileanArgentinean Mining Treaty covers a huge territory stretching over a large part of the Andes on both sides of the border. It protects the big mining transnational corporations and its administration is autonomous regarding either Chilean or Argentinean jurisdiction. In the event of a dispute, Chile has accepted to be taken to an international tribunal by those transnational corporations (Caputo, Galarce, Radrigán, 2003). This Treaty was a totally new phenomenon in contemporary history. It constituted an additional step in the global dominance of capital over society and nature. It is both the most serious expropriation of natural resources in contemporary times and the pillage least well known to the world’s citizenry. From 1974 to 2005, US$ 19.9 billion was invested in the mining sector, of which, US$ 17.6 billion was invested in the 1990–2005 period (Government of Chile, several years). That is to say, close to 90 percent foreign investments in the mining sector happened during the Concertación governments. Rather than “autonomy and sovereignty,” what such enormous foreign investments in copper achieved was the de-nationalization of the main wealth of the country. With Copper Nationalization, the Chilean State controlled 94 percent of Chilean copper and CODELCO controlled 100 percent of the Great Copper Mining. Currently, close to 70 percent is controlled by private corporations, especially foreign corporations (COCHILCO, 2007). Chile has even lost “autonomy and sovereignty” over decisions on how much copper should be produced. Regulation of the rhythm of Chilean copper production expansion With the introduction of production from foreign mining companies, copper production grew spectacularly. Meanwhile the expansion rhythm of Chilean copper production was unregulated. It took Chile 90 years to produce 1.6 billion metric tons of copper. In six years, from 1990 to 1996, production increased by more than 3.1 billion tons. That is to say, in only six years copper production increased by an amount similar to that which took 90 years in being produced. Starting in 1995 and up to 1999, the increase in copper production in Chile was of 1.9 billion tons. At the same time, global copper demand (the consumption of more than 140 countries) increased by 1.7 billion tons and world copper imports increased by 1.3 billion tons. Chile

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increased copper production by 148 percent in relation to the increase in world copper imports. With the increase in its copper production, Chile covers 100 percent of the increase in world copper imports and additionally produces an amount of copper that exceeds worldwide copper needs by 48 percent. This overproduction increased world copper stocks through 2003 and remains in several warehouses without the possibility of being sold (Caputo and Galarce, 2008a). Stabilization of copper prices in foreign markets Rather than stabilize copper prices in foreign markets, the Concertación Governments stimulated world copper overproduction created from Chile by foreign corporations. This caused an extended collapse of prices that lasted approximately eight years. From 1996 to 2003, copper’s price stood at 82.4 cents to the pound and in several of those years the price was close to 70 cents to the pound. Losses for Chile due to exports and to the drastic decrease in revenues that CODELCO provided the state during 1996 through 2003 have been huge considering that the average copper price for 2005 was US$ 167 cents to the pound. The average annual price up to July 30, 2006 was US$ 275.3 cents to the pound. The fact that the annual average price from 1960 to 1995 measured in 2005 exchange rates was US$ 183.6 cents to the pound, should also be taken into consideration (COCHILCO and CODELCO, several years). The collapse of copper prices for a few months brought them near to US$ 60 cents to the pound. Under those circumstances there was recognition that Chile had been overproducing copper, that is was necessary to decrease production, and additionally that CODELCO had to form a regulatory stock. The search for the most appropriate transformation level for mining products Rather than searching for the most appropriate transformation level for mining products, an involution has taken effect in copper exports during the Concertación governments, moving from refined copper exports back to copper concentrates exports. In all governments prior to the Dictatorship, the fundamental national task to be undertaken was determined to be the decrease of copper concentrate export and the advancement towards limiting

chile’s reversion of allende’s copper nationalization 63 exports only to refined copper. Copper concentrates only contain approximately 30 to 31 percent copper, and some gold, silver and molybdenum. The rest (over 66 percent) is simply soil or inert matter. In comparison, refined copper contains 99.9 percent copper. From 1990 onwards, CODELCO refined copper exports are approximately 90 percent of all CODELCO exports (CODELCO, several years). However, foreign corporations have had a totally different behavior. In 1990, private mining companies, particularly foreign ones, exported 413 thousand tons of copper. In 2004, their copper exports increased to over 3.6 million tons, of which the largest share (1.9 million tons) are copper concentrate. Therefore, copper concentrate amounts to 52.4 percent of total private company copper exports. In the last few years, private company copper concentrate exports constituted 90.5 percent of total copper concentrate exports from Chile. This involution from refined copper to copper concentrates due to copper concentrate exports by foreign companies, becomes even more evident if the participation of these corporations and CODELCO participation in total copper concentrate exports from Chile is analyzed The dynamic development of CODELCO Rather than aiming at the dynamic development of CODELCO, during the Concertación governments CODELCO loses clout, not only regarding Chilean production, but also in relation to world markets. CODELCO used to control 100 percent of Great Copper Mining production and exporting. In the last few years, CODELCO has decreased its participation to levels closer to 30 percent. Regarding this loss of weight in international markets, in 1996 we warned: In Chile a paradoxical and tragic situation is developing. As a country it increases its participation as copper producer and exporter. However, mining companies of its property, CODELCO and ENAMI, lose their participation to the gains of copper transnational corporations (Caputo, 1996).

The estimations made in 1996 have been confirmed. Total Chilean copper exports corresponded to 26 percent of global copper exports in 1990. In 2005, Chilean copper exports represented 47.5 percent of global exports. On the other hand, CODELCO that in 1990 represented 18.7 percent of world exports decreased to 14.7 percent in 2005.

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Chilean copper exports from foreign companies represented in 1990 only 6.9 percent of world exports. In 2005 copper exports from companies operating in Chile have increased in such an extraordinary way as to represent 31.5 percent of global copper exports. All this means that rather than opting for the dynamic development of CODELCO, the increase in power and competitive capacities of big copper transnational corporations competing with CODELCO was supported from within Chile. Some CODELCO divisions have shown losses before taxes and others have shown losses after paying the constitutional mandatory ten percent of their sales values to the Armed Forces. The harm caused to CODELCO by copper overproduction has created the conditions used as powerful arguments by those calling for its privatization (Caputo, Galarce and Radrigán, 2003). The reinforcement of ENAMI in the support of small and medium sized miners Rather than reinforcing ENAMI in support of small and medium sized miners, these were severely impacted by the radical price decrease from 1996 to 2003. In 1996 and 1997 the price fell close to US$ 100 cents to the pound of copper. Many small enterprises collapsed because their production costs were higher than US$ 100 cents per pound. From 1998 to 2002 average prices were close to US$ 70 cents to the pound. At this point, crisis spread and small and medium sized enterprises closed down. From 1990 to 1998 total copper sector employment in Chile decreased by 26 percent. Small sized copper enterprises were the worse impacted and they were where employment decreased by 65 percent. Prior to 2003, as a result of low copper prices, ENAMI had huge losses for the first time. To help solve these financial problems, ENAMI had to sell the Ventanas Refinery to CODELCO, and was forced by the government to do so. With more recent copper prices, the small and medium sized copper mining sector has reactivated but not because of any state policies. Foreign investment adequate to national development requirements All prior Concertación Foundational Program points, as analyzed above, categorically demonstrate that adequate national development requirements were not met because of foreign investment. In reality, investments made by big transnational mining companies in the

chile’s reversion of allende’s copper nationalization 65 Chilean copper industry have caused great damage to Chile’s economy and society. They appropriated Chilean copper deposits. They created in Chile a global copper overproduction that unleashed a deep and extended fall in copper prices. They have generated a return to preindustrial exports in shifting from refined copper to copper concentrates. With the support of the Concertación governments they have strengthened from Chile their participation in world copper production and markets, while CODELCO has had its own participation diminished. They have drastically impacted the small and medium sized sector and ENAMI. They generate little employment in their new projects and since they displace small and medium sized companies, overall employment diminishes. Copper De-nationalization and the Decrease of Salary Participation in GDP Global distribution of production and income in Chile from 1970 to 2006 As we have pointed out earlier, Gross Domestic Product (GDP) and its equivalent in new generated income is distributed as workers salaries, rents from natural resources and surplus corresponding to capital profits. GDP=Salaries + Natural Resources Rents + Capital Profits This income distribution is fundamental in Economical Sciences. In 1817, David Ricardo, in his famous work Principles of Political Economy and Taxation, stated that Product “is divided among three parts within the Community, as follows: the owner of the land, the owner of capital and workers.” Ricardo categorically insisted in that “this distribution is the fundamental issue in Political Economy.” Currently this kind of product distribution among different social classes is not statistically utilized. Instead, individual or family income distribution is almost exclusively utilized, by which income origin of the different social classes is hidden. In Chile, salary participation during the Salvador Allende government increased considerably, to over 50 percent of GDP. With the Dictatorship this distribution was reduced substantially to levels lower than 40 percent and in some years near 30 percent. During the Concertación governments’ initial years, salary participation in

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GDP improved, reaching levels close to 40 percent at the end of the decade of the 1990s and the beginning of the 2000s. Starting in 2003, salary participation in GDP began decreasing drastically while operational surplus (company profits) participation began increasing substantially. The new Central Bank statistical series show that salary participation in GDP decreased from 41.2 percent in 2003 to 34.9 percent in 2006. Company surplus increased from 46.7 percent to 53.7 percent during those same years. Salary participation would be quite less if the salaries of company executives were deducted. Moreover, there is broad salary dispersion such that a reduced group of workers receive high remunerations while a large majority obtains very low remunerations. Company surplus or gains incorporate the income of self-employed workers. However, surplus or gains are heavily concentrated in big corporations with strong foreign presence. This kind of surplus concentration is considerably higher in natural resources exporting companies and particularly in the copper industry sector companies where it is most intense in foreign corporations. In developed countries, salary participation in GDP is over 60 percent and in some countries over 70 percent. In Chile, as we have pointed out, during the Dictatorship in some years it went below 35 percent and in the last years of Concertación government it again decreased considerably. In 2006 salary participation in GDP fell under 34.9 percent. Salary participation in GDP in exporting sectors has been substantially lower and has decreased considerably in the last few years. Production and income distribution in the Chilean mining sector Salary participation in the mining sector in 2003 was 18.8 percent, which is considerably lower than the overall salary participation in the country. With the strong increase in copper prices, salary participation in GDP has drastically decreased. It went to 11.8 percent in 2004 and to 5.4 percent in 2006. The increase in copper prices allowed the already high participation of company surplus (gains), which stood at over 80 percent in 2003, to go even higher to 94.4 percent in 2006. The gap in income distribution between salaries and mining company gains within the copper mining industry is even worse due to the fact that in the overall mining sector, non-metallic mining is also included. That means that nitrate and coal, among other subsectors, are included.

chile’s reversion of allende’s copper nationalization 67 Foreign investment earnings in Chile and in copper According to the Central Bank, foreign companies transferred more than US$ 25 billion abroad in 2006. This amount is equivalent to 17.2 percent of GDP and also to five times the Education Ministry budget and to 84 percent of all Chilean State ministry budgets for 2007. This amount is so elevated that it is 2.5 times the Bolivian GDP, it is higher than the GDP for Bolivia and Paraguay added together, and higher than the GDP for Uruguay. It is comparable to the NASA budget in the last Space Shuttle Program. Of the US$ 25 billion that foreign companies sent abroad in 2006, 20 billion corresponded to remittances from big transnational mining corporations operating in Chile. The increase in remittances is mainly due to the increase in copper prices as of September 2003. Remittances and the huge decrease in Product when transforming GDP into Gross National Product (GNP) which is what really stays in the country There are two main economic categories to measure a country’s production in a given period: Gross Domestic Product and Gross National Product. In order to roughly obtain GNP, revenues and interests corresponding to foreign capital operating in Chile are to be subtracted from GDP. Revenues and interests from Chilean capital invested abroad are to be added to that result. In Chile, during the last few years, GDP in absolute terms has increased mainly due to copper price increases, reaching US$ 146 billion in 2006. This is the figure highlighted by government authorities and magnified when pointing out the strong growth in GDP per capita. This information is incomplete and forms part of misleading propaganda. Increases in GDP and GDP per capita can be explained due to the fact that export figures grow mainly because of copper price increases. However, the value of exports leaves the country as revenues and interests of foreign investments (US$ 25.05 billion). On the other hand, Chile receives US$ 5.65 billion as revenues and interest from capital belonging to Chilean economic groups invested abroad, from Pension Fund Administrators (AFP) investments and from Government reserves invested abroad. GNP for 2006 is reduced to US$ 126.44 billion when compared to the US$ 145.84 billion in GDP for that same year (Banco Central,

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several years a). As we have explained, it is GNP that reflects what remains in Chile. In 2006 the increase in what leaves Chile turns the positive GDP growth of 4.2 percent into a negative GNP growth of -3.3 percent. The simple average growth rate of GNP from 2004 to 2006 is only 1.3 percent. With the US$ 25 billion in foreign investment revenues, salaries of all salaried workers could practically be doubled. Allende was so right when he labeled copper as “Chile’s Salary.” Foreign corporations have taken virtual ownership of “Chile’s Salary.” Foreign Companies Benefit Most with the Current High Copper Prices When they induced overproduction, transnational copper mining corporations operating in Chile benefitted their subsidiaries abroad because of low prices for copper as a basic resource. Now, these same mining corporations benefit from high copper prices drawing fabulous revenues from their mines in Chile. With current high copper prices and with the government free market policies, US dollar exchange rates fall, driving into bankruptcy other exporting companies and businesses producing for the internal market. This is how unemployment and social problems exacerbate. Simultaneously, and paradoxically, the expropriation of “Chile’s Salary” and the current elevated copper prices mean that most benefits go to big private mining companies, mostly foreign. In the last few years, foreign companies’ profits grew exponentially, reaching over US$ 25 billion in 2006, of which US$ 20 billion corresponded to “Chile’s Salary.” Foreign Mining Companies Earnings in 2006 are Higher than Total Foreign Company Investments in the Mining Sector in the 1974–2005 Period The information is categorical. Earnings in a single year, 2006, are higher than total foreign investments in the Chilean mining sector during 32 years according to various sources from Banco Central de Chile; COCHILCO; and the Government of Chile.

chile’s reversion of allende’s copper nationalization 69 Moreover, to the gross foreign investments, refunds and capital withdrawals need to be subtracted, all of which were sent abroad. According to the Committee for Foreign Investments, remittances for these concepts go beyond US$ 10 billion, an amount that needs to be subtracted from gross investments. Net investment in the Chilean mining sector during the 1974–2005 period, therefore, amounts to US$ 9.8 billion. No matter how hard it is to believe, this is how profits in the single year 2006 doubled net foreign investments from the mining sector during the 32-year 1974–2005 period. We have called this scandal “The Robbery of the 20th and 21st Centuries.” Concertación parties and the right wing parties are accomplices in this robbery together with the Chilean and Catholic University academic centers and with neoliberal economists. Chile Did Not and Does Not Need Foreign Capital in Copper Mining Copper nationalization proved it during many years. In spite of denationalization, CODELCO and ENAMI continue to prove that foreign capital is not needed in Chilean copper. In the last few years, politicians and economists issue opinions on how best to invest the copper surplus captured by the state. Most surpluses originate in CODELCO. However, while they all voice their opinions on how to use these resources, none of them remembers that these resources are available to the Chilean State because Allende nationalized copper. By the same token, none of them mentions copper de-nationalization, nor the huge profits or ongoing expropriation of large portions of “Chile’s Salary” by foreign mining corporations operating in Chile. This silence is a partner in crime, a form of current corruption not only of people but a corruption at political and social levels. Chilean legislation allowing copper de-nationalization integrated into a single whole all the infamies of neoliberalism from the Pinochet Dictatorship through the era of the right wing and Concertación political parties. For the written media and for television, it is as if this great robbery did not exist. And it has been absent from President Bachelet’s Annual Messages to Congress.

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orlando caputo and graciela galarce The Organic Education Law (LOCE), the Constitutional Organic Law of Mining Concessions and Social Mobilizations

LOCE, the legislation privatizing Chilean education as well as the Constitutional Organic Law of Mining Concessions enabling copper privatization and de-nationalization are closely interrelated. Both were created during the Dictatorship and are based on the principles of neoliberalism and the social and economic model imposed on Chile. The “original sin” is that both of them were imposed under armed force, repression and the murder of many Chileans. It was said that this “original sin” would be redeemed when those who opposed the Dictatorship and the neoliberal economic model would agree to it. Currently not only have they not agreed to it, but those who opposed them, now manage it. However, the Dictatorship’s original sin as well as that of those who agreed to redeem it, sooner rather than later will be punished. LOCE (now called LGE) and the Law of Mining Concessions will be repealed with the pressure of social movements. The student’s slogan “Copper (prices) rocket high. Education rock bottom” blends, as is absolutely necessary, the struggle for the repeal of LOCE/LGE with the struggle to repeal the Mining Concessions Law and the struggle to re-nationalize copper. Copper re-nationalization has received a special impulse with the secondary students’ movement and with the extended and successful miners’ strike of the La Escondida mine in 2006, with the struggle and the combativeness of the workers of the CODELCO sub-contracting companies and with the triumph of workers of the forestry subcontracting companies in Arauco Province and their martyrs. Cooper re-nationalization together with a call for a general strike in CODELCO constituted the main areas of agreement for the Copper Workers Confederation created in June 2007 during the Machalí Congress. The Confederation integrates the unions of eighty thousand workers from copper subcontracting companies into the largest union in the country. Among others it includes workers from sub-contracting companies for CODELCO, Escondida, Collahuasi and Pelambres. The name that was chosen, “Copper Workers Confederation,” establishes the fundamental basis that they are copper workers and that they constitute a majority since sub-contracted workers more than double the number of staff workers.

chile’s reversion of allende’s copper nationalization 71 This new development in the Chilean union movement is led by young union leaders who link their struggle to serious problems affecting almost all workers throughout the rest of the Chilean population. The General Strike of the Confederation of Copper Workers constituted the first step to end an extreme form of exploitation in the contracting and sub-contracting companies’ system. Their struggle places copper re-nationalization at a new level, far more advanced than it had been a few months earlier. Conclusion: Overcoming Neoliberalism is of Utmost Importance in Order to Recover Chile’s Salary Severe losses and damages have already been experienced. Nevertheless, the importance of Chilean copper is such that it opens new opportunities to avoid further losses. At the very least, two main policy decisions need to be implemented. For starters, what needs to be overcome is the neoliberal fundamentalism of Chilean Government economic authorities who insist that Chile not influence world copper prices. CODELCO union leaders and bosses have to follow suit. Additionally, the Government needs to stick to market signals and to basic principles of economic theory by adjusting production levels to demand. The greater solution lies elsewhere. Chile must vindicate its proprietary rights over its natural resources that have been expropriated by foreign corporations and by an unconstitutional law. National interests must be protected and copper revenues must be placed at the service of social policies and the development of a competitive and efficient national industry that will process natural resources and, in particular, promote the production of refined and manufactured copper products, including those of high technology. Industrial development should privilege the production of equipment and machinery for the national mining industry and support regional development. At the same time, special attention should be assigned to the opening of new markets and the promotion of new uses for Chilean natural resources, and in particular copper resources (Caputo et all 2003). Chile needs to rescue the “Chilean Salary.”

CHAPTER THREE

CHILE: PERPETUAL TRANSITION UNDER THE SHADOW OF PINOCHET Roberto Garretón Introduction In order to understand the current political situation in Chile and the need for constitutional change, some historical references are necessary. Once independence from Spain was consolidated, and after a period of great instability, Chile managed in 1833 to establish a presidential regime as enacted by the Constitution. This governed the country from that year until 1925. A new Constitution was then enacted and kept in force until 1973. During those 140 years there were two civil wars, one in 1851 and one in 1891. And three international wars: the war against Peru and Bolivia from 1837 to 1839; the war against Spain in 1865 and 1866; and a second war against Peru and Bolivia between 1879 and 1884. However, there was only one institutional collapse, that of 1924. The overall time in which different elected presidents who normally concluded their mandate imposed state of exception (state of siege or extraordinary laws) did not go beyond twelve and a half years.1 It is true that the democratic standards prevailing in 1833, 1924 and 1973 were not those that can be demanded currently. Human rights compliance presented important omissions. Nevertheless, the political stability and the lack of real dictatorships2 that were enjoyed allowed for the emergence, during those 140 years, of a powerful illustrated middle class in the 19th century and a combative working class in the 20th century. This did not impede the occurrence of massacres and

1

Unpublished research by the author. The only dictatorship prior to Pinochet was that of General Carlos Ibañez del Campo from 1927 to 1931. 2

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atrocities, which are well recorded within our history. The levels of political participation increased rapidly and, in the 1960s and 70s, the peasant class emerged as a new political actor in Chilean politics. It is very possible that it was the Chilean political right that presented the best democratic record in the, by then convulsed, Latin American region. Chilean armed forces had lost since 1931 practically all the influence they had held historically. However, the fear due to the emergence of the peasant class, the triumph of the Cuban Revolution, the successful electoral results obtained by the Left, and the open political intervention from the United States, made the right wing parties totally abandon their prior acceptance of the democratic game. This led them to knock on the doors of the barracks. Then, in 1966 the two historically right wing political parties, the Conservative and the Liberal parties, merged with Nazi groups in order to found the National Party. Their doctrinarian and programmatic fundamentals proposed: 1) the instatement of an ‘organic democracy,’ a key concept within the Spanish version of fascism (1936– 1975); 2) ‘incorporation of the Armed Forces into national development,’ meaning their incorporation into Government; and 3) ‘defend freedom of work and private initiative as the only dynamic elements in the economic process,’ leaving for the state the sole role of ‘liberating private work from entanglements and bureaucratic obstacles, tributary excesses and from all forms of legal persecutions and destabilizations’ (Correa et all, 2001). This is when the current Constitution enacted in 1980 was initially designed. Three years later, in 1969, the same political right wing, with the support of fascist elements in the military, murdered the Commander in Chief of the Army, René Schneider, a true believer in democracy. This constituted the first terrorist act in Chilean history. The objective was to impede the Senate from ratifying Salvador Allende’s election in the polls. Four years later, in 1973, those who conspired and introduced terrorism in 1966 and 1969 gave Chilean democracy its final mortal blow, bombarding La Moneda Presidential Palace and establishing one of the bloodiest dictatorships in Latin America. The same day, 11 September 1973, Parliament was dissolved, the necessary states of exception were decreed, and the universities were disrupted. The most dramatic situation was the reaction of the Supreme Court of Justice who on that day proclaimed its ‘intimate complacency’ with the purposes of the Military Junta perpetrating the coup.

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The Pinochet Dictatorship 1973–1990 The Pinochet dictatorship integrally embraced the 1996 National Party Manifesto, seeking to establish that ‘organic democracy’ regime with military participation and a free market. But that was not possible in one of the most highly developed countries of all former Spanish colonies, a country with the longest record of democracy, rule of law, and social stability. Repression had to be merciless, and so it was, as has been universally recognized. The economic model had to be as cruel as the physical repression. In order to guarantee its success: social policies and public expenditures were reduced to next to nothing; national industry was destroyed; all prices fixed by the state for products of basic consumption were eliminated; and the main national resources were privatized, including copper which had been nationalized only two years earlier with a law approved unanimously by the then democratic Parliament. Unemployment during shock policies at some stages reached 25 percent. The social cost was supposed to be a ‘necessary cost to be paid’ for the abundance that would come some day. This whole foundational process was not tied to fixed deadlines. Pinochet used to repeat ad nauseam “this government has goals but no deadlines.” The actors in the process were the military, businesspeople, ‘apolitical’ technocrats, University of Chicago graduated economists, and fascist youth trained (contrary to the will of the Rector and the Chancellor) at the Pontifical Catholic University.3 They were all placed in official positions that in the times of democracy used to be covered by intellectuals and elected parliamentarians. As I have described elsewhere, human rights violations committed by the Pinochet dictatorship were ‘systematic’ in the sense that they were not heinous isolated acts, nor a manifestation of the brutality of perverse individuals. They were the exercise of policies designed by the state, with full impunity guaranteed for perpetrators. They were ‘institutional’ because all state institutions and state powers were committed to building a project designed to last forever. As committed to the project were all sectors of Chilean society that were allowed the right 3 Youth supporting the dictatorship were those who resisted the democratic students’ movement that in 1968 had demanded educational reforms within the Catholic University. Their leader, Jaime Guzman would be the main author of the Pinochet Constitution of 1980.

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to expression: executive, legislative and judicial powers, controllers, armed forces, police, prison system, foreign relations, communication media, financial and productive systems, co-opted unions, et al. They were ‘massive,’ considering the number of victims of politically motivated murders, disappearances, tortures, exiles, arbitrary imprisonment, etc. They were ‘integral’ because absolutely all human rights were violated: civil, cultural, economic, political and social. Finally, they were ‘permanent’ because they were perpetrated from the first to the last day during more than sixteen years.4 If there was any difference in human rights violations from the early days as compared to the last days, it was the intensity of the cruelty involved and the number of victims, but not their intentionality. It is therefore hypocritical to allege that those who thought, designed and executed the dictatorship project ignored the barbaric acts being perpetrated. There was no possibility that what they called ‘the grand feat of the military regime’ or ‘the Chilean transformation project’ could be installed within a democratic regime respectful of public freedoms. We were in fact dealing with a regressive and socially exclusionary project; economically ultraliberal; one that relegated the state to a mere subsidiary role and denied it resources; one impossible to modify (except with a consensus from its developers and beneficiaries) so as to maintain it perpetually; one strongly militarized; with strange structures and institutions lacking any democratic backing, such as the National Security Council; and one totally contrary to international cultural development and the political ethics of human rights. By no means is it a lesser fact that in its drafting, no single democrat participated.5 A new legal system was constructed by means of military communiqués, decreed-laws, Constitutional Proclamations and other such inventions emanating only from the dictator, his military and his technocrats. The legal system was characterized by the ‘militarization of justice’ with the transfer of ordinary justice to military justice, with 4 The last murder for political reasons was that of Jecar Nehgme, on 4 September 1989, four months prior to the end of the dictatorship. Nevertheless, police violence caused a substantial number of deaths until the very day that Patricio Aylwin took office. Up until this day, 20 years later, repressive laws embodied in the Constitution continue to allow crimes perpetrated by the police upon protesters. 5 Three constitutional lawyers of impeccable prior democratic trajectory innocently participated in the Drafting Commission for the New Constitution. They resigned shortly after. There was no space for them.

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military communiqués and other forms of ad hoc legislation. There was a ‘strengthened and arbitrary penal system’ which considered lawful conducts a crime. There was the ‘abuse of states of exception’ which were ‘reinforced’ and ‘vigorous’ (expressions the dictator used to describe them) which prevented the theoretically protective role of judges in the case of human rights abuses. And there was ‘guaranteed impunity to human rights violators’ whether because of the terror that stopped the population from denouncing them, because of the complicity of the judicial power, or because of the self granted amnesty laws. All of this included, needless to say, the legally baseless atrocities such as politically motivated murders, forced disappearances, tortures, arbitrary imprisonment, secret jails, centers of extermination, etc. In the political arena, all activity of this kind became banned and considered as criminal. The left wing political parties were decimated, the center parties did not speak up, and the right wing party voluntarily dissolved itself “because it had accomplished the purposes for which it had been created,” according to their President, Sergio Onofre Jarpa.6 In return, leaders and militants in the political right were integrated in full to the new regime. Jarpa himself became a most repressive Interior Minister during the period 1983–1985. Nevertheless, the total power of Pinochet and his military and civil followers had two adversaries that could never be controlled. In the internal front, the churches (and especially in a country where the majority are Catholics, the Catholic Church) jointly undertook an essential role in the protection of those being persecuted.7 In the external front, the international community, instead of recognizing Pinochet as the savior of the Western World, recognized him for his sinister, unscrupulous character. The Chilean people, though highly educated and politicized were totally neutralized from the first moment, as proven by military 6

Declaration in El Mercurio on 11 August 1983. On October 4th, 1973, less than a month after the military coup of September 11, 1973 that ended 140 years of republican existence, the diverse religious congregations (Catholic, Lutheran, Methodist, Baptist, some Pentecostal Orthodox Churches, The Great Chilean Rabbinate), founded the Committee for the Cooperation for Peace in Chile in order to offer victims of repression legal and humanitarian assistance. The institution had to be dissolved in 1975 due to the pressure exercised by the dictatorship. In its place, the Solidarity Vicariate dependent upon the Santiago Archbishop was founded and continued undertaking the same functions since 1 January 1976 until it dissolved voluntarily in 1992. Non-confessional organizations took longer to appear. 7

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Communiqué N° 1 which was made effective even before it became public. Citizens are forewarned that any act of sabotage on any kind of national activity, businesses, factories, communication media, or means of transportation, etc. those responsible will be sanctioned in the most drastic possible way, at the place perpetration, without any other determinations than what is determined by the authority of this case.8

Only in the last few years of the dictatorship was there some political tolerance, but the participation of democrats in the construction of the country was not allowed, not even regarding the norms that should have ruled the transition. The Constitution foresaw that the dictator would continue as such until 1990 in the worst case scenario or until 1998 if he won a plebiscite to be held in 1988 in which he would be the sole candidate. What was unthinkable for him happened, as he was defeated competing without a rival in the plebiscite, opening the way to “the eternal transition.” Given that the Constitution was made for its own author, now moving into the opposition, it became useless for him and even more useless for the democrats who would be coming into office. A set of reforms were therefore negotiated which in effect became more useful to the loser than to the democratic majority. The reforms tacitly respected three basic demands: 1) the rigidity of the free market economic system and the reduction of the historical role of the state; 2) respect for Pinochet who remained in office as Commander in Chief of the Army until 1998, the year in which he turned Senator for life on account of his former position as President of the Republic; and 3) impunity for the atrocities committed, including crimes against humanity perpetrated by civilians and the military during the dictatorship. Months later, the first democratic president since 1973, Patricio Aylwin, was elected. The Eternal Transition The struggle against the dictatorship happened within a very precise framework of objectives: the establishment of a fully democratic regime 8 As quoted in Garretón, Manuel Antonio, Roberto and Carmen. 1998. Por la Fuerza sin la Razón, (By Force and Without Reason) Santiago de Chile: Editorial LOM, September.

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to bring about truth and justice regarding the atrocious human rights violations perpetrated during over sixteen years. Evidently a democratic regime required the substitution of the Pinochet Constitution, and so it was always understood. This is why one of the first actions of the first transition government was the establishment of a Truth and Reconciliation Commission with a mandate to investigate and issue a report on the most serious human rights violations: murders, disappearances, deaths by torture. This excellent report known as the Rettig Report (Rettig, 1991), acidly criticized the roles played by the institutions since 1973, especially the Judicial Power. The report did not mention the perpetrators, of whom only a few names were known at the time, and the proofs did not have the consistency they now have. Neither the end of the dictatorship nor the Commission Report moved the judges into making justice and to sanction the worst atrocities in Chilean history. Judges additionally refused to respect international legislation that had just been incorporated into national legislation. Military justice continued operating as if the dictatorship were still in place. Only three of the usurpers’ crimes attained condemning sentences during the early nineties: the murder in Washington in 1976 of a former Chancellor during the Allende Administration, Orlando Letelier; a heinous crime in 1986 in which a military patrol intentionally burnt two youngsters, Carmen Gloria Quintana and Rodrigo Rojas, one of which died; and the case of the three persons linked to human rights defense in 1985: Santiago Natino, José Manuel Parada and Manuel Guerrero. All other crimes remained in impunity, as I manifested in an affidavit presented to the House of Lords, at the request of Human Rights Watch and Amnesty International. But not only did the judges not change anything with the end of the dictatorship. Pinochet civil supporters, parliamentarians and politicians in the business community, in the media and in the military, in spite of the Rettig Report and all other existing evidence, continued denying the atrocities of the regime of which they were part, claiming the ‘heroic’ and ‘homeland savior’ natures of the 1973 ‘epic.’ Unfortunately, and surprisingly, democratic authorities opted for a discourse of forgetting the past so as not to reopen wounds (which were in fact open) and to look towards the future. Thus, the official discourse of the political class was that the country had been reconciled; that the transition was successful; that an experiment in democracy was being attempted, as perfectible as any of them; that the military

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were subordinated to civilian authority; that the political right was back to being democratic; that the subject of human rights did not interest anybody, and furthermore, that the subject had been resolved with the Truth Commission Report of 1991. Everything changed on October 16, 1998 when the former dictator was detained in London as petitioned by the Spanish judges. From that day onward, magistrates started to process and to condemn the military engaged in crimes against humanity. At the same time, arguments against applying the self-amnesty law of 1979 and for the prevalence of international law started being developed. The courts also began considering forced disappearances as permanent abductions that went beyond the period of effect established by the amnesty law; that according to its own text, self-amnesty can only be granted subjectively to the authors, accomplices and accessories; and that international human rights and humanitarian law forbidding any form of pardon for the most serious crimes against the rights they comprise, supersedes national law. Thus, when the United Kingdom returned Pinochet9 to Chilean authorities, Chilean courts raised the argument of his parliamentary immunity as a senator, even though he was never elected but self-appointed. He was tried for a myriad of crimes, all of which delayed in excess this mega-trial against him, until death occurred before he was condemned. Lessons coming from Spanish and English judges added to their impact on Chilean judges by unveiling the falsehood of the transition. It became clear that reconciliation was only effective within the political class but not among the people, and even less among the victims and their families. The falsehood was that the transition was incomplete and in reality it had not even been started. The so-called democratic political right was in effect nowhere to be found because its leaders had reassumed their 1973 aggressiveness. They continued being attached to their leader; time had not erased the horrors of the past; and that human rights were, in fact, an issue of importance to the people. All surveys confirmed that a large majority of Chileans wanted Pinochet tried and condemned. Ever since the detention of the dictator, impunity, without being defeated, was notably wounded. Currently there are more than 350 9 What was most surprising was that President Frei’s Administration requested of the United Kingdom that the former dictator should be allowed to return to Chile so that he could be tried in the country where the crimes he was accused of had been committed; and providing the assurance that he would be effectively tried in Chile.

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judicial processes ongoing against 700 military, of which 85 are definitively condemned, many in prison with elevated convictions, but others with little punishment and still enjoying freedom. There have been 38 civilians (with no political importance whatsoever) prosecuted for minor crimes. But none of the former civilian repressors, many of whom are currently parliamentarians, have been sanctioned for their misused legal, political, moral or historical responsibilities. I maintain that impunity does not only mean the lack of a penal sanction. It has other many dimensions. Political impunity also means a lack of political sanctions regarding the ability to hold public positions for those who exercised such functions in a de facto repressive regime. Moral impunity means the continued self-consideration of the perpetrators as saviors of the fatherland. Historical impunity is what has only started being counteracted in recent years with real policies regarding the recovery of historical memory. As an example, even today the President of the Senate, Jovino Novoa, is a former Pinochet Vice Minister who was in charge of press censorship. The initial offers of Constitution substitution were never heard of again. It may be because of resignation or because of the legal impossibility of undertaking them as promised. It could also be due to the belief that the Constitution was adequate in order to promote economic growth, based on economic neoliberalism in Chile. What is clear is that the Charter imposed in 1980 and a substantial part of the fundamental laws enacted by the dictatorship are still fully in force. It is true that this Constitution has been subject to changes more times than all prior charters, but none of them has altered the hard core of the political and social project that was the aim of the disgraceful coup d’état of September 11, 1973. The same is true for the laws developing it, enacted since. Political forces linked to the dictatorship have not accepted returning to a democratic political system that adequately represents majorities and minorities. They have also not accepted allowing Chileans residing abroad the right to vote, since most of them were expelled by these same political forces. The multiethnic and multicultural nature of Chilean people remains unrecognized. The Constitution imposed by Pinochet remains unmodified in its most questionable and perverse contents. This is how the Chilean people have yet to recover their right to free determination. The 169 Indigenous and Tribal Peoples Convention in Independent Countries, adopted by the International Labour Organisation (ILO) General Council in 1989, has been ratified only now, in 2009, after

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nineteen years of unjustified postponements. This has fostered a great number of conflicts in the Araucanía Region inhabited by the Mapuche people, in what constitutes Chile’s greatest concentration of indigenous peoples. On the one hand, they have been repressed with illegitimate procedures, such as enforcement of a law aimed at repressing terrorism dating from the dictatorship. This law has been positively but insufficiently modified during the times of democracy. On the other hand, they have been direct victims of violent police repression. It should be added that police repression has caused three deaths among the Mapuche people, while their actions, irresponsibly labeled by the Government as terrorist, have only affected property such as fields, produce, agricultural equipment, etc. This has been strongly criticized within the international human rights realm. Some of the elements characterizing the current Constitution are: 1) its illegitimate origin; 2) its anti-democratic nature; 3) its nonrecognition of fundamental human rights; 4) its establishment and consolidation of the free market economic system and consequent failure to recognize the role of the state in promoting economic and social development, limiting it to a subsidiary role; and 5) its vocation for perpetuity. Illegitimate origin of the Constitution Regarding its illegitimate origin, the ideological authors of the Constitution were members of a Commission appointed by Pinochet a few days after the September 11, 1973 coup. At that time those authors with democratic credentials resigned. The Commission members’ proposal was submitted to an ad hoc State Council (whose members also were appointed by Pinochet) that approved it with some modifications. It was later re-studied by other Pinochet-supporting lawyers whose names are still ignored. Popular ratification of the Constitution came in the form of a plebiscite called for with 30 days notice; with no discussion whatsoever, during a state of siege, without an electorate registry and with liberties suppressed. Anti-democratic nature of the Constitution Regarding the Constitution’s anti-democratic nature, as reflected both in the text which was presented to a plebiscite as well as in what has leaked from the drafters’ discussions, the Charter limits political pluralism (original article eight) and establishes gross administrative

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institutional controls over popular political will. Among them: the National Security Council; the Constitutional Tribunal determining which ideologies are allowed; an autonomous Central Bank; and the prevalence of military authorities over the civil ones. Limits to democracy are manifested in the existence of different types of law. There are ordinary laws adopted by the majority within parliamentary chambers. Constitutional Organic laws for 21 matters of great importance include among them all the laws related to the organization of the state and its institutions, and which require a qualified quorum of four-sevenths of all parliamentarians. There are Qualified Quorum laws for 12 fundamental matters which require the majority of active parliamentarians, even though some of these require two-thirds. There are laws interpreting the Constitution, which require three-fifths of active parliamentarians. The quorums as they were established make the vote of parliamentarians supporting Pinochet indispensable for their adoption, modification or revocation. It must be highlighted that among the drafters (out of the three intervening instances mentioned above) there was no agreement as to the human right to vote for the election of authorities. Pinochet was the keenest to ensure the Constitution’s limiting nature. As an illustration of the way democracy was thwarted, statements emanating from two members of the State Council suffice: Universal vote has a conditioned and limited validity. It can be a useful instrument as long as it is employed without transgressing its limitations. The fundamental condition of such system is that the voters should only be required to issue judgment over matters within their own field of knowledge or over matters entirely understandable to them (Consejo de Estado, 1980).

Non-recognition of Human Rights Additionally the Constitution does not recognize the right of the Chilean people to ‘their right to free determination’ by which the people ‘freely establish their political condition and furnish their own economical, social and cultural development,’ as enshrined in articles 1 of the International Pacts of Economic, Social and Cultural Rights and of the Civil and of Political Rights. The imposition of a Constitution cast in stone as no other is the clearest demonstration of the violation of this right. There is certainly a good reason for this article to be the only article that is common to both of the cited Pacts.

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The human right to adequate living conditions, including the rights to housing, clothing and food, are also not considered even though all of them are contemplated within the Universal Human Rights Declaration and in other Pacts and Conventions that preceded the Constitution. The human right to Social Security is recognized in such a way that it would have been preferable if it had been left out. In effect it became regulated by Pinochet just a few days after the illegitimate plebiscite approving the Constitution. It became a matter of law of Qualified Quorum so that it can only be modified by another law of the same rank. This in effect means that in order to be modified it requires the acceptance of Pinochet supporters. The Constitution only established the enjoyment of ‘basic uniform provisions.’ That is to say, of minimal provisions. The Pinochet Social Security system is one of individual capitalization, which replaced the solidarity-based, pre-existing regime that was in place in Chile for over 50 years. All reform projects presented by the democratic governments have had to meet the demands of the right wing parliamentarians with very unsatisfactory results. The human right to health is mentioned but is not guaranteed, except in one of its manifestations: the ability to choose the health system believed to be best, whether it be the state or the private system. Access to health, to its promotion and to health actions are not covered by the legal appeals demanding violated rights, called the protection appeals (article 20). The Constitution enforces Neoliberalism The 1980 Constitution established the free trade economic system ignoring the role of the state in the promotion of the economy and social development and limiting it to a subsidiary role. What is curious is that in order to establish this right, human rights are raised as an argument, albeit not those of the dispossessed but rather those of the owners of capital. In effect, within the list of ‘constitutional rights’ included in the 1980 Constitution, some of them are not recognized as such by any international text relative to basic human rights. The expression ‘constitutional rights’ can be equated with that of ‘constitutional guarantees’ used in the 1925 Chilean Constitution, with the difference that in 1980 it was used to be able to omit the bothersome term ‘human rights.’ The following are some examples:

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A. The basic norm of what could be called ‘the right to be a businessperson without any competition or obstacle from the state’ is established in Art 19 N° 21 of the Constitution that grants all people: 1) The right to develop any economic activity that does not contravene the prevailing moral and public order or national security and that respects the norms that regulate them; 2) The state and its institutions will be allowed to develop entrepreneurial activities only if there is a qualified quorum law authorizing it. In such case, those activities will be subject to common legislation applicable to the private sector, without detriment of exceptions as established by a qualified quorum law for justified reasons.

This innovative constitutional guarantee is well protected – much more so than the rights to health, to work and to social security, for example – with the prohibition for the state and its institutions to develop ‘entrepreneurship activities,’ except with authorization by qualified quorum law. This means, except with the approval of the Pinochet-supporter minority in Parliament. In the event of the authorization of an entrepreneurial intromission of the state or of a public institution, the activities to be developed ‘will be subject to common legislation applicable to the private sector’ except if a law, also of qualified quorum, establishes an exception. Additionally, the day before the executive power was handed over to the first civil President, and due to the demands of the business community, an additional special legal appeal was created aimed at protecting only this single right that is known as an economic protection appeal. Numeral 21 that is being commented on appears inspired by the principle of subsidiarity of the state, which has been the pillar of the most conservative catholic tendencies, assigning associations of lower rank than the state the resolution of issues of lesser importance, while reserving for higher authorities the power to direct, oversee, repress, and control according to what may be necessary. As a consequence, the state cannot undertake roles which correspond to social organizations of lesser ranks, ignoring the historical role the Chilean State had in economic and social development since the twenties and especially since the forties of the past century. B. The human right to work is not contemplated in the Constitution which only recognizes the right to ‘freedom of work and its protection,’ adding that ‘each person has the rights to freedom of contracts and to

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freedom of choice of work with a fair retribution. The legal text places freedom of contracting (a concept closer to employment agencies) and freedom of choice of work at equal levels, and deals with them simultaneously. This dictate is based upon the fact that clause N° 3 forbids ‘compulsory affiliation to organizations or activities whatsoever as a prerequisite to develop a specific activity or work.’ C. Freedom of education is recognized as long as it means ‘the right to open, organize and operate educational centers.’ In other words it is also dealt with by a mere entrepreneurial outlook (article 19 N° 11). D. In spite of the former, article 19 N° 22 guarantees the ‘non-arbitrary discriminatory treatment that the state and its institutions are forced to have in relation to economic aspects.’ This norm seeks to forbid the granting of special benefits or the establishment of discriminatory burdens to any sector, activity or region. This precept is embedded in the doctrine as the adequate complement for N° 21 of the same article. E. Freedom of acquisition of all kinds of property not belonging to all peoples or that should belong to the Nation as a whole. In order to guarantee freedom of acquisition, a qualified quorum law may establish limitations for specific situations. F. Property rights are not recognized in any human rights texts. What these instruments recognize is a very different form of property rights (article 17 of the Universal Declaration of Human Rights adopted by the General Assembly on December 10, 1948; article 21 of the American Declaration of the Rights and Duties of Man adopted by the Ninth International American Conference, Bogotá May 2, 194810; article 21 of the American Convention on Human Rights11 adopted in San José, Costa Rica on November 22, 1969). Article 19 N° 24 of the Chilean Constitution is the longest of the entire Constitution, granting all sorts of guarantees to owners, making any possibility of expropriations that could become indispensable to the state for public interest reasons, extremely cumbersome. All expropriations must be authorized by law and the total price of the property must be cancelled before the property is handed over. It is the neoliberal system as established by the Chilean Constitution that has induced the Economic Commission for Latin America and 10 A historical declaration for having been the first International Human Rights text, seven months prior to the United Nations Universal Declaration on Human Rights. 11 This Convention creates the Interamerican Human Rights Court.

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the Caribbean (ECLAC) to publish a document recently that states that “unacceptable income and living conditions disparities persist in Chile, which will not be reverted only with higher growth indicators and with a better use of social expenditure.” The report demands “a change so that the heterogeneity of the social and productive structures can be overcome because these constitute the main obstacles to reaching growth with equity” (Infante and Sunkel, 2009). In this author’s opinion, the idea of “growth with equity,” a discourse expressly developed by Pinochet supporters but that also became the slogan of democratic governments, has revealed its weaknesses. Instead, a new concept of equity with growth should be developed looking for all growth to be for the benefit of those eternally postponed. The Perennial nature of the Charter The perennial nature of the Charter was based initially on four mechanisms devised to overrule popular will. They all respond to the ideology of its inspirer, Jaime Guzmán, the politician with a Franco-ist ideological formation and a former university students’ leader against the university reform of the 1960s. The Constitution must ensure that if the adversaries manage to govern they will be constrained to follow a course of action not too different to that which we could desire because the range of alternatives that the court will impose on those who play in it will be sufficiently reduced so as to make the opposite, extremely difficult.12

These mechanisms were: (a) the inclusion into the parliament of senators to be nominated by the Supreme Court, the President of the Republic, and the Security Council, without following any electoral processes; (b) the inclusion into the Senate of the former Presidents of the Republic whether they were elected democratically or not;13 (c) extremely high quorums required to modify the Political Constitution (two thirds for its most important determinations and three fifths for the rest); and (d) a minority electoral system, even though it is represented as a majority system.

12 As quoted in Correa, Sofía et all. 2001: Historia del Siglo XX Chileno: Balance Paradojal, Santiago de Chile: Editorial Sudamericana. 13 The Interamerican Court of Human Rights in its Report N° 137/1999, of December 27, 1999 resolved that this particular Senate composition was in violation of the rights of Chileans to equal voting power. Case N° 11,863.

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The first two were eliminated in 2005 as soon as some of the nonelected senators did not follow the directives of the extreme right. Nevertheless, what is most important is that as of today, popular will is still captive. The third has already been explained. The fourth and main instrument to guarantee the rigidity of the political project designed in 1966 and to ensure the exclusion of those not accepted is the bi-nominal electoral system. This system is geared towards favoring the political tie between the first majority [which during the transition has been the coalition of governing parties called the Concertación de Partidos por la Democracia (Concerted Parties for Democracy)] and the first minority, linked to the dictatorship that calls itself the Alianza por Chile (The Alliance for Chile). All other options are excluded from parliamentary representation and will, it appears, be so forever. The following theoretical examples demonstrate the absurdity of the political draw between the first two opposing majorities as well as of the exclusion of other options. The equal score can only be broken if the first majority doubles the second one (which can also be called the first minority), as is demonstrated in the following theoretical examples: 1. Election with two parties (or coalitions), resulting in a draw: – List A with 66 percent of votes – elects one deputy – List B with 34 percent of votes – elects one deputy 2. Election with two parties (or coalitions), majority doubles minority: – List A with 67 percent of votes – elects two deputies – List B with 33 percent of votes – elects no deputies 3. Election with a plurality of parties (or coalitions), resulting in a draw: – List A with 30 percent of votes – elects one deputy – List B with 16 percent of votes – elects one deputy – List C with 15 percent of votes – elects no deputies – List D with 14 percent of votes – elects no deputies – List E with 13 percent of votes – elects no deputies – List F with 12 percent of votes – elects no deputies 4. Election with a plurality of parties (or coalitions), majority doubles minority: – List A with 31 percent of votes – elects two deputies – List B with 15 percent of votes – elects no deputies – List C with 14 percent of votes – elects no deputies – List D with 13 percent of votes – elects no deputies – List E with 12 percent of votes – elects no deputies – List F with 11 percent of votes – elects no deputies

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The rigidities of the Constitution also extend to the organic laws and those of qualified quorum, most of which were enacted by the dictatorship in the last days of the dictatorial regime. Moreover, the effects of this political draw are reproduced by many public institutions’ senior staffs who require confirmation from the Senate, such as members of the Supreme Court, the Constitutional Tribunal, the Central Bank, public television, education, etc. The parliamentary draw also affects the ratification of international treaties, especially after Pinochet’s detention. As one of the dictator’s former ambassadors, Francisco Orrego Vicuña stated: “never again shall we ratify a human rights international treaty.” This has delayed and in some cases impeded Chile’s adherence to those instruments. All of this reinforces the profound divisions within Chilean society regarding the Constitution. There is no consensus whatsoever regarding the legitimacy of its origin, nor of its content, nor if it represents the will of the people or not. This distortion of popular will has resulted in the impossibility of turning emblematic priority demands in the struggle against the dictatorship into laws or they have only been granted in limited ways. For example, there has been no progress in the following: the substitution of a binominal electoral system by a proportional one; granting voting rights to Chileans living abroad, most of whom were expelled by the dictatorship or exiled because of it; the substitution of the organic law referring to the contents of education; the collection of royalties from foreign mining companies; a health system based on solidarity; and the restitution of labor rights eliminated during the dictatorship through a new Labor Code. Constitutional governments have presented projects for all these issues, aiming at strengthening democracy in its aspects of socioeconomic equality. This is an indispensable basis for real political and citizenship equality. Nevertheless, within the Parliament, those who integrated the dictatorship and identify themselves with the economic model imposed by force, either modify the fundamental content of these projects or reject them outright, making use of every advantage that the electoral draw allows them. Hence the common understanding that government gives law projects their name, but it is Pinochet followers within the Parliament who give them their content when writing the articles. The lack of satisfaction of popular demands has caused the most serious social conflicts since the restoration of democracy.

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Of special importance is the refusal of the Pinochet-following opposition to recognize the cultural diversity within the Chilean people. A project of law proposed by the government of President Aylwin in 1991 aimed at a constitutional recognition of the multiracial and multicultural nature of the Chilean people was rejected by these sectors precisely when Latin America was preparing to commemorate the five hundredth anniversary of the European conquest. Up to this day, that demand remains unfulfilled even though it has the support of the majority of the country, even within the Parliament. The same procedure has delayed the ratification of the 169 Indigenous and Tribal Peoples Convention proposed by the International Labour Organisation. The creation of a National Human Rights Institution and the creation of a Human Rights Ombudsman have both similarly been impeded. Several other projects to that effect have been the cause of fruitless negotiations. The statement of a Pinochet-follower senator has been made true: “There will never be an Ombudsman in Chile.” The political right wing of 1966 has obtained what it sought with the 1973 coup. Namely, that the regime of protected democracy, as established, could never be modified by a political party nor by a coalition of parties. The fact that Pinochet adversaries are constrained to follow a course of action that is not too distant from what the Dictator would have wanted, has become a reality. Is it Possible to Put an End to this Situation? The United Nations Development Programme (UNDP) manifested in 2004 that: In order to confront the deficits within our democracies we need democratic power. This means the capability of acting in an effective way regarding the problems entailed in the expansion of citizenship. In order to build such power, politics is indispensable. But it is necessary that politics be relevant, that it proposes roads towards the approach of the key issues within society, that it undertakes them with the strength of leaders and citizens will and that it sustains them with suitable collective action instruments, among which, political parties have a central role even though not the sole role (UNDP 2004).

Chileans acknowledge that the same way we cannot count on Pinochet followers to build a real democracy; we also cannot count on the

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political class that emerged after the dictatorship. The democratic condition of governments between 1990 and 2009 is not being questioned. Nevertheless, be it due to resignation or to complicity, they have renounced any move forward in the recognition of freedoms and in their expansion. We are not under dictatorship, this is evident, but it is also difficult to consider our current situation as democratic. In view of the failures of nineteen years of unfinished transition, a Movement for a Constitutional Assembly has emerged, calling for a popular self-summoning to force a significant change. This would be accomplished according to the model established in Colombia in 1990 and no longer focused simply on additional patches to the existing Constitution that would fit the taste of the coup supporters. Colombia once lived under the dictates of a centenary and outdated Constitution and a bipartisanship system such as the Chilean one. The result was the exclusion of the majorities, with civil violence as a consequence. The civil society decided to summon itself to a de facto plebiscite but within a formal instance. In the next popular elections, an additional ballot calling for a Constitutional Assembly would be introduced. The resounding success of the audacity unleashed a process culminating in a Constitutional Assembly and in a new and exemplary Constitution in 1991. The Chilean Movement has called for marking the vote in the next popular elections, adding to the elector’s preference a mark requesting a Constitutional Assembly. The Chilean law expressly provides that such vote shall be considered valid and will attribute it to the indicated candidate. Minutes of the vote-counting process must place those marks in record. The procedure is profoundly democratic, legitimate, not illegal, easy for any voter, motivating for disenchanted youth, and perfectly verifiable in its results. It is only a matter of utilizing a formal procedure such as the election to respond to an unformulated question. The Movement calls for trusting the people rather than disqualifying the proposal from the beginning, since constitutional issues, contrary to the dictatorship imposed discourse, do interest people. Chilean people are in effect: – concerned by the fact that the state does not solve its problems

related to education, housing and health, because Pinochet followers in parliament deny the resources for it; – exasperated by heavier taxes for the poor than for the rich;

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directed to solve extreme poverty are now spent on weapons and airplanes for the military; – revolted by the fact that arrogance and impunity is the prize today for those who humiliated and abused them; – irritated because the Pinochet-following minority consider inequities to be secondary problems; – desperate because striking is now a useless instrument and a vehicle for laying off workers, and because labor reforms are postponed; – disconcerted because the solution to the problems affecting the originary peoples are placed in the hands of those who have kept them in poverty; – offended because those who tormented them with all kinds of violations to their human rights continue imposing their will. The Movement maintains that before it is too late, as it was for Colombia, Chile should have a democratic Constitution that represents all of us.

CHAPTER FOUR

WHERE WAS THE CHILE I HAD LEFT BEHIND? Marta Harnecker I returned to Chile 17 years after the military coup of 1973. It was another country. I had trouble recognizing it. I kept asking myself where was the Chile I had known. Solidarity among friends, among neighbors, among communities, so characteristic of our national idiosyncrasy, had disappeared. With a few exceptions, everybody was scrambling, concerned with survival in an increasingly competitive world. Those who managed economic success worked 12 to 14 hours a day to maintain their positions, while many either did not have a stable job or simply had no job at all. People lived to work and did not work to live, while those paying the consequences were their own families. There was less material poverty than in other Latin American countries, but there was much more spiritual and psychological poverty. The distance between richer and poorer social sectors had grown fearfully. High walls were starting to appear in wealthy neighborhoods so as to protect so much wealth from the sight of indiscreet pedestrians. Consumerism was causing havoc. People were living in debt. A new type of servitude, much more subtle than that of past centuries had emerged. The fear of losing jobs, the anguish of being displaced by the competition, became a generalized psychological state. This is the sad reality behind the smart neoliberal showcase. Thoughts I published ten years ago (Harnecker, 1999) are still valid for the Chile of today, even though this country has been governed during the last two presidential periods by Socialist Party militants.1 The Fragmented Society2 One of the strategic objectives of neoliberalism is to attain the maximum social fragmentation. This is so because a divided society makes 1

Ricardo Lagos (2001–2005) and Michelle Bachelet (2006–2009). This section draws from Paragraphs 77 to 84 from my 2007 book Rebuilding the Left published by Zed Books in London, which retakes some of my thoughts earlier 2

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it difficult for those who suffer the consequences of the model to turn themselves into those who question it. Fragmenting society is the best formula for the reproduction of the system. The idea, as the Argentinean researcher Alberto Binder argues, is that “diverse minority groups are unable to form themselves into a majority which questions the existing hegemony” (Binder, 1992). This strategy is not only used on the workers in an attempt to “deconstruct the labor force into an aggregate of differentiated actors or subjects separated the one from the other” (Vilas, 1996: 42), but used on society as a whole. According to Binder, what the neoliberal strategy sets out to do “is build or manufacture isolated social groups or minorities3 which war amongst themselves, thus allowing the hegemonic groups to maintain horizontal social control” (Binder, 1992). The basis for keeping these groups isolated amongst themselves or subject to contradictory relations is a conscious effort to disorient them about their possible common interests, thus making it impossible for these minorities to enter into collective struggles. This strategy aims at three objectives: a) the atomization of society into groups with little power; b) the orientation of these groups towards exclusive and partial ends, which don’t encourage combination; c) the elimination of their ability to negotiate and make pacts. A fragmented society implies a minority – and sometimes an entire society – that has lost the way towards its own national goal (Binder, 1992).

In order to comply with these objectives what is needed is to prevent groups from joining together. In order to achieve this, it is necessary to induce them to center themselves exclusively on their own specific objectives. That is to say, there is the need to avoid the emergence of general aims that can be shared with other groups leading the way to potential common proposals and alliances. Shared dreams and utopias

expressed in 1999 in La Izquierda en el Umbral del Siglo XXI. México: Siglo XXI Editores. 3 Binder defines “minority” as a relatively isolated social group with the absolute impossibility of reaching hegemony in a particular social context, with little or no possibility of producing social policies and that, therefore, suffers arbitrary practices imposed by other social groups (of different or equal conditions) as a passive subject. The minority is forced to accept living conditions below those determined by the respect of fundamental human rights, without any possibility of obtaining defense or protection.

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about another world being possible, which is what enables the creation of “meeting spaces where different groups can agree” (Binder 1992), must be destroyed. On the other hand, a “shipwreck culture” is encouraged (each one for themselves) impeding any collective solution. This is an overall power strategy aiming at smashing society to pieces and making it absolutely impossible to build the concept of a majority; it sets the scene for the limited or restricted democracy we shall be analyzing (Harnecker, 2007). Manufacturing Consensus4 There is no doubt that one of the elements that has assisted governability the most in countries implementing neoliberal policies, in spite of the increase in poverty and the growing inequity between richer and poorer sectors of society, has been mass media capabilities influencing public opinion. These, concentrated increasingly in fewer hands, take it upon themselves to “channel people’s thinking and attitudes” within parameters acceptable to the ruling classes and thus detour “any potential challenge” to them and the establishment before it “can fully materialize and gain strength” (Chomsky, 1990: 8). According to Chomsky, bourgeois liberals set only one condition for accepting the democratic game: that, by controlling the media, they can “manufacture consent” and “tame the bewildered herd” (Chomsky, 1996: 14). By converting politics into a marketplace for ideas, the ruling classes, who have a monopoly on manufacturing consent, have the weapons needed to lead the man or woman in the street into parties charged with safeguarding their interests. The free market does not lead to free opinions, although they would have us believe it does. As Benjamin Ginsberg says: “the hidden hand of the market can be an instrument for control just as powerful as the iron fist of the state” (Ginsberg, 1986: 86–89) or, as Chomsky says: “propaganda is to democracy as the bludgeon is to the totalitarian state” (Chomsky, 1990: 17). This alone explains why it is the most conservative parties, which defend the interests of an infinitesimal minority of the population, that have transformed themselves, quantitatively speaking, into mass parties (Blanco, 1995: 58) 4 This Section draws from paragraphs 306 to 311 in my 2007 book Rebuilding the Left, published in London by Zed Books.

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and explains why the social base of their support, in Latin America at least, is comprised of the poorest sectors of the urban periphery and rural areas. These mechanisms for manufacturing consent are not only used during election campaigns. They begin much earlier, influencing people’s daily lives through the family, education, culture and recreation. It has been shown that “the most effective and long lasting political ‘indoctrination’ is that which takes place outside the political sphere and does not use political language” (Blanco, 1995: 62). This is not to say that in certain situations the people cannot waken from their slumber and discover the real interests that motivate various social sectors. This is what happens during periods of great social upheavals and revolutions. The ruling classes remove their masks and expose their authoritarian and fascist methods of struggle such as those we have experienced in Chile. What is currently sold to us as democracy, as Cuban researcher Juan Antonio Blanco argues, in reality is the liberal democratic myth reconstructed from liberalism at the expense of its democratic component. This does not discard growing social tensions in advanced industrialized countries due to phenomena such as structural unemployment and migratory flows that could take liberal democracy to transform into liberal totalitarianism (Blanco, 1995: 68). Consumerism: Another Way to Domesticate5 Another element which helps promote governability is consumerism (Moulián, 1997: 104).6 The culture transmitted through the communications media is not a culture of community but one of individual hedonism. People assign more and more importance to the search for comfort and to the legitimization of consumerism, tendencies which the credit system encourages. People are not content to live within their means, but prefer to live in debt and therefore need to have steady 5 This Section draws from paragraphs 48 to 55 in my 2007 book Rebuilding the Left, published in London by Zed Books. 6 Tomás Moulián calls “consumerism” those consumption acts that go beyond the income possibilities of the individual and make them resort to credit. I would go beyond that. Because consumerism is not limited to salaried workers, I think it could be defined as a sort of addiction to the new objects offered by the market. See: Moulián, Tomás. 1997. Chile actual, anatomía de un mito, Santiago de Chile: Arcis/LOM, p. 104.

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jobs (that are harder and harder to find) in order to be able to meet their economic commitments. At this point, it is perhaps important to remember that the phenomenon of mass consumption is not something that arose spontaneously, nor, as Rifkin says, did it stem from insatiable human nature. On the contrary, several studies show that, at the end of the 19th century US workers were content to earn enough to live on and buy a few little luxuries. They preferred to have more leisure time than more income earned by working longer hours. We must remember that Middle American behavior patterns were very much influenced by the Protestant work ethic whose key tenets were moderation and thriftiness (Rifkin, 1995). How then, given these circumstances, did consumerism come into being? It was, according to Rifkin, the US business community that “set out to radically change the psychology that had built the nation.” In the twenties, US manufacturers were faced with a situation of overproduction resulting from a huge increase in industrial productivity that went hand in hand with a drop in the number of consumers. Technical change had left a growing number of people unemployed. This dramatic drop in sales could only be met head on if the US people’s psychology could be changed by persuading people to consume more goods. So, a huge crusade was launched to turn US workers into a herd of consumers. “Marketing, which until that time had played a supporting role in the business world began, unexpectedly, to take center stage under these new circumstances” (Rifkin, 1995). The country had to change from a culture of producing to a culture of consuming and in order to do that, it was necessary to transform goods that had previously been luxuries for higher income groups into needs for lower income groups.7 Publicists wasted no time in starting to change the way they launched new products; they went from giving descriptive information and information on use to making emotional claims appealing to social differentiation and status. Ordinary men and women were invited to emulate the rich […] ‘Fashion’ became the buzz word when companies and industries tried to identify their products with what is ‘chic’ or the ‘latest thing’ (Rifkin, 1995). 7 The line demarcating the necessary from the superfluous is not easily established. It depends upon many factors. For more on this subject see: Marcuse, Herbert. 1993. El hombre unidimensional. Ensayo sobre la ideología de la sociedad industrial avanzada. Barcelona: Planeta/Agostini, pp. 35–42.

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Hire purchase sales also appeared at this time. “In less than a decade, a nation of workers, those moderate Americans, became a culture characterized by hedonism, in search of any possible kind of more or less instant gratification.” At the end of the 1920s, “60 percent of radios, cars and furniture sold in the United States were bought on some form of credit” (Rifkin, 1995). In Chile, shopping with credit has been successfully promoted, creating what Chilean Sociologist Tomás Moulián calls a new mechanism to domesticate. Few shoppers perceive that they have become the slaves of the modern world, or what Moulián calls “credit card man” (Moulián, 1997: 102–124). In order to satisfy their consumption needs people mortgage their future and end by being domesticated. What energy for participating, for mobilizing, what capacity for risktaking can workers have when they are faced with both job instability and with religiously paying their hire purchase installments since failure to pay the latter transforms them into sub-humans, people who are denied their dreams of future comfort? (Moulián, 1995: 36).

Indebtedness on a mass scale works not only to sustain or expand the domestic market but it also works as a device to foster social integration (Moulian, 1997: 121). People need to be well behaved and not fight against injustice to ensure they have a job, and do their work well in order to be promoted so they can keep on consuming: buy their own house, a car, the latest audio equipment, the latest model television. But in Chile, not only consumerism was strengthened. Poor and middle class sectors thought it necessary to show off their purchasing power, to the extreme of using makeshift wooden cellular phones to drive around Santiago pretending to own one when they just appeared in the market. They would also fill up their supermarket cart to abandon it shortly after because the objective was not to shop but to be seen as having elevated purchasing power. Demobilizing Democracies8 After what has been said above, Chilean democracy would qualify to be a demobilizing democracy. This is what Chilean Sociologist Tomás Moulián, when considering Chilean reality, calls these types of democracies (Moulián, 1995: 35). The fact that the people are demobilized 8 This Section draws from paragraphs 45 to 47 and 57 to 58 in my 2007 book Rebuilding the Left, published in London by Zed Books.

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can be attributed to a series of factors no longer chiefly linked to the use of repression nor to other methods of putting pressure on the popular movement. The most important factor is the decline of the union movement. This is very much a result of the limits imposed on it by labor legislation enacted by the military dictatorship but still in effect.9 Also important is the flexibility introduced into labor relations. All of this creates a considerable increase in labor instability, leaves workers unprotected and gives the employers more power to control them. “Strategies of [rewarding] individual merit appear as more productive than strategies of collective coordination” (Moulián, 1995: 35). Another demobilizing factor has been the appearance of a neoliberalized Left which has substituted a belief in democratic capitalism for a belief in socialism; a Left which simply does not question the system and which, when mass mobilizations appear, manages them according to strict group interest logic. Moulián sums up as follows: Historical experience demonstrates that neither a dictatorship nor even the existing form of a ‘tutelage democracy’ is needed to maintain the neo-liberal model. What it does need is the discipline of a ‘demobilizing democracy’ with a weak worker’s movement which makes only selfinterested, economic demands, with a Left that helps to legitimize the system and with ‘masses’ more interested in consuming and entertainment than in public affairs (Moulián, 1995: 35).

Chomsky points towards another element of discipline that especially needs to be considered in the Chilean case: the culture of terror.10 This new element was very present in the early post-dictatorship years. People feared the provocation of situations which would justify the return of the military to the political scene. Restricted Democracies11 But this is not all. It is not only about demobilizing democracies; it is also about tutelage democracies (Moulián, 1995: 35). In Chile, as in a 9 This legislation seeks to impede the formation of a strong organization uniting all workers and sets the limits at fragmented company unions. 10 For more on this subject see: Chomsky, Noam. 1998. “La última desaparición de las fronteras.” Interview by Jim Cason y David Brooks, Masiosare, Washington, Feb. 1. 11 This Section draws from paragraphs 30 to 38 in my 2007 book Rebuilding the Left, published in London by Zed Books.

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large part of Latin America, the democratic regimes emerging from post-dictatorship democratization processes are very different from those prior to the dictatorial period. In those years the level of social and economic development created an allegiance among the masses that was sufficiently broad-based to provide stability for bourgeois democratic representative regimes by incorporating certain popular sectors into political struggles. According to Carlos Ruiz: It was the era of the alliance between sectors of the working class, those fringes of the middle layers that had arisen under the aegis of the state and industrialists […] under a pattern of capitalist development in which industry became not only the driving force behind economic growth and capital accumulation but also behind the social and cultural organization of society and the organization of political struggle within the system’s framework (Ruiz, 1996).

It was probably both the end of the long period of post-war expansion and the beginning of the profound new crisis that had been brewing, along with the rise of the class struggles that jeopardized the existing system of domination, which led to dictatorships being installed in several countries in Latin America (Brazil, Uruguay, Chile and Argentina). Creating the political conditions for the capitalist restructuring that was needed was only possible through force-based regimes which dismembered the popular classes and their social and political representatives. And then, when the soldiers went back to their barracks and negotiated a democratic way out, it could only be a limited democratic way out that prevented any repetition of the situations of ungovernability which had given rise to the dictatorial governments. As Franz Hinkelammert argues: … aggressive kind of democracy, lacking consensus, where the media is almost completely controlled by concentrated economic interests; where sovereignty lies not with civil governments but with the armies, and over and above them, with international financial organizations which represent the governments of [more developed] countries. These are controlled democracies where the controllers are not themselves subject to any democratic mechanism (Hinkelammert, 1995: 114).

These tutelage, limited, restricted, controlled or low intensity democratic regimes, as they are called by various authors, concentrate power

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in bodies of a permanent, non-elected nature.12 The latter are not affected by changes resulting from elections and include the Council for National Security, the Central Bank (privatized), Economic Advisory Institutions, the Supreme Court, the Auditor General, the Constitutional Court, and other similar institutions. This new organization of the state drastically limits democratically elected authorities’ ability to act. Currently, groups of professionals, not politicians, make the decisions or exert a decisive influence over them. In fact, in some essential areas such as the economy and the military, institutions arise that are more like national subsidiaries of a supranational body (Hernandez, 1989: 146) – the IMF, NATO, the World Bank, the European Parliament, Free Trade Agreements – “which, domestically, inside countries, are able to condition or impose important actions, paying no heed to the electorate’s opinion” (Sanchez, 1992). The apparent neutrality and non-political nature of these bodies conceal the new way the ruling class “does politics.” Their decisions are adopted outside the political parties. This, according to Chilean researcher Martín Hernández, makes it possible, “to a certain extent, to cover up the class nature of the state apparatus by portraying decisions as the affair of foreign experts who apply ‘scientific’ criteria and have no interest in demagogy […].” But in fact, what this neoliberal restructuring of the state aims at is to weaken institutions elected by popular vote by creating “mechanisms for inter-bourgeois conflict resolution in which the masses are not called on to participate” (Hernandez, 1989: 146–147). In fact, bourgeois democracies have always sought to protect themselves from the decisions of the dominated. But in previous democratic regimes, protection mechanisms such as the difficulties in electoral registration for the poorer sectors or when resorting to flagrant electoral fraud, clearly appeared as undemocratic elements. Since state authorities elected by universal voting had real capabilities to influence the functioning of the state apparatus, it was necessary to ensure

12 This is how they are called in the Santa Fe II document produced by the American foreign policy strategists. For the first time the military aspect of power, always absent from the bourgeois democratic discourse, was made explicit. Traditionally only three powers were recognized: executive, legislative and judicial. Santa Fe II document assigns great relevance to what it calls the military bureaucracy.

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the election of people trusted by the ruling classes (Hernandez, 1989: 142). When becoming government in those days, carrying out social and political transformations used to be possible, given the real influence elected authorities had over the way the state apparatus functioned. Where did the illusory nature of reformist strategy lie? It was in the belief that the behavior of the ruling classes would be consistent with their democratic discourse. But that is not what happened. Once they [the ruling classes] lost control of the government, they wasted no time in having recourse to the backbone of the state apparatus, the armed forces (backed directly or indirectly by the Pentagon). This was used to cancel out democracy and establish a dictatorship, as happened with Arbenz in Guatemala, Bosch in the Dominican Republic, Goulart in Brazil and Allende in Chile. In the current situation, the margin to maneuver is considerably less. This is why governments seeking for real transformation in the Region, such as Venezuela, Ecuador and Bolivia, who have also had a favorable electoral correlation of strength, have set for themselves the aim of modifying the institutional game. That is, the weakening or dismantling of supra-national institutions, recovering the Central Bank, legislating to curtail media freedom which constantly misinforms or distorts the information on what happens in a country and violates the right of the peoples to be well and truthfully informed. A Different Decentralization from the Neoliberal Decentralization13 From the 1980s on, another kind of neoliberal state reform began to be implemented in Latin America: the territorial relocation or decentralization of given aspects of the state apparatus. In essence, this consists in territorially reordering the urbanization process and the location of manufacturing and services, as well as in handing over some responsibility for education, health, social assistance, housing and local economic development to states, regions, provinces or local councils (Hernandez, 1989: 151). This reform has both economic and political objectives. On the one hand, it aims to facilitate the development of 13 This Section draws from paragraphs 27 to 42 of a text in progress on the subject of Socialism of the XXIst Century.

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capitalism and on the other to break the popular movement apart and to divert its attention from global struggles to local demands (Harnecker, 2007). In order to confront neoliberal decentralization which we question, I consider we should present, from the Left, a different decentralization project. I say this because I consider decentralization to be one of the most fundamental characteristics of the new state we need to build if we want to move towards socialism. Popular protagonism becomes a mere slogan if people do not have the opportunity to comment and make decisions in areas where they can participate. If the central state is that which decides everything, there is no room for local initiatives and the state ends up being a hindrance or, as Marx says hinders the “free movement” of society (Marx, 1871). Moreover, I am convinced that decentralization is the best weapon to fight against bureaucracy, since it brings management of government closer to the people and allows the exercise of social control over the state apparatus. I am convinced that the only way to fight against bureaucracy is to decentralize everything you can decentralize, reserving as powers of the central state only those tasks which cannot be carried out at a local level. Contrary to what one might believe, such decentralization by strengthening the foundations of society, does not weaken the national state, but instead strengthens it (Harnecker, 2009).14 In this regard, Marx argued referring to the experience of the Paris Commune: The unity of the nation was not to be broken; but, on the contrary, to be organized by the Communal Constitution, and to become a reality by the destruction of the state power which claimed to be the embodiment of that unity independent of, and superior to, the nation itself, from which it was but a parasitic excrescence (Marx, 1871).

Of course, this decentralization must be imbued with the spirit of solidarity. Each of the decentralized spaces should feel part of the national whole and be willing to contribute with their own resources to strengthen the development of the areas in greatest need. One of the important roles of the central state is precisely to carry out this process of redistribution of national resources to protect the weak and help 14 Harnecker, Marta, coordinator. 2009. “La Descentralización ¿Fortalece o Debilita el Estado Nacional?” book that compiles the presentations of the participants at the Sept. 23–24, 2008 workshop organized by the Miranda International Center and published by rebelión.org.

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them develop. These same principles of solidarity should guide economic and military integration across borders. How then to Create a Correlation of Forces that will allow us to Struggle Against Neoliberalism in better conditions?15 What needs to be done? Not lift a finger? Say that politics is the art of the possible and therefore there is no alternative but to adapt to the rules of the neoliberal game? I think that this approach, which has prevailed in Chile during the initial 18 years of post-dictatorship, is starting to be abandoned. The world capitalist crisis and its effects, especially in our country, the most subordinate to neoliberal globalization in our continent, have made it evident that the same road can no longer be followed. Regarding this subject I would like to recall the concept on politics which I presented in my book “La Izquierda en el Umbral del Siglo XXI. Haciendo Posible lo Impossible.” In it, I state that the art of politics is to make possible the impossible, but not because of mere voluntarism, but because of a determination to build new forces. That is to say, to change the correlation of forces so as to enable in the future what appears as impossible in the present (Harnecker, 1999). With the exception of Chile, Peru, Colombia and Panama, the rest of the countries have experienced advances in this direction. Additionally to changing the inherited rules of the game calling for constitutional assemblies to develop new constitutions and advance in the nationalization and renationalization of strategic economic sectors: oil16 and telecommunications in Venezuela; gas in Bolivia. There have been considerable advances in regional integration with the creation of ALBA, Petrocaribe, Telesur, Banco del Sur, UNASUR, etc. In this regard,

15 What follows was presented for the first time at the II Meeting of Intellectuals at the Miranda International Center on Sept. 16, 2009, regarding the New International Situation. 16 Even though nationalized since 1975, its Management did not follow government indications, but responded to the interests of the big Venezuelan economic groups. The reaction to the late 2002 and early 2003 sabotage from the oil sector, allowed the Venezuelan government to dismiss the anti-national and pro-coup Management and to replace it with a Management constituted with pro-process leadership. This allowed the government to recover the control of the oil company and to utilize the revenues it produces on social expenditure.

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Bolivar’s convictions regarding the need to articulate our countries become everyday more current. Isolated we will achieve little; articulated we will make ourselves respected and we will find economic, political and cultural solutions making us less dependent upon the large world power blocks. In this sense, Chile has been the regional black sheep because it has established bilateral free trade agreements with the United States and Canada that weaken the creation of an alternative power to the United States hegemony in our subcontinent. These agreements also impede the development of our national industry and, even worse, open the doors to outright plundering of our natural resources. A Movement in Defense of Sovereignty17 The articulation of our governments is not enough, especially in the case of Chile where governments have been against this type of proposal and prefer to remain allied to big capital and at the service of the hegemonic power of the USA. It seems to me that it is of vital importance to build a powerful continental people’s movement to defend our economic, political, cultural, communicational and environmental sovereignty and to offer solidarity and support to the most disadvantaged social sectors, or when there are natural disasters. This movement should raise the banners of the struggle for our real sovereignty and against hunger, any kind of discrimination, against the destruction of our ecosystems and in favor of administrative transparency and against corruption. A movement struggling for these objectives would be, in fact struggling for an alternative to neoliberalism, that is to say, an alternative to capitalism, since neoliberalism is but a restructuring of capitalism so as to confront the contradictions it finds along its path. What is needed is a movement that struggles for socialism, albeit a socialism that differs fundamentally from that of the socialism of the Soviets, the type of socialism that President Chavez has popularized as 21st century socialism.18 A socialism that is not statism, nor state 17

This Section draws from a forthcoming text: Harnecker, Marta. Hacia Dónde Avanzar: el Socialismo del Siglo XXI. Caracas: CIM. 18 It was on Dec. 5th, 2004, during the closing ceremony of the World Meeting of Intellectuals and Artists in Defense of Humanity held in Caracas, when Chavez sustained for the first time that “it is necessary to re-examine the history of socialism

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capitalism, nor totalitarianism, nor bureaucratic central planning, nor collectivism that pretends to homogenize without respecting differences, nor productivism without considering the need to respect nature, nor dogmatism, nor atheism, nor the need for a single party. A socialism that is essentially democratic, that is built with the people by means of popular protagonism (Harnecker, forthcoming) and (Lebowitz, 2007). However, we must not think that such a movement can be decreed into being. We have to begin to build it in each country and to do that we have to begin by creating or strengthening local initiatives to form broad platforms for fighting against international finance capital’s neoliberal policies, platforms which offer concrete solutions to the various sectors affected by the current world capitalist crisis.19 This platform for bringing people together for the period of crisis would play the role of an instrument for binding all of these platforms into a cohesive whole. The depth of the crisis, the range and variety of the sectors affected, and the large number of demands from society which remain unanswered, create a scenario which is highly favorable for making a push towards creating a very broad-based movement which would have enormous social power. This is especially so given that it’s potential members – the overwhelming majority of the population – would be legion. Those who are suffering from the economic consequences of neoliberalism, besides the traditional sectors of the urban and rural working class, include: the poor and marginalized, the impoverished sectors of the middle class, many owners of small and medium sized enterprises and merchants, the informal sector, owners of small and medium sized farms, most professionals, the army of the unemployed, the cooperativists, pensioners, the police and the lower ranks of the army. However, and to recover its concept […].” On Jan. 30th, 2005, in Porto Alegre, Brazil, he reaffirmed that it was necessary to overcome capitalism and to build socialism, but he warned: “We need to reinvent socialism. It cannot be the type of socialism we saw in the Soviet Union.” It is not about “resorting to State capitalism” because if this would happen, we would fall “in the same perversion as the Soviet Union.” But it was in the IV Social Debt Summit, on Feb. 25th of that same year when he used for the fi rst time the denomination “Socialism of the XXIst Century.” However, even though it was Chavez who coined the term, it had been used earlier in year 2000 by the Chilean sociologist Tomás Moulián in his book “El Socialismo del Siglo XXI. La Quinta Vía” (Lom Ediciones, Stgo. Chile, 2000). 19 For more on this subject see: Harnecker, Marta. 2002. La Izquierda Después de Seattle. Madrid: Siglo XXI. This book was also published in Venezuela in 2002 under the title América Latina: Los Desafíos de la Izquierda by The Instituto Municipal de Publicaciones de la Alcaldía de Caracas.

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we should not only think about the economically affected sectors but also about those discriminated against and oppressed by the system: women, young people, children, the elderly, indigenous people, some religions, homosexuals, etcetera; in other words, most of the population of our countries. A very broad-based movement must be created, using this platform as a base, a movement without any kind of sectarianism. To achieve this it will be necessary to use extremely flexible tactics, without however, giving up any principles (national sovereignty; democracy and political pluralism; solidarity with the weakest….) We can learn a lot from Fidel Castro, the great strategist of the victory in the anti-Batista struggle in Cuba whose teachings I tried to sum up in my book: Fidel’s Political Strategy: From Moncada to Victory (Harnecker, 1985). A platform for struggle must be created, one that permits the people to play a leading role. Chávez has said that no solution can be found to the problem of poverty without giving power to the people, or more accurately, without the people taking power. I should like to paraphrase this by saying that we will not be able to make progress in building 21st century socialism in Latin America – which would mean defeating the empire’s policies in our region – if our people do not become the great protagonists of these struggles. President Chávez is very clear about this. We hope that more and more Latin American presidents understand this and, from the state they have inherited, promote this protagonism by creating the spaces best suited to make this happen, such as the communal councils, the workers councils and other expressions of people’s power in Venezuela. We think that a very concrete way to progress towards building this great front which does not limit itself to a set of initials, but really is a front for struggle, is precisely to attempt to create concrete spaces where specific anti-neoliberal struggles can meet or converge: the unemployed, the landless, the homeless, students affected by the system, pensioners, etcetera; or convergences in the struggle for peace, in Colombia for example, or in rejecting foreign intervention, as in Venezuela. It is of fundamental importance to undertake ideological work to clarify the connections between the problems that most affect the people and the economic policies which cause them. It is also important to then go on to explain the role the empire’s policies play in all of this and the need to build a new model for society that will make it possible to overcome this situation. It is essential that this battle of ideas be linked to the people’s most serious problems.

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There is one initiative that I think could yield very interesting results and could foster broad-based popular protagonism. This is consulting the people in all of our countries on whether they do or do not accept US military bases on our subcontinent. This is something Evo Morales, the Bolivian president, suggested and it was very successfully implemented by social and political collectives in the 23 de Enero parish in Caracas. Making this kind of consultation more widespread would allow us to mobilize militants from the various social and political organizations – a concrete, common task of convincing and educating people, going house to house. Even more importantly, it would allow us to mobilize many people and many young people who are waking up to politics, who want to help build a better world but often don’t know how to do it, and who don’t feel like being politically active in the traditional way. Needless to say, this would imply a huge educational campaign to prepare those volunteering to undertake this task. Consultations will not be possible unless the Chilean people are informed about the situation of our subcontinent and about the strategies adopted by the United States in view of the increasing insubordination of the new Left and center Left governments in the region. Initiatives like the above mentioned are not legally binding but they do have a political impact. We have already experienced this in Latin America when several countries simultaneously held a popular consultation on the Free Trade Area of the Americas (FTAA) which had very satisfactory political results. All of this made it possible in these countries to create a huge ideological campaign to clarify the situation and to generate a huge mobilization of resistance against this neo-colonial pact. This is a precedent that must not be forgotten after the history of the FTAA’s defeat is written. A New Left Culture Is Required20 A broad platform of this type calls for a new left culture; a pluralist and tolerant culture which places first and foremost everything which unites, and puts everything which divides on the back burner. It emphasizes everything which promotes unity around values such as:

20 This Section draws from a forthcoming text: Harnecker, Marta. Forthcoming. Hacia Dónde Avanzar: el Socialismo del Siglo XXI. Caracas: CIM.

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solidarity, humanism, respect for differences, defense of the environment, and that rejects the desire for gain and the laws of the market as the driving forces of human activity. A Left that begins to realize that being radical does not mean having the most radical slogans or carrying out the most radical actions – which only few go along with because most people are scared off. It means being able to create spaces for meeting and for struggle of broad sectors. It means becoming aware that those of us who are fighting the same fight are many, and that this makes us strong and is what radicalizes us. A Left that understands that it has to achieve hegemony, that is to say it has to convince, not impose. A Left that understands that more important than what we have done in the past is what we can do together in the future to gain our sovereignty and build a society which enables full human development, the new socialist society of the 21st century.

PART II

THE CUMULATIVE IMPACT OF 35 CONSECUTIVE YEARS OF NEOLIBERALISM IN CHILE

CHAPTER FIVE

GROWING DISPARITIES AND THE EXTREME CONCENTRATION OF WEALTH IN CHILE José Cademartori Current Inequalities Have No Justification GDP1 levels achieved before the recent global financial crisis were an eloquent indicator of missed opportunities for a more equitable income distribution in Chile. We are dealing with an amount that would have reached US$ 160 billion in 20092, hardly imaginable just a few years ago. This amount reflects the high prices reached by copper during recent years, as well as by other natural resources, before the demand crisis hit the country. Should we divide that quantity among the 16 million inhabitants, a per capita income of US$ 10,000 results. Converted into Chilean pesos3, each Chilean man, woman and child would get 430,000 pesos monthly. Any couple with two children would receive 1.7 million pesos. Certainly we are not suggesting an absolutely equal distribution of income. A certain degree of differentiation, due to capabilities, efforts and productivity, as well as historical factors, is perfectly acceptable. Even so, Chile has now generated enough resources to eliminate the real poverty that affected three of every ten Chileans prior to the crisis. At the same time Chile could now substantially reduce current income disparities. The latter are caused by mechanisms that distribute wealth and which remain hidden from the general public so as to protect unsustainable privileges. MIDEPLAN (Chile’s Planning Ministry) calculated Chile’s population below the poverty line to be 13.7 percent for 2006. But that figure has been questioned by economists of diverse political tendencies,

1

Gross Domestic Product. Author’s own projected figure for 2009. 3 The annual exchange rate for the US$ for 2008 was approximately 520 Chilean pesos. 2

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including Marcel Claude, Felipe Larraín, Patricio Malatrassi and others, due to the methodology employed. Larraín calculated Chile’s poverty rate at 29 percent (Larraín, 2007). Infante and Sunkel utilized the concept of “relative poverty” by which they estimated 26 percent in the April 2009 issue of the ECLAC Review (Infante and Sunkel, 2009). Moreover, when including the cost of basic needs additional to food, I estimate the real figure for poverty to be nearer to 33 percent. Needless to say, these are pre-crisis figures. Whatever the exact figure may be, it is indeed unethical that close to 75 percent of the population has a per capita income that is substantially lower than the per capita GDP of US$ 10,000 (Solimano and Pollack, 2006: 65). The President of the Conferencia Episcopal (Episcopal Conference), Bishop Goic, in an extensively circulated public declaration stated that a more “ethical salary” needs to be established. He suggested that the amount for 2008 should be of 250,000 Chilean pesos a month, considerably higher than the legal minimum wage for that year. But in 2009 the legal monthly minimum wage was fixed at 165,000 Chilean pesos. The VI Family Budget Survey with 2007 figures, developed by the National Statistics Institute (INE), confirmed the dramatic income differences among Chileans. The Survey established that the 20 percent of wealthiest Chileans accumulate 60.7 percent of total income. The Survey also showed that this is the population segment that incremented its income the most – 28 percent over that of 1997. Its participation in total income increased more than seven percentage points. It also established the fact that 80 percent of the population has no savings capabilities, with expenses that exceed their incomes, which has pushed them into living in debt (INE, 2008). During the Allende Administration Disparities Were Eased The Gini Coefficient that measures the degree of income disparities has confirmed that Chile is one of the most unequal countries in the world. Being the indicator for 2005 of 0.54 according UNDP or of 0.55 according to ECLAC, it turns out to be substantially more negative than European, Asian and Oceanic countries. Alvaro García, a former Minister during the Lagos Administration, which ended in early 2006, reminded us that the World Bank had placed Chile among the ten most inequitable countries in the world that year (García, 2005).

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However, considering disparities to have remained unchanged throughout recent history is a false assumption. The evolution of the Gini Coefficient has had significant variations in the last fifty years, depending heavily upon government policies. It was relatively moderate during the Ibañez period and more recently during the Frei Sr. period (1964–1970); it improved substantially during the Allende period (1970–1973); reached its worse levels under dictatorship (1973– 1990); and has been kept at fluctuating, albeit unacceptable levels during the Concertación4 governments that have followed (Vega, 2006). Another significant indicator is the difference between the average incomes of people in the wealthiest ten percent segment of the population in comparison with the ten percent poorest segment. Consideration must be given to the fact that the wealthy do not declare their real incomes during surveys such as the Casen Survey and certainly do not do so to the Internal Revenue System. All considered, the difference in family incomes according to the 2006 Casen Survey indicated that the ten percent richest families had 31 times the income of the average ten percent poorest families. Even worse, should the wealthiest ten percent be excluded from the calculations, the distribution within the remaining 90 percent would be considerably more egalitarian, with a Gini Coefficient similar to world standards. This proves that it is the extreme wealth that is causing the monumental disparities between Chileans (Solimano, 2009). Not surprisingly, the results are even more alarming if the wealthiest five percent is compared with the poorest five percent. As Marcel Claude has pointed out in the Ecosocialist Manifesto, the distance among them increased from 110 times to 220 times between 1990 and 2000 (Marcel, 2008).5 This is how the wealthy advance with gigantic steps while the poor move slowly like snails. Ever increasing disparities have no relation at all to work and sacrifice, and even less with natural talents. It all has to do with monopolies, economic institutions and political power. Politicians elected with flawed electoral systems have colluded to enact the most convenient legislation for themselves and those bolstering them.

4

Concerted Parties for Democracy. Calculations based on figures from the UNDP 2000 Human Development Report. 5

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Distances are also significant when we observe how wealth is concentrated in the most fortunate ten percent of Chileans, a universe of 1.6 million people. Wealth concentrates in the one percent of this population (160,000 people) that includes multi-millionaires, their associates, and their managers and advisors. We are talking about 40 thousand families, an insignificant figure as compared with the total four million Chilean families. Statistics indicate that it is that privileged minority that obtained the most benefits from the last two decades of growth, especially during the last few years.

Market Studies and Socioeconomic Disparities Market consulting firms divide the Chilean population into five categories according to their purchasing power: The ABC1, with the highest incomes; then the C2 and C3 corresponding to middle and lower levels within the middle class; and finally groups D and E that are the poorest. ABC1 includes seven percent of the population; C2 and C3 together add up to 37 percent and groups D and E correspond to 56 percent of the total population. This classification reveals that the middle class is no longer as homogeneous as it used to be, but that it is divided among a better off sector, C1, a properly medium sector, C2, and a third of low and decreasing level, C3. C1s with monthly income levels in the millions resemble the international elite in their lifestyles and way of thinking. The C2s receive incomes between 600,000 and a million pesos (US$ 1,154 to US$ 1,923). The C3s receive incomes between 400,000 and 600,000 (US$ 769 to US$ 1,154). The Ds are situated within the 200,000 and 300,000 (US$ 385 and US$ 577) and the Es obtain approximately 160,000 pesos (US$ 308) and less. Among the C2s and C3s there are small retailers, and industrial producers, professionals without post graduate studies, teachers, salespersons, and middle managers in big or medium companies, technicians and specialized workers. Levels D and E include poor peasants, micro-entrepreneurs, self-employed workers, non qualified workers and temporary workers. It is worth noting that E and D levels together constitute the majority of the population and that more than half of them live in poverty, and are therefore unable to satisfy their basic needs regarding healthy nutrition, decent housing, access to quality health care and education, social security, citizen security and decent employment.

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Two Very Different Chiles Have Been Formed: The Chile of the One Percent and That of the Ninety-Nine Percent Chile’s One Percent encompasses a reduced number of tycoons, both Chilean and foreign, with investments in the country. They own the mines, huge extensions of forests, the most fertile lands, the best coastal and lake border strips, strategic urban land, valuable sources of water in lakes and rivers, big industries and commercial centers, etc. Privatization in Chile has not stopped at the deserts, seas and mountains. According to the Land and Colonization Ministry, two-thirds of the territory is now in private hands. Currently, 114 economic groups have been identified by the Superintendencia de Valores y Seguros (Superintendence on Values and Insurances) as controlling the largest patrimonies through a myriad of limited companies. It is calculated that for the year 2010, if the rate of concentration of wealth continues, a number close to 1,500 mega-corporations will control 74 percent of all sales from more than 700,000 micro, small and medium enterprises (Vega, 2006). The other Chile is where the vast majority of the population lives, stretching from those extremely poor to those in the middle class. Included are salaried workers, peasants, technicians, artisans, employees, and 600,000 mini and small entrepreneurs. This considerable majority of the population is recognized by marketing agencies as belonging to part C2 and C3 segments (the broader middle classes) and to the D and E segments, which are the poorest ones. None of this vast majority of the population of Chile retains enough patrimony to provide for their family’s welfare. Their homes are mortgaged, their salaries are tied up for years to come, and they must work to the limit of their strengths to support themselves, or else they are unemployed. Their working hours, without counting travel time, are overwhelming. In the ILO rankings of the last few years, Chile appears among the countries with highest annual working hours. Several international consulting agencies concur with this conclusion when referring to the daily working hours in Santiago as compared to those in other world capitals. A serious illness, an accident, or parents divorcing, are enough to enable a fall into poverty or extreme poverty. As top-level entrepreneur Felipe Lamarca recognized it: “A large percentage of the population rises and goes to bed in anguish. …They live on the edge with the specter of unemployment and debts hovering over them (Lamarca, 2006).”

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The names of bosses of Chilean economic groups and family clans are known: Angelini, Matte, Luksic, Claro, Ibañez, Hurtado, Vicuña, Said, Yarur, Calderón, Paulman, Solari, Piñera, Saieh, Larraín, Obach, Bezanilla, Lavín, Délano, Ponce, Fernandez León, Vial, Silva Yurasek, and Edwards, among others. All of them have multiplied their patrimony in the last 20 years at a rate that holds no relation to that of the rest of Chileans. Some of them did very well with the dictatorship and even better with the Concertación. They distributed among themselves CAP, ENDESA, IANSA, LAN, SOQUIMICH, Celulosa Arauco, Instituto de Seguros del Estado, Chilean University TV and many other state enterprises, bought at discount prices and resold at huge profits. According to the 2008 Forbes Magazine ranking of billionaires, the Angelini family accumulated a patrimony of US$ 1.0 billion and rose to number 1,062 among all the wealthiest of the world. The Piñera family with US$ 1.3 billion is bigger and is registered in place 897. The Matte patrimony is evaluated at US$ 7.9 billion in place 117 and the Luksic Group has accumulated US$ 10.0 billion and occupies rank 77 in the world (Forbes, 2008). Sebastián Piñera, of the Piñera family which owns LAN6, Chilevisión and tens of thousands of hectares of virgin land in Chiloé7 as well as countless other businesses, was the presidential candidate in the 2009 electoral process to depose the Concertación. The total worth of all these groups amounts to 12 percent of Chile’s GDP, while 400 of North America’s richest billionaires add up to only ten percent of the US’s GDP (Solimano, 2009). On the other side of the coin, the earning power of workers and technical or administrative staff employed by these barons is far below that of their counterparts in Europe, the US, Eastern Asia and the Pacific Rim countries. For example, according to New Zealander families who have bought land in Chile in the recent years, a highly qualified agricultural worker in Chile receives only up to one-third of what a similar worker would receive in New Zealand. It will be difficult to overcome this difference if year after year salaried Chileans continue to receive less than the productivity increases of their work, while their bosses keep the lion’s share.

6 7

Chile’s national airline, now privatized. An island in the South of Chile.

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The reality is that during the period between 1990 and 2006, yearly real salary increases were lower than GDP increases – 2.9 percent the former, and 3.3 percent the latter, deteriorating salaried worker participation in domestic product (Infante and Sunkel, 2009). This is one of the main mechanisms creating major disparities and it is backed by labor legislation inherited from the Dictatorship.8 It therefore comes as no surprise that it is capital that increases its participation in national wealth, in detriment to labor participation and self-employed work (Banco Central de Chile, 2009b). As if all this were not enough, Chilean millionaires do not pay as many taxes as they should, in spite of the lax tax laws that apply to them. They have many ways of hiding their incomes and avoiding tax payments. For example, there is bank secrecy and prohibition on their income declarations being published. They use completely legal loopholes to form fictitious societies, inflate expenses, and maintain accounts in tax havens. They have expert auditors and lawyers to doctor their declarations. The trial for fraud against Pinochet and his cronies has revealed such typical gangster methods being employed with the full complicity of “respectable banks” including phantom accounts, false identities, and false companies in tax havens. The Internal Revenue Service annually publishes a report quantifying state revenue loses associated to laws establishing the main exceptions and privileges favoring businesses or individuals subject to taxes. The Budget Directorate revealed that the poorest 40 percent of the population received only seven percent of the exceptions (Olivares 2006). According the 2005 Tax Expenses Report the largest share of tax exceptions benefitted the 20 percent population segment with highest incomes. The 2008 Report calculated them to be 4.6 percent of GDP, that is to say, US$ 7.8 billion (Guardia, 2009). Another example of the differentiated treatment the state gives big business as compared to workers relates to the policies for inflation reduction. Three main measures are usually implemented under neoliberalism: interest rate increases, public budget cuts, and ensuring that it is workers who absorb price increases. Regarding interest rate increases, those who will suffer the consequences will be mortgage holders, credit card holders and small businesses. On one hand big

8 Anti-union practices, arbitrary layoffs, denegation of the right to strike, subcontracts, etc.

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businesses always receive preferential bank treatment and can resort to international financing sources. On the other hand, small credit is impacted twice because debts are normally set in UFs9 and therefore get adjusted monthly. Regarding budget cuts, neoliberals claim that budgets have increased excessively and that these increases should not surpass GDP growth rates. The reality is that ever since the Dictatorship, Chile has become a country with one of the lowest state participations in GDP in the world. This helps explain why accumulated wealth only benefits supermillionaires. The fact that a larger part of the public budget is allocated to social services means that these will be restricted, negatively impacting the poor who need them the most. In addition this policy is definitively flawed because larger public budgets cannot be inflationary while there are idle human resources. This is demonstrated by high unemployment figures, idle production capacity, and a low growth rate. On the contrary, the public budget should increase the offer of badly needed services, create new jobs, improve living conditions and stimulate growth. Moreover, the government for years has accumulated historical budget surpluses that could well have allowed for additional investment without running up debt or increasing the amount of currency circulating. A policy of forcing workers, pensioners and others on fixed incomes to absorb price increases without salary adjustments has been applied ever since the Dictatorship. This means that inflation has been allowed to reduce the consumption capabilities of the poor. And it translates into labor “flexibility” meaning increased hours of work at less salary, making worker layoffs easier, etc., imposed by the force of repression. There are of course better ways to reduce inflation. Such as reducing consumption by the wealthiest ten percent of the people who are consuming 40 percent of the total; taxing the wealthiest as well as taxing extraordinary revenues due to unexpected international price increases, even if temporary; reducing VAT on basic products; stabilizing the price of the dollar; supervising price manipulation by retail monopolies and forbidding unscrupulous price increases; revising price hikes on public utilities; avoiding scarcity of basic products and importing what is lacking while reducing imports of surplus products; stimulating monetary savings; reducing credits for speculative

9

Unidad de Fomento; an accounting unit that is adjustable according to inflation.

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financial businesses that do not increase production and do not create jobs; reducing capital investment abroad, and so on.

How Much Do the ABC1 Earn? The ABC1 segment starts with minimum monthly incomes of two million pesos per capita and can reach up to several hundred million. In spite of not being more that seven percent of the population, their weight in the market equals the purchasing power of 40 percent of the total buyers. A represents the multi-millionaires, B their minor partners and the newly rich, and C the higher level executives and the upper middle class. In this last category are included company directors, partners in huge consulting firms, trendy professionals, top managers of big companies, and higher level public servants (such as Central Bank President, controllers, senators, Lower House representatives, Supreme Court members, generals and admirals). Among these are notaries operating for big companies and those such as the Property Registry manager who get 80 million pesos per month. Stock market company directors add up to 400 of whom 52 are repeated in five directories and ten participate in eight or more companies. Some lead the groups, others are mere “trusted men” or minor partners of the main shareholders. Some are “well connected independent professionals” who are generally former higher level government officials from previous governments. Directors receive high per diems, daily stipends, and representation allowances, all of which reduce their taxable incomes and the dividends to be shared among small shareholders. Top executives in Chile are among the best remunerated on the continent and surpass quite a few of their peers in developed countries. According to research by Price Waterhouse based on 130 big companies in Chile, a general manager has a fixed monthly salary of 20 million pesos plus anything between 30 and 150 million in “performance bonuses.” Compared with European peers at the same gross income level, net income is bigger in Chile because living in luxury is cheaper than it is in Europe and because tax payment rates are less. In the larger companies, remunerations fluctuate between half a million and a million US$ when adding bonuses and other business profits such as shares, life insurance, health coverage, elite education for offspring, extra vacations and perhaps fees for exclusive club

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memberships. A small group of D&S executives gave themselves a total of 6.1 billion pesos in 2007. Press reports also revealed that Santander shared 30 billion pesos among their elite executives. Jumbo paid theirs a monthly average of 13 million, whereas Falabella reached eight million (Carvajal, 2001). The New Industry of the Super Rich According to Que Pasa magazine, there are “some ten thousand families with a patrimony of over US$ one million available for investments.” It is said that the upper tier of the privileged corresponds to the 52 mythic traditional families linked to national industry and banking sectors with local holdings. The purchasing power of the new super millionaires, calculated to be ten billion dollars, is such that managing their money is beginning to be referred to as a very lucrative “industry.” Some of these management enterprises deal with accounts for US$ 400 million dollars and charge 0.5 percent over capital, expenses excluded, for their work (Vega and Ríos, 2007). Conspicuous Consumption, Reflecting Extreme Wealth The number of families with over US$ 100 thousand in liquid assets for investment increased from 50 thousand as existed in 2004 to 70 thousand in 2006 (Barría, 2006). According to the reporter’s views this indicates that wealth is “democratizing” and reaching a massive amount of people. However the fact is that this increase by 20,000 new rich people does not exceed 0.5 percent of all Chilean families. That the market for the privileged is growing does not mean that it will be accessible for the majority of the middle class classified at C2 and C3 levels, nor to the D and E levels that are even more distant. Luxuries, the love of ostentation, and copying the international lifestyle of multi-millionaires are strongly becoming trendy with the new Chilean rich. Mansions in La Dehesa10 built on two thousand m2 with gardens, swimming pools, parking lots, sports fields, servants’ quarters, etc. are in high demand. Families of the C2 level can only aspire to

10 Neighborhood located at the Northeastern side of Santiago, on higher terrain with cleaner air.

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apartments 30 times smaller and the C3 to smaller yet “social housing” built of light materials, without patios, and with susceptibility to flooding. While the poor neighborhoods are exposed to violence and crime, the C1 choose to live in walled compounds as in Valle Escondido in Lo Barrenechea11, with electronic surveillance and security vehicles circulating round the clock to keep an eye on maids, gardeners and handymen. Real estate developers are counting on some US$ 3 billion in profits drawn from their developments in Chicureo, another new community for rich people. This amount would be more than enough to house 150,000 families currently living in overcrowded conditions in the existing housing park. In La Pintana and Conchali12, according to figures provided by each of these local governments, there are 14,000 registered homeless families crowded in with relatives awaiting their turn on lists for social housing. Chilean high society’s new lifestyles often include the consumption of expensive drugs among a sector of C1s, trips to oriental brothels, transatlantic cruises, African safaris, weekends at Las Vegas casinos, or shopping at trendy high brand boutiques. So as to evade long lines, revisions, taxes, delays and other such inconveniences that common mortals suffer at airports, the Chilean super rich refrain from flying on commercial airlines at all. They have their own executive planes, pilots, landing strips, hangars, etc. In 2007, Cessna sold 24 planes priced at over US$ 2.5 million each. According to the press, Andrónico Luksic, the chief of the principal economic group, spent US$ 25 million on his personal plane. Just the monthly maintenance cost of eight million pesos is as much as the salary of one of the engineers in his service. To move between mansions, the super rich use helicopters. The cheapest of these go for 200 million pesos and the more luxurious ones for 750 million. Agustin Edwards, the owner of El Mercurio, owns a 15 passenger Bell 412 costing over three billion pesos (Medel, 2005). Countless lives could be saved in Chile among the victims of accidents and disasters, as well as among the poor or sick living in remote areas with limited accessibility, if the public health services that have only rundown ambulances could have another 180 helicopters like the multi-millionaires have. But in the end, free markets allocate resources for the enjoyment of the few. 11 12

An entire valley turned into a wealthy ghetto. Municipalities on the poorer outskirts of Santiago.

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Many of the best beaches, marinas and lake borders are inaccessible to the poor and middle classes because they are walled in for the exclusive use of resorts, clubs, and private mansions. This happens despite the fact that the Civil Code designates such areas as public property intended for public use. Winter sports, due to the high costs of lodging, transportation and other services are at most accessible to ten percent of young people. When Lavin13 was Mayor of Santiago he created a bright solution: he installed artificial snow in the capital so that poor children could play in it. There is also a growing myth that golf is becoming a “very popular sport,” which is only true for those aspiring to become rich. The new golf courses being built at the cost of several million dollars involve a huge misuse of water and the loss of agricultural land. One of them is being built in Chicureo where only 600 participants will be admitted. The membership fee will be 12 million and the monthly fee 256,000 pesos. The Lagos government and the parliamentarians that approved tax reductions for the highest incomes and for luxury cars have heavily contributed to this conspicuous consumption. This is how a BMW costing 40 million pesos came down to only 32 million while the public budget loses the tax income difference for every privileged buyer. Mercedes Benz was projecting to sell about one thousand cars at 50 million each, making a grand total of 50 billion pesos. With that amount, 1,000 buses could be bought to solve the transportation problems in Santiago. There is no public budget to respond to the daily needs of normal citizens, but there is private money to satisfy the egos of 1,000 among the privileged wealthy. The Other Side of the Coin In Chile the neoliberal counter reform movement destroyed the achievements of fifty years of struggle and has meant that workers’ unions have lost their previous strength. Membership has dwindled due to employer harassment and workers have been forced into dispersed negotiations. All of this has meant that it has been employers who have had the upper hand in working condition negotiations. “Social peace” is only based on the fear of losing jobs, which the current crisis has exacerbated. 13 Joaquin Lavin, of an extreme right wing party, was also a presidential candidate at one point.

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Backed by Art. 161 of the existing Labor Code, bosses need only argue that layoffs respond to the needs of their companies due to such vague concepts as rationalization, or company modernization, or the company merging or being sold, or simply reduced profits. These arguments are perfectly legitimate and acceptable to government authorities. Often employers alleging lack of resources force workers to agree to lower layoff compensation and even to deferred payments, all of which defeat the purpose of such compensation. Just as bosses constantly demand business stability, it is fair that the greatest possible stability also be allowed to those who contribute to the security and wealth accumulation of those in charge. To avoid paying compensation, workers are hired and re-hired with contracts shorter than a year’s duration, denying them the ability to consolidate certain rights. Teachers, for example, are often hired only for ten to eleven months and are rarely able to consolidate their rights. For workers who retain their jobs, the crisis has become the perfect argument for forcing them to work longer hours and to work more intensively with lower salaries. This is a mechanism for business revenues to remain untouched. The fact that some businesses are seeing their revenues decrease is not a moral or economic justification for massive layoffs, and even less so in times of crisis. It is very good news that the government is going to allocate extraordinary funds to create new employment. But to think that this will stop the brutal increase in unemployment is a delusion. It is enough to compare the speed at which layoffs are occurring with the size of public investment dedicated to this purpose to understand that unemployment will continue growing in the next few months and will escalate to two digit figures. Calling upon the consciences of businessmen is totally useless. A catastrophe is unavoidable unless layoff policies are drastically revised. What is needed now is a law allowing for extraordinary executive powers that Congress should issue in order to deal with unemployment. Some layoffs by employers will need to be forbidden. Employers should have to request authorization from the Labor Ministry which would be in charge of determining if layoffs are justified or not. In a case of bankruptcy, an administrator delegated by the government should be appointed so as to determine, with workers participation, the best possible solutions. But patience is running thin. Workers cannot bear much longer being mistreated by current labor laws, most of which were imposed during the dictatorship. Under Pinochet, workers were silenced by repression and bosses applauded the violence being

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exerted over them. Restoring the right to strike, and to negotiate by productive sector rather than by company, constitute fundamental first steps towards social justice. Where Extraordinary Financial Profits Come From How do we explain the squandering figure of the ABC1s? During the Dictatorship, the financial sector in Chile was privatized and liberated from controls. That experience was short lived because in a few years the resulting anarchy and excessive greed of managers pushed most of the banking system into bankruptcy. A handful of those responsible were sent to jail but severe duress was rained upon many thousands of Chileans. Instead of expropriating them without compensation, Pinochet forced all Chileans to pay the cost of the rescue package and the state briefly reassumed managing the system. Far from acknowledging why the Allende Administration had to resort to place the system under state control, or why historically the world has resorted to enact strict regulations in times of crisis, Pinochet and his neoliberal cronies privatized the system a second time. Banks were given to new bankers at ludicrous prices and with easy payment conditions, all at a huge fiscal indebtedness to Chileans. While during the first few years of the Concertación administrations the Central Bank moved with caution on regulation issues so as to avoid new debacles, they gradually gave way to the pressure of those who do business with other people’s money and who thirst for profits. The Free Trade Agreement (FTA) with the United States forced the country to allow capitalists more freedom of action and exclusive privileges. New laws were enacted14 which allowed financial investors tax exemptions so as to make their operations more palatable. This is how Law 20,120 (MK II) favors participants in selected investment funds, though their profits in share trading are not considered taxable. During the Lagos Administration, the preference for satisfying this sector was such that Mr. Somerville, leader of the bankers’ and finance capitalists’ association, stated in an outburst of gratitude, that “the business community just loves Lagos.” Concentration constitutes the prevailing trend within the financial sector. Of the 26 existing banks, three of them, Santander, BCI and 14

MK1 and MK2 (Capital Markets I and II).

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Banco de Chile, monopolize 60 percent of all bank loans. Banks in Chile for the last few years have made unprecedented profits. In 2007 the banking system obtained a net profit of US$ 1.7 billion. The three biggest banks took 67 percent of that amount. Total benefits after taxes were 18.56 percent over capital and reserves, among the highest on the continent. But that is only the average. Falabella and Santander Banks surpassed such profits substantially with 34.5 percent and 28.7 percent respectively. In addition to these huge dividends, their shareholders made extra profits by selling some of their shares. In twelve months BCI share prices increased by 23 percent and those of Banco de Chile by 43 percent (SBIF, 2009). How do we explain these extraordinary benefits obtained by banks? The formula consists of high commissions to the customers, low interest rates for the modest savers and high interest rates for debtors. This formula is enabled by the great indifference of the Bank Superintendence (SBIF). Modest savers are no longer needed because the “independent” Central Bank15 happily provides private bankers with plentiful cheap money every time it becomes necessary. Other sources of huge profits exist in the low salaries offered to bank staff and subcontractors, and the frequent layoffs due to mergers and restructurings. Up to 1996, banks did not demand fees for holding savings accounts, credit cards, debit cards, ATM machines, collections and other operations and accounts. In the period between 1997 and 2006, once these were instated, bank commissions doubled. Commissions provided bankers with reliable income without any risks, contrary to what credits did. Usurer interest rates for overdrafts, advances, collections or short term loans demanded from “non-preferential” clients such as small enterprises, middle level professionals, mortgage holders, et al, is another great source for bankers to accumulate wealth. During the Pinochet bank rescue of 1982–83, an instrument denominated “subordinate debt” was applied, giving banks 40 years to repay. This is how, for example, Banco de Chile accepted a US$ 4.6 billion debt ten years ago. It still owes, US$ 1.7 billion, corresponding to 1.3 times its patrimony. The debt towards the state is also higher than its shareholders patrimony. But controllers have nothing to worry about.

15 One of the common traits of neoliberal conditionalities on debtor countries is to eliminate State control over Central Banks.

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There are still 30 years to go before the debt payment is due. As if this public sector gift were not enough, Banco del Estado lent the Luksic Group a huge sum as leverage to buy the shares that allowed it to gain control over Banco de Chile. An obsession of bankers and stock dealers in Chile is to turn Santiago into an international finance market, even though its size is less than that of other markets like Sao Paulo and Buenos Aires. In order to attract more of the foreign funds that circulate around the world, competitive advantages are called for. This means regulation reductions, exceptional tributary benefits, and freedom for the creation of fictitious and even corrupt instruments. But all of these, according to most experts, are what caused the debacle sparked by the subprime markets that just led to the financial crisis in the United States. The Stock Exchange is not exactly a source of wealth creation for the majority of the Chilean people. A reduced number of big capitalists and a handful of their trusted associates and higher level executives are always the ones who benefit. Generally, big gains for some come at the cost of great losses to others. This is a zero sum game just as in a casino, except that losers are almost always the small shareholders, not the large ones; the small debtors, not their creditors; the small savers, not the large economic groups; the defenseless workers, not their pension fund administrators. Credit should serve production, not speculation. What are needed are more productive and social investments; industries creating decent and stable jobs and generating added value to natural resources; educational services improving workers’ cultural levels and technical capabilities; health services that are accessible to all; technical innovations and scientific research; environmental protection and better use of natural resources at the service of all Chileans.

At the Stock Exchange, Those with Insiders’ Information Can Become Wealthier The following facts highlight Chile’s economic growth under the neoliberal economic model. Capitalization of the stock market has grown extraordinarily fast. If in 2002 its value represented 74 percent of GDP, in 2007 it went up to 124 percent of GDP, the highest value for this indicator in the entire Region. The average daily transaction volume on the Santiago Stock exchange in 2007 was US$ 196 million, which amounts to US$ 47 billion annually. This turned the Santiago Stock

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Exchange into the third most important one after Brazil and Mexico (Chilean Finance Ministry, 2008: 105–115). Concentration of stock ownership is such that 47.6 percent of assets registered at the Stock Exchange belong directly or indirectly to the richest five economic groups in the country (Solimano and Pollack 2006: 78). The Santiago Stock Exchange has turned into a source of juicy businesses available to be undertaken with the money of others, that is, the money of workers and small savers. Frei and Lagos, with their laws enacted to develop free and speculative capital markets, reduced taxes and regulations to their privileged participants. These and other reforms were crucial in the over-expansion of the Chilean financial markets, as is recognized in the Estado de la Hacienda Pública 2008, cited above. This lack of strict fiscal oversight and of effective penalties towards financial operators together allowed frauds such as Inverlink which, with the support of the complicity of banks, cost the State-owned Financial Corporation CORFO16 US$ 100 million. Dealerships and bank subsidiaries have become new and fast ways of enrichment. A handful of the many existing stock dealers control almost all transactions. Funding for social, productive, public and small business investments cannot seem to be found. But “liquidity” is plentiful for short-term speculative investment inside the country or out, ranging from the spot money market, futures, bonds and shares emissions, to mergers and the buying and selling of corporations. Those who make the biggest profits are those who have unlimited credit and have reliable insiders’ information. Jumbo Supermarkets’ General Manager told a journal how he himself did it: “When Cencosud17 entered the stock market, I got credit and bought one million shares. It cost me one million dollars. Today my shares are worth four million dollars.” As was widely reported by the Chilean press, Piñera, the triumphant Presidential candidate in 2009, acted similarly. Being one of the LAN Directors, he learned before anyone else that due to excellent yearly results LAN shares were going to increase in price. He promptly bought part of them and soon sold them at a much higher price. He committed the illegal act of using privileged insider’s

16 CORFO, Corporación de Fomento a la Producción (Corporation for Production Promotion). 17 Let’s not forget that it was in Cencosud where cashiers revealed they were forced by management to use pampers so as not to lose time going to the toilet.

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information, but while being forced to pay 180 million pesos in fiscal fines, he was able to obtain a considerable and higher amount of profit. In Chile, not everyone is allowed into the Stock Exchange. Small savers, who receive miserable interest rates with no adjustment for inflation on their bank deposits or on their Mutual Funds, have no access to that temple. To start with, intermediaries charge up to 3.5 percent of the capital as fees for every transaction. This could mean that all profit goes to pay the commissioner. Mutual Funds that provide higher profits demand a minimum deposit of 10,000 UFs (21 million pesos) equivalent to some US$ 40,000. This is an amount that no small or medium businessperson can afford. Finance Minister Andrés Velasco continued to praise free capital markets as if these were not tumbling down all around the world. He goes so far as to state they are nearly a perfect mechanism for improving resource distribution, “an absolute necessity for underprivileged homes…to expand micro enterprises, to fund first homes for the middle class… and to protect people and properties” (Velasco, 2008). It sounds as if he was making fun of the Chilean public, but that was not the case. He was simply repeating his frequently stated tributes to neoliberalism, which are far removed from the cruel reality. He also defended the indefensible notion that there is no financial crisis in Chile because we are “insulated” from the global crisis. While it is true that the economy of Chile has not been as badly shaken as most of the world’s developed economies, there is nothing to stop the situation from becoming worse. The signs are written all over the wall.

The Huge Bounty Amassed by Transnational Corporations Certainly much of what Chileans produce is not distributed. It gets included in the GDP but not in the GNP (gross national product), which is what is actually shared among Chileans. GDP is always referred to, but the GNP never is. In 2005, for example, GNP was 12 percent smaller than GDP (Vega, 2006: 387), an amount larger than one half of all Chile’s internal investment. These resources are obtained by foreigners, travel abroad and load the coffers of world multi-millionaires. They represent a net loss to Chile and a heavy fee that the whole country pays to transnational capital. In the last few years profit for transnational capital has increased not because foreign

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companies were more efficient but due to a long period of high prices for copper and other basic resources. Overprice should be national property, but it is not.18 From 2003 to 2007, global companies have taken US$ 59.3 billion out of Chile. This corresponds to almost one half of the annual GDP of the period. In the early 1990s, only small amounts were taken out of the country, because these companies reinvested most of their profits. But in the last few years, according with the Central Bank’s Balance of Payments Annual Reports, profits remitted abroad have speedily escalated from US$ 4.6 billion in 2003 to 16.3 billion in 2007. Billiton, Angloamerican, Santander, Enersis, Telefónica, Aguas Andinas, ING, Shell, and Nestlé are among those taking away the largest shares. The share of profit appropriated by the transnational copper companies is such that a single year’s profit, that of 2006, was enough for Billiton (the owner of La Escondida) to recover all they had invested in the past 15 years (Riesco, 2008c). Other multinationals who have invested in Chilean banks, pension funds, health insurance, highways, trade and other industries, as well as electric, water, and gas companies, have accumulated huge benefits by way of usurious interest rates, unregulated commissions, abusive tolls, excessive readjustments, monthly fees and high tariffs extracted from defenseless users and consumers. One example of excessive profit is that of sanitary companies sold or transferred in concession to foreign capitals by the Frei and Lagos Administrations (1994–2006). According to balances published by the companies themselves, they declared exorbitant profits during the first semester of 2007, 35 percent over their patrimony. Their tariffs could well be considerably lower than the current ones, their workers better remunerated, and the state could benefit more from their resources, and even so these companies still would have reasonable profits. International finance groups buy and sell Chilean companies in distress that might potentially be profitable. They fire workers, increase working hours, reduce salaries and shortly after, sell them at a great profit. A good example is the mining complex La Disputada that was privatized by Pinochet. La Disputada was exploited for years after falsely declaring losses and later was sold for a profit to Exxon. The La

18 Ecuador has determined that when oil prices become abnormally high, 99 percent of extra revenues will engross State revenues.

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Polar Department Store, the electric Transelec, mines, forests, water reserves, industries, banks, electric plants, pension funds and health insurers have all changed to foreign ownership with the agreement of Chilean authorities. In Europe and in the US, on the contrary, governments place obstacles to the sale of private strategic companies to foreign interests, considering it an issue of national sovereignty. Concluding Thoughts: How to Eliminate Scandalous Disparities There are those who believe that the fate of the millions in poverty or in the anguished middle class can be improved without touching a peso of those who constitute the extremely rich. This is quite impossible. It has already been demonstrated that “growth with equity”19 based on a neoliberal model is a contradiction and has become a cruel mockery. We are reaching the end of a cycle and the more money gets accumulated in the country, the more the abysmal gap between the conspicuous consumption of the privileged minority and the survival of the masses, is widening. It is also impossible to expect that the dramatic scene exposed by statistics can possibly be changed with the demagogic policies of right wing politicians. They call for handing out some subsidies while privatizing yet more companies and public services, all paid for by the same taxes extracted from the poor and without modifying the contributions from big capital. Instead of the ill-fated “consensus” between government, the right wing parties and the big businesses, or of the unequal dialogue between workers and employers, an altogether new policy is required. A new type of consensus needs to be developed in which the vast voiceless majority, currently without vote or representation, feels involved and gets to participate in a meaningful way. Common citizens only manage to be heard when they demonstrate in the streets, protest loudly, strike, occupy factories, halt traffic, cut roads, etc. There are always more peaceful and orderly ways of initiating structural reform in the economy and in public life, but the real violence comes from those opposing reform. 19 Development strategy recommended by the United Nations Economic Commission for Latin America and the Caribbean.

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A national majority with strong participation of the poor and vulnerable middle classes must have the right to change the rules of the game, the constitution, the laws and the institutions in order to abandon the neoliberal model and build a participative democracy. But that majority needs to have as an objective another type of growth, benefiting those from below to the detriment of those on top. Clear goals and deadlines are necessary for the distribution of wealth and the elimination of poverty. The times call for raising the incomes of the lower segments, which amount to no less than 60 percent of the population, and for freezing the incomes of the richest ten percent segment. This is the only way the Gini Coefficient can be improved. Instruments and public policies for real income redistribution exist, are well known and have shown positive results in other countries at other historical moments. Among other measures, what is needed is to change labor legislation in favor of workers, a substantial improvement in access to quality healthcare and education, and full support for small and medium sized enterprises. One of the proven instruments is the tax system. The current one needs a profound revision. The onerous 19 percent VAT on basic food, medicines, books and other indispensable items must be drastically decreased and must be followed by obligatory consumer price reductions. At the same time, heavy VAT increases are called for on luxury consumption and on activities geared only to satisfy the wealthy elites. Tax on capital income needs to be increased and made more progressive for big capital, monopolies, and for financial and speculative activities. It needs to be reduced for small businesses, and for individual or associated productive activities. Proliferation of tax exceptions, a major source of privileges, needs to be reduced. Banking secrecy must be ended so as to allow the investigation of illicit activities. Income declarations for tax purposes must be transparent so as to enable evasion control. Tax on extreme wealth needs to be reinstated, (similar to the tax established during the Frei Montalba Government in the late 1960’s) allowing for a ceiling of 600 million pesos and with a progressive tax rate over the base of the commercial valuation of assets. This would affect 2.5 percent of homes (100,000 over four million). Taxes on big private mining must change so that the country can recover what it is due as the sovereign owner of the resources and therefore, of the elevated prices of Chile’s minerals. Tax reform needs to advance full speed towards equity and at the same time supply

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considerable resources to strengthen the role of a democratic state and increase its participation in the economy. Simultaneously, new and stronger market regulations, curtailment of the power of mega-companies, control over monopolies, a new type of solid sustainable growth tending toward an end to massive unemployment, and the reduction of Chile’s vulnerability under the turbulences of globalization, will all be needed. The current institutional structures must be modified to turn the relation between bosses and the salaried, between big and small businesses, and between consumers and big intermediaries more equitable.

CHAPTER SIX

HEALTH CARE IDEOLOGY IN CHILE AT THE TURN OF THE 21ST CENTURY Claudio Sepúlveda Álvarez Health: Reality and Perception Day to day references to health are, in fact, references to the absence of disease or discomfort, a perception which even technical definitions accept as ‘the silence of the organs’ inside people’s bodies. To expand upon this meaning, the World Health Organization (WHO) traditionally defines health as ‘a complete state of physical, mental and social wellbeing… and not only the absence of disease,’ thereby extending the scope of concerns and actions to be undertaken. This conceptual expansion provided for the emergence of a new discipline, that of Public Health. In Chile this new discipline transcends the traditional epidemiology of communicable diseases. It includes multiple causal and influence chains that provide for a complex and composite network of interrelations. This has revealed the true nature of health conditions to be systems whose variations are endless and in need of constant monitoring to ensure people’s livelihood. Testily, such chains are breakable, permitting each component link to become a market-autonomous commodity. In so doing, econometric approaches have reduced decision trees to their supply and demand so that monetary cost-benefits provide sufficient revenue for invested capital. This conceptual reduction works well for business, but badly for efficacy in improving people’s health status. The WHO concept implies instead the idea of an unstable equilibrium between people and their environment, so that systemic policies are the best, and those which foster permanent disequilibrium, such as the poisoning of the air, should be discontinued. In other words, known impairment resulting from unsatisfied needs should be avoided, and ‘reserve capacities’ (personal and collective) should be kept at their maximum level through adequate protection measures, so that

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resilience is optimized. Any link in default affects the end result, or makes it more expensive, so that a system approach is indispensable for sustainable results The idea of ‘needs,’ whose satisfaction’s default results in impairment, reaches its maximum status as ‘rights,’ a modern concept which entails societal commitment, enshrined into law, and excludes the maximization of profit, its actual nemesis. The application of the resources of health technology requires packaging, usually designated as ‘health services,’ of variable component tasks and resources, but in full integrity to achieve its purposes. When the equation for needs and services is adequate, the implied resources in quality and quantity will be efficient, knowable and possible to plan, through commensurate societal efforts. Otherwise, actions without proper aim would proliferate, costs would increase, and certain people would be excluded, leading to enhanced suffering, morbidity and, eventually, untimely death. Inevitably, inequality and different quality of services arise, stratifying the citizenship into layers of ‘have, have-little, and have-nothing at all,’ a perverse way of destroying society’s solidarity. The ‘right to health’ is the timely and accessible supply of needed services, as ‘health’ is the daily expression of human life, a category not subject to trade or privilege. At least, this is what ethics dictates; any pre-qualification is a restriction that endangers people’s life as well as the ethical principle involved. As advertising in a market society constantly calls for and expands the level of mere ‘wants,’ as different from ‘needs,’ to be satisfied, the result is an increase of unbalanced ‘demand’ in the face of a rather inelastic supply, because human resources require time for training and experience, and various types of equipment are usually imported and expensive, while competing with calls from other sectors.

The Post Second World War Environment From Adam Smith onward, the liberal approach to economics has postulated the ‘natural’ existence of unavoidable cycles of expansion and retrenchment of the economies. As a single-centered model, this statement only has the validity models have: the strength of its nonparametric assumptions. Marx, Engels and, to some extent, Spengler would postulate a dissenting spiral of continuous expansion dotted by crises in the relations of production which the former authors labeled to be the ‘midwife’ of a subsequent turn of the spiral.

health care ideology at the turn of the 21st century 137 History seems to have created dialectic ‘windows of opportunity’ and solidarity after each crisis period. Thus, 18th century absolutism unchained the French Revolution which, in turn, would be counteracted by the Restoration and mercantilism of the 19th century, whose British, French, Russian, Japanese and German expressions would end up, during the 20th century, in the Russian Revolution, two World Wars, and a Nazi-fascist interlude. In this sequence of major historical events, it is possible to recognize a succession of power-based, disruptive and tragic events, interspersed with reactions of a charitable nature and occasional ‘human rights’ endeavors. Thus, the Second World War which, in spite of certain continuing warlike traits, such as the Korean and Vietnamese conflicts and the socalled Cold War, generated its own window of ‘solidarity,’ expressed in the creation of the United Nations Organization (UNO). More than the previous and short-lived League of Nations, the UNO’s creation was an apparently genuine effort to prevent future conflagrations, bringing into line the structural capabilities of all countries, however different their size and historical background, through the sharing of technological know-how world-wide. Different operational branches were created, including the ‘Specialized Agencies’ that were broadly comparable to the main sector-wide ministries in any individual country. Several of these UNO agencies corresponded to social sectors: the World Health Organization (WHO), for example, which was patterned on the already half a century old Pan American Health Organization. Technical cooperation for ‘productive sectors’ such as mining, energy, industry, and even trade, was based on well proven paradigms and quantitative methods. While these were complex in nature, they had precise and controllable execution technologies. The monopoly power of transnational corporations was still contained within measurable borders. Even if discussions may have been centered on the duration of patents and royalty fees, the sharing of know-how between ‘developed’ and ‘developing’ countries was not unthinkable, while their intentions of controlling world markets were kept down to size. Social sectors were a different matter because their functions orient to the satisfaction of human needs, rather than wants, a fuzzy and difficult concept to define. For example, the concrete damage which emerges from unsatisfied needs was not always directly measurable. In a consumer society where market forces distort daily aspirations, the emerging ‘demand’ is increasingly dominated by ‘wants’ over ‘needs,’ spiraling up the overall bulk to be satisfied at unnecessarily high costs.

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The media, a main instrument of marketing, play here an unchallenged role as the tenets of advertising are seldom based on knowledge but rather upon tenets that highlight cosmetic and non-existent ‘qualities’ of the products being offered. The onus is placed on the consumer to ‘discover’ whether each individual offer has value. Consumer associations, when they exist, and the usually disregarded ‘marketing codes of conduct’ have been poor counter challenges, particularly when the media themselves operate under oligopoly conditions. In addition, cultural practices everywhere are a modulator for the application of sector technologies, whose best values are often beyond the purchasing power required. A full decade was required to come up with the “Basic Needs” approach (Streeten, 1977), a model adequate to the new solidarity paradigm and a suitable demand package where ‘needs’ dominate over ‘wants.’ The UNO family of organizations was set-up in light of this development, to implement the basic purpose intended: to serve mankind’s aims of social justice and worldwide solidarity. Such a package sprung from the area that had close links with the productive sector: employment. The International Labor Organization (ILO, 1975) would be its creator, as it linked labor, employment and social security, each of them exponents of basic human needs, in a collective and social perspective. Yet, it would be the United Nations Children’s Fund (UNICEF), which would first provide a model for the application of its tenets, in terms of ‘basic services’ (Emmerich, 1977). This package included simultaneous satisfaction of needs for drinking water, sanitation, nutrition, women’s organization, and health services. The latter would inevitably bring closer participation of the WHO and end in what the literature identifies as the ‘Alma Ata’ Primary Health Care approach (WHO-UNICEF, 1978 and Mahler, 1976), which was fully exposed to the world only in the late 1970’s, three decades after the end of the Second World War, and can be considered here to be a turning point. It may have been too late by then, since market forces were already developing a counter-strategy: ‘managed health,’ known as HMO, in the United States and elsewhere. The chief novelty of the Alma Ata approach was not only its focus on the ‘primary level,’ that is the community itself, rather than sophisticated high-tech hospitals, but to rescue what such communities did on their own to satisfy their basic health needs. This approach provided no technocratic design, but instead registered cultural practices world-wide, abstracting their commonalities to find out what made them successful, at low

health care ideology at the turn of the 21st century 139 cost, and for large masses. Experiences from China, India, Venezuela, Korea, Guatemala, Tanzania, were thus reviewed (WHO-UNICEF, 1975; Newell, 1975). A synoptic overview has been attempted elsewhere (Sepulveda, 2008).

Chile’s Own Development The key aspect of the ‘solidarity’ paradigm is to ‘read’ what societies do individually. These are endeavors which blend local practice, borrowed technical developments from abroad, and explicit or implicit societal changes which are guided by their socio-political orientations. Post-World War II Chile was no exception. An already urbanized society, although with large sections of urban poor, the country had abandoned most components of traditional medicine. It developed step by step specialized care networks such as Public Workers Wellbeing (Beneficencia), Workers Social Security (Seguro Obrero), Milk’s League distribution, Emergency Wards, etc. all of which were of limited coverage and poor technical resilience. On the political side, the Chilean society integrated the worldwide tenets of fighting fascism. Republicans escaping from Franco’s Spain were resettled and government political alliances were developed that included left-wing parties such as communists and socialists as well as ‘radical’ centrists and other groups. Paralleling other countries in the world, such as France’s Popular Front experience, a solidarity doctrine evolved, starting from the late thirties. Thus, in 1938, Chilean society elected their first ‘popular’ Government, led by President Aguirre Cerda; a future President, Dr. Salvador Allende, was Minister of Health in that Government. Allende initiated its public health contribution with a massive study entitled ‘The Chilean Socio-Medical Reality’ (Allende, 1939). Such strong societal endeavor was rooted in the trade-union movement and, earlier on, in the not-too-distant national war against two of its neighbors, which had woven a sentiment of national common goals. Also, central planning policies had emerged as an outcome of the Second World War effort, which required that small countries supply on their own, goods which the fighting powers could no longer provide: an economics’ approach called ‘import substitution.’ By the mid-sixties, the Santiago based UN Economic Commission for Latin America and the Caribbean (CEPAL), became a theoretical and political sponsor of this approach, even if the United States of

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America, one of its members, reacted coldly to its tenets. Notwithstanding these developments, economic relations continued to tilt in favor of capital concentration, as the emerging solidarity paradigm did so in the midst of a market-oriented society. Thus, the post-War ‘opportunity window’ found a willing partner in this poor, low-population country. Chile’s productive base was mainly local minerals and raw materials. The nation was semi-isolated by geographical conditions, but with a rather strong sentiment of unity, selfreliance and self-defense. Among a cluster of measures that fostered such ideas of self-reliance, was the creation of a national development agency (CORFO), a public educational system, and a National Health Service (NHS), among others. The NHS was enacted into law in 1952, inspired by Public Health as a discipline, which was considered to be a non-partisan guide to improve livelihood, a de facto adoption of the principles of socialized medicine well before any attempt at socialism was made in the country. Although the Chilean Public Health initiative was endogenous, its principles were coeval with the UK’s NHS, being instilled in a generation of public health specialists of different political credos, which counted the late President, Dr. Salvador Allende among them. The collective vision and the values system were in accordance with this societal paradigm, allowing for mechanisms of price control (DIRINCO) of what still was moderate marketing machinery. On the other hand, public means of communication had great diversity so that newspapers, magazines, radio and TV (in its infancy) programs allowed for a wide range of opinions. Although it was obvious that liberal professions entailed a measure of private profit and social capillarity, the declared, and perhaps the main, motivation to take up medicine or a related profession as a life activity was servicing the needs of others. The state continued to have a regulatory function, besides its direct productive role, not only in terms of controlling market forces but also in projecting a common image of the future for the society. Thus, careful assessment of services, needs, and installed capacity would precede any expansion of enrollment in universities, or creation of alternate structures. De facto, such restrictions entailed a mechanism of quality assurance that did not need to be explicit on course, since basic parameters had been checked out ‘at birth.’ Research would be oriented towards predicting human resources’ supply and demand under planned conditions of health delivery (Sepulveda et al, 1972). University

health care ideology at the turn of the 21st century 141 teaching was an honor, fees being of secondary importance to those who imparted it. Universities’ aims would consider the transmission of culture and professional capabilities, not profit. In such an environment, university students would acquire these values in both explicit and implicit forms. The declared objectives of their curricular programs, behavior of their seniors, and public debate, all transpired in a pluralistic media environment. Developments around the world, including the unfolding of so-called ‘socialist states,’ in particular the Cuban Revolution, and the world-wide reaction against colonialism and imperialism, particularly the Vietnam War, acted as reinforcement. Chile was a country whose trends, by any standard, were towards increased social equality, opportunities, the law, salaries, enhanced quality of life, etc. This is what explains the leftwing vote which brought Allende to power in 1970, after previous, nearly successful attempts in 1958 and 1964, the latter being carried by a Christian-Democratic candidate whose proposed reform and equality program was barely less ambitious than the leftist one. Public opinion was sold on the idea that services should be equal for all, as law was already supposed to be, and that the quality of life should improve in like manner as society could progressively provide for social necessities. Although de facto differences existed within a highly stratified society, the overall trend was of progress for all, even if its speed was noticeably slow. The Health Sector (c. 1950–1973) The comparatively new NHS worked and progressed in the same manner, as the effect of central planning, rationalization, and resource pooling and referral provided an impressive improvement to the quantity and quality of services delivered. In the medium run, there was a positive impact upon the health status of the population at very costeffective levels. A comprehensive analysis by this writer, and of course others, under a period of intense military constraints, confirmed the relative improvements. The comparison of figures for 1969–70, and 1974, (that is before and after the military coup) suggest a stagnant situation. However, these same figures reveal a type of ‘social accumulator’: even though GDP figures1 augmented only slightly during these 1

Absolute; ‘ppp,’ of the parity purchasing power type were not invented yet.

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three years, social expenditure grew by a minimum 31 percent (education) and a maximum of 93 percent (public housing). All social sectors stockpiled resources which should also contribute to the ‘delayed effect’ of this accumulator-like social mechanism; from 1974 to 1976 these trends were completely reversed (Sepulveda, 1994). The Role of Health Professions To a large extent these developments were due to the concomitant ideology of the medical and related professions. This served to ensure, by and large, that its members would accept moderate fees in exchange for their services, including a progressive trend towards ‘functionary’ contracts, which meant full engagement in public services (six to eight hours a day) and a restricted private practice, rarely more than two to four hours a day. The medical profession, in particular, adopted such regulations in a corporate manner, with the National Order of Physicians, created in the early fifties alongside the NHS, fully sponsoring the policies under way. There were dissenting opinions but these were still a minority. The profession’s social status and prestige was kept along the traditional basis of doctor-patient relationship, rather than size of clientele or earnings received. For a medical doctor, to become a rich person was a non-value, well below the satisfaction and prestige obtained from a practice of excellence to which most ‘free time’ was devoted. The ‘lost’ monetary ‘opportunity cost’ of such practices was considerable, which is only explainable by the overall values system alluded to; for its detractors, it was a state of inexcusable naïveté. The development of ‘general practitioners’ since the mid-sixties, was a system first confined to medical doctors, expanded to other health professions in the early seventies, which permitted an expansion in geographical coverage to the remotest places of the country. In exchange, practitioners received full specialist free training, following a careful determination of the size and geographical distribution of each medical specialty. Thus, a harmonized body of medical skills was developing to absorb and cater to the progress of scientific knowledge. Other Components of the Health Care System A full intermediate care level was completed by creating a technically sound role of ‘nurse aids,’ which trained assistant personnel for a year,

health care ideology at the turn of the 21st century 143 upon a ten-years schooling base. The idea of servicing health needs was thus reinforced, although it never reached complete development before the violent impact of the military dictatorship that swept the country. The state would complement the geographical accessibility of care facilities, by creating a network of ‘smaller hospitals’ catering decentralized health care. A network of regionalized linkages to complex hospitals permitted supervision and referral for more complicated cases. In 1967, when the availability of price-affordable medicines became a problem, the country enacted policies creating a system of non-proprietary drugs, later known as ‘essential medicines.’ This initiative was to become widespread, after WHO sponsored the concept worldwide a decade later. Thus, Chilean general practitioners, nurse-aides, small hospitals and essential drugs had, de facto applied the basic tenets of the Primary Health Care approach that was developing elsewhere in the world. Mortality rates dropped, as did fertility rates. The country entered its demographic transition with a period of sustained quality care that, without yet achieving full coverage, made it affordable to most of the citizens. It did so at costs that were in keeping with the economic capabilities of the country while ensuring a high degree of care equality. The ‘solidarity paradigm’ was under effective implementation. After 1973 A social system which keeps societal areas such as education, health, and social security outside market mechanisms is bound to have lower aggregate figures of economic growth than those which saddle them with profit margins. While this may be considered an economic burden on a society where the richer segments stand to benefit the most, the full cost of uncared for morbidity, suffering, or compromised future opportunities by way of high credit-servicing, has never been assessed. Yet, the impact on the weaker segments of the population is immediate, because a double-track services system, rejects or postpones their care for weeks, months or years, with eventual development of unnecessary sequelae and untold discomfort. In light of market developments that have occurred since the end of dictatorship, it is possible to argue that the true motivation of the military coup was the full restoration of profit making. Thirty-five years later, it can be seen that twenty years of military grip made services to go beneath the levels that preceded the socialist initiatives of the

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doomed Allende Government (1970–73). The dictatorship not only thwarted the socialist experiment, but annihilated and physically tortured or killed an important layer of its leadership, including doctors and health professionals. Inviting in experts from the ‘Chicago School’ of Economics, it set to undo a century or so of solidarity developed by Chile’s social forces and set up a legal framework which obstructed any developments that could limit profiteering. Under ideological pressure, Congress was dismissed, a new Constitution was drafted, social organizations were banned or deprived of any power, leaderships were replaced, ‘[market] reforms’ started in every corner of the societal tissue, and even health and death (private cemeteries) were subject to initiatives which, paradoxically, became complete only upon return to a poll-system of elected officers, well into the 21st century. Obviously, the losers were those segments of society that had the least. On the opposite side, capital and its holders, native and foreign, found new and easier ways to hire cheap labor. Solidarity mechanisms, such as social security and funding of health services, compulsory since 1952, were now put under the management of profit-oriented corporations. Similarly redirected were the educational system, universities included, and the social security system. This activity de facto defeated the solidarity paradigm, as everybody’s funds were channeled into private-profit agencies. The restrictions of the internal market due to low wages and a sweeping wave of cheap imports were compensated for by a ‘generous’ system of credit cards that became another source of profit making, by way of onerous and little-controlled interest rates. The selling of money itself, which is what credit under market conditions is, became another way of making money. Although the population did have immediate access to money in advance, for which it paid dearly; in exchange it became captive of an endless cycle of pay-andborrow-again, which effectively stole from their hands significant control over its future for many years. The health and social security systems were a mainstay of the new order. A financial reform of these services was enacted in the early 1980’s by which every worker or employee had, by law, to contribute seven percent of their wages for health insurance, and nine percent to a pension fund, respectively. Employers were relieved from the contributory one-third that had been set-up in social security schemes since the time of Bismarck. Private companies, called ISAPRES2 and 2

Health Insurance Institutions.

health care ideology at the turn of the 21st century 145 AFPs,3 respectively, would manage the funds so accumulated. In the case of health, however, a State run Fund called FONASA4 was put in place. A small National Insurance Institute (INP) was kept for those retirees who did not accept the shift of their savings to AFPs; today their pensions double-up those granted by AFPs. Stringent compulsory measures were applied for people to affiliate to the new institutions, including one-time handouts which, in perspective, were both small and of little relevance. Pensions would henceforth be in accordance with dues paid over the years, to finance a monthly stipend to last only until it was exhausted. If increasingly aged people overstepped such amounts, a subsidy (very modest) from the state would be the only income remaining. AFPs operate, for compulsory fees, by way of investment through so-called ‘Funds’ of graded risk, from A being the higher, to E being the lower. This meant that contributors could choose one or the other, at their own risk. It meant, furthermore, that the ‘Funds’ would purchase shares of companies of their own choice. If those shares fared well, individual ‘investments’ would grow; or decrease in the opposite situation, impacting the amount left for actual retirement. In the face of the 2009 world crisis, people have lost important shares of their saved earnings. AFPs have strongly advised individuals to defer retirement in the hope that eventual recovery would improve the book value of much-dwindled personal assets. In other words, people are urged to ‘work a little more’ so that they ended up contributing additionally, in sheer labor. Local enterprise, centered in retail and trade from abroad, and rarely on new productive ventures, would avidly lobby for those Funds, as a very sizable pool of savings had been accumulated in ISAPRES and AFPs. Such institutions are often owned by banks, both local and foreign, the profit-making mechanism having been so perfected to the utmost. Everyone has been called upon to contribute, but most of any actual benefits would remain in the hands of a few. This is now called the ‘Chilean-model’ that is being copied here and there. Affiliation results were, however, of widely dissimilar proportions. While closer to 90 percent was stimulated to take up private pension schemes with AFPs, a mere third of the population would go to private

3 4

Pension Fund Administrators. National Health Fund.

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health institutions, ISAPRES, where the richest third would represent close to 50 percent of total expenditures. The remaining two-thirds of the population had to make do with the other half. Even so, public health services were able to cope with the challenge by keeping services’ costs under control, and so enlarge coverage and become far more efficient than the private sector, in spite of misguided interpretations to the contrary. By comparing actual expenditure to the price-equivalent of standard services, money was in fact compared with money (Tokman and Rodriguez, 2000). However, when such expenditure was compared with the actual ‘physical products’ delivered (Sepulveda, 2004a), both sectors had similar ‘concentration’ rates, that is, an average 9.4/9.1 services per person per year in 1999, for the public and private sectors, respectively. The rate of increase was similarly oriented at 75/69 percent for the period. However, such efforts reached in 1999, a total 85 million services delivered in the public sector, against some 30 million in the private one, with an equivalent 50 percent of the monetary resources spent in each sector. Obviously the average unit costs in the public sector, at US$ 24, were half of those in the private sector, at US$ 44. Nonetheless, public health services had become costlier on account of increased salaries from the very low levels reached during the dictatorship years, and technological catching up, at about four percent of the public health budget during President Aylwin’s tenure (1990–94), a share not sustained later on. These increases were indispensable to workers’ dignity, the quality of delivery, and the concurrence with private investment. In fact that efficiency was obvious: the private sector had to accommodate for the large profits demanded by their investors. So much so that by 1999 the affiliation share dwindled to 25 percent, but still accounted for half of the total expenditure, a better rate of return on capital with lower levels of enrollment. In addition, the fractioning of the diagnosis-clinical exams-treatment chain made each submarket, such as x-rays and scanner plate taking, grow on its own, regardless of the efficacy of the overall course of medical care. For instance, such submarkets and other clinical exams had grown over the period 19901999 by practically 100 percent, while medical consultations did so by only 33 percent, and surgery not at all. In the private sector, where all of those instances meant business, all types grew by over 100 percent, surgeries included. All types of exams, by some type of radiation or laboratory, went up by over 150 percent (Sepúlveda, 2004a).

health care ideology at the turn of the 21st century 147 The End of Military-Rule: Health Reform Once Again Although the above developments implied that private health insurance was making good progress, and good business, the businessoriented philosophy that also impregnated the new civilian government required that ways be devised to ensure that the flow of resources to the private sector would not dwindle along with affiliation rates and, if possible, increase. A new Health Reform was thus enacted in 2004 (Sandoval, 2004), after a long study process but a very swift passage through the National Parliament. It was composed of five laws relating to health financing, ISAPRES regulation, self-financing hospital networks, rights of the patient, and the type of illness-entitlement (known on its own as AUGE) that was the core of the market orientation of the new policy. All parameters of the health reform (hospitals singled-out for selffinancing, periods after which AUGE disease servicing was compulsory, unit costs, etc.) were to come from a country wide study sponsored by FONASA and WHO, based on the best twelve hospitals (FONASA/ OPS, 2001). In practice, a shortage of statistical information made those standards come to be based upon the performance of just two Santiago-based hospitals, with token inputs from a few others. Thus the ‘evidence’ on which policy and implementation measures were made was quite fluid, for parameters which would require frequent, perhaps yearly, assessment. In the end, to get access to restricted health services for some sixty selected diseases (at the time of this writing; further enlargement in the number is foreseen) incorporated into the AUGE list, everyone had to contract with a FONASA or an ISAPRES menu ‘plan.’ There are thousands of them, which specify what entitlements a person has, although a co-payment is also envisaged at each usage time. AUGE’s list is an obligatory part of those contracts, especially for FONASA holders. ISAPRES quickly established, while developing their own agendas, rosters of physicians/nurses/dentists and care institutions, with fixed fees to be negotiated, to which its affiliates are obliged to concur, having lost the freedom to consult anywhere. Some of these private care entities and doctors refuse to tend to FONASA-funded patients. On the other hand, when public institutions do not provide services on time, which is estimated in very arbitrary ways, they are obliged by law to purchase such services with private institutions, at private prices.

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Both mechanisms siphon financial resources from the public system to the private one. Profit making is thus ensured. The consequences are huge. Already the so-called ‘human-influenza’ (A-H1N1 virus, akin to the Spanish virus of the early 20th century) required the purchase in private clinics of several thousand million pesos worth of services and treatment, in spite of which, close to a hundred deaths had been lamented by August of 2009. To this, it should be added the behavior of the pharmaceutical retail outfits, which was not included in any of the legal frameworks devised. Highly concentrated, with three big chains accounting for close to 80 percent of the national pharmaceutical drug sales (estimated by most experts at some 50 percent of the total health expenditure, private and public), they have recently been subject to a scandalous collusion charge. It was widely covered in press releases that one of them selfproclaimed that all three of them had agreed to fix common prices for over 200 medicines of common utilization. The ensuing judiciary process was ended in a very favorable out-of-court settlement for the one making the disclosure, which the other two have counter-claimed as illegal. In addition, new regulations for price-display and control have been quickly enacted, and cumbersome reimbursement procedures to buyers have been set-up. Examples of ‘collusion’ are not restricted to the pharmaceutical retailers, as oligopolies run every aspect of the national economy. Under the current conditions (2009) of ‘world economic crisis,’ the Chilean Central Bank has lowered its inter-bank credit rate from 8.2. to 0.5 percent over a six-month period, to stimulate low cost credit and internal demand. Public press reports (CNN-Chile, August 2009, echoed by ‘El Mercurio,’ the national daily of highest circulation) show that less than a dozen ‘commercial banks’ still hold their rates to borrowers at an average of six percent. So that if a bank borrows from state lines of credit for which there are dues amounting to 5,000,000 pesos, a private individual would pay to his own bank some 29,000,000 pesos for the same service. Not only are Government policies not working, they have become an additional source of illegitimate profit for the socalled ‘banking industry.’ A private and elitist layer of health-care is thus burgeoning in Chile, in spite of the world economic crisis. Repercussions The true nature of the latest Health Reform is not only technical, but also ‘ethical’ (Sepulveda, 2004b:). On the one hand, policy-makers

health care ideology at the turn of the 21st century 149 have reduced state responsibility and commitment to health services delivery, by arbitrarily reducing the scope of the diseases to be cared for. This was probably the worst manner to curtail the scope of action in the face of a supposed shortage of funds, since no one decides on purpose for one’s own disease. Paradoxically, state financial resources are today better than at any point in history, due to sustained high prices of copper, the main export product and a ‘Nation Welfare Fund’ has been invested abroad, at fixed rates, for some US$ 25 billion or so. Those whose ailments do not fit into the 60 AUGE diseases have to wait for spare delivery capacity, if any, something rarely occurring. Thus, ‘the right to health,’ so much endorsed and spoken about, has become a mockery. On the other hand, the reform’s measures are oriented to ‘financial issues,’ direct and indirectly. For one, the VAT consumers’ tax was enhanced by one percentage point; first, on a transitory two-yearsbasis 2003–4; thence, made permanent. Everybody, every consumer of everything, pays for the 60 or so AUGE diseases, even if the disease a person has is not a part of the package (yet another measure of inequity), or the person has no disease at all. In addition, the compulsory purchase of private services under loosely defined standards is a protected and undisguised signal to private investors who have run out of other opportunities, as practically every line of national activity has been already privatized, or sold to foreign investors. The results are there to be seen: every one of the half dozen private clinics in Santiago has more than doubled their towering buildings and capacities in the last ten years or so, which can be seen by just looking around at these newest of premises, and the decay of the public ones. Finally, even with technical upgrades and perhaps improved managerial procedures, hospitals and most public institutions within the sector, being the least considered aspects of the reform of Healthcare, are over-burdened on a daily basis. The press is awash with stories of mismanagement and malpractice: i.e. ‘Talca Hospital’ several times; ‘Felix Bulnes’ Hospital, recently; and many others, which on some accounts may be uncalled for. After all, a system which provides close to half a million daily services throughout the country, for a clientele of over 12 million people, is bound to have some inevitable episodes of error and, yes, of malpractice. The impact of reform on health services ‘delivery’ has been profound. For one, the restrictive nature of the AUGE list, and the lack of funds for improvement of the public network, especially of hospitals, ensures that holders of FONASA entitlements call upon private

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institutions instead, usually at higher prices than in public institutions (here ‘savings’ are public, but ‘expenditure’ is private). As services are compulsorily purchased, they result in a peculiar form of subcontracted or concessionary service, akin to the packages used for road building (operators would pick usage fees for twenty years or so). This system is not only more expensive but forestalls the appropriate development of intrinsic installed capacity. This establishes yet again an endless circuit of pay and purchasing, getting into the red in the process (as most public hospitals already are), thereby being called ‘inefficient’ by the same compulsory token. Professionals, for their part, have seen their positions within the public system diminished in terms of salaries and technical opportunities. They have increasingly turned to private practice, mostly in groups. They will negotiate roster arrangements with the ISAPRES and private (and even public) delivery institutions, or become individual members of them. The end result is that they have just changed employers, from state institutions to private ventures. In the process, much ‘medical/health care’ time is devoted to logistical (i.e. transport) or managerial time. Opportunity-costs have finally turned to profit making as well, suppressing ethical ‘naïveté,’ such as on-the-job training, beyond the horizon. The trend to ‘specialist’ care has also meant that ‘first’ call on health services (improperly called ‘primary,’ at least in the capital, which harbors 40 percent of the country’s population) is now in the hands of immigrant doctors from different countries. An added economic burden to professionals is the financing of university studies, both medical and post-graduate, which obliges the contracting of pre-graduation commercial credits which have to be repaid; thus, every graduate initiates his or her professional life with a major debt, at a moment when salary is the only source of income. Profit in the form of fees for services is a distant, nebulous light in the future. For ‘the patient,’ nowadays called a ‘user’ since recovery is no longer necessarily the end product of the health action, the result is restricted access to care. This is predetermined by such factors as the AUGE roster, as well as the nature of its menu-plan, its availability of complementary funds for payment, and the physical capability of the specialist environment, among other things. On the other hand, the fractioning and scaling-up of health actions or ‘products’ to be performed per se, without meaning or impact, has lengthened the duration and cost of a ‘course of health care,’ from first call to diagnosis. This refers to exams

health care ideology at the turn of the 21st century 151 and treatment, not to speak of the many-fold ancillary expenditures in terms of the patient’s own time, including to financing the multiple movements to and fro, freely advised by not-so-caring health professionals. Often a patient has to repeatedly miss or even resign from employment duties. As a result, the ‘doctor-patient relationship,’ and the ‘individual ethics of human care’ have perhaps suffered the most. The individual patient-doctor relationship has been weakened, propped up by the inception of the ‘malpractice’ concept (Hubinois, 2006) instead of by the ‘unintended error’ (even if it also may cause damage), which permits that the patient may sue the doctor for monetary compensation, often on a rather uninformed basis. Nonetheless, such an event requires financial protection, hence doctors’ insurance, another profit making ‘legal’ device which, even if it may ‘compensate,’ can never ‘cure’ what the health service did not provide. To that extent, doctors and other health professionals have to obtain sufficient funds to be able either to pay the cost of the insurance, or to directly ‘compensate’ the unsatisfied patient. The result is increased fees that, on the whole, probably increase present-day profits of the profession overall. It is no surprise then, that the earlier idealistic stance of doctors ‘servicing people,’ be replaced by financially ‘protecting themselves’ (Sepulveda, 2009). From those who could sue them. A sheer avidity for money may also develop, as many cases would attest. Conclusion The above are not characteristics generated from within the health sector or the health care system, but are the outcome of an overall societal change which has decomposed every unified chain of action into its component parts, so as to permit maximization of their individual marketing. By this perspective, the Chilean State, by selling, subcontracting or otherwise privatizing almost all initiatives and related ‘reforms,’ has been highly successful. Whether in the field of education, transport, social security or whatever; the health sector is no exception. Higher GDP and sector shares testify to that. Yet, personal health care has not improved while it has increased expectations and become increasingly costlier. It will continue doing so, pre-empting other ways of attaining a better quality of life. While this may seem to be an obvious conclusion, it may situate the solution in its proper context: a ‘market-society’ may only aspire to

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‘market products.’ Whether such products can embody comprehensive perceptions such as ‘the complete state of physical, mental and social wellbeing,’ may get a resounding negative answer, so much so, that it requires an absolute change of societal values, in a humane, nondecomposable way. Just as in other aspects of social change, such as family breakdown, drug addiction, common delinquency, civic corruption, anomie, political irrelevancy, etc., the profound ‘disease’ of the health sector is a crisis of societal values and a rapidly deepening one. No sector-based solution can cure it. It ultimately requires a re-design of societal aims and structures. This signifies that a long and trial-plagued road will have to be traveled again, as the poet Antonio Machado once said:… caminante, no hay camino, se hace camino al andar…[…road-walker, there is no road, you will hew it whilst walking…] to which I would add: provided that the right aim is first, set forth.

CHAPTER SEVEN

THE STRUGGLE FOR EDUCATION AND THE NEOLIBERAL REACTION Rodrigo Cornejo, Juan González, Rodrigo Sánchez, Mario Sobarzo and the Opech Collective The Chilean Neoliberal Experiment By late 2009, the world had yet to overcome the neoliberal crisis, one of the largest ever suffered by capitalism. Emir Sader and other intellectuals labelled Chile as the most neoliberal country in the world (Sader, 2006). It is important to reveal the nature of the Chilean repressive apparatus. It is a highly sophisticated mechanism, oriented against the individual, which attempts to impede criticism, questioning or acknowledgment of the crisis. This was clearly illustrated by one of the most important post dictatorship social movements: the social movement for education, re-articulation of which was made evident by the secondary students’ rebellion of 2006. Chile has become a necessary reference as it stands out in the intensity and the continuity of its application of neoliberal policies, that all have worldwide implications. In Chile, as in no other country, the following elements of society were privatized: almost all basic services (water, electricity, gas, telephone, medicine, banks); urban, rail and air transport; highway services inside and between cities; the pension system (except for the Armed Forces); the prison system; cubic meters of sea water given through concessions for the exploitation of marine resources; extensions of land, given through concessions for tourism; and also important areas of social welfare, such as the health and educational systems. Moreover, the latter has been privatized throughout every educational level. Chile appears to be the only country with one hundred percent privatized Higher Education (SITEAL, 2008). Yet another neoliberal anomaly exists insofar as the fees of at least US$ 500 per month must be paid by students of Higher Education at some Chilean public universities.

154 cornejo, gonzález, sánchez, sobarzo & opech collective According to Ffrench-Davis, “CORFO1 controlled the property of 46 companies in 1970, which increased to around 300 in 1973” (Ffrench-Davis, 1999: 64). As María Olivia Monckeberg remarks: “the process of privatizing state companies carried out in Chile between 1982 and 1989 was the first of its kind in Latin America, and even more radical than the similar process that occurred in England” (Monckeberg, 2002: 22). Therefore, a very segregated country has been built, with heterogeneous and dissimilar ways of economical integration, and with an increasing exclusion of majorities. The profit rates of the large economical groups climbed up to be the highest in history. The sector that made the most profits between 2004 and 2007, having admitted a 7200 percent increase, is the banking companies (Sanchez and Sobarzo, 2008). According to the UNDP 2003 Human Development Report, Chile is amongst the world’s 12 worst countries in terms of income distribution (UNDP, 2003). Chilean neoliberal policies were largely designed and executed during the military dictatorship and they contain elements of a redefinition of the most visible economical and technical aspects. But they also reform political systems, and intervene across the cultural and ideological milieus, transforming the re-production conditions of subjectivities and identities. As expressed by Suely Rolnik, the financial capital does not produce merchandise as the industrial capital, but it produces (…) worlds of signs through publicity and the culture of the masses (…) these signs carry at all times the message stating the existence of paradises on earth, and that some of us will have the privilege of living in those paradises (Colectivo Situaciones, 2006). The educational system as the main public apparatus conducive to shaping common social values has not been exempt from this neoliberal intervention. Chile has been a real laboratory for the application of neoliberal educational formulas; some elements of which are the following:2 a. A Political Constitution which gives priority to economic and entrepreneurial rights, and does not establish rights such as the right to

1 CORFO: Corporación de Fomento de la Producción, a public sector Corporation charged with production promotion. 2 For more details, see: Cornejo, Rodrigo. 2006. “El experimento educativo chileno 20 años después: Una mirada crítica a los logros y falencias del sistema escolar.” Revista

the struggle for education and the neoliberal reaction 155 participate or to social protection (article 19). Moreover, together with the stated rights, ‘Constitutional Guarantees’ are given to the rights of ‘freedom of teaching’ and of ‘free enterprise,’ but not to the ‘right to education,’ thus subordinating the ‘right to education’ to the ‘freedom of teaching’ (article 20). b. An educational finance system based on state subsidies allocated to students independently of whether they attend public or privately managed educational institutions. This system exists in different parts of the world but as complementary financing, never as a sole or hegemonic system. It is also known as the ‘voucher’ system, based on the model proposed by Milton Friedman. But in Chile the voucher is given directly to the schools rather than to the families. It consists of a US$ 80 monthly subsidy, but depends on the actual number of days the student attends school, since missed days are discounted. c. The right of every private educational institution’s owner to profit from the scarce resources assigned for education by the state. As well as the authority to charge families an extra amount, ‘The Shared Financing System’ (FICOM), and the right to select the type of students they wish to educate. This situation shapes a real social and educational apartheid, not only of economical nature, and it may also have an ideological slant promoted by the authorization (since the enactment of the General Law of Education - LGE) to select educational institutions according to the educational project of each center. All of this allows for segregation, violating basic human rights severely. d. The explosive growth of the private subsidized sector (2,000 new schools between 1990 and 2007) while the public sector was experiencing a loss of schools and enrolment decreases (almost 100 schools closed in the same period). The private sector grew with strong state support, manifested in legislative advantages such as authority for ‘shared financing.’ Additionally there were evident

Electrónica Iberoamericana sobre Calidad, Eficacia y Cambio en Educación. Vol. 4 – 1; Redondo, Jesús M., Carlos Descouvieres and Karina Rojas. 2004. Equidad y Calidad de la Educación en Chile: Reflexiones e investigaciones de eficiencia de la educación obligatoria (1990–2001). Santiago de Chile: Universidad de Chile/LOM. ; and OPECH. 2006. ¿Por qué hay que cambiar la LOCE y revisar la Municipalización? http://www.opech.cl/ bibliografico/doc_movest/opech_loce.pdf.

156 cornejo, gonzález, sánchez, sobarzo & opech collective administrative advantages in the serious flaws of oversight regarding the use of allocated resources. Nowadays, 42 percent of students enrolled in the compulsory Chilean education system attend private schools that receive state subsidies. To this number, a nine percent of students attending private schools without state subsidies must be added.3 e. Primary and secondary schools, that used to be managed by the Public Education Ministry,4 were transferred to city councils, which have, except for rare cases, very low technical and administrative capabilities to properly undertake child and youth education. Only ten percent of the 344 municipal administration structures of the country have technical education staff. f. The constant undermining of social actors, especially teacher and student organizations, through constant criminalization, ‘adult-centric’ disqualification of the secondary students’ movement, and by blaming teachers for the low educational standards achieved.5 This singular educational system was tied by a constitutional law, the Constitutional Organic Law of Education (LOCE), promulgated by the military dictatorship only one day before leaving command. It was a law requiring approval of two thirds of the Senate to be modified, like any other constitutional law. Due to the Chilean Binomial Electoral System which consolidated an excluding legislative power, it was impossible to make any substantial changes to this law. The educational system has generated serious problems of educational quality, inequity, and an unprecedented socio-cultural segmentation phenomenon in Chilean schools: a type of educational apartheid. In the words of the Organization for Cooperation and Economic Development (OECD), Chilean education is “influenced by an ideology that gives improper relevance to market mechanisms for enhancing teaching and learning” and appears to be “consciously structured by social classes” (OECD, 2004). 3 For more on the Chilean privatization process see: Redondo, Jesús M., Carlos Descouvieres and Karina Rojas. 2004. Equidad y Calidad de la Educación en Chile: Reflexiones e investigaciones de eficiencia de la educación obligatoria (1990–2001). Santiago de Chile: Universidad de Chile/LOM. http://www.opech.cl/bibliografico/ calidad_equidad/equidadycalidad.pdf. 4 Today this Ministry is called Ministry of Education (MINEDUC), minus the word “Public,” as an example of the symbolic invisibility of the role of the State. 5 For a more detailed analysis of the main educational reforms of the military government see: Ruiz Schneider, Carlos. 1999. Educación, Mercado y Privatización. Santiago de Chile: Universidad de Chile.

the struggle for education and the neoliberal reaction 157 By the time these lines were written, the new General Law of Education (LGE) was being approved, which does not modify the bases of the neoliberal educational system at all, but rather consolidates them.6 The Social Movement for Education in Chile The secondary students’ movement is the most recent manifestation of social unrest throughout the country, after many years of social insecurity and precariousness in all spheres of social, political and cultural life. This manifestation of social participation or ‘political event’ 7 originated in an extended political journey of a social subject that has been present in Chile since the 20th century, as a movement by and for the education of popular sectors. We could mark a milestone on August 13, 1949, when schoolchildren and university students went out on the streets to protest the increase in the price of public transport fares by 20 cents. This event was called Huelga de las Chauchas (Strike of the Cents).8 Eight years later, in the first days of April 1957, the so called ‘Battle of Santiago’ took place, in which the increase in public transport fares caused general unrest, manifested through massive secondary and university student protests. It was in the late 1960s when social movements reached their greatest impact on Chilean politics, strengthening up to the point of placing a representative of the majorities into the Executive Power. During the Unidad Popular (Popular Unity coalition) government lead by President Salvador Allende between 1970 and 1973, the students’ movement reached its peak throughout the different national student 6 For more on this see: Redondo, Jesús. 2008. Statement issued by Jesús Redondo Rojo, Director of the Chilean Observatory for Educational Policies of the Universidad de Chile, at the National Parliament, Valparaíso, July 30. 7 The concept of political event has been used by revolutionary theory since Marx concerning the Commune of Paris, onwards. We understand it’s meaning as the inflection in power relations due to the continuous confrontations in which the popular class is capable of transforming the enunciation forms and visualization of reality, the way bodies express themselves and how they use space. The Penguin Rebellion (student movement of 2006) meant the symbolic rooting of social protection as a key issue in the speech of the current president Michelle Bachelet, and as a seal of her government. Today, all Chilean presidential candidates (no women included) mention Crisis of the Education system as a key issue. 8 The word chaucha, equivalent to one cent, makes reference to the cost of the transport ticket.

158 cornejo, gonzález, sánchez, sobarzo & opech collective federations, the Secondary Students Federation (FESES), the Universidad de Chile (Chilean University) Students Federation (FECH), etc. As Nelson Gutierrez expressed it in an interview with SurDA (left wing) magazine: …any objective observer, capable of seeing the big picture, should be able to recognize when taking a look at national history, that the Unidad Popular experience between 1970 and 1973 has been the most democratic situation ever lived in Chile. During this period, Chilean society experienced the richest, most complex and extended social equalization processes throughout history, while at the same time, political participation was being meaningfully widened. The democratization process reached universities, lyceums, schools, stepped into industry and into agricultural companies, expanded through urban and rural locations, knocking on Church’s door, and even military bases. The imagery was filled with future and dreams, with a more human, fairer, and more efficient social order while satisfying everybody’s needs… (INEDH, 2009)

The 1973 coup d’état broke onto the scene with great violence and repressive force, disarticulating the movements of urban masses, workers, intellectuals, teachers, and with them, the movements of secondary and tertiary students. The movement for education retrenched simultaneously with the popular movement and would take years to recover from violent and systematic persecution. In 1977 the University Cultural Assembly (ACU) was able to be founded at the Universidad de Chile. This organization started to reconnect the bonds between a re-emerging university movement and different actors from the social environment, through the promotion of music and several other art forms.9 After a process of political and social reconstitution, the Chilean University Student Federation (FECH) was re-founded in 1984. Subsequently, in 1986 the Santiago Secondary Students Federation was rearticulated. Both organizations in alliance with urban and worker organizations led all mobilizations, which ended up delegitimizing the military regime and forcing Pinochet towards negotiations with the coalition of parties that eventually took charge of the Executive after he left.

9 For more on this subject see: Muñoz Tamayo, Víctor. 2002. “El Movimiento Social Juvenil y Eje Cultural: Dos contextos de reconstrucción organizativa (1976–1982 / 1989–2002).” Ultima Década, N° 17. Sept. Viña del Mar: Centro de Investigación y Difusión Achupallas, pp. 41–64.

the struggle for education and the neoliberal reaction 159 During the 1990s, the times of re-democratization were paradoxically times of disarticulation of the student movement. FESES gathered no more than ten establishments, and the secondary students’ movement was co-opted through the Law of Student Centers (1990) and initiatives such as the “Youth Parliament” (1997). These initiatives were aimed at capturing the spontaneous street and activist organizations into a representative and institutional context very distant from the logics of popular youth organizations. Newer technologies enabled more complex than simple repression to cohabit with the social movement restructuring processes. The decade of the 1990s constitutes a demonstration period for this phenomenon. People’s fear of the return of dictatorship state-run open violence, together with the deepening of the economical, political and ideological extents of the neoliberal social project, prevailed throughout those years. During that period, the paucity of research relating to youth organizations unveiled a total crisis in representation of the formal participation spaces, such as student centers, political parties or governmental initiatives like youth parliaments, and others (Ássael, Jenny et al, 2000; Assael, Cerda, and Santa Cruz, 2001; INJUV, 1999; Oyarzún, et al, 1999). The secondary students’ movement publicly broke onto the scene in 2006 expressing continuity with youth and student groups born around 1999 and 2000 (Gonzalez, 2006). In 2001, the secondary students’ movement led public demonstrations that did not reach the levels of organization, popularity and maturity of the mobilizations in 2006, but did however mean a reactivation of a large number of students. This early mobilization focused on demanding improvements in public transport (which was by that time already privatized) and improved conditions for students, and was known as the mochilazo (backpack movement).10 It is quite remarkable how the experience gained through this mobilization was transmitted to the younger students who later led mobilizations during 2006. Most of the latter were young primary students at the time of the ‘backpack movement.’ It was mainly an informal oral transmission process, since very few written records about mobilization processes circulated among students (Cornejo, González and Caldichoury, 2007).

10 For a chronology of the period see: OPECH. 2009. “Cronología del Movimiento Secundario” in OPECH, De Actores Secundarios a Estudiantes Protagonistas. Santiago de Chile: OPECH, pp. 10–14. http://www.opech.cl/Libros/doc5.pdf.

160 cornejo, gonzález, sánchez, sobarzo & opech collective The 2006 students Movement also popularly known as Los Pingüinos (The Penguins)11 mobilization reached levels of popularity and citizen support not seen since Pinochet had left the executive power. In general terms it can be said that this movement: … became organized with the articulation of the Coordination Assembly of Secondary Students (ACES), born from student centers and collectivities12 mainly from emblematic13 schools of downtown Santiago and some municipal and private subsidized schools located nearby (González, Cornejo and Sanchez, 2006).

A few days after student takeovers and stoppages began in some public secondary schools in Santiago, the movement extended beyond its seams. Students and teachers from urban peripheries and provincial14 schools, the most affected by education inequities in Chile, also joined in, to the surprise of many. ACES spread nationwide. A process of school occupations and stoppages was unleashed, which is evidence of the coming together of excluded youths in Chilean society (from peripheral or urban popular secondary schools) and middle or popular class students with chances of becoming ‘socially integrated.’ This unified phenomenon, with no other post-dictatorship precedents, characterizes the radicalism of this movement, in terms of social massiveness. During the national school strikes dated May 30th and June 5th, 2006, an estimated one million secondary students (from a grand total of 1.2 million) were mobilized throughout the country. The support of many others must be added to this number: primary students, the Teachers Association, parent associations and the National Confederation of University Students (CONFECH). The level of citizen support for all movement demands was estimated through public opinion surveys to be between 83 percent (Public 11 The name Penguins came from the dark blue and white uniforms used by Chilean students, which resemble the human-like marine birds whose flocks are spread along coastal Chile. 12 Collectivities are organizations that emerge around social, cultural and political expressions of left wing students, who do not feel represented by the existing political structures, as in Salazar, Julio and Gabriel Pinto. 2002. Historia Contemporánea de Chile. Santiago de Chile: Editorial LOM. 13 Municipal Educational Centers that have economic and/or intellectual elite students because they select them, and have Educational Projects strongly rooted in the institution and country’s traditions. These schools have no cost and are mainly located in the Santiago Municipality, the neuralgic centre of the country’s capital. 14 Occupations of schools by students were so widespread that even Lorenzo Baeza School, on Easter Island (the Chilean island in Oceania 3,500 km off the coast of continental Chile), was occupied on May 30, 2006.

the struggle for education and the neoliberal reaction 161 Policies Center – Universidad del Desarrollo) and 87 percent (Survey Center – La Tercera journal). No other post-dictatorship social movement had ever reached the same levels of massiveness and social summoning. It is possible to state that this student movement and all pacific secondary school takeovers had established a new public space (of common interests) representative of the “collective suffering” and social abandonment experienced by vast portions of the Chilean population in the current neoliberal development model. (González, Cornejo and Sanchez, 2006). The main achievement of the national secondary students’ movement was the change in government priorities over educational policies. During her Annual Public Report before the National Parliament on May 21, 2006 (at the beginning of the movement) President Bachelet announced her priorities and her vision regarding the country’s education. These priorities were mostly based on an expansion of pre-school education coverage and on a change in the amounts granted as subsidies to the so called ‘vulnerable schools.’ Nowhere in her speech was the crisis of the educational system acknowledged. But on June 1st, only ten days later, in a TV and radio speech broadcast nationwide, the President acknowledged and valued the meaning of the student movement and announced, amongst several other developments, a constitutional reform project, openly admitting the educational crisis denounced by the students. The reform project gave constitutional guarantees to the right for education, a privilege not previously included in social rights in Chile. This project was rejected even by parliamentarians who belonged to the government coalition led by the Socialist Party. New Ways of Social and Political Participation: Learning by Doing Dictatorship repression was mainly targeted against social organizations and the self-educational processes developed by them. Pinochet represented a selective annihilation process against mass popular leaders, which shocked the social movement. He also pursued a strategy of dismantling the minimal ‘social state’ that had been gradually achieved through years of previous social struggle in the streets. A meaningful icon of such social state was education. In order to weaken the symbolic resistance implied by the battle for equality, public education necessarily had to be destroyed. This was fundamental in such a

162 cornejo, gonzález, sánchez, sobarzo & opech collective strongly structured socio-economic context as the Chilean. Additionally, the 2006 political ‘event’ represents great advances on how citizenship is practiced by social organizations in Chile.15 Such advances can be briefly described as follows: Redefinition of politics within the neoliberal setting: Active Citizenship The liberal logic of politics of conflict evasion, dialogue promotion, ‘expert’ conflict mediation and consensus building according to institutional settings and timing, was subverted. The secondary students’ movement re-installed dialogue mechanisms such as assemblies and new timing and agreement protocols, giving less initiative to the government and more to the movement. In so doing, the inherent limits of the representative democratic model were overcome when exercising active citizenship which distrusts the ‘expert’ interventions proposed by the political class. Examples of this were the movement attempts to become co-drafters (with Congress), of the new education law meant to replace LOCE and to directly participate in the legislative negotiation process which the government intended to carry out with the political right faction in Parliament. Additionally, the secondary students’ movement subverted the liberal model and its electoral democracy formats by promoting people’s participation as individuals. Instead, they positioned themselves as a collective subject with a popular identity, and intervened in the political space from this position. In relation to this, a student stated: “Citizenship takes you to an equal level with others … we do not feel as equals so we do not want to be called citizens. We are poor …” (Sanchez and Santis, 2009) Articulation among micro practices and macro policies The secondary students’ movement managed to merge their economical and political demands, through a method aimed at influencing the movement itself as well as its surroundings. This was accomplished when consolidating values and attitudes which are coherent with the 15 For an analysis of the new representations of citizenship in these youth organizations, see: González, Juan. 2009. “Ciudadanía Juvenil en el Chile Post Dictadura; El Movimiento Secundario del año 2006 y las Organizaciones de Autoeducación Popular,” in OPECH, Juventud y Enseñanza Media en Chile del Bicentenario. Antecedentes de la Revolución Pingüina, pp. 394–438. Santiago de Chile: OPECH. http://www.opech.cl/ Libros/doc4.pdf.

the struggle for education and the neoliberal reaction 163 discourse that criticizes the social, political and cultural system. The secondary students’ movement became characterized, at that point, by the ability to articulate a proposal for change in the immediate social relations, highlighting the urgent need of transforming the political and economical system in which they were inserted. This is how the movement managed to integrate economical and infrastructural demands into their own. In so doing they were at the same time contesting a transition to democracy as agreed by the political leadership and expressed both in LOCE and in the education management system. They were also linking it, especially coming from the popular collectivities in the urban periphery, with a criticism of the neoliberal cultural system, and of the lifestyle that system imposes. This audacity was considered a real anathema in the context of Latin America’s most successful neoliberal country. Students showed that, behind the scenes especially set up for the TV, the neoliberal reality means social ruin. Three years later, this seems obvious, everywhere except in Chile. The movement also issued demands related to everyday life and to personal experiences in schools. A debate on the full-day schooling proposal was promoted, focusing on what actually is supposed to be done during extra school hours. The students refused to receive more school hours ‘of the same’ and mobilized for the introduction of ‘street culture’ and their daily local experiences into the education culture. Also, a vast sector of those students who were mobilized managed to articulate, through their discourse and through their practice, a radical criticism of the hegemonic ‘lifestyle’ of the neoliberal Chilean society. They associate this ‘lifestyle’ to individualism, consumerism, and competitiveness; to accommodating and to lacking social consciousness or willingness to mobilize. As expressed by a national spokesperson in an exclusive interview: … [O]ur criticism is not against exclusion. It is against all existing kinds of human relations impeding human development. There is an obstacle between life developing parameters and what the ideologies to develop those parameters are: Our parents work to live and live to work, and they raise us to do the same … (Cornejo, Gonzalez and Caldichoury, 2007).

The formation of those levels of consciousness and of criticism towards ‘neoliberal lifestyle’ is one of the elements that turned into accumulated social knowledge, thanks to this movement. Since then, the years that followed have brought forth systematic mobilizations to show that the educational crisis cannot be solved with institutional reorganization,

164 cornejo, gonzález, sánchez, sobarzo & opech collective which only would address one of its symptoms. The disease is called capitalism, and it operates within Chilean education giving students more rights as consumers than as citizens. Unity among fragmented social sectors Another contribution from the 2006 movement for education and its statements was the emergence of vast sectors of urban marginal youth into public view. Traditionally excluded from contingent political participation, they managed to articulate with and eventually to lead middle class youth, from ‘emblematic’ Santiago secondary public schools and some private establishments, with better social integration potential. This element contributed to the massiveness of the movement and incorporated some topics that were not initially stated forcefully enough. In spite of traditional fragmentations, the movement achieved the establishment of a political alliance between both class factions. This constituted a new form of relation in the post-dictatorship Chile, highly dangerous for neoliberal society stability. The traditional tensions between class sectors highly influenced by social-climbing and social status ideology did not disappear. Difficulties and mistrusts remained inside the movement. As a student from the Santiago outskirts, who (as most mobilized students) did not belong to any political party, stated during an interview: They (students César Valenzuela, Karina Delfino) have already won the race; they will surely show up as candidates for Congress very soon. Can you imagine? Another oppressive Congressperson!

It is interesting to mention that on Sunday, May 31, 2009 both cited spokespersons from 2006 did in fact join the presidential campaign of the Christian Democracy Party candidate, integrating the government coalition. However, the power of ‘us’ configured around the demands for equality and quality in education was an important step towards gradually constituting a class identity for the movement. This class identity entailed a high degree of identity with citizenry, especially regarding the most excluded sectors. Vindication of organizations other than the formal politically shaped ones: Collectivities, Assemblies, and non-oligarchic leadership The ‘collectivity,’ a relatively small group of students from a public secondary school who share an ideological identity (usually left-wing

the struggle for education and the neoliberal reaction 165 students) and who define themselves around their basic political practices, is a phenomenon that is present in the recent history of the eternal Chilean transition. There are such ‘collectivities’ in almost all mobilized public secondary schools, especially the most actives ones, and their members have a daily, smooth connection with all of their classmates. The so-called ‘piños’ are groups of young people who share friendship and a vision of the world, common interests and aesthetics (music, sports, etc.) The vision shared within these ‘piños’ is not necessarily ideological; but emerging from their living conditions. In this case, class marginalization and the lack of social rights. It should therefore not be too surprising that leading student groups within schools such as ‘collectivities’ and ‘piños’ usually do not belong to formal organizations such as student councils. Student ‘collectivities’ have de facto power and leadership and do not respond to institutional and representative hierarchical logics. This organizational form was the base of the movement’s network articulation. The mechanism which made it popular and helped it articulate around a ‘rhizome’ operational logic, was a concept developed by Deleuze and Guattari (1978). This means that the movement does not have a unique trunk, but it is shaped by several organic components which multiply themselves at different times and places. This operational method allowed the constitution of a national entity which coordinated and articulated itself and grew supported by technological and social information networks: blog spots, e-mails, cell phones, groups of friends, etc. It is then no coincidence that one of the main complaints of the students was the constant intervention of their cell phones.16 Another remarkable issue was the relevance of the assembly as a regular frame for discussion and decision making, which allowed for a horizontal organization within the movement. Agreements and decisions were under constant revision. Spokespersons were bearers of a collective instruction and they could be dismissed by the assembly. By doing so, the constitution of a political class in the heart of the movement was not permitted, and the interests of the social organization had clear priority over any personal or political party interests. 16 For more on this subject, see: Daniel Brzovic. 2009. OPECH: “La Estrategia de la Represión contra los Estudiantes Movilizados; Mucho más que un Lumazo” in OPECH, De Actores Secundarios A Estudiantes Protagonistas, Santiago: OPECH, pp. 146–150. .

166 cornejo, gonzález, sánchez, sobarzo & opech collective Therefore, the constitution of permanent leaderships reproducing the traditional oligarchic structure of the Chilean left-wing was avoided. A communication policy born from exclusion and highlighting the responsibility of transition agreements The dimension of the education crisis or of the ongoing material failures of the agreements reached and built in the context of a transition organized behind the backs of popular majorities, was made evident to the political class by the 2006 students’ movement. The political formulas successfully used to symbolically negotiate with union leaders or other groups exercising social pressure, changed considerably from then on. In 2009, teachers from the public system have been capable of utilizing them to organize a mobilization demanding a government bond, against the agreements of their leaders who were happy to yield to government and city councils interests. Moreover, the excluded sectors have developed an effective method of political propaganda which has allowed social movements to use education as the articulation axis in their organization aiming at reconstructing the necessary unity to build a society without class links. As long as wealth distribution deteriorates rather than improves, strategies addressing unattained social ideals have become clear, symbolic, and powerful messages to a self-centered social group such as the Chilean oligarchy (Sobarzo, 2006). They are the owners of the country’s wealth, the mass media, the ‘successful schools,’ and are well connected with every possible form of power.17 The Battle of the Neoliberal State against the Movement for Education: 2006 to 2009 The student’s social movement persisted beyond 2006 and was able to unite all educational actors pursuing the strengthening of public education. The re-articulation of what is today known as ‘the movement for education’ was beginning, summoned from different flanks. Proposals concerning educational reform, emerging from all these 17 On power groups linked to the subsidized educational system, see: González, Juan. 2009. “El Sistema Educativo Chileno como un Sistema de Gubernamentalidad Neocolonial,” in OPECH, De Actores Secundarios a Estudiantes Protagonistas. Santiago: OPECH, pp. 159–166.

the struggle for education and the neoliberal reaction 167 sectors were basically oriented towards strengthening public education by devolving such duty to the state (OPECH, 2008a). Over three years later, the Movement is still struggling and confronting the conditions that the educational system delivers to the different layers of society. Halfway through 2009, three conflicts sparked around the defense of educational rights, trampled since the dictatorship. Students occupied the Law Faculty at the Universidad de Chile for over a month. Teachers of about 150,000 children stopped working, demanding the compliance of a law approved in 2007, granting them a subsidy. Those funds, however, had been allocated for other purposes. On Monday, June 1st, Ministry of Education employees (ANDIME) decided to go on strike to demand compliance with labor conditions as established by the Education Ministry (MINEDUC). Contravening these conditions, the maximum number of subcontracted employees was exceeded, a situation which triggered the demand for the resignation of Minister Mónica Jiménez, accused of major abandonment of her duties.18 Reaction against this movement did not take long in coming. Already during 2006 students suffered beatings from the police, while others were expelled or relocated into different schools. This situation continued and became more complex over the years 2007 and 2008. Violent evictions and expulsions managed to curtail a new surge of school takeovers, sparked by the paralysis of the educational debate process initiated in 2006 and caused by the summoning of the Presidential Education Advisory Council.19 The country’s media oligopoly did not take long in joining in the disarticulation strategy. Their intention was to make the continuity of the movement look childish and criminal and to delegitimize its pertinence. At the same time, the government articulated a negotiating formula with a ‘participative’20 discourse which managed to take the initiative

18 It is worth mentioning that this was the legal figure used by the educative right wing in order to dismiss Minister Yasna Provoste, Minister Jiménez’s predecessor. We refer to the educative right wing, as does Jane Kennway, by identifying the group exercising pressure for private schools. An alliance of class factions has been articulated in order to set a hegemonic speech supporting conservative reforms in terms of values, and in mercantile terms regarding the economical aspects of educational policies. See: Jane Kennway. 1993. “La Educación y el Discurso Político de la Nueva Derecha” in S. J. Ball. (comp.) Foucault y la Educación. Madrid: Morata/Paidea, pp. 169–208. 19 On June 2007, approximately 40 public high schools in Santiago were occupied by the students. 20 We refer to participation, as in the words of Gary Anderson who states participation is not authentic in neoliberal contexts, when it operates legitimizing a status quo,

168 cornejo, gonzález, sánchez, sobarzo & opech collective away from the students. The educational debate became confined again within technical and elitist spaces. Such spaces did not accept social demands, but instead gave them a new meaning, adapting them to the current political and economical governability settings. Examples of these were the Presidential Advisory Councils,21 the failed law projects and other populist initiatives which, rather than contributing to the process of educational change, weakened and divided the movement. This time the disarticulation mechanisms reached high complexity levels that can be described through their different components. Each one of these components was commanded from different sectors within the Chilean neoliberal system, in reaction against the historical resistance of the social movement. As National History Prize recipient Gabriel Salazar expressed it: The less privileged have historically felt that the Chilean educational system (that means the system controlled by the elites) is dysfunctional to their actual situation, to their specific interests, to the achievement of their own historical projects… as an answer to this situation they have tried, more or less successfully, and according to the historical opportunities, to develop alternative projects of self-education (Salazar, 2005).

A partial description of this reaction’s dimension is presented from a governmental and private perspective. Direct repression and criminalization: the legal and police mechanisms The year 2006 began with the expulsion of 27 students from the Liceo 1 (public secondary school), and continued with the threat of expulsion of 45 other students from the Liceo Lastarria. Before that, 12 students had been expelled in the city of Pitrufquén, and seven other students at Nueva Imperial, in the IX Region (in the South of Chile). The press informed that, “some days after being evicted by the police, 12 students were accused of damages for 30 million pesos (some US$ 60,000), arrested and taken to court” (OPECH, 2007a). Direct student repression has continued and became more complex after the approval of the new Juvenile Penal Law setting the age for as a mechanism of control and disciplining or as legitimizing governability. For more on this see: Anderson, Gary. 2002. “Hacia una Participación Auténtica: Deconstrucción del Discurso de las Reformas Participativas en Educación” in: Narodowski, Mariano, ed. Nuevas Tendencias en Políticas Educativas. Estado, Mercado y Escuela. Buenos Aires: Editorial Granica, pp. 145–200. 21 Advisory Council of General Education in 2006 and of Higher Education in 2007.

the struggle for education and the neoliberal reaction 169 penal responsibility at 14 years of age and the Supreme Court’s rejection to the protection appeal presented by parents and legal councils. Hundreds of student leaders have lost their right to education when being expelled from school, having their school enrolment cancelled, being suspended or being relocated in different schools. Repressive sanctions have also been suffered by others who have supported demands for reforms to improve public education. Conditioning the salary of teachers was one of the measures proposed both by government and by city councils in 2007 and 2008 so as to keep teachers away from the mobilizations. Repression even reached the ‘sostenedores’ (private state educational subsidy administrators) supporting stoppages and other movement activities. The punishment was the withholding of their subsidies. Minister of Education, Mónica Jiménez, publicly supported the Mayor of La Florida and President of the Education Board of the Chilean City Councils Association, Pablo Zalaquett, on his decision to initiate investigations on all mobilized teachers. She also supported his decision not to pay extra hours for recovering missed school hours. Threats went as far as school ‘sostenedores’ who could have potentially supported the mobilization of teachers and students. She claimed to have the support of the Ministry of Interior and stated that since there are no reasons for occupations or school stoppages or strikes, no subsidies were to be allocated to anyone who had supported these mobilizations. The Court of Appeals had compelled Carolina Llona School to reintegrate the students which had been expelled for occupying the school, by pointing out that: Many student movements have historically been the engine for change and social evolution, and school takeovers have been one of the means traditionally used by students, which can be compared to the strike movements in terms of labor rights, and particularly of the trade union area, which are legally recognized (Corte de Apelaciones, 2006).

The Supreme Court, maximum entity of the Chilean Justice System, annulled this decision in January 2007. It placed the internal rules of schools and their Institutional Educational Projects over the International Human Rights Treaties defending the right to education and condemning this type of sanctions, such as the Universal Declaration of Human Rights, the Convention of the Rights of the Child and the Convention against Discrimination in Education. The current General Law of Education also gives excessive importance to

170 cornejo, gonzález, sánchez, sobarzo & opech collective internal rules and to school institutional educational projects when establishing the rights of members of the educational community, and gives them precedence over these rights. UNICEF, when researching on schooling administrative norms, discovered that over 50 percent of Chilean school internal rules do not comply with a human rights approach (UNICEF, 2007). Misinformation and De-legitimization of the movement: the role of the media Teacher and student organizations, and their proposals, were under constant attack from the media seeking to delegitimize them. Additionally, teachers were being blamed for poor results in yearly standardized tests. The media is controlled by two economic groups, owners of almost all written media in the country. Both groups, COPESA and the Edwards family, have built the largest press conglomerates in Chile. El Mercurio is without doubt the main news daily, controlling the largest market share and concentrating some of the most influencing media. El Mercurio belongs to the Edwards family – of long conservative tradition and a member of the economical and political Chilean elite for almost 100 years. They control their media, nationwide, through four different companies: El Mercurio S.A.P., La Sociedad Periodística El Norte S.A., El Mercurio de Valparaíso S.A.P. and La Sociedad Periodística de la Araucaria. On the other hand, La Tercera journal belongs to the COPESA Holding (Consorcio Periodístico de Chile Sociedad Anónima) in which some five economic groups participate with different shares. However, since 2005 COPESA has been controlled by Álvaro Sahie, a businessman and member of the country’s economic right-wing. Both associations took advantage of the favorable opportunity that the military dictatorship meant for them by strengthening their control over the written mass media (Corrales and Sandoval, 2005). Such control has explicitly been used for two main purposes: to delegitimize movement demands and to make educational actors of the conflict look criminal, childish, guilty and invisible. Three days before President Bachelet’s 2006 public State of the Nation Speech which detonated the Penguin Rebellion, El Mercurio headlined its Editorial: “¿Son serias las demandas estudiantiles?” (Are student demands serious?) This editorial questions whether student

the struggle for education and the neoliberal reaction 171 demands for free PSU (university admission test) and free student public transportation (petitions conceded later) are “mature enough.” The same editorial also warns that: Students and their families should not allow being utilized by dark interests not concerning education. Their mobilization capabilities should be responsibly used and in benefit of their own real interests (El Mercurio, 2006).

Year after year, the media incorporated their own issues to the already conservative educational model. Whether influencing educational contents, promoting institutional models, and even supporting a repressive police force used against educational actors, this powerful mass media directly participated in the construction of the ideological system and in the collective representation of the conflict in education (Gonzalez, 2006). Finally, the information monopoly either introduced several topics or made them invisible for public opinion. The omission of information and the information barrier have been fundamental to keep ‘social peace and order’ these last three years. This is precisely what happened in 2008 when the educational debate started being expropriated from citizens by making it more complex in judicial and economic terms. The scandal of school subsidies and the problem of profiting from education were the main headlines of the media. At the beginning of year 2008, the Controller General of the Republic refuted the delivery of public resources to some private school ‘sostenedores’ through educational subsidies and other funds. The discussion was then situated by the media as a problem of corruption of some Ministry employees or unscrupulous school ‘sostenedores’ motivated by profit obtained by cloning students and/or by making false attendance lists, in order to receive more subsidies. The debate about financing was therefore confined between the need for improvements in the control of subsidies and improvements in the Ministry’s accounting system. In January 2008 (beginning of summer vacations) LGE was approved amidst convenient discretion and silence from the media. Only a last minute modification coming from the right-wing, diverted the debate in March (when everybody was returning to school) and allowed for the law to be approved without making any real change to the basis of the neoliberal educational system. Such an achievement made the Minister of Education cry in joy. She represented the conservative

172 cornejo, gonzález, sánchez, sobarzo & opech collective sectors and the main school ‘sostenedores’ from the entrepreneurial and catholic sectors, the ones who profited the most with the achieved legal modifications. Legal manipulation of the conflict or “Shock Doctrine”: the legislative mechanism and the presidential initiatives Canadian intellectual Naomi Klein states that, under what she calls the “Shock Doctrine,” some governments manage to approve unpopular measures when taking advantage of crisis impacts. The legislative initiatives promoted by the executive and legislative powers, as well as by other private technocratic mechanisms22 after the crisis announced by the 2006 student movement, seem to follow the same logic. First, LGE, arising as the government’s first reaction to the movement, definitively consolidates the bases of the current mercantile structure of the Chilean educational system. As Jesús Redondo, OPECH Director, stated in his hearing before the Senate Education Board in July 2008: By not giving explicit priority to the right to education of all and each one of the citizens, it (the law project) gives priority to economical rights which have constitutional guarantees, as well as to the freedom of teaching; and so it is transformed from an education law to a ‘sostenedores’ law. The right to education and the preferential rights of the parents remain then subordinated to the rights of freedom of teaching and of property (both legally involved). In any other compared juridical arrangement, the rights to freedom of teaching and to property serve the right to education and the preferential rights of the parents, in order to be able to fulfill everybody’s human and constitutional rights; because the right to education and the rights of the parents in educative subjects cannot be reduced to mere merchandise subordinated to property and economical rights” (Redondo, 2008).

The same has happened with the Law of Preferential Subsidies, the Law of Education Superintendence, and with the quality control agencies. Behind all of them, the mercantile status quo in education in which the monetary interest and the standardized competition are central, still persists (OPECH, 2008b). This whole legislative battery has reorganized and strengthened the control over the ideological setting on which the educational system is

22

About the private actors of the new educational right wing see: OPECH. 2008. La Influencia de los Think Tanks en el Sentido Común Educativo. OPECH editorial. Sept. 6 http://www.opech.cl/editoriales/2008_09/2008_09_06_Think_Tanks.pdf.

the struggle for education and the neoliberal reaction 173 organized, of the main private groups exercising pressure. Citizens are generally excluded from the redefinition of the ethical-normative horizon of the system.23 Concerning the Law of Preferential Subsidies, the resources are still channeled in the form of subsidies to the ‘sostenedores’ according to the claimant’s number of students and school attendance days. Only this time subsidies are allocated to high-priority students, that is, children who are socially vulnerable. But this does not solve the economical instability of schools with scarce resources where many high-priority students are enrolled. On the contrary, it forces schools to keep competing for those students. The state maintains a subsidiary role, giving school ‘sostenedores’ the freedom of choice whether or not to join the system and subscribe into the Education Ministry with an ‘Agreement of Equal Opportunities and Educational Excellence.’ An editorial in right wing La Tercera journal says it all: Giving subsidies to the demand would permit every child to have the freedom of choice between the different alternatives offered by the educational market. (La Tercera, 2008).

The result is that only some schools adhere to this agreement which is regulated by SIMCE24 results, an evaluation system with normative parameters that reproduces the educational apartheid. The state does not really take responsibility over the pedagogical management for the whole of the public educational system, leaving this responsibility to each ‘sostenedor’ and to SIMCE. Quality supervision is focused on high-priority establishments, taking state support away from those who do not subscribe to these agreements.25 Concerning the Education Superintendence, it is important to recognize that these types of agencies emerge from contemporary public policies as institutions for the regulation of free market systems, in

23 On the importance of questioning the normative ethical horizon of the Chilean educational system, see former President of the Presidential Assessment Board for Education: García Huidobro, Juan Eduardo. 2008. ¿Hacia dónde va la educación? Magisterial conference delivered at the Second International Seminar on Integral Reform of Primary Education organized by the Secretaría de Educación Pública, Gobierno de México. México D.F. 6–7 Nov. 24 SIMCE: Chilean Ministry of Education National Evaluation System of Learning Results. 25 More on this law in OPECH. 2008. Ley de subvención preferencial; entre la educación pública y el mercado. OPECH Editorial. Jan. 24. http://www.opech.cl/ editoriales/2008_01/2008_01_24_ley_subv_pref.pdf.

174 cornejo, gonzález, sánchez, sobarzo & opech collective areas with information problems. This implicitly admits that Chilean education will remain configured as an educational quasi-market (Almonacid, 1999). To mention just one issue, it would have been possible to configure a non-mercantile education system if subsidized private education was ended. This would have meant addressing the problem in terms of finance and management. Within the current context, the existing subsidiary role of the state does not change, maintaining its neoliberal character. State actions are consolidated as market regulatory actions making improvements concerning supervision, but not aiming to guarantee quality education, that is to say, integrity and social relevance in education (OPECH, 2007b). Concerning Quality Agencies which are private companies that evaluate the accreditation of educational institutions, obviously, the potential monetary profits involved made many influential individuals line up for this business. An example of this is Luis Riveros, former Universidad de Chile President who with four other ex-Presidents from universities belonging to the Chilean Board of University Chancellors (CRUCH), created an agency of Latin American scope. The risks involved in this experience were being debated based on actual facts in Madrid. The harmful consequences such agencies have caused over public education were being analyzed.26 This system, which attacks the ‘ideological interpellation vinculum’27, has wielded its latest stroke: the constitution of pseudo social movements promoted by the media and even by the state. These are movements that keep a false dialectic with the conservative sectors. Professor Susana Murillo researched in Argentina on the way social conflicts on which political actions of social movements are based, are bio-politically captured. This cooptation system used in Argentina in the battle against delinquency seems to be in use in Chile as a strategy against the social movement for education. In her public State of the Nation report on May 21, 2009, President Bachelet highlighted some elements drafted by 2020, an organization 26 For more information on the mentioned meeting and some reports in it, see: http://www.jornadauniversidadpublica.org/?p=1293. 27 We use the expression according to the meaning given by Murillo (2008). See: especially Chapter 1: “The ideological interpellation operation is the one that transforms the plain flesh in a human individual. But it is also the process which reconstitutes the individuals in terms of symbolic order. By doing so, a mutual recognition amongst individuals and one’s recognition towards oneself is made possible, and with this the social recognition which confirms each one as a human being.”

the struggle for education and the neoliberal reaction 175 created by the media oligopoly, as core features of her government proposals. Mario Waissbluth, founder of 2020 admits that the whole ‘movement’ began with an article published in Qué Pasa magazine on August 23, 2009. In less than 72 hours, the Faculties of Engineering of both the Universidad de Chile and the Universidad Católica were responding to that article, by creating 2020 (Oliva, 2008). This organization has rallied for the need for a technocratic solution to improve education. Their proposals have the consent of enterprise owners, who even invite 2020 to propose solutions for the Chilean public system. Moreover, this ‘movement’ has appropriated the slogans of the social struggles. Behind their modus operandi, lurk the strategies of the World Bank and the International Monetary Fund. As exposed by Professor Murillo, these strategies consist of turning the social conflict into a tripartite conflict. According to her, the constitution of a tripartite negotiating table would be adopted as the way to settle the ‘best way’ to solve the conflict, from a social point of view. This table would be composed by the state, the market (the providers of the service) and the social movements. The interests of the enterprise has selected its two valid interlocutors: the state is represented by Minister Mónica Jiménez (OPECH, 2008c) and the social movement personified in 2020 which the mass media has recognized as such. As previously explained, neoliberalism needs to consolidate a hegemonic market ideology in order to remain operating. To this effect, the articulation between a hegemonic control over mass media and the displacement of the interpellation force acquired by the social movement’s discourse is the latest refinement of the control model applied in Chile. The replacement of moral interpellation over politics has been reached (Inzunza, 2009). The relevance of the economic model and its excluding political shape has been evaded. The appeals to justice and safety as central ideas of a quality democracy have been achieved, as has the notion of corruption as the cause of all inequalities. All of these concepts do not represent the demands of the movement for education. They are instead substitutes which can only work in contexts of deprivation of the direct human vinculums. Conclusion The situation described represents the complexity in the restoration of neoliberal governability. The organizational disarticulation of the

176 cornejo, gonzález, sánchez, sobarzo & opech collective social movement, the dispute of the majorities’ common values and the installation of a juridical, excluding and non-democratic mechanism (not in accordance with law since its origin is based on the Pinochet dictatorship) comprise the core of the conservative strategy. However, the victories of the social movement are valued within the realm of collective knowledge, the one that is most complex to control, featured by the subjectivity emanated from the very life experiences, from the suffering caused by the educational system and which the majorities manage to revert through social articulations. The educational market imposed itself in Chile and was also supported by the good faith, naiveté and ignorance of students, parents and teachers, often duped into acting as accomplices while ignoring the brutal growth of class disparities in education. Their inspirational ideology is an important motivational force that cannot be ignored. We believe that situation has changed. Three years of mobilizations, new proposals from educational actors, a newly acquired common sense of citizens demanding public education as well as some survey results, support this statement (OPECH, 2009a). The neoliberal control mechanism is aimed mainly at the social base that suffers the most radical consequences of the system. That is the excluded ones, the source of labor and constant consumption fundamental for an extremely conservative, dependent, parasitic and depredating model, which uses progress to serve elites instead of serving the majorities. It is thus necessary to give full support to a strategy organized from different sectors, against the sophisticated repressors of the social movement. The aim is to denounce, contain and finally stop every maneuver deployed from different flanks against the social movement. Additionally, full support must be given to every initiative consolidating the economical, political and ideological conditions contributing to overcome the post dictatorship crisis affecting the scope of influence of social movements. This is the minimum, essential requirement in order to reach the dream of a truly democratic society, where the control held by elites is definitely overcome. Is it correct to affirm that in the current neoliberal Chilean context, youth movements are over? We believe not. The secondary students’ movement gathered thousands of young people tensioned by the perspectives of the neoliberal labor market. Through these years these young people have found many methods of struggle, resistance and self-management such as popular pre-university establishments,

the struggle for education and the neoliberal reaction 177 cultural centers, hip-hop networks, okupa homes (abandoned houses where groups or collectivities live), street actions, day to day activism (Gonzalez, 2009a), just to mention a few. The complex context of social disintegration and youth exclusion has empowered the discourse of an important popular youth sector, which has frontally questioned the neoliberal educational institutional system. All of that suggests the likelihood of new processes of social re-enchantment, hand in hand with the coming together of different popular sectors united in the construction of better futures and destinies. Consequently, we see considerable hope for change.

CHAPTER EIGHT

SOCIAL SECURITY OR PLUNDER? Manuel Riesco For more than two decades, the privatization of public social services in Chile has channeled benefits to the financial markets, private lenders and a grasping minority of higher income earners. This has lead to quite a few problems even for the latter and has resulted in high costs for the Treasury. At the same time, the targeting of reduced public social spending on the poorest sectors of the population has allowed a slight easing of their situation that remains nonetheless appalling. To make matters worse, resources meet the requirement of but a few. Most of the population, including those from the emerging salaried middle class has been left without social security coverage. And they have been forced to greatly increase their expenditure in the booming private social services sector just as the indiscriminate opening of the country to globalization has made their jobs more unstable and their general condition insecure. In Chile there are 1.6 million seniors, about two-thirds being women. Their numbers grow on average by 2.6 % yearly, less than the gross domestic product (GDP). They are expected to continue growing at that same rate up to 2050. That is more than overall population growth, which is only expected to average 0.5 % yearly during that same period. The financial flow will be sustainable, as well, since social security contributions have been growing at an average rate of 6.5 % a year since 1990. However, the dependency rate1 not only is not growing, it is decreasing. Seniors represent ten percent of the population and under 15 year olds, 25 %, all of which means that Chile is still a very young country. Moreover, once recovered from the current global crisis, it is expected that GDP will increase faster than the number of seniors will. Thus, every year the country will have more resources to look after 1 Dependency rate corresponds to the passive population (seniors plus under 15 year-olds) divided by the active population.

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them and to fund decent pensions. All of this means that there is no pension funding crisis in Chile. The real pension crisis does not originate in the fact that Chileans are living longer lives, which is positive. It originates in the flaws of the private Pension Fund Administrators (AFP). Whoever argues the contrary and seeks to increase retirement age, is either mistaken or is not telling it as it really is. Before the present AFP crisis, during more than a quarter century, the country operated the only purely private pension system in the world. It was imposed forcefully by Pinochet with Law Decree N° 3,500 of 1980, and inspired personally by Milton Friedman. José Piñera, Pinochet’s first Secretary of Labor and Social Security (1978–1980), and fanatical apostle, designed it as an “ideal” system without any interference from a then non-existent parliament or opposition. AFP funds began accumulating significantly since the mid-1980s, as the Chilean economy began to recover from the very deep depression suffered at the beginning of the decade. The AFP funds increase coincided with a remarkably long period of very high economic growth that lasted until 2007, with only a mild recession at the end of the 1990s. Employment had recovered its pre-depression levels by the end of the 1980s, and then grew very fast on the average. Real salaries grew moderately but quite steadily as well. As a result, the mass of social security contributions increased at the very fast rate of over 6.5 % a year on the average from 1990 to 2006 (CENDA, 2007a). At the same time, the privatization of most state firms during the 1980s offered investment opportunities for Chileans’ pension funds. Those investments initially rendered extraordinarily high yields. Finally, in the 1990s and 2000s, Chilean markets benefited from the huge bubble that inflated currencies and stocks all around the emergent world. As a result, pension funds were able to show unusually high average real returns that, according to the Chilean Pension Superintendence (SP), reached around ten percent a year on average until 2007 (SP, 2009). This is how Chile, before the current crisis, was utilized as the best possible laboratory to validate the promise that privatized pension systems based on individual capitalization are capable of providing better pensions. It later proved to be exactly the opposite (Riesco, 2009a). For over a quarter century, the Chilean Pension System had been proclaimed a great success to be imitated. What is more, many countries had reformed their own systems following to some extent the Chilean model. This is why, in mid 2005, thousands of viewers of CNN

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in Spanish were astonished to hear the four Chilean presidential candidates in a live debate agreeing on the necessity for deep changes in the pension system. The myth was collapsing! (Riesco, 2007) In spite of the unusually favorable conditions described above, by 2005 it had become clear that the vast majority of the affiliates to the privatized system were simply not going to receive any significant pension whatsoever out of the AFP system. Their accumulated fund at retirement was going to be so meager that the resulting pensions would be ridiculously low, in the order of US$ 10 to 20 a month for millions of affiliates, and less than the legal minimum of US$ 150 for over two-thirds of the workforce. The situation was made worse by the fact that the state-guaranteed minimum pension, supposedly meant to cover these situations (a version of the well known “safety net” promoted by the World Bank) was also completely useless. Data compiled by the Instituto de Normalización Previsional (INP),2 shows that those who needed it were not entitled to it, because the requirements included 20 years of contributions which they did not have (CENDA, 2005). Moreover, the status of “poor” has to be certified and, even then, it may take years for them to receive it. Those who retire now with the AFP system receive pensions which are generally less than half of the amount of their colleagues who were able to stay with the old public pension system. Due to their longer life expectancy, women are especially disadvantaged since with the same amount accumulated, their AFP pensions are a third or more lower than men’s. On the other hand, those with the highest salaries who have regularly contributed and have accumulated additional voluntary contributions in their AFP, which is entirely compensated by a generous tax exemption, benefit with pensions that are higher than the top public pension. Those tax exemptions have cost the state the equivalent of twice the expenditure on non-contributory pensions (basic pensions) even though they benefit a meager percentage of contributors. Since the privatization of the system, the state has incurred enormous social security expenditure, the annual rate of which has reached close to six percent of GDP, 28 % of total public expenditure and 42 % of public social expenditure. That is almost as much as what the state has spent in total on education and health. A little less than half of that

2

Governmental pension system regulatory institution.

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amount is allocated for the old public pension system, just less than a quarter to armed forces pensions (the only sector that has been exempted from private pensions). Some other parts are transferred to the AFP as subsidies to those who transferred from the old system, while the rest is allocated to social pensions. As a result, the state still provides pensions to 75 % of senior citizens and to 90 % of those over 70 years old. Additionally, the state has completely funded the pensions the AFPs pay to another five percent of senior citizens. This means that currently, the state finances all pensions with significant coverage and those that, even though more modest (as in the case of public pensions), are much higher than those paid by the AFPs. However, every year fewer people can retire through the old public system and a growing number are forced to depend on the new system, which provides much lower protection (Riesco, 2007). This is why it is fair to say that the pension crisis does not originate in the fact that Chileans are living longer lives, nor in scarce pension financial resources, but on the flaws of the Pension Fund Administrator (AFP) system.

What Went Wrong? Mega cities in Latin America and around the emerging world have seemingly become huge factories where hundreds of millions of workers constantly move in and out of very short term salaried jobs and work on their own when they are not altogether unemployed. Chile is no exception. No barrier stands between the categories of formal and informal occupations, because almost everybody constantly shifts from one to the other. In the case of women, many constantly move into the workforce and back to their familiar conditions of housewives. Certainly, a pension system that was designed on the assumption of regular contributions accrued by the alchemy of compound interest rates did not sustain itself over such a reality. Practically all in the Chilean workforce contribute to the system as formal salaried employees. This is compulsory for those who have worked in the labor market since 1982. The sole exceptions are 3.8 % of the workforce who managed to stay in the old public pay-as-you-go system, including the military and police, and another 3.5 % contributing as self-employed. However, the excellent AFP system statistics have shown that on average: two-thirds of the affiliates contribute less than

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one month in every two; half of the affiliates contribute less than one month in every three; and one-third of the affiliates contribute less than one month in every five. Only 11 % of the affiliates contribute regularly 12 months every year. This is how precarious the modern workforce has become in an emerging economy such as Chile’s. This also proves that privatized pension systems are not able to cover workers with unstable jobs, scarce contributions and low salaries, and that they discriminate against nearly all women (Riesco, 2009a). Before pension system privatization in 1981, the social security contributions of the active workforce were enough to finance the old pensions system and left a significant surplus. Its total volume grew every year at a pace twice that of the number of senior citizens. As the number of employed salaried workers increased, so did the average wage. This meant that contributions to the system were larger than pension expenses. Between 1981 an 2006, social security contributions deducted from Chilean workers’ salaries added up to 27.9 billion Chilean pesos of the latter year (around US$ 50 billion). During the same period, the AFPs and related insurance companies pocketed a total of 9.3 billion Chilean pesos, that is, exactly one out of every three pesos contributed. The other two pesos, together with all their accrued earnings, were lent to a handful of large private domestic and foreign conglomerates. In the case of the domestic groups, the greatest receivers of funds also happen to be the owners of the main AFPs, including several Spanish groups such as Banco Santander and BBVA. Other groups were formed as a result of privatizations, including one controlled by the former dictator Augusto Pinochet’s son-in-law and another one run by the owner of one of the main newspaper chains in the country (Riesco, 2007). This is how the privatization of the social security system has meant an enormous transfer of resources from workers’ pockets to those companies. More than a pension system, AFPs are running a forced savings system in order to supply big conglomerates with capital. The government has continued to support this plunder by increasing the proportion of funds authorized to be invested abroad, while increasing Chile’s vulnerability to the risks of global speculative markets. It is also worth mentioning that financial markets and the AFPs can count on receiving a constant and growing flow of funds every year, while pensioners are subject to the fluctuations of the financial markets and, in most cases, the funds backing them are absolutely insufficient.

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All the above calculations were true before the recent global crisis wiped out a significant part of the pension funds. At the end of October 2008, the Chilean Pension Superintendence (SP) acknowledged that in the previous 12 months the pension funds had lost US$ 25.2 billion, that is, 26.7 % of the total fund. In the case of the riskier A and B funds, the losses had been of 45.1 % and 34.2 % respectively.3 CENDA calculates daily pension fund losses in its web page (www.cendachile.cl) based on official data from the SP. By the end of January 2009, the daily count of losses since the beginning of the crisis in July 2007 signaled they had reached US$ 28.2 billion. That is to say, the crisis has already erased over a quarter of the total fund and between one-third and almost half of the riskier funds, which concentrate over half of the affiliates (Riesco, 2009a). According to the SP, by the end of August 2008, 32 % of funds were invested abroad of which 87.1 % were invested in mutual funds and 10.4 % in company shares. An additional 2.2 % were invested in national investment funds indirectly investing abroad. Only 0.12 % of funds were actually invested in foreign government bonds. SP also acknowledged that 95.2 % of pension funds were invested in variable rent instruments, most of them in institutions affected by the crisis.4 SP also informs that most investments (56 %) have been made in emerging markets that have plunged most dramatically. This includes 20 % invested in Latin America, 21 % in emerging Asian countries and 13 % in emerging European countries, including over US$ 1.2 billion at great risk in Russia (CENDA 2008a). To make matters worse, the same sources show that funds invested abroad have fared a lot worse than funds invested in Chile. Nevertheless, since the crisis started in July 2007 and throughout 2008, AFP continued investing abroad in institutions of questionable solvency. Foreign investments are also highly concentrated since only 11 mutual and investment funds concentrate almost 50 % of them and six funds concentrate another 30.8 % of them. 3 Elaborated with data from SP Informe de Inversiones y Rentabilidad de los Fondos de Pensiones. . 4 Elaborated with data from SP Informe de Inversiones y Rentabilidad de los Fondos de Pensiones. .

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The world economic crisis has once again made evident that on the long term, financial markets yields rarely surpass inflation (Authers, 2008). The world stock markets have performed at a loss along sixty of the last ninety years, when the average return of the real price of stocks has been 0.4 % a year in the most mature markets, such as London (Wolf, 2009). The utopia of accrued yields said to lie at the foundations of pension systems based on private capitalization has once again been shattered. A new more sober reassessment of the world economic reality has been brought about by the crisis. Utopian visions about the long term stability and profitability of financial markets, as well as the solvency of private providers in replacing public universal social services, have now been discarded. Emerging countries that became firm believers in the gospel of globalization now find themselves among the worst affected by the crisis. The rankings of international competitiveness compiled by institutions such as the Heritage Foundation may be read upside down these days, because those who were on the top are now worst off. Chile, for example, according to a study by J. P. Morgan commissioned and published by leading right wing newspaper El Mercurio of Santiago, is the third worst country in Latin America affected by the crisis, and 15th among 170 countries worldwide (Aguirre, 2009). This small and completely open economy, which thought of itself as a good pupil in a bad neighborhood, finds itself in the awkward position of trying to negotiate in a rush its full participation in the Latin American integration process that it previously derided. The world’s largest insurance companies have seen their share prices collapse, in many cases over 90 % since the beginning of the crisis. The very largest have been in effect nationalized, as in the case of AIG in the US, or sustained by huge infusions of public money, as in the case of ING in the Netherlands. As a result, the privatized pension systems in Latin America are suffering extreme vulnerability, and have, for example, already capsized in Argentina. In the case of Chile, the pension fund as a whole has lost over 30 % of its pre-crisis value and between one-third and one-half in the case of riskier funds where the majority of affiliates have their savings (CENDA 2009). The Netherlands listed insurer ING has had a long presence in the market for privatized pensions. Its shares have fallen by over threequarters since the beginning of the crisis, and the Dutch government has twice rescued it at a total cost of over 37 billion Euros (Jolly, 2009).

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Other insurers that have “expropriated” tens of thousands of Latin American pensioners (to use the same terminology that they used when the Argentinean government exchanged the property of the funds for a lifelong pension) are NY listed MetLife and Principal, which have lost over two-thirds and three-quarters of their market value since the beginning of the crisis (Financial Times, 2009). Together with ING, they concentrate over 40 % of the more than 280,000 lifelong pensions bought by private insurers, which represent more than 90 % of old age pensions presently paid by the AFP system in Chile. It is interesting to note that the old public INP pension system still pays 796,000 pensions and additionally 533,000 new “solidarity” pensions, which together cover three out of every four elders in Chile (Riesco, 2009a). The same transnational insurance companies that have collapsed in the world stock markets, are the ones to which affiliates have to transfer the property of their funds at retirement in exchange for lifelong pensions, which is the modality chosen by the vast majority. As a result, Chile is presently without an effective pension system, and there is increasing pressure to allow the return to the public pay-as-you go system, as was already achieved in Argentina. It seems important to reiterate that the re-nationalization of privatized pension systems would result in a significant increase in the expected pensions of affiliates. Pensions still delivered by the Chilean public system usually double the ones delivered by the privatized system for persons of similar labor histories; and the difference is even greater in the case of women, which comprise two-thirds of the elderly. In addition, re-nationalization would give a huge boost to public finances, which is especially important in the present situation where public expenditure must be increased to alleviate the effects of the crisis. Social security contributions that are presently being made to the privatized system, which in turn diverts them to the financial markets, represent 13 % of wages, about one-fifth of the overall public budget, and about 30 % of public social expenditure. This is certainly far more than enough to pay for all pensions presently delivered by the privatized system, most of which have been in fact financed by government subsidies (Riesco and Draibe, 2009). The impact over income distribution is also significant, because all the social security contributions have been diverted almost entirely to the financial markets, and the operators themselves. In addition,

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they have lost during the past 22 months almost the entire financial returns that the pension funds had accumulated along thirty years (CENDA 2009). The nationalization of the privatized systems would mean that all this huge flow of money would be redistributed mainly to pensioners. Most importantly, the crisis has re-asserted the historical link between modern markets and states, specifically regarding public expenditures, and the need to protect and regulate markets within spaces of national or shared sovereignty. When the leading states in the world were forced to effectively take over their collapsed financial systems, everyone suddenly remembered that, far from being a problem for modern markets, modern states have been their very condition of existence since the early beginnings. In fact, national states were conformed in the 19-century, precisely to eliminate feudal barriers to the free movement of money, commodities and workers. Free markets in this full sense have only been possible in a stable manner within spaces where they are regulated and protected by sovereign states. Moreover, both have grown together. State expenditures in advanced economies usually represent over half of GDP, while in middle economies such as Chile they represent less than one-fifth, and in the extreme case of backward societies such as Haiti, they do not effectively exist. They are in fact inseparable, like the hen and the egg. The heart of the matter is that the real motivation for the privatization of pension systems is to grab the huge flux of money that comes out of social security contributions. This is the reason why international financial groups have shown such an extraordinary interest in pension “reform” all along. As Robin Blackburn has brilliantly described it in his essay that is one of the best revisions of the saga of pension privatization, it constituted the non plus ultra of the unfettered greed of financial capital: grabbing a significant part of the world mass of salaries, no more, no less. Blackburn underlines the role played by Larry Summers, now chief economic adviser to the President of the United States, when as chief economist of the World Bank he commissioned the infamous report “Averting Old Age Crisis” (World Bank, 1993). This report promoted pension privatization around the emerging word. They succeeded in many countries, however, only partially in most. They failed to grab the major prizes, including the USA, Europe and Brazil, among many others, because they faced generalized opposition from well-informed public opinion and democratic institutions. Only in Chile did they succeed completely (Blackburn, 2008).

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Neither the Mexican AFORE, nor the Uruguayan AFAP, nor the Chilean, Bolivian or Peruvian AFP will recover from the crisis. Neither will the rest of their kin throughout Latin America that under these or similar acronyms have been grabbing part of workers’ salaries while not fulfilling their promise of better pensions. The government of President Cristina Fernández has once again surprised the world, nationalizing the pension system that former President Menem had privatized 14 years earlier in Argentina. In one bold stroke she wiped out the private administrators, which were known in their country by their Spanish acronym AFJP. The state has regained control over the pension savings accumulated by Argentineans and in return has offered them the guarantee of a decent lifelong pension. In addition the Argentinean affiliates have gained important benefits because of the nationalization. Probably soon, and certainly later on, many other countries in Latin America will follow their lead. When all of them suffer the same fate as the Argentinean AFJP, millions of Latin American pensioners will sigh in relief and perhaps many in other countries around the world will as well. Some of them will probably hold a kind remembrance of President Cristina Fernández’s bold move. Additionally, as President Fernández said, private companies come and go, while governments stay. This remembrance comes very timely, because the largest private insurance companies have become insolvent as a result of the global crisis. Millions of people that had bought insurance, including hundreds of thousands of Latin American pensioners that have transferred the property of their lifelong savings in the privatized pension systems in exchange for the supposedly lifelong pensions offered by these companies, have been left in complete uncertainty (Riesco, 2009a).

Social Security Reform Process In 2006, early in her governmental period, President Bachelet established a Consulting Council on Social Security Reform (Consejo Asesor para la Reforma Previsional). In its Report, the Council recognized the inability of the private system to provide pensions to most of the population with lower incomes and more unstable jobs. The Report proposed the establishment of a basic, non-contributory national pension, with just one requirement: reaching the retirement age. This would guarantee at least the current minimum pension to everyone, overlapping the

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AFP-provided pension, decreasing until cancelled when the combined total would become higher than US$ 380. This benefit would provide security to approximately three-quarters of the current members with pensions below that amount. Furthermore, the new system could be financed without increasing the current level of social security expenditure as a percentage of GDP (Consejo Asesor, 2006). On the other hand, the Council condemned the high cost of the administration of the system and proposed measures to reduce it. Among these proposals were the centralization of those functions that present higher economies of scale, such as collection, payment and administration of accounts, thus allowing greater state involvement in these areas. What the Report did not mention was the need for a gradual reestablishment of a national non-contributory pension system, which is essential to repair what is known as “social security damage.” The idea would be to at least balance the pensions of those who retire through AFPs with those who retired under the old national pension system. Additionally, the objective is to lower current insecurity experienced with the AFP pensions which sharply fluctuate according to the ups and downs of the stock market and of interest rates. Finally, the Report also failed to include a mechanism for the correction of discrimination against women. The Council did not deal with any of these points, except to propose an increase in the age of retirement for women, a proposal that was immediately rejected by the President. The proposals were positive in that they were guaranteeing decent pensions to the lower income population sectors, and in that they meant at least a partial reduction in the high costs that AFPs represent. However, they failed to address the insufficiency and volatility of middle class wage earners’ pensions. Additionally, while the responsibility for the payment of pensions would fall on the state for many years to come, social security contributions would still almost entirely be allocated to the financing of investments of large private conglomerates, negatively impacting income distribution. Moreover, the proposal put forward by this Council, as with the proposals to reform the education system, reflect the modus operandum prevailing in the Concertación governments since the beginning of the transition. This consists in transferring the discussion of public policy to those sectors in favor of maintaining the status quo, partially tackling those parts of the problem that are impossible to continue to be overlooked, but keeping within the fundamental limits of the current

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schemes. The Report was met with emphatic rejection by a wide political and social coalition of social forces aiming at deeper changes in this area. Social mobilizations were led by those sectors directly affected by the future reform, especially the Asociación Nacional de Empleados Fiscales (National Association of State Employees). After a prolonged struggle to end the abuses of the system created by Pinochet, President Michelle Bachelet signed a decree promulgating Law N° 20,255 on March 11, 2008, reforming the Chilean pension system. A minimum “Solidarity Basic Pension” (PBS) has been approved, that initially amounts to slightly over US$ 120 a month, which will be delivered to anybody over 65 years old with no pension contributions. A “Solidarity Pension Supplement” (APS) will be paid to top up low AFP pensions, in decreasing amounts until the sum of both reaches slightly over US$ 510 a month. The coverage of both benefits will apply to a means tested universe of 40 % poorest families in 2008, which will be raised to 45 % in 2010, 50 % in 2011, 55 % in 2012, and 60 % thereafter. This is a significant reform that will cover two-thirds of the population by either PBS or APS by 2012, funded by the state budget. It will benefit millions of people; the vast majority of Chileans, in whose families there are one or more elders that the AFP system was leaving aside (CENDA, 2008b). Limitations of the 2008 Approved Reform In spite of this partial success, the approval of President Bachelet’s pension reform is just a step. As has been stated by influential members of parliament, the main reform is still pending. The main pending issues are the following: 1. The approved benefits are lower than what could have been offered by just maintaining the present level of fiscal pension expenditures. The debate frequently forgets that since 1981 the state has been paying pensions to three out of every four elders and to nine out of ten over 70 years old, and additionally subsidizes two-thirds of all pensions paid by AFP. This has earmarked 40 % of social public expenditure and 28 % of overall state budget for this purpose, a yearly amount averaging 5.5 % of GDP during over a quarter of a century. Research done by CENDA and the Instituto de Normalización Previsional (INP), the

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institution in charge of public pensions, showed that maintaining this level of expenditure as a percentage of GDP allows for non-contributive pensions for 85 % of elders (CENDA-INP, 2005). The amounts and coverage can be raised substantially without endangering the solvency of the reform. In other words, the Finance Ministry is saving money with this reform. 2. In practical terms, retirement age of women is being raised from 60, as recognized prior to the reform, to 65. Tens of thousands of female INP retirees aged 60 to 64 used to exert their pension rights. The new “solidarity pension,” whether it be PBS or APS, will be granted only past age 65. It must be underlined that it is not because of financial restrictions that the Finance Ministry adamantly opposed honoring the pre-existing right of women to retire at 60. The above mentioned CENDA-INP projection proves the fiscal feasibility of maintaining this right. What is really underlying the Council proposal is the will to increase retirement age of all women to 65. Were this not done, the failure of the AFP system to deliver decent pensions to women at 60 would have sprung into evidence. The right of all women to retire at 60 must be recovered and respected in the future. 3. The poor are forced to prove their dismal condition in order to qualify for very modest benefits. Why not invert the burden of proof ? The inefficiency, lack of transparency and high costs of this targeting method are highlighted by the new “social protection” form that the poor are expected to fill out. This replaces the infamous “CAS” form implanted by the dictatorship. If some kind of restriction needs to be imposed, a ceiling could be established. In other words, those higher incomes could well be excluded from the benefit, even though they are far easier for the tax system to monitor. As seen above, no more than 15 % of the higher income population needs to be excluded from this benefit, maintaining the present level of expenditure. A universal benefit with restriction to those over a certain income would have been preferable. 4. The reform practically leaves the AFP system intact. Even more serious is the fact that the AFPs remain untouched in all practical terms. On the contrary, the law eliminates some of the few

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remaining restrictions regarding the investment of funds, 80 % of which may now be taken out of the country. The services they subcontract are excluded from VAT. The steps to improve “competitiveness” of the industry are insignificant and will not have the desired effect. Not even the creation of a State-owned AFP has been approved. No limit is established for administrative fees, as Argentina has recently enacted. Administrative costs will continue being five times greater than those of INP, which offers better services to more affiliates and far more pensioners. The scandalous “life-long pension” scheme, forcing affiliates to hand over the whole of their accumulated fund to insurance companies as a cash down payment, is maintained. All of this means that AFP and their related insurance companies will continue to pocket one out of every three pesos contributed to the system as they have done all these years (CENDA, 2007b). The industry must be re-engineered completely. INP can offer better services of affiliation, registry, contribution collection and benefit payments for everyone, at one-fifth of the AFP overall cost. The investment management can be outsourced to hundreds of private managers and a state-owned one as well. This is the way Sweden, for one, manages the individual pension accounts. In this way, the soaring AFP and insurance company costs may be reduced to a minimum. 5. Almost all contributions that escape being spent in AFP charges will continue to be diverted out as equity and loans to a handful of private conglomerates. Back in 1981, social security contributions sufficed to pay all pensions and one-third of them remained as a surplus. Since 1990 to 2006, the flow of contributions has continued to grow at an average rate of 6.5 % a year in real terms, even through the 1997–2000 Recession. During that same period, the number of elders has grown at 3.0 % a year. Presently, the annual flow of contributions amounts to over US$ 4 billion. Today, just 12 large private conglomerates in Chile (the owners of the AFP among them) and eight foreign funds hold half of the pension fund in the form of equity or loans. Less than 200 private companies hold most of the remainder. In this manner, the privatization of pensions in Chile has meant that over US$ 55 billion, roughly half of 2005 GDP, has been transferred from the workers to the AFP, the insurance companies, and these conglomerates, who also pocket all accruements (CENDA, 2007b).

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6. Pensions of middle income salaried workers continue at the mercy of AFP abuses and of the uncertainties of international financial markets. AFP pensions are not only a fraction of those still offered by the old public system and they are also plagued by the uncertainties of the financial markets where the funds are invested. Since the start of the global credit crunch on July 27, 2007, the Chilean pension funds have been fluctuating wildly. As we have seen, those who reach retirement age today receive AFP pensions that amount to half those received by persons of the same qualifications who stayed in the public system. Public employees are worse off, because the dictatorship contributed for only part of their salaries. This situation is exacerbated in the case of women because of their longer life expectancies. Women are especially damaged, with their AFP pensions usually being onethird of those they would have received from the public system. Even if a woman has contributed to the AFP without interruption and for the top salary, her AFP pension is less than half of the public top pension she would have been entitled to. The Current Debate In September 2008, soon after the Reform was enacted and after the current global crisis had firmly settled in, a group of parliamentarians presented a law project5 intending to reduce pension fund vulnerabilities occasioned by the crisis. Among other arguments requesting government action, they recalled that: 1. The right to social security is constitutionally enshrined in Article 19 of the Constitution and must be protected and guaranteed by the state. 2. Social security is a complex law and one of its components, the old age pension system, mitigates the social contingency of old age. 3. In Chile the exercise of this right takes the form of private administrators who manage the accumulated funds for a fee or price. 5 Among the signatories were the following deputies: Sergio Aguiló Melo, Marco Enríquez-Ominami, Carlos Montes, Raúl Súnico, Jorge Burgos, Gabriel Ascencio, Tucapel Jiménez, Adriana Muñoz, Carolina Goic, Mario Bertolino, Cristián Monckeberg, Germán Becker.

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4. The state chooses to fulfill its duty through this mandatory system, leaving no options for the affiliates. 5. Because of the mandatory nature of the private management system, the state cannot exempt itself from its responsibility for the loss of assets. 6. The state could eventually lower its responsibility if affiliates were given a choice between both systems (AFP or INP) or if the state would also act as an administrator giving affiliates an option between public or private systems. 7. The state cannot legally impose a system and later relinquish its obligations under the argument that it is privately managed. Any risk carries the inescapable logical assumption that there is freedom to take it. Therefore no risk can be undertaken while the system is mandatory. 8. As a result, the state has a constitutional duty to protect the efficient profitability of the pension funds. Therefore the state cannot neglect its protective action regarding the mismanagement of private entities materially harming workers’ patrimonies in the form of their pension funds, since these represent the exercise of the constitutional right to social security. 9. From this state duty arise the possibilities of, for example, not allowing management fees if the funds diminish in a given period, or of determining AFP patrimonial liabilities regarding workers’ losses because it is a compulsory system. Or else, the state should create a public AFP to exercise its responsibility towards protecting the affiliates by providing them with options to either public or private systems. CENDA (while this author was officiating as Vice-president and pension funds expert) maintains that it would have been better if Chile had established a public AFP and that management fees could have been established. Even then, it would not have solved the problems of a pension system based exclusively on individual capitalization as the crisis has made evident. The current system is based in two erroneous assumptions: 1. The illusion that in the long term, share markets have sufficient stability and are capable of delivering elevated yields. The crisis has made evident that this isn’t so because during the last one hundred years markets were, on the contrary, depressed for over 60 of those

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years and, on average, their values only increased at a rate of one percent a year. Bonds fared even worse, though they were more stable. 2. The illusion that private insurance industry is capable of guaranteeing life-long pensions during a crisis such as this one. In real terms, main insurance companies have fallen into insolvency. As an immediate solution, CENDA has reiterated the urgency to offer the alternative of a state provided life-long pension. This means the authorization of returning to the INP for all those who will be retiring soon but who cannot now afford to do so due to the plunge in the value of their funds and to the insolvency of the insurers. It evidently constitutes an irresponsibility to hand over all pension funds to an industry that investors consider worthless. CENDA also recalled that in 1981 the state forced the switch to AFP under the argument that they would provide better pensions. This promise was not fulfilled before the crisis and it can be fulfilled even less from here on. Because of this the state must allow those who switched systems then, to pension themselves in exactly the same conditions as they would have, had they remained in INP. This would enormously benefit those who are close to retirement, especially women who would recover their right to retire at 60 and with the same simple calculation formula that applies to men when retiring at 65. That is without penalizing women because of their longer life expectancy. They represent twothirds of total senior citizens and privatization has harmed them brutally because AFPs only offer them pensions that are 30 % lower than men with the same contributions and age. When retiring at 60 the differences are even greater. CENDA also argues that the crisis opens the doors to the reconstruction of a public pension fund system which is not based on individual capitalization but instead has a broad base where workers and their employers pay modest contributions with which decent life-pensions are paid to those who can no longer work. This system has proven to be effective in developed countries, with no exception, for over a century. The reasons for maintaining their stability do not lie in the financial markets but instead on the stable capital flows into the national economy emanating from pension fund contributions. In fact the system was implanted in countries such as France when the 1929 crisis caused the collapse of the pre-existing systems based on individual capitalization.

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Additionally CENDA clearly stated that it shared the expressions of Argentine President Cristina Fernandez when she compared pension fund privatization to plunder. The validity of this comparison has been proven in the Chilean case with AFP performance throughout its existence. According to official figures between 1981 and 2006, the affiliates contributed three times as much as what the AFPs paid out. The state additionally contributed a third of what affiliates did. In other words, the system funded almost all its payments with government subsidies. During that period, the fund revaluated itself by about 40 %. Losses due to the crisis also amounted to approximately 40 %. This means that what was gained along a quarter of a century was lost in the last year and a half. Even more serious is the fact that during this same period, as we have said, AFPs pocketed one in every three pesos contributed (Riesco, 2009b). Other reactions come from the international community. The International Labor Conference held in Geneva in June 2009, addressed the case of Chile as an emblematic case seriously violating International Labor Organization (ILO) norms. The issues denounced were specifically concerning what relates to pension fund privatization or the pending payment of the historical state debt owed to teachers. Moreover, ILO denounced the Chilean government for not responding to previous ILO recommendations on these issues. The Conference therefore urged the Chilean government to comply with all recommendations and to inform on the way it would protect private pension holders from the crisis.

Conclusion AFP foreign investments present very high risks. In fact, the portion deposited in safer investments such as developed government bonds is very small. Most of the funds invested abroad are invested in variable rent in countries and institutions strongly impacted by the current global crisis, many of them in questionable liquidity instruments. AFPs have not undertaken measures to safeguard them. On the contrary, they have continued to siphon funds abroad and divert them to emerging markets and speculative stock markets, reducing to almost nil the investments in foreign government bonds. What is astonishing is that while this debacle was occurring, the Parliament approved the Government Pension Fund Reform without

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any criticism, in spite of the fact that it increases the vulnerability of the funds to external financial market risks. On the other hand, it is also unconceivable that it took over a year since the crisis unleashed for some parliamentarians to react to the situation by presenting a request to investigate real pension fund losses and to supervise AFPs so as to orderly switch to safe investments within the country (CENDA 2008b). There is currently an urgency to reform the Chilean Pension Reform so that Chileans can rightfully enjoy decent pension levels. Everybody must be entitled to a defined, life-long, pension, the amount of which should not be inferior to what the public systems deliver today for similar contribution histories. This is perfectly possible if employer contributions are gradually reinstated, and if the funds are actually used to pay pensions rather than be diverted to AFPs and to the financial markets. CENDA has shown the financial feasibility of this scheme (Riesco, 2007). If this is not implemented, then AFP affiliates should be allowed to return to the public system, as has been permitted recently in Argentina and Peru. The state needs to once again undertake the leading responsibility over economic and social development as it did during a good part of the 20th Century. Part of the shift means undoing the severe distortions originated in the unilateralism and occasional downright extremism of the model that came to be known as the “Washington Consensus.” Public social services created under developmentalism and severely dismantled and privatized during the Neoliberal period need to be rebuilt. Undoing the privatization of pensions and rebuilding modern, solid, public, pay-as-you-go pension systems certainly is one of the priority tasks.

CHAPTER NINE

THE WORLD ECONOMIC CRISIS, CHILE AND THE FREE TRADE AGREEMENTS1 Orlando Caputo and Graciela Galarce Chile as one of the worst impacted Latin American economies Chile has been shown to the world as the success story of neoliberalism. Government authorities have stated that Chile was armored against the crisis. Early in 2009, in Davos, several participants pointed towards Chile as an example of economic success (Ministerio de Hacienda, 2009). They also praised Chilean economic policy in addressing the crisis. Concern regarding its image moved the Chilean Government to seek the support of international communication advisers. In this regard, a religious mandarin with enormous presence in Chilean media stated the following: The ‘charming flute player’ seems not to know about the shantytowns that still exist in Chile, the brutal income disparities and the social injustices, which are the origin of being a ‘rat’ country and being seen as such. Those who hired him and who have listened to him have fallen for his charm; and, just as the Hamelin rodents, they line up to follow him as automats towards that country image that according to him is key in seducing the European housewife (Berrios, 2009).

This document reveals that as of March 2009, Chile had been one of the countries in Latin America worst affected by the world economic crisis, deepening already existing social problems. Should GDP fluctuations be measured in Chile as they are in developed countries such as the United States, the Chilean economy would have entered

1

This document updates a Power Point presentation given March 2009 at an International Seminar on Globalization and Development, in La Habana, Cuba, and at the XIII International Seminar on “The Political Parties and a New Society” in Mexico D. F., Mexico.

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into recession starting in the third quarter of 2008, due to decreased production. Unemployment has increased rapidly in the recent period. Losses in workers’ pension funds accumulated during decades when they were invested mainly in the Chilean Stock Exchange and other countries (particularly the United States) up till December 2008 lost close to US$ 37 billion in relation to their net worth in December 2007. This equals a loss of 33.3 % of their global value. Annual losses due to decreases in copper prices in the fourth quarter of 2008 were estimated at US$ 25 billion. Copper is the main Chilean resource and in the last few years its exports represented more than 60 % of global Chilean exports. Both losses together amount to about 50 % of Chilean Gross Domestic Product (GDP) and to nearly six times the annual Bolivian GDP. The impact of increasing unemployment, the losses in workers’ pension funds and the losses due to copper price decreases are all related to the central elements of Chilean neoliberalism and to the Free Trade Agreements (FTAs). These central elements include: labor flexibility and labor reform; the free circulation of currency and capital; and the privatization and de-nationalization of copper. Without the resources provided by the copper companies nationalized by Salvador Allende, there would be a social explosion in Chile (COCHILCO, 2009). Under Allende’s government Chile controlled nearly 100 % of production, whereas by 2008 this had been reduced to 26.2 %. Parts of those few resources remaining have been used to tackle the social problems and to reactivate the economy. Some relevant dynamics of the Chilean economy since the dictatorship There were observable periods of elevated growth and of stagnation prior to the current crisis. After the coup d’état in Chile in 1973, and until the early 1980s, most economists opposing Pinochet, including several who have participated in the Concertación governments as ministers and in other high positions, stated that the neoliberal economic model established by the dictatorship would not work. On the contrary, we (who are economists that opposed the dictatorship) have demonstrated in several documents since the late 1970s2 2

See for example: Caputo, 1996.

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that the economic model was not only viable, but would also show great dynamism. We also stated that growth and dynamism would be based upon a great increase in business revenues due to, among others, the following aspects: 1. A substantial increase in the labor exploitation rate enabled by the destruction and repression of workers’ unions and political organizations; 2. The privatization and de-nationalization of the majority of state enterprises (about 500 social sector enterprises that comprised a new economic sector created by Salvador Allende). 3. The colossal amount of resources generated by copper nationalization carried out by Salvador Allende in July 1971. It is significant to remember that, when highlighting the importance of copper for Chile, Allende named it “Chile’s salary.” 4. The development of capitalism in the rural areas, which was only possible because of the elimination of large estates under Allende’s Agrarian Reform. Pinochet took advantage of this situation and destroyed several different rural property modes –cooperatives, collectives, and small landholders. He decreed free land markets precipitating a saturation of capitalism throughout Chilean agriculture. After the profound crisis of the early 1980s, the Chilean economy started having elevated growth rates. In view of this evidence of the Chilean economic dynamism, economists critical of the dictatorship who had earlier predicted the non-viability of Pinochet’s economic model changed their minds pointing out that there were both positive aspects to be maintained in the post-Pinochet era as well as negative aspects to be changed. During post-dictatorship governments, these same former critical economists, as well as most of the Concertación leaders, adopted and perfected neoliberalism (Galarce, 2008). They embraced as their own, the following neoliberal formulation: “if markets function freely, the economy will generate permanent elevated growth and Chile will become a developed country in a few years.” Meanwhile, we had pointed out that capitalism would generate high growth rates during the dictatorship. Starting in 1994, we began to state that the Chilean economy was entering a phase of diminished capability for employment generation and that the dynamics in the economy based on natural resources exports meant increased dependency and evidenced the limits of the primary exporting model. Starting

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around 1995–1996, we pointed out that the huge increments in copper production by foreign mining companies were creating a situation of global copper overproduction that would bring about a decrease in global copper prices from 1996 to at least the year 2000. During 1997–1998, before the Asian Crisis was made evident and after many years of important growth, the Chilean economy entered a phase of relative exhaustion in its primary export model due to problematic overproduction. The Asian crisis also impacted the Chilean economy, which had experienced a brief period of negative growth. The continued overproduction and the drop in prices up till September 2003 generated a strong decrease of over 50 % of average annual growth rates in the 1998–2003 period as compared to the period of high growth. The Crisis was rapidly overcome in Asian countries but low growth lasted six or more years in Chile. This confirms the fundamental role of overproduction in the relative demise of the Chilean primary-export model, which we consider to be a “poverty generating model,” when developing the Bhagwati3 model for Chile (Caputo et al, 2001). Copper price increases starting September 2003, even by September 2008, had not managed to substantially improve growth in the Chilean economy, which remained quite below the dynamism of the 1986–1987 period. The yearly average elevated growth of about 7.5 % during that period did not manage to solve social problems due to the fact that these are generated by the internal logic of the model. With the relative exhaustion, manifested in reality since 1998 until just prior to the current crisis, social problems intensified and became even more acute with the current crisis. As we have pointed out, Michelle Bachelet’s government has utilized part of the accumulated copper revenue surplus, especially surplus generated by the copper companies nationalized by Salvador Allende and managed by the state institution Codelco4, to face the social problems, to avoid deepening the crisis, and later to reactivate the economy. The relative exhaustion of the model prior to the crisis was confirmed by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). Chile and Mexico, both with important 3 Bhagwati, Columbia University professor, defender of neoliberalism, author of the recent book “In Defense of Globalization” who states that trade is the competitive advantage of globalization. 4 Codelco, Corporación del Cobre (Copper Corporation), the only state-owned copper company in Chile.

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FTAs, according to ECLAC, have had low growth rates as compared with the average for Latin America and with other large countries. In ECLAC’s projection for 2008, growth for the Chilean economy was situated lower than that of 15 countries in Latin America (ECLAC, 2008). The Crisis, the FTAs and certain theoretical aspects In Chile, the severe impacts of the crisis have up until now negatively affected consumption, investment and national production. Additionally, national production faces strong international competition enhanced by the FTAs, intensifying Chilean economic recession, which as we have already pointed out, started in the third quarter of 2008. Chile has already had at least 36 years of neoliberal experience and a great unilateral opening to the free flow of merchandise and capital. This has been further entrenched by the multiple FTAs, in particular the following: Chile-USA, Chile-Canada, Chile European Union, and Chile-China. This has led to a rapid transmission of the global crisis to profoundly impact the Chilean economy. Evidence of these considerations is manifested very clearly within any conceptualization that recognizes the interrelationships of the world economy. But these considerations are present neither in the interpretations of neoliberal economists, nor of the Chilean government nor of the Central Bank. As with neoliberalism, the theoretical and methodological scenario for such considerations was limited to the national economy and its relation with other countries. Based on this national vision, they first stated that Chile could avoid the manifestation of the crisis with sound economic policies. Later they stated rather that the impacts simply would be less in Chile than in other countries. The world economy has an objective existence that can be observed in the creation and recreation of a productive structure and global circulation of merchandise over and above that of individual countries. However, neoliberalism and other main schools of economic thinking analyze “international” trade and finances, in general highlighting the national base of “international” economic relations. They deny international dependency while they artificially bolster the independence of national economies. In the current reflection process, they additionally state that external shocks can be confronted with economic

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policies that privilege the functioning of free markets, and that this would prevent the crisis within any individual national economy. This theoretical posture explains the reiterated Central Bank assertions as well as those of the Finance Minister, Andrés Velasco. During the whole of 2008 and up till the first quarter of 2009, Velasco insisted that Chile would be impacted but that it would continue growing due to the economic policy placed in effect. In January 2009 the Central Bank stated that the Chilean economy would grow between two and three percent during the year. Andrés Velasco maintained well up until late 2009 that in spite of the international crisis, the Chilean economy would continue growing and pointed towards the importance of such an achievement within the Latin American and international context (Banco Central de Chile, 2008 and 2009). Recession was thus permanently denied and economists who demonstrated that recession in Chile was present starting the third semester of 2008, were criticized. Similarly, CNN reiterated the information according to which Latin America would be impacted by the crisis, but reported that it was better prepared to face it than it had been in the past. Several experts from different countries, financial agencies and governments were interviewed. These stated that there were different groups of countries according to how they would be affected. They also stated that there was a group of countries, those where neoliberal transformations had been most profound, that would be impacted the least. This group was headed by Chile, which they proclaimed would be the least affected country in Latin America. In October and November 2008 we anticipated a recession in Chile Due to the strong decrease in revenues within the United States economy as confirmed by the US Bureau of Economic Analysis at the Commerce Department at the end of September 2008, we came to the conclusion that the real estate crisis in the United States had turned into a crisis of the world economy (Caputo, 2008a). Convinced as we were, that the Chilean economy as a paradigmatic example of neoliberalism in the current globalization of the world economy would be severely impacted by the crisis, we wrote a short document, and called it “Chile Due to the Pension Fund Administrators (AFPs) and to Copper, Will Be One of the Most Impacted by the Crisis”

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that the electronic news media El Mostrador published with the title “AFPs y Cobre: La Crisis nos Golpea Fuerte” (“AFPs and Copper: The Crisis Hits us Hard”) which we include here in its entirety: AFPs have lost approximately US$ 25 billion. Revenue losses due to exporting copper during the year at the current prices could also reach close to US$ 25 billion. Those US$ 50 billion estimated as losses amount to 40 % of Chilean annual GDP at the recent exchange rate. These great losses are also equivalent to two years of total Chilean State budget and to ten years of the Health Ministry budget. Internationally they are the equivalent of five years of annual Bolivian GDP and seven of Paraguay’s. These losses do not consider the impacts on prices or revenues in other export products, nor do they consider the impacts on production in the internal market, or on employment. It is criminal to develop such cheerful calculations as those produced by various government authorities, and not acting to prevent losses from being even bigger. Chile was the most impacted country during the Depression of the 1930s. This has been confirmed by international research and referenced in several documents written by Chilean academics, such as Aníbal Pinto in ‘Chile: Un Caso de Desarrollo Frustrado’ Editorial Universitaria, 1962 and Patricio Meller, ‘Un Siglo de Economía Política Chilena,’ Editorial Andrés Bello, 1996. According to ECLAC reports, Chile was the Latin American country worst affected by the crisis of the early 1980s. GDP fell by 14 %, industrial production fell by 23 % and unemployment, according to CIEPLAN, reached 30 %. This crisis has been characterized by Chilean academic circles as ‘the financial and economic collapse of 1982 and 1983.’ Chile was the worse affected country in both of the above mentioned crises because, as with the current situation, it was one of the most open economies to foreign trade and capitals. The government and the Finance Minister must respond regarding the AFP losses. CENDA and economists Hugo Fazio and Manuel Riesco, for several months have been maintaining that the government should avoid AFP losses. Losses up till November 10, 2008, as informed by the AFP superintendence, confirm losses as calculated by CENDA, losses that are permanently updated in web page www.generacion80.cl. The current AFP crisis and the huge losses are more serious than the Argentinean ‘corralito’5 because the ‘corralito’ was temporary and because the owners of the resources could within a few years recover their savings albeit with a loss.

5 The ‘corralito’ was a restriction to cash withdrawals from fixed term investments, current accounts and savings accounts as imposed in Argentina by the Fernando de la Rua government in December 2001.

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On our side, in March 2008, we published a research study ‘The Real Estate Crisis in the United States: The Eventual Seventh Cyclical Crisis of World Economy.’ There, and in several other documents related to copper, we alerted about the possibility of a new world copper overproduction (as has finally occurred) due to a decrease of the world demand for this metal and to the rigidity in the ability of production to adapt itself to demand decreases. Chile can and must promote the adjustment of copper production to the conditions of world demand, and also consider the establishment of a regulating stock. The real estate crisis in the United States has turned into a crisis of the world economy. This crisis is much more serious than the six previous ones. We are in its first stage. The crisis can be profound and extended. No rescue plan, even as massive as the ones in the United States, in Europe and more recently in China, has managed to reestablish trust among entrepreneurs and consumers (Caputo, 2008b). Optimism in the Central Bank and in the Chilean Government – The Chilean Economy would grow in the second semester of 2008 more than in the first The Central Bank Monetary Policy Report, “IPoM,” is the most significant official report on the Chilean economy. In the 2008 quarterly reports, the seriousness of the international situation was recognized. However, they maintained that with the combination of the strength of the Chilean economy and the appropriate economic policies, Chile would experience important economic growth in 2008 and 2009. Central Bank and government optimism led them to increase the May Report GDP growth projections for 2008, as compared to the January report projections. In the May and September 2008 Reports, the optimism was so evident that they increased their GDP growth projections from a 4.0 to 4.5 % range as projected in January to a 4.5 to 5.0 % range, as projected in September (Banco Central de Chile, 2008). In the September document they stated: “…the annual economic expansion in the second semester will be significantly higher than in the first half of 2008…” It is worth recalling that it was precisely in the third semester of 2008 when the Chilean economy began its recession, which we will be analyzing further on. The Finance Minister, for his part, continually reiterated his statement regarding the strong protection of the Chilean economy. The Minister’s optimism was echoed by

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other government officials who stated that the Chilean economy was “armored,” a term repeatedly utilized by the communications media. Minister Velasco’s optimism also visibly surfaced in several statements throughout the development of the real estate crisis even as the crisis turned into a world economic crisis, starting September 2008. In effect, on May 23, 2008, the Finance Ministry’s news release states: Minister Velasco points towards positive growth perspectives for the second semester due to strong investment… … Finance Minister, Andrés Velasco calls upon analysts to go ‘beyond the media headlines’ when evaluating first quarter (2008) three percent GDP growth, in order to evaluate the strength of other indicators revealing positive perspectives for the second half of the year. (Ministerio de Hacienda 2008a)

In September 2008 and in the following months, based upon Central Bank analysis, the Minister reiterated his optimism stating that in the second semester of 2008, the Chilean economy would grow at a stronger rate than in the first one (Ministerio de Hacienda, 2008b). Minister Andrés Velasco’s optimism was so distant from concerns regarding the crisis, that El Mercurio6 distinguished him in October 2008 by naming him the “Notable Person of the Week” (El Mercurio, 2008). In this regard, El Mercurio text states: In the United States, President Bush became exhausted after his struggle to approve a rescue plan for the economy… In Chile, panic did not reach the Government, much less the Finance Minister, Andrés Velasco, whom while the world economy fell in shatters, did not change an iota his image of tranquility… … After the fall of the Chilean stock exchange and the Chilean peso, his speech remained the same; he claimed that Chile is protected. This was Minister Velasco’s week, the voice of calm in the midst of a storm.

Chile fell into a recession in the third quarter of 2008 The recession in Chile as measured with information directly published by the Central Bank (Banco Central de Chile, several years b)

6 El Mercurio, a conservative daily newspaper representing the interests of the Chilean oligarchy as well as the interests of the United States.

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and information published by the Central Bank which we refer to here, indicates the following: 1. The average GDP in relation to the same quarter of the previous year shows that in the second semester of 2008, the Chilean economy grew considerably less than in the first semester. This statement contradicts what the Central Bank declared in “IPoM” of September 2008 that, as we have already said, categorically declared that “…annual expansion of the economy in the second semester will be significantly higher than in the first semester of 2008…” In reality, rather than being significantly higher, the GDP variation in that semester was significantly lower. Additionally it must be remembered that optimism led them to increase the projection for the Chilean economy in the September report from what had been projected in the May “IPoM” report. 2. The Chilean Central Bank also regularly publishes GDP variations in relation to the immediately prior quarter. As can be appreciated, in the third quarter of 2008 the Chilean economy had a slight negative variation (0.1 %). In the fourth quarter of 2008, it was considerably worse, since GDP decreased by 2.9 %. 3. This information clearly shows that the Chilean economy entered into recession in the third quarter of 2008. Minister Velasco criticized this form of measurement, reiterating that the Chilean economy continued growing, and that the same measuring instruments should always be utilized. The reality is that when an economic cycle and its phases are analyzed – particularly the decreasing phase, the crisis itself, and the ascending phase – sound methodology requires the use of comparisons among the nearest time periods. For example, current quarter with prior quarter, current month with prior month, etc. Recession in Chile as measured with the methodology utilized in the United States We will now show that if the Chilean GDP indicator is adjusted as it is done in the United States, recession in Chile becomes more evident and the fall in production becomes higher. For example, decrease in Chilean production in the third and fourth quarters of 2008 is higher than production decreases in the United States during the same quarters. The serious recession in the United States was confirmed by academic centers and recognized by the government. Recession in Chile,

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when measured with the same indicator, is more serious than in the United States, was being hidden in Chile and false information was being disseminated internationally. The indicator being utilized in developed countries including the United States is the one that best measures the different phases of the economic cycle and of the crisis period. This indicator compares GDP behavior with that of the quarter immediately preceding it – seasonally adjusted and annualized. In the third quarter of 2008, global production in the United States decreased by 0.5 %; in Chile it decreased by 3.0 %. In the fourth quarter of 2008, production in the United States decreased by 6.3 %; in Chile it decreased by 8.3 %. Merrill Lynch studies not only confirm that Chile entered into recession but also, that it was the first country in the region to do so. In a document of early 2009, we stated that Chile not only entered into recession in the third and fourth quarters of 2008, but also that Chile was one of the economies hardest hit in Latin America. Government authorities continued declaring that the Chilean economy would continue growing, even though at a lesser rate due to the international crisis, and that Chile would be the least affected among developing countries while in the region it would be the country with the best performance. In January 2009, Andrés Velasco stated that Chile would grow between two and three percent in 2009. In April 2009, during an interview with El Mercurio, Andrés Velasco declared that: “We maintain our confidence that Chile will grow in 2009” (Velsasco, 2009). In a Merrill Lynch Study published at the end of March 2009, it is indicated that GDP fell in the third and fourth quarters of 2008, seasonally adjusted on a quarterly basis. The report concludes: “This confirms the expectations that with two consecutive decreases, Chile is the first country in Latin America to fall into the definition of technical recession.” (Diario Financiero, 2009). We will now present some of the main fundamentals and transformations within the Chilean economy associated with neoliberalism that allow for the rapid transmission of the global crisis to the Chilean economy: The fall in copper prices; the de-nationalization of this basic resource which is of fundamental importance for the country; social security based on individual capitalization and the loses in workers’ Pension Funds; and labor flexibility with its consequent strong increase in unemployment.

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The transmission of the world crisis through a strong decrease in copper prices Two industries on the global level that demand more copper than any others are the automobile manufacturing and the building construction industries. Both have been severely impacted by the developing real estate crisis in the United States. This has led to a huge decrease in world copper demand. Such large losses in the car and building industries played a major role in transforming the real estate crisis in the United States into a global economic crisis. Meanwhile automobile and real estate industry crises developing in many other countries have continued to exacerbate the decrease in worldwide demand for copper. The average monthly price of copper had diminished by 62 % in January 2009 compared to the price in July 2008. The novelty here is that this plunge happened within a six-month period. This is a very brief period as compared to prior cycles when the fall in prices extended itself gradually over many years. Such strong and rapid decreases in copper prices are also partly explained by the rigidity of copper supply. Decreasing global copper supply in the short term is difficult because it lies in the hands of big companies with huge investments in installations, machinery and equipment. And these investments are associated with programmed financial credits and payments. Property within the global copper industry has undergone a substantial change. With globalization of the world economy, the participation of state enterprises has been strongly diminished and the participation of big global mining companies has increased. Countries can lose their autonomy when they are unable to maintain the defense of their natural resources. The paradigmatic case of this situation internationally is Chile. Being the world’s main copper producer and exporter, Chile had at times produced 36 % of the world’s copper production and more than 45 % of the world’s copper exports. However, with the de-nationalization of copper, which Salvador Allende had in fact nationalized, Codelco (as the Chilean State enterprise) now produces only 26.2 % of Chilean copper. Because the world crisis is so profound it has transformed, hopefully only temporarily, this tendency in terms of trade in favor of metals and energy resources. The collapse of copper prices has been one of the main ways (probably the main way) that the world economic crisis has been transmitted into the Chilean economy. It has

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meant a drastic decrease in the value of exports, significantly modifying external accounts as well as the amount of resources that the national economy can count on. Transmission of the world economic crisis through the decrease in Chilean exports, particularly copper Chilean exports constitute the basis of outward looking development for the nation. Copper exports had been higher than 60 % of total exports for years and had been ten times the individual value of other important Chilean exports. Copper exports decreased from US$ 4.16 billion in March 2008 to US$ 1.23 billion in December 2008. That is to say they fell by 70 %. In annual terms, and in December 2008 and January 2009 prices, losses for Chile considering copper byproducts, as compared to recent years, reached approximately US$ 25 billion in 2009. Neoliberalism has entrenched the primary export nature of the Chilean economy and has increased its dependency and vulnerability. This has enabled a rapid transmission of the international crisis to the Chilean economy. Copper de-nationalization and the prevalence of foreign investment in copper intensify the impact of the world crisis on Chile’s economy FTAs have been referred to as if they were only dealing with international trade among countries. In reality, the most important aspect of FTAs in Latin America is foreign investment. Big foreign corporations control the main economic sectors, natural resources and an important share of exports and imports. The negative impacts of the heavy decreases in Chilean copper prices and exports are exacerbated by the remittances of the abundant revenues and interests that foreign corporations extract from Chile. Foreign copper corporations have benefitted from years of low copper prices causing Chile severe damage. It is also they who most benefit during periods of elevated prices. From 1996 to 2003, as we have already pointed out, there was a heavy decrease in the price of copper due to global overproduction created from Chile by transnational mining companies. They supplied their associate companies in other countries with copper at low prices, where it was melted, refined and manufactured.

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After several years, and when prices went below US$ 70 cents to the pound, Codelco and foreign mining companies decreased production and Codelco formed a regulatory stock. Prices increased, starting in September 2003, due to supply regulation and to additional increases in Chinese demand. The impact on revenue export and on interests in foreign investments manifested itself immediately in the form of heavy price increases. Total revenue exports in 2006 went beyond US$ 25 billion, an estimated 20 billion of which had been exported by the big transnational companies controlling Chilean copper. Yearly revenues became so high that they were higher than all foreign investments in the Chilean mining sector realized from 1974 to 2006, which only totaled US$ 19.9 million (Caputo and Galarce, 2008a). The unilateral opening of Chile to the free circulation of capital and merchandise was ratified and intensified by international agreements, namely the FTAs signed by the Chilean government. The de-nationalization of large sectors of the Chilean economy and particularly of copper have had an apparently paradoxical result, but which responds to the logic of the current globalization of the world economy, supported theoretically by neoliberalism. The strong increase in Chilean exports over its imports and the elevated trade balances are highlighted in official reports as one of the main successes of Chilean capitalism. In reality, those elevated commercial balances enable the funding of revenue exports from foreign direct investments (FDI), and in particular, the huge revenue exports from the big transnational mining companies controlling the main wealth of the country. Statistical information demonstrates that in all years, revenues from FDIs that were sent abroad were similar to the elevated commercial balances. Between the years 2004-2008, the total revenue sent abroad by FDIs, close to US$ 81 billion, was higher than the global sum of favorable balances within the Balance of Goods, amounting to US$ 75.6 billion. In several of our documents on copper, we have denounced copper de-nationalization and the huge benefits and remittances to transnational mining corporations in Chile as the “Robbery of the 20th and 21st Centuries.” Copper de-nationalization is, as we all know, unconstitutional, in view of the fact that the Chilean Constitution categorically establishes that “The state has the absolute, exclusive, inalienable and non-prescribable domain over all mines.” As we have pointed out, the impact of the strong decrease in copper prices and exports in Chile in the last months of 2008, made the balance

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between remittances and commercial balances even worse. In 2008, exports not only stopped growing as they did in prior years, but they decreased mostly due to the drastic fall of copper prices starting August 2008. At the same time, imports increased considerably due to – among other causes – the FTAs. Markets are being restricted everywhere. FTAs allow companies of countries that have signed FTAs with Chile to increase their exports towards Chile. In sum, the commercial balance in 2008 was of US$ 8.8 billion and exported revenues from FDIs were US$ 18.5 billion. What has been analyzed, as well as the speed with which the FDIs revenue remittances impact Chile, is better illustrated on a quarterly basis. Commercial balances that were considerably elevated for the first quarter plunge and turn negative in the last quarters. Even though investment revenues remitted abroad decreased, they were much higher than the balance of exports and imports of goods. The strong drop in copper prices not only impacts the commercial balance and its relation with FDI remittances; it also drastically affects the contribution of the nationalized copper mining company, Codelco, to the national economy, as we will now analyze.

The strong drop in copper prices and the drastic decrease of Codelco contributions to the Chilean State Annual Codelco contributions decreased considerably in 2008 as compared to 2007. However, as the prices fell drastically starting around August 2008, a quarterly analysis is necessary. Quarterly contributions from companies nationalized by President Allende dropped dramatically in the third quarter and were almost nil in the fourth quarter. Codelco surplus is mostly captured by the state. From 2004 to 2008, surplus exceeded US$ 30 billion, with which the state established a Foreign Fund and invested it abroad. This Fund was geared for facing crisis periods as well as social security funding and other social problems. Parts of these huge amounts of resources have been funding the diverse items addressing the crisis. Without the availability of these resources, which in reality came from Salvador Allende’s copper nationalization, the Chilean economy would have suffered a more drastic production reduction and consequently, unemployment and social problems would be even more acute.

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Overall losses of workers’ Pension Funds invested abroad as well as nationally between December 2007 and December 2008, exceeded US$ 37 billion. Main facts and characteristics explaining such losses are the following: 1. The Social Security Reform, which replaced the former system based on solidarity for one based on individual capitalization, one of the pillars of neoliberalism. 2. AFPs were managed by private enterprises (most of them foreign) with huge profits and elevated management costs and which provided for low pensions. These pensions were significantly lower – one half or even one third lower–than pensions of workers who remained in the old system based on solidarity. However they were a minority because during the dictatorship, workers were forced to change to the new system. 3. Funds were invested in variable or fixed return modalities. Up to 45 % of total funds were allowed to be invested abroad. 4. Since July 2007, the Research Center, CENDA7, recommended that funds from abroad should be gradually withdrawn according to a program. 5. Government reacted stating that those funds were safe. That very same month of July of 2007, a law project was developed and processed allowing the gradual increase of the maximum allowed in AFP funds investment abroad from 30 to 45 %. 6. Minister Velasco stated in this regard that: “This means more opportunities, more profit, more security and what gives people more confidence… what government can assure is that Chilean workers’ savings are safe.” 7. In September 2008, the Central Bank increased the limits for Pension Fund investments abroad to 45 %. Finance Minister Andrés Velasco praised the Central Bank decision and stated: Every day Chileans have more possibilities that our savings be invested in the best investments in the whole world, not only in Chile. The more investment options there are the higher is the probability that they will

7 CENDA, Centro de Estudios Nacionales de Desarrollo Alternativo (Center for National Studies on Alternative Development).

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yield well. A second obvious benefit is diversification: when savings are placed in different baskets, risk is obviously diminished.

8. In December 2008, workers’ Pension Fund losses went beyond US$ 37 billion. That is to say, more than 33 % of the total December 2007 value (Superintendencia de AFPs, 2007, 2008a). 9. Workers’ Pension Funds invested abroad have lost over US$ 15 billion from May 2008 to September 2008 (Superintendencia de AFPs, 2008b). Information for December was to more than double that amount. 10. It begs to be remembered that it was precisely in September 2008 that the Chilean Central Bank increased the limits for AFP investments abroad. Huge increases in unemployment during the last months of 2008 were a significant recession indicator within the Chilean Economy From September to December of 2008, unemployment in Greater Santiago increased from 7.7 to 9.7 %. These two percentage points represent an increment of 26 % in this particular indicator. The heaviest impacts occurred in the manufacturing and building industries. The building industries suffered an increase from 11.7 to 17.1 %, translating into a 46.2 % increase. In January 2009, there were massive increases in layoffs, the most noteworthy of which were due to the halting of the “Costanera Center” construction, a flagship project of current Chilean neoliberalism and a symbol of the Bicentennial of Chilean Independence. The Costanera Center was to be composed of four towers, one of them seventy floors and 3,000 meters high, with two five- and four-star hotels, a gym, terraces, green areas, a commercial boulevard and 200,000 square meters of office space. The Costanera had generated 3,500 work places. The project’s website highlighted that: “It is the commercial symbol of the country … the new Business Center for Santiago and South America … a city within a city … the highest tower in the Western hemisphere.” The Costanera Center stoppage generated panic at a national level. In spite of summer vacation, national mobilizations were organized and it became one of the central issues for the National Strike that was agreed upon in January for later of that year. Cristián Cuevas, the President of the Copper Workers Confederation, grouping

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workers from all mining contractor companies, labeled the work-suspension of Costanera Center as a “Symbol of the Bicentennial, a Monument to the Crisis.” Unemployment growth continued to manifest itself with strength in the last months of 2008 and in January 2009. There was a consensus in that it would continue increasing and that the numbers would go beyond the two digit percentage. Some recent indicators on the Chilean economic crisis Copper prices began to recover in 2009, reaching an annual price of US$ 185 cents to the pound on July 3rd of that year. However, it was still considerably lower (by 43 %) than the annual price in 2007 that was of US$ 323 cents to the pound and which was not affected by the crisis. The Chilean Stock Exchange also recovered, and at a certain level so have the Pension Funds. Nevertheless, losses in workers’ pension funds continue being very elevated. However, it is estimated that Stock Exchange recovery constitutes a speculative bubble and is therefore temporary. In real life, impacts have been so elevated that the Central Bank, which at first projected a two to three percent growth, changed its growth forecasts for 2009 to between 0.25 and –0.75 %, and finally recognized that Chile was in recession (Banco Central de Chile, 2009b). OECD projected a much heavier decrease in Chilean production, at –1.6 % (OECD, 2009a). The crisis in Chile was expected to be so severe that the government increased public expenditure extraordinarily by US$ 11 billion, funded by the surplus generated in the last few years by copper nationalized by Salvador Allende in 1971. These extraordinary expenditures corresponded to eight percent of Chilean GDP. Given the fact that this expenditure is one of the GDP components, without it GDP would have fallen by ten percent or more, adding to the projected decrease, this eight percent of public expenditure increase. The latter had a multiplying effect through the increase in consumption of those who have benefitted from government vouchers, added to the multiplying effect of infrastructure investment implemented and supported by the government. All of the above is related to what has been stated in the same Central Bank document already referred to, where corporate investment was projected to decrease by −14.3 % for 2009, in spite of strong public

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investment. This decrease was yet more relevant considering that overall national investment increased by nearly 20 % in 2008 (Banco Central de Chile. 2009c) Industrial production fell considerably more than what had been estimated, confirming the depth of the crisis within productive sectors. In May 2009, according to the Sociedad de Fomento Fabril (SOFOFA, or Society for Industrial Promotion) May Report (SOFOFA, 2009) published in early July 2009, industrial production decreased by 15.2 %. Such an impact was reflected in an article in El Mercurio entitled “Industrial Production marks in May its worse plunge in 27 years when receding by 15.2 %” published on July 3, 2009. The sectors that decreased their production the most during May were the sectors producing metal goods, machinery and equipment, which decreased their production by −37 %. They were followed by the sector producing intermediate goods for construction that decreased by −26.7 %. The unemployment rate from September to November 2008 was 7.5 % whereas from March to May 2009, last INE (National Institute for Statistics) information available at the time of this writing had it increased up to 10.2 %. This unemployment rate was considerably higher than that of the United States and Europe during the same periods. Later reports stated that: In the USA, the unemployment rate went up one-tenth of a percent up to 9.5 %, reaching its highest level in 26 years. Within the 16 countries integrating the Euro zone, from the 9.3 % registered in April it also escalated up to 9.5 %, but in May (El Mercurio, 2009).

Unemployment in Chile was considerably higher according to information issued by the University of Chile, as has been proven in prior crises. In September 2008, unemployment in Greater Santiago was 7.7 % and reached 12.8 % by March 2009. Chilean University research showed an increment in the unemployment rate of 66 % between the initial period of the crisis and March 2009. If government emergency employment is discounted, the unemployment rate as issued by INE would have increased from 10.2 to 12.6 % (Valdés, 2009). By the same token, the unemployment rate as issued by the Chilean University would have increased once government emergency employment was deducted (according to our estimates) from 12.8 % to an unemployment rate for Greater Santiago of close to 15 %. Moreover, real unemployment was even higher. In effect, real unemployment incorporates people registered as “inactive or out of the

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workforce,” but that when surveyed declare their wish to work. In another study of our own, where we only considered people who wished to work 20 hours a week or more, we estimated for early 2009 a real unemployment rate of 15 % (Caputo and Galarce 2008b). Now we estimate that real unemployment increased several additional percentage points. The classification of “inactive or outside the workforce” could lead to interpretation errors. In reality it relates to people older than 15 years of age who are in working conditions but who have not looked for work within the week of the survey. Unemployment is one of the main indicators allowing for the estimation of the seriousness of the crisis. Concluding Thoughts: Comparing the current crisis and that of 1980–1982 with the crisis of the 1930s According to ECLAC reports, Chile was the Latin American country hardest hit by the crisis of the early 1980s. GDP fell by 14 %, industrial production by 23 % and unemployment, according to CIEPLAN, reached 30 %. This crisis had been characterized by Chilean academics as the economic and financial collapse of 1982–1983 (Meller, 1996). It must be recalled that Chile was also the country worst impacted by the Depression during the 1930s. In his book, Aníbal Pinto states: As we know, the Great Depression hit the Chilean economy with exceptional violence, so much so that a famous and well quoted report from the League of Nations pointed at our country as the most affected country among all. Exports were reduced to half their usual volume and to a quarter of their value; imports were reduced by 80 % during the culminating years before and after the collapse (Pinto, 1962).

Chile was the worst impacted country in both of the above cited crises, because just as it now happens, it was one of the economies most open to foreign trade and to foreign capital, all of which entrenches its primary exporting nature. It is worse now because Chile has endangered its position further with opening up to free circulation of goods and capital under multiple FTAs, those most worth highlighting being FTAs with the United States, Canada, the European Union and China.

CHAPTER TEN

CHILEAN SOCIAL MOVEMENTS IN CONFRONTATION WITH NEOLIBERALISM Mario Garcés Social movements in recent Chilean history have been relevant actors and protagonists in at least two distinct periods. One we will call “splendor and death”1 which refers to the Chilean road to socialism. The other is the resistance to dictatorship and to neoliberalism. In a third and later phase, corresponding with the transition or return to democracy, social movements have suffered the effects of their exclusion from the new governability pact. And they have encountered serious difficulties when attempting to confront their own weaknesses, tensions and dilemmas in order to act in the “new” Chilean society. Each one of these three stages, especially the first two, are characterized by the following: large scale mobilizations; the prevalence of one or another movement rooted in popular bases (workers, peasants, city dwellers, or students); a relative dependency and autonomy relation with political parties, especially with the parties of the Left; and finally, in all cases, a complex and conflicting relation with the state. Splendor and Death of the Chilean Road to Socialism The Popular Unity (UP)2 doubtlessly represents a breaking point in Chilean history. On the one hand it encompasses and expresses all traditions of struggle in the 20th Century, especially from the thirties onwards. On the other, it tragically unveils all the limits of those struggles. This is how the UP, which aspired to initiate an unprecedented

1 Paraphrasing Nobel laureate Pablo Neruda in his renowned play Splendor and Death of Joaquin Murieta. 2 Popular Unity (Unidad Popular) was a coalition of popular parties that gained executive power in 1970 through democratic elections and lost it in a military coup d’état in 1973.

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transition to socialism, was followed by a complete social and state restructuring in a neoliberal, capitalist direction. In the tradition of Chilean popular struggles, several phases relative to the degree of involvement with or distance from the state can be differentiated. The UP formed part of the former since it recognized the workers’ movement as the main historical subject, duly articulated with the political party systems of the Left, especially socialists and communists. Since the early thirties these parties were recognized by the elites as legitimate interlocutors and therefore were integrated into the political system. Communists were temporarily excluded between 1948 and 1958, but this did not translate into a shift in their political definitions. In this tradition, popular struggle followed two roads: union struggle (union formation, articulation of demands, organization of strikes and street demonstrations in Santiago and other cities) and electoral struggle (which allowed workers to have parliamentarian representation through socialists and communists). This tradition started to suffer some challenges as early as in the fifties, especially among students and city dwellers whose demands never found resonance in the political system or who remained distant from union traditions. University students were considered the spark of a popular mobilization that took place on the 1st and 2nd of April, 1957. These events burst the seams of the existing institutionality and were repressed by the army, resulting in multiple arrests and wounded as well as several deaths. The urban people were in the streets not only for those events. Later that same year, on October 30, 1957 they took over urban land in the southern part of Santiago, originating a new neighborhood, La Victoria (Victory). City dwellers’ movements were only just beginning. Their mobilization and action during the sixties would achieve greater visibility and impact than that of workers’ unions. These mobilizations challenged the political class, the political Left included, regarding their full meaning and also, although still not enough, regarding the introduction of new actors into the struggle, no longer just the workers but now also the urban peoples. The political counterpart of this animated 1957 became the electoral surprise in 1958. Allende did not become president during that election only because he was stopped by a last minute political maneuver orchestrated by the political Right. The historical strategy of the Chilean Left, not without a few social outbursts, was rendering its fruits. Its leadership was recognized in the struggle and reached

social movements in confrontation with neoliberalism 221 one-third of the electorate at the polls.3 It was at this time that the Cuban guerillas were consolidating in the Sierra, disarticulating the Batista Army and entering Havana triumphantly. The sixties were especially dynamic from the social and political points of view. In this decade, the Left could not manage to repeat its 1958 success. That is to say, they did not come close to a presidential electoral triumph in 1964. A new phenomenon marked the decade. Christian Democrats in resonance with the Alliance for Progress and the aggiornamiento of the Catholic Church that was trying to put itself better aligned with the times, sought to capture the electoral base of the Left and proposed a “revolution in liberty.” This revolution really consisted of: a set of economic reforms such as “copper chileanization,” agrarian reform and new support for national industry; social reforms such as peasantry unionizing, an ambitious popular housing plan and the legalizing of Juntas de Vecinos (neighborhood councils); and cultural reforms such as that of the educational system. All of these reforms aimed at overcoming economic paralysis, modernizing society, and promoting social integration processes. The reform process as proposed and implemented by the Christian Democracy (DC) government was accompanied by a discourse favoring social change, which made it similar to many of the Latin American phenomena described at that time as populist. This meant a rapport with the people, a charismatic leadership, redistributive policies, and reforms. Among the latter, especially prominent were copper chileanization (which meant conducting negotiations with North American companies in order to share copper ownership with the state) and agrarian reform (which inevitably lead to a confrontation with the old oligarchy of agrarian origin). Two distinctive currents cohabited within the DC. One of genuine reformist nature, and another, more conservative, aiming at imposing limits to reforms. This is how the classical ambiguity of populism was reproduced as the change without change. At the same time this ambiguity untied or liberated social forces that, while gaining in autonomy, would end by turning against the DC itself. For some analysts at the time, the DC was a victim of “an explosion of expectations.” In reality, it should be admitted that it was rather a 3 In Chile, at the time, there was no second round or ballotage for presidential elections and there were three main candidates. Therefore, one third of the votes meant being only a step away from victory.

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victim of its own contradictions. These eroded the loyalties of the people, intensified the differences within the party, and above all, favored the emergence of new actors and social movements that in the process of change gained in autonomy. This was especially the case for peasants and urban peoples who embraced social and political struggle and made visible their own culture and demands. Social movements diversified and expanded. New peasant unions and associations joined the already consolidated workers movement, the Central Única de Trabajadores (CUT)4 at the time declaring to group 34 % of the working class (Angell, 1974). Peasant organizations had expanded from an estimated 22 unions at the beginning of the decade of the sixties with 1,500 members, to 400 unions and 100 thousand members in 1970 (Pizarro, 1986). On their side, the Homeless Committees and communal association of city dwellers had proliferated all over Santiago and in some provinces (Garcés, 2002). And if this were not enough, starting in 1967, university students initiated university reform processes with strikes and educational center takeovers. Christians also originated movements and pressure groups within the Catholic Church itself. At the beginning there was Iglesia Joven (Young Church), and later there was the movement “Christians for Socialism” (Castillo, 1986). What has been described as hyper-mobilization (Landsberger and McDaniel, 1976) associated with the UP, in reality was shaped and activated previously. It could not have been otherwise, given the brief period in which the Left controlled the government. The UP, therefore, needs to be understood as a product of the intensification of popular mobilizations that preceded it. Allende’s triumph in 1970 confirmed that the strategy of social struggle associated with the electoral struggle of the Chilean Left, laboriously configured through the 20th century, could achieve its goals. They could reach a strategic position at the top of the state through pacific means in order to start from there a transformation process. The aim, as was sustained with a certain ambiguity, would be to prepare the conditions for the transition towards socialism (Pinto, 2005: 15). Doubtlessly, beyond endless intellectual political debates questioning the viability of the “Chilean way to Socialism,” the mere fact that a socialist of Marxist roots had risen to the presidency, was a symbolic

4

United Workers Central.

social movements in confrontation with neoliberalism 223 event. All passions, phantoms, fears and manipulations associated with the cold war were unleashed. Chileans refused to believe that in this context the United States (US) would directly intervene in Chilean politics, a fact that in time would become known with a great degree of precision (Garcés, 1976). Resulting from the new political scenario, on October 22, 1970, because of his adherence to the Political Constitution of the state, the Commander in Chief of the Army, General René Schneider, was murdered. The days and weeks that followed Salvador Allende’s political triumph were of great tension and uncertainty, mainly because the strength of the Chilean democratic political regime was being tested. Most Chileans were rather proud of their democracy in a Latin American and neighboring country context where political disputes over power were frequently solved with coups d’état. In those days and weeks not only did the CIA intervene in order to organize a plot to impede Allende’s access to the presidency (Kornbluh, 2004), but the political forces of the Center maintained ambivalent positions. On the one hand they recognized Allende’s triumph, but on the other they manipulated economic and political information regarding the effects of a Marxist government. Finally they agreed to force Allende into signing a Statute of Constitutional Guarantees, a rare historical irony considering that these very same democrats stimulated and supported the 1973 coup d’état, effectively destroying the foundations of the Chilean democratic system. From the point of view of the social movements, even though state politics was perceived as an area of complex disputes at the top, they were optimistic regarding its dynamics and opportunities for change. This is why many groups who had supported the DC now sympathized with the Left and joined the struggle and demands closer to them. In fact, at the time of the 1969–1970 electoral period, mobilizations from the base multiplied. Peasants scaled up from ten farm takeovers in 1967 to 26 in 1968 and to 456 in 1970 (Pizarro, 1986). Urban peoples in Santiago alone went from four land takeovers in 1968 to 35 in 1969 and 103 in 1970 (Garcés, 2002). Organized workers, on their own side, increased their strikes from 162 strikes in the mining sector during the 1965–1966 biennium to 306 in the 1967–1969 biennium and in the industry from 324 in the same first biennium to 1,364 in the second (Pizarro,1986). This means that from the point of view of current theoretical debates regarding social movements, the 1970 electoral period provided a

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structure of political opportunities never before seen in Chilean social and political history. Action repertoires expanded and massified, making takeovers one of the most frequent forms of pressure and struggle. Organizational structures evidently acquired expanded magnitudes and densities in the different groups that were mobilized. The UP triumph was both preceded by, as well as the product of, a mobilized people.

The Unresolved Contradictions of the Popular Unity Curiously, in Chile we lack historiographic traditions regarding the UP. As “a defeated revolution” or as “the revolution that did not happen” (Mires, 1988), it bears the stigma of the consequences of what could have been but was not. Even more drastically, it carries the stigma of what came after the popular protagonism of the sixties. That is, the unlimited violence of the state which surpassed the historical imagination of Chileans. On the other hand, as Peter Winn has pointed out, the first and more broadly disseminated studies on the UP saw the Chilean revolution: …in terms of party politics, blaming communists or Christian democrats, socialists or nationalists, extreme left or extreme right for its changing course and its tragic conclusion. What these diverging interpretations have in common is their perspective: these are essentially top down visions taking for granted that national actors were the main protagonists of the revolutionary drama and ignoring the relative autonomy of local actors and movements (Winn, 2004: 20).

In a reading of 15 relevant writings on the UP (which we undertook with Professor Sebastián Leiva), we confirmed that with a few exceptions, most of them placed their emphasis on the state, the institutions, the political system, the political parties, the alliances, the Allende presidential management, but only slightly on the popular sectors (Garcés and Leiva, 2004). A real paradox was being created this way. Popular sectors and in particular the working class and the urban and rural poor, who had been proclaimed as the main protagonists of change and of socialism, ended by being the most silenced and most absent from the UP analysis. They were conspicuous for their absence, not for their mobilizations and their support of Salvador Allende. The well recognized originality of the political project constituting the UP, initiating a peaceful transition to socialism within the framework of the pre-existing rule of law, also turned into its Achilles’ heel.

social movements in confrontation with neoliberalism 225 This state was not as democratic as it was considered to be and popular demands would quickly surpass the UP programmatic guidelines. On the one hand, even if some of the UP proposed reforms, such as copper nationalization, managed a relative consensus, others such as the expropriation of monopolistic enterprises and the construction of a social property area encountered a solid opposition in Parliament. Similarly, Allende’s promise not to resort to repression brought him into confrontation with other state powers such as the Justice Tribunals who favored large land owners or businessmen in their disputes with their workers, or the Controller General of the Republic who objected to presidential prerogatives and decrees. That is to say, economic reforms which sought structural change, as proposed by the UP, rapidly placed the executive power, now in the hands of the Left, in confrontation with the other state powers of conservative tradition and management style. Respect for press freedom guaranteed the political right wing the tools necessary for exaggerating the effects of government and social movement actions, exacerbating a climate of political polarization. This would help prepare the terrain and ultimately legitimize the 1973 coup d’état. After the Allende electoral triumph on September 4, 1970, the more traditional political Right had favored blocking his access to government, and the more radical, opted to promote a coup d’état. Conspiratory activities associating civilians with the military started as soon as Allende won the elections and persisted throughout his government. In view of the initial failures in impeding Allende’s access to the presidency, as we have seen, the political Center (meaning the DC) promoted the signing of a statute of constitutional guarantees as a precondition to confirmation by the Parliament of Allende’s triumph as the most voted for candidate. Once Allende took office, the strategy of the Right was to make use of all its resources within the state and the society to obstruct Allende’s initiatives. Towards the end of 1971 they also promoted the formation of anti-socialist social movements that in the medium term were able to incorporate the middle class and the DC. This is how the UP not only confronted the status quo, but was also structurally limited in acting within the political system since it did not count on parliamentary majorities. The Right exacerbated the situation while being capable of attracting the political Center. In 1972 they went as far as constituting the Democratic Confederation (CODE) grouping nationals and Christian Democrats. They would soon make their weak democratic vocation perfectly visible, especially as a matter of confronting a socialist government.

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On the other hand, the UP electoral triumph and the technical programmatic guidelines were quite different from how the popular bases interpreted this victory. As Peter Winn has sustained: The Allende ‘popular triumph’ had different meanings for its base than for the UP planners and politicians. For Chilean workers, peasants and the urban poor, the election of the ‘Popular Government’ constituted a signal for them to take the revolution in their own hands and conquer their historical aspirations through direct action from the bottom up (Winn, 2004).

In fact, social movements, especially peasants and the urban peoples, having built themselves up rapidly during the sixties, now found the way clear to advance their own demands for land and housing. Unionized workers could negotiate their salaries and working conditions in better standing, and in some mining and industrial sectors they could demand the expropriation of enterprises to bring them into the social property area, as promised by the UP. Social movements tended to be very concrete and sought the compliance of their historical aspirations of social justice which they tried to equate with the objectives of the “ongoing revolution.” In all of these cases, the preferred way of pressure to advance their demands was the takeover of agricultural land, factories, or urban land in order to build the new popular neighborhoods. Beyond the metaphor (top down revolution, bottom up revolution) and beyond the institutional or popular processes, it is evident that the global conflict which gradually permeated society involved all sectors and actors engaged in the dispute for power, for participation and for determining the horizons for social transformation. It also forced them to interact with each other. The first year of governing was decidedly successful for the popular government. Among the highlights were the introduction of a redistributive policy that improved incomes for the popular sectors, copper nationalization, the construction of more popular housing than in all Chile’s history, a historical electoral success which went over 50 % of the votes in a municipal election, and a long and animated visit from Fidel Castro who toured the country from North to South. Nevertheless, every so often, a civic-military conspiracy would place the government onto alert. The US blocked financial credits and manipulated international copper prices. At the same time, the opposition rehearsed a dual pronged strategy to destroy the UP administration: economic boycott and parliamentary obstruction. With the first

social movements in confrontation with neoliberalism 227 one, a black market and a situation of lack of basic goods was being orchestrated and becoming increasingly difficult for the government to handle. With the second one, Allende’s ministers were constitutionally impeached, blocking action in the executive branch. This dual destabilizing strategy further incorporated a third component which gradually turned into the spark unleashing the social and political crisis. This component included street demonstrations and lockouts, taking different shapes. First came “the march of the empty pots” of the women from the upper-middle class; then came student demonstrations culminating in 1972 in what the Left called “the bosses strike” with trucks stoppages and highway blockings by truck drivers supported by the public transportation and commerce unions as well as by professional associations of medical doctors and lawyers of the middle class. The 1972 strike marked a breaking point in Salvador Allende’s government, unveiling all the limits of the UP political project and the historical dilemmas of the Left. In effect, the Center-right opposition was in the first place snatching all the classical forms of struggle in the streets from the Left and creating its own social movements with an anti-socialist orientation. In the second place, the bourgeoisie resorted to strike as a strategy to disarticulate the economy and to mobilize the middle class of owners. In the third place, the executive counted on scarce institutional resources to confront a strike with insurrectional connotations. In the context described, the strongest response to the “October strike” came from popular social movements that kept the industries producing without their bosses, articulated new forms of production distribution and placed all their means at the service of public transportation. But within the epic of overcoming the bourgeoisie and middle class opposition, not only did they create new organization forms (production committees, vigilance committees, etc.) they also transgressed the UP program taking over more industries than those foreseen to be transferred to the social area by the state. They accelerated the agrarian reform process and constituted Peasant Communal Commands. They disputed the conduction of the process by political leaders and by the CUT and started processes that linked them to peasants and urban peoples in their territories. This was a successful response in that it expressed the need for, and the emergence of, a “popular power” which was not there nor which did not necessarily coincide with the rhythms and the contention strategies attempted by

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Allende within the state. Instead, once the critical phase of the truck drivers’ strike was over, Allende integrated a group of armed forces generals into his cabinet. The general tensions of the ongoing process had its impact on a Left that was facing the dilemmas within the state and also within their own bases. A partition of waters took place between those who sustained that it was necessary to “consolidate in order to move forward” and those who instead claimed that it was necessary “to advance without compromising.” This tragic division of the Left, judging by what came later, resulted from a process that turned out to be difficult to articulate: the achievements and the rhythms of the state versus the logic and the rhythms of social movements. Moreover, all of this was processed with a sterile and at most times a harmfully high degree of ideologically-charged accusations coming both from the political leadership and also, but less so, from the base. The September 11, 1973 coup d’état caught the popular forces and the Left without having found solutions for their own dilemmas. There was no way out within the state and the political system considering that the DC refused to negotiate with Allende and the UP. There was also no way out within the base, considering that the “popular power” represented a series of attempts towards social and political autonomy, but was far from constituting an alternative power with the capability to confront the assault on democracy. Action would soon concentrate on two fronts: on the state by destroying it, and on the popular organizations by repressing them without limits. This is why the defeat of the Left and the social movements was strategic in that it made them incapable of acting upon the state. It also left them with weak self-defense capabilities except for social survival (based on fall-back positions within families and social solidarity networks) and for political survival of those militants who managed to generate some form of clandestine or semi-clandestine action.

The Hard Years of Repression and the Reconstruction of Social Movements The military dictatorship destroyed the Chilean democratic system so laboriously built throughout the 20th Century. It was not only a question of closing down the Parliament, interdicting political parties, suspending and even derogating the Labor Code, but the repression and

social movements in confrontation with neoliberalism 229 the annulment of social movements. The Chilean military acted as an occupation army, repressing and disciplining the popular society. If on the one hand democracy as a political system was cancelled, on the other, the most diverse social democratization processes that society had ever generated from its bases were blocked. The dictatorship exercised total power through terror, the systematic violation of human rights, contempt towards the people and their control. Repression was not only directed against militants of the political Left, in a preventive war of sorts, but also against the diverse popular social movements. Within cities, they were repressed for being workers and for being poor urban peoples, by raiding industries and popular neighborhoods. These were the two most relevant symbolic spaces in the development of urban popular movements: the workers’ movement and the urban peoples’ movement. While raiding and searching industries, universities and popular neighborhoods, repression took diverse forms. Among them, executions in public view, cruel and humiliating treatment, and the imprisonment of a great number of detainees in stadiums, army barracks, navy bases and other military or police precincts. According to the 1991 National Commission of Truth and Reconciliation Report, also known as the Rettig Report, and the National Corporation for Reparation and Reconciliation Report that continues reviewing cases, a total of 2,905 deaths or disappearances at the hands of state agents were registered and 139 deaths due to political violence. This data is, of course, incomplete due to the fact that not all victim family members denounced their cases and many times their information was too incomplete to positively document a death or disappearance. This is how, as has recently been indicated by the North American historian Steve Stern, following a conservative methodology, the number of deaths and disappearances can be estimated to be between 3,500 and 4,500 victims (Stern, 2009). Additionally, the number of people arrested during the first three years of the dictatorship can be estimated at 82,000 victims. Regarding torture, the recent National Commission on Political Prison and Torture Report accredited a total of 27,255 victims, most of them in the first months following the coup d’état. The popular movement took years to rearticulate and elaborate responses to the new situation created by the dictatorship. New movements and new associative practices slowly started gaining space in popular neighborhoods and among those in middle class. They were

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backed by the Catholic Church, the NGOs and the clandestine political parties. Among those new movements, the Groups of Victims of Repression, the Christian churches and middle class professionals were fundamental in the development of a Human Rights Movement. The urban peoples supported diverse youth cultural movements as well as base Christian communities. Middle class professionals and poor neighborhood women organizations were also crucial to the development of a women’s movement, currently armed with powerful feminist orientations. Finally, the unions, in the midst of huge difficulties emanating both from repression as well as from the new neoliberal model, searched for new associative ways to make their discontent visible. In sum, civil society appeared as a diverse and creative space in which to rearticulate the social fabric destroyed by the dictatorship. In a first phase, 1973–1975, at the same time it was repressing, the dictatorship undertook economic adjustments so as to reduce public expenditures, control inflation and devolve enterprises and agricultural holdings to their former owners. Both repression and economic measures impacted workers who began to lose their jobs. 45,000 workers were either fired from public administration in the first two years of dictatorship or saw their salaries reduced, and now they were unable to negotiate their salaries due to the suspension of the Labor Code. In this sense, practically from the beginning of the dictatorship there were economic uncertainties for the popular classes and the social movements in addition to repression. These uncertainties included becoming unemployed, the decrease in the purchasing power of salaries, or outright impoverishment. The initial tendencies became permanent by 1975 when power struggles were resolved in favor of neoliberal groups making their debut in April of that year. This translated as an imposition of a devastating shock policy or structural adjustment, also known as Plan Cauas. It meant a contraction of employment and public expenditures and privatization of public enterprises and services. In this context, on the one hand with repression and on the other hand with neoliberal economic adjustment, the situation of the popular classes became rather critical. State repression gradually gave way to more selective forms with the creation of the DINA (National Intelligence Directorate), a political police organization directed personally by Pinochet, with secret detention centers, torture and disappearances. Social rearticulation processes followed a slow course, emerging only within the space provided by the closest

social movements in confrontation with neoliberalism 231 social relations, base solidarity and the fundamental support of the Christian churches. The first social solidarity initiatives were geared towards national and international refugees who were being persecuted as victims of a xenophobic campaign orchestrated by the military. Shelters were created for foreigners until they could be relocated in other countries. Urgently needed legal, material and social support for the poorest among them was made available. The Catholic Church started by creating nutritional support programs such as Child and Popular Soup Kitchens. In time, health, education and unemployment support programs in the form of Health Groups, School Support Groups, Workshops and Unemployment Centers were created. All of them helped gradually reconstruct social networks among the popular urban neighborhoods. The reality is that it was in those popular territories, where the local churches provided the umbrella or the safe havens for congregating, where the social fabric began healing and building up, and so did the overall popular movements. Close to the church support groups, and with mutual respect for the popular Christian communities, Youth and Cultural Groups, informal workers’ associations and militant groups from the Left began emerging in cooperation and dialogue. In 1978 this emerging informal network of popular organizations had the occasion of making themselves partially visible when the Group of Relatives of Detainees and Disappeared declared a hunger strike in churches in Santiago, Valparaíso and Concepción. More than two hundred hunger strikes in Europe and North America followed suit. For several reasons this event turned into a landmark in the reconstruction of social movements. First, it made action and denunciation capabilities visible in diverse places in the city and the country, publicly installing the defense of Human Rights. Second, it convoked new actors, especially youth and women, as well as base Christians all of whom were starting to gain presence and protagonism both in Human Rights and in territorial organizations. The Hunger Strike of the Relatives of the Disappeared Detainees, demanding a response from the military regarding their relatives, started a few weeks before the Amnesty Law was to be enacted in April 1978. The strike extended for 17 days incorporating 190 hunger strikers, and only ended when the Catholic Church publicly requested its ending due to health considerations and to the fact that public opinion had been amply sensitized on the issue (Garcés and Nicholls, 2005).

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Several popular groups began to work in solidarity by organizing small public demonstrations as well as hunger strikes in local churches. Some bishops forwarded the government well documented files with information on the disappeared detainees. Flash demonstrations in downtown Santiago on May 1st in 1977 and 1978 made discontent visible. These were without doubt, difficult times. However, the Hunger Strike managed to publicly introduce the struggle for truth and justice in relation to human rights violations in the country. After the criminal assault claiming the life of the former Chancellor Orlando Letelier and his Secretary in Washington, D.C., the Regime was trying to improve its image with a cabinet incorporating civilians and an Amnesty Law clearing them of their own crimes but which made the liberation of political prisoners still in jail, possible. These measures were, however, part of a larger project that Pinochet gave a few glimpses of in 1977. In his speech in Chacarillas Hill, he proposed a new political regime that he defined as “an authoritarian, protected, integrated, technophile democracy with ample social participation” (Garcés and Nicholls, 2005). Reaching this new stage of development meant a long transition keeping the military in government until the end of the eighties. The foundational will of the dictatorship was claiming the need for a new institutional arrangement that would take shape in the 1980 Constitution. They wanted a set of modernization initiatives, as they were called, that were none other than the political, economical and social implementation of the neoliberal program. In effect, such modernization initiatives contemplated the opening up to foreign trade with the corresponding lowering of tariffs, which in the mid-term disarticulated national industry. They also contemplated the privatization of public services such as transportation, education, health, etc., an authoritarian state decentralization, and the most complete transformation of labor relations. The 1931 Labor Code was to be overridden and new regulations for unionized activities were to be dictated in what came to be known as the “New Labor Plan.” Starting from law decree N° 2200 of June 15, 1978, employers could unilaterally modify working conditions and lay off workers without respecting the old forms of labor protection. Labor market liberalization, i.e., the imposition of “flexibility” within industrial relations was set into motion. Still in this stage, the most important political event was the development of a new Political Constitution, which was submitted to a fraudulent referendum in 1980 without electoral registry or public

social movements in confrontation with neoliberalism 233 debate. This Constitution, with diverse amendments yet without modifications in any fundamental aspect, remains in force today in Chilean society, in spite of 20 years of transition to democracy. From the symbolic point of view, considering the complex picture of the defeat of the Left, and the still weak reconstruction of the popular movements, two contradictory processes were brewing within the political Left. On the one hand, the Communist Party (PC) reconsidered its historical strategies and precisely in 1980 proclaimed the need for “popular insurrection.” This implied the admission of resorting to “all forms of struggle against tyranny.” All through the eighties the PC political reformulations led it to consider the incorporation of armed struggle, giving birth in 1983 to the Manuel Rodriguez Patriotic Front. On the other hand, the socialists and sectors close to MAPU5 started to review the historical process and recognized the need to initiate a process of ideological revision and self-criticism, known as “socialist renovation.” This process culminated towards the end of the decade with a discourse of cohabitation with neoliberalism contributing to shape the Concertación de Partidos por la Democracia (Parties for Democracy Agreement)6 that has governed Chile since 1990 to this day. In paradoxes of history, the reformists of yesterday became late revolutionaries while many radicals and socialists tended to transform themselves into liberal democrats and political partners of the DC. National Protests: Resisting Neoliberalism during the Dictatorship The greatest resistance to neoliberalism came from the social movements’ front and took shape in the eighties, under total Pinochet dictatorship. In effect, after a decade of dictatorship, and during an economic recession in May 1983, a call from copper mining workers to protest against the regime surprised the whole of society. A copper workers congress held in the summer of 1983 had come to the conviction that their problems would not be solved by more or less laws, considering that union activity was effectively blocked by the new labor law. 5 MAPU (Movimiento de Acción Popular Unitaria – United Popular Action Movement), left wing political party formed with a rebel sector that broke off from the DC. 6 Coalition governing Chile from 1990 up to this date. Main components are the DC, the Socialist Party, the Party for Democracy and the Radical Party.

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What was really needed to modify the legal structure, they claimed, was to recover democracy. As a consequence, what was called for, were actions of strength such as a stoppage of activities in order to make discontent visible. However, carrying out an initiative such as this would not be an easy task and it was not even possible to reach agreements in all zonal copper organizations or with other union centrals. In this context the idea of calling a strike gradually transformed itself into a more ambiguous notion of calling for a national protest which would make accumulated social discontent visible. Against all predictions, the summoning was successful both in its form as well as in its magnitude. It was successful in this form because in the midst of dictatorship, a direct confrontation with the police had to be avoided. This is why the entire population was requested to act on May 11, 1983. They were called upon to not send children to school; not shop or run errands in the city center; and bang pots inside their homes as eight o’clock in the evening. This was a simple and efficient call because it allowed ample sectors of society to participate without running major risks. At the same time an unforeseen massive phenomena of social communication was unleashed. Noise during the night multiplied throughout several Santiago neighborhoods. The political attitude of neighbors, of the block, of the neighborhood and even of other neighborhoods was made known; at least while an opposition radio could remain informing (Garcés and Nicholls, 2005). The other unexpected outcome was that the military regime itself was surprised by the protest. Repressive action could not prevent public demonstrations in several university centers and in the popular neighborhoods during the night, and this was not any small achievement in the Santiago middle class neighborhoods of Providencia, Ñuñoa and La Reina. The success of the first call to protest inaugurated a cycle of mobilizations adding to a total of 22 days of “protest” between 1983 and 1987. The calls were repeated, at first on a monthly basis in 1984, then spacing themselves as the preparations for a national stoppage of activities was finally made effective in October that year, causing the military to decree state of siege. In 1986, the Pinochet opposition reached the point of claiming that social mobilization could topple the dictatorship and announced that year to be the decisive year. Finally in 1987, Pinochet’s proclamation as a presidential candidate for the 1988 plebiscite resulted in a large scaled mobilization that completely paralyzed Santiago during the afternoon of a working day.

social movements in confrontation with neoliberalism 235 Among the several social sectors involved were the university students, workers, middle class professionals, but especially the poor from popular Santiago neighborhoods, including youth and women. The reality is that protests were always more massive in the popular neighborhoods, especially when the youth discovered that they could establish effective control over their actions and confront the police and the army under more advantageous conditions within their own territories. Protests in these neighborhoods not only consisted in pot banging or honking, as in the middle class neighborhoods, but also in marching, lighting bonfires, building barricades, producing blackouts, paralyzing public transportation, and in some cases, looting local shops. Most of all, they consisted in confrontations with the police and eventually the Army. During protests, which could last from one to four days, Santiago and to a lesser extent, capital cities in other provinces would see their routines completely altered:7 In the case of Santiago, during the morning, while roads and roundabouts remained occupied by the army, commercial and education activities diminished noticeably and public transportation started their routes later than usual. At mid day, opposition demonstrations such as marching, sit outs, etc., multiplied throughout universities and the city center. The police responded to them by attacking with tear gas, beatings, trained dogs, water cannons (the guanaco), gas cannons (el zorrillo, the skunk) and detaining a large number of demonstrators. By late afternoon, the lack of public transportation became critical as vehicles were purposely taken from circulation. Shops also closed their doors and public sector offices as well as businesses felt forced to allow their workers to leave earlier. By night time, the protest finally peaked in middle class and popular neighborhoods. At this time the sounds of metal objects were heard throughout vast areas of the city while youth from popular neighborhoods came out in the streets to organize marches, parades, barricades, set old tires on fire and confront military and police forces that were attacking them and repressing their initiatives. Police buses and small tanks as well as military jeeps would patrol the streets firing tear gas bombs and buck shots, as well as in some cases, large caliber munitions over demonstrators, over the barricades and also over the homes. Youth responded to those attacks with stones, blunt objects (including

7 The author of this article was an eyewitness of the days of protest in his own neighborhood at the southeastern sector of Santiago, as well as in other neighborhoods.

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mario garcés occasional Molotov bombs) and slogans, which was what was most frequent. Non-identified civilians from the security apparatus of the regime also took advantage of the dark of night and fired at the demonstrators at close range, thereby producing the largest numbers of fatal casualties (Garcés and Nicholls, 2005).

Repression intensified as protests increased, especially during 1983. If in the first protest there were two casualties, 50 wounded and more than 300 arrests, during the peak of repression in August 1983 when Pinochet ordered 18 thousand armed men to patrol the streets of Santiago and a curfew at 6:00pm, the attacks and the raids on popular neighborhoods produced 29 casualties, one hundred wounded and one thousand arrests (Rettig, 1991). The August 1983 protest, the fourth one since May, went on for two successive days. Along with the increase in repression, a civilian Interior Minister made his debut. The designation fell on Onofre Jarpa, a leader of the extreme Right that toppled Allende. He would later open space to start dialogues with the political opposition to Pinochet. Social protests against the Chilean military expressed the discontent and the rejection generated by a dictatorship that exercised limitless power. At the same time they denounced and opposed the social ravages created by the neoliberal measures. These became acute in the midst of a crisis initiated in the second semester of 1982 when the banking system became insolvent. The crisis reached a point when banks had to be rescued by this most neoliberal state created by the Chicago economists. Enterprises surviving adjustment polices went bankrupt, the currency was devaluated, and unemployment affected over 20 % of the Chilean work force. The crisis hit several sectors of society, including the middle class, but its effects were more devastating in the popular camp. In the Santiago poor neighborhoods, unemployment could reach 40 % of the population and more. New ways of informal work proliferated. The neoliberal state social expenditure reduction meant the deterioration of the public health system, of education and of urban development infrastructure in the poorest neighborhoods of the city. The Chilean “economic miracle” proclaimed in 1979 after the first structural adjustments of the second half of the seventies was collapsing. Pinochet was forced to intervene in the banking system taking over the accumulated debt. The cycle of social protests during the period 1983–1987 completely modified the Chilean political panorama preparing the end of the

social movements in confrontation with neoliberalism 237 dictatorship and the return to democracy. Nevertheless, this was a complex process in which new actors and social movements emerged. These were diverging regarding the way the transition to democracy should be undertaken. From the social point of view, protests were broad and diverse in the first stages, involving middle class and popular sectors, but as the dictatorship started closing up or favoring middle income sectors, such as the truck drivers, they started generating a social divide. Social protests then tended to become more radical and more permanent within popular neighborhoods. It was, of course, easier for the regime to frighten the middle class sectors than the popular ones (Salazar, 1990). Social protests especially mobilized the youth and women of popular sectors. They constituted collective subjects that in a certain way were making their entry into social and political struggles within the new context created by the dictatorship itself and the new neoliberal development model. In effect, more traditional subjects (the working class and the peasants) were frankly weakened, both in their organizational structures as well as in their own social existence. All of this was due to de-industrialization and agricultural transformations which were causing seasonal work to proliferate, for example, among temporary fruit pickers. This is how even though traditional social movements weakened; others emerged, this time in urban popular territories. While new actors and social movements had emerged prior to the “protests,” they grew and multiplied in the midst of popular mobilizations and gave rise to the following: – Popular economy networks known as Popular Economic Organizations, Soup Kitchens, Buying Together, Family Orchards, Commodity Workshops, Housing Organizations, Health Groups, all of them benefitting over 100 thousand people. – Christian Base Communities in the most diverse Santiago neighborhoods organized in a Christian Community Coordination and a Laypersons Movement that gathered some 8,000 persons every year in the celebration of the Christian Via Crucis. – Human Rights Initiatives and Movements, emerging from the Christian Churches (Solidarity Vicariate and FASIC8), the Association of Victims of Repression and Base Committees linked to the Chilean Human Rights Commission. 8

Christian Churches Foundation for Social Support.

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– Women’s Movements articulating several social organizations such as MEMCH9, political alliances like Mujeres por la Vida (Women for Life), NGOs, sectoral coordinators in popular neighborhoods and municipalities. – Youth Movements such as the Poor Neighborhood Youth Movement (MJL), of less distinct installation in the “popular youth” sense, but that had well articulated coordination in the southern zone of Santiago (La Granja, San Ramón and La Pintana) – Popular urban neighborhood movements in their amplest sense, managing an important articulation in the CUP, Comando Unitario de Pobladores (Poor Urban Neighborhoods Unitary Command) that by the mid-eighties estimated their leadership to be some 3,000, with 200 thousand organized persons (ECO, 1988). Contrary to what tends to be stated, these different groups, coordinators and networks, were not only the result of social, political and economic exclusion unleashed by the dictatorship and neoliberalism. They also exemplified the ways in which popular sectors processed that exclusion. They reaffirmed their social existence and their own projects in the popular economy (OEP), religion (popular Christianity), critical reflection and action on gender relations, new youth culture, ethical and political issues such as human rights, as well as broadly in vindicating their demands as popular neighborhoods and unions. However, these new actors now mobilized by protests, did not manage to favorably resolve their relation with political parties, also reactivated by the protests. They also failed to influence political proposals emerging in the heat of mobilizations (de la Maza and Garcés, 1985). This was the new space of contradictions that the Chilean popular movement, now more diversified than the historical one accompanying the UP, had to face in the eighties. In effect, the political panorama of the eighties tended towards structuring into two large blocks: one articulated around parties of the political center originating the denominated Democratic Alliance (AD), and the other, articulated especially around the Communist Party originating the Popular Democratic Movement (MDP). A third very weak group which on some occasions attempted to unite the two blocks was denominated the Socialist Block. The reality is that socialists by then were so divided that they had representation in all alliances. 9

Movement for the Emancipation of Chilean Women.

social movements in confrontation with neoliberalism 239 The formation of AD and MDP reflected two different strategic orientations regarding popular mobilization. The former advocated for the opening of dialogues and some sort of negotiations between the military and the people in the streets. The latter, was advocating radicalizing mobilizations, aiming to reach the stage of a fully fledged popular mass rebellion, which would topple the dictatorship. In the first case, the role for the people was frankly secondary, as was later consolidated, of support to AD political leaders. In the second case, the people would join a new “revolutionary change” proposal with their respective parties and vanguard movements. This meant that the PC was now abandoning its reformist past, sustaining the legitimacy of all forms of struggle, and creating the Manuel Rodriguez Patriotic Front (FPMR) in 1983. The articulating element in these political proposals was the road to be chosen in order to end the dictatorship. They were certainly of different orientations and different directions according to the course of events. The relevant fact, from the point of view of social movements, was that their own experiences in articulation and as a popular political project took a back seat to the political proposals emerging from the political party system. This distance between the political proposals and the popular protest took many shapes in the eighties and projected itself forward in the ways which democracy recovery shaped up later. In the eighties, within the popular camp itself, there were strong tensions between the political parties and social organizations. On the one hand PC politics had ample support and FPMR operative actions were applauded and supported by the bases, while many among the youth joined their initiatives. Nevertheless, as the more radical tendencies attempted to impose their directions, the costs of the struggle were purposely minimized or there was a tendency to utilize social organizations. In sum, the old political forms of the Left tended to reproduce themselves with inevitable doses of authoritarianism. Even more seriously, the experiences and contents within social movements tended to be undervalued. On the other hand, popular movements kept their distance regarding the negotiating proposals of the Center parties in the AD. Seeing that protests did not topple the dictatorship and that PC strategies were not yielding their fruits as expected, an alternative started consolidating. Nevertheless, the regime did not yield. A shift towards acting within the framework of the institutional proposals emanating from the dictatorship itself started shaping up. In effect, when Jarpa in 1983

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opened dialogues with AD and refused to consider discussing Pinochet’s resignation, it was suggested that the transition should be undertaken without discussing the legitimacy of the 1980 Constitution (Otano, 2006). As a consequence, the road of the institutional itinerary as proposed by the Dictatorship had to be walked. This meant the promulgation of a series of “political laws” such as those pertaining to political parties, elections, etc., and the undertaking of a Plebiscite in 1988. This was not an easy road because those first negotiations with Jarpa in 1983 failed. In the long run, however, this was the tendency that prevailed. When the AD accepted to advance as proposed by the Dictatorship itself, its major political operation consisted in transforming the social mobilizations into an electoral mobilization. This meant the subordination of social movements to a role of support to the strategy for the recovery of democracy, which in the long term would deal with social movement demands. In the transition these demands were labeled the “social debt” with the poor. Social Movements during Democracy Recovery The plebiscite of 1988 was a historical landmark in the democracy recovery process. Citizens would decide between continuity of the military regime with Pinochet granted another eight years in power (the YES option) or holding general elections the following year (the NO option). The NO that won with 54 % of the votes was preceded by huge electoral mobilizations which in some way brought back memories of the traditional demonstrations of times prior to the coup d’état. This victory of the people also consolidated the foundation for the political alliance inherited from AD, now called Concertación de Partidos por la Democracia. With the plebiscite and the 1989 presidential election, some of those on the Left found themselves in a clearly uncomfortable position while others found themselves in something totally new. Uncomfortable for the PC, the MIR10 and for small socialist groups excluded from the new political alliance, and new for the bulk of socialists now forming a government with the DC, their arch-enemy during the UP.

10

Movimiento de Izquierda Revolucionaria (Revolutionary Left Movement).

social movements in confrontation with neoliberalism 241 The triumph in the plebiscite eventually allowed some reforms in the Constitution promulgated by the dictatorship, eliminating the worse undemocratic articles, but maintaining up to this day its fundamental structure. Constitutional Reform therefore constitutes one of the permanent subjects on the political agenda in the prolonged transition to democracy. Among the issues strongly determining this Constitution’s orientation is the “binominal” electoral system allowing the formation of a parliament in two big blocks. With only two parliamentarians elected in each district, all possibilities for minorities accessing the Parliament are closed. Additionally, the series of organic laws such as those ruling the Armed Forces and the educational system can only be modified with huge majorities. Agreements are therefore forced between government forces and the opposition. This system has also been called “the democracy of agreements.” In addition to the democratic limitations of the Chilean political system, there is another limitation heavily structuring the current Chilean reality. As soon as the new political alliance governing Chile took office in the beginning of the nineties, it moderated its criticism towards neoliberalism. The new political alliance liberated foreign investments from their fear of establishing their businesses in a Chile that is no longer the Chile of Pinochet. This is how, in practical terms, a limited democracy cohabiting with an expansive neoliberalism has been installed. Only in recent years, under the Michelle Bachelet government, has the state modified and strengthened the social protection net. This has been done without affecting the hard nucleus of neoliberalism on issues such as labor relations or the role of the state in public education, and without any improvements in social participation. In the new democratic context, during the installation of the first transition government, social movements were invited to make their demands visible so that some of these could form part of the first government program. This initial intention, although certainly limited, was later diluted to the point that social movements practically disappeared from the public scene. When this new reality started to consolidate, at the same time politics started transforming into a media show separated from society. The neoliberal dream of a limited democracy, “without the people,” seemed to be finally coming about by the end of the seventies as prophetically suggested by Guillermo O’Donnell (2008). The last decade of the century went by in Chile with the popular urban sectors practically demobilized. The decade also witnessed the

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closing of the coal mines in the South of the country, forcing the old miners to travel to the capital and negotiate their own closing and labor reconversion. In Santiago, the people watched as the miners’ marched and said farewell to their status as such. But the history of social movements and resistance to neoliberalism is stubborn. Even as popular political action reached its highest moment of weakness, a new actor emerged onto the scene to make its discontent and demands visible. Paradoxically, it was the oldest of all actors. We refer to the mapuche people’s movement which differently from the past now is not only claiming their right to the misappropriated lands, their historical land claims, but also the lands appropriated by the big forestry corporations during the dictatorship. Additionally they are demanding their recognition as people with the right to their own territory and to their self-determination (Marimán et al, 2006). The Mapuche people, as is well known, resisted the Spanish conquest and in colonial times generated with them a relation of border countries South of the Bio Bio River. It was later, during the times of the Chilean Republic, that these people faced a second conquest of sorts when the farmers required additional land and called upon the support of the Chilean Army to “pacify the Araucanian territory.” This, of course, meant the subjugation of the Mapuche people by force. The 20th Century went by with a long history of confrontations and also of assimilation to state policies. There were, however, important high points during the UP that favored the Mapuche people with agrarian reform. The UP also had to respond to their demands under the pressure of what was called “fence displacements.” During the dictatorship, not only were the Mapuche repressed as other social movements were, but also with racist connotations. Many of their lands were returned to landowners or given at discount prices to forestry companies who covered extensive Mapuche land or land close by with pine trees (Molina, forthcoming). With the return to democracy, coinciding approximately with the anniversary of 500 years of the Spanish conquest, the Mapuche people were promised a new Indigenous Peoples’ Law. The Concertación complied enacting it in 1995, but without including their fundamental demands. Rather than recognizing them as a “people,” they were labeled an “ethnic group.” Rather than recognizing their territories, their lands were labeled “development areas” and their demands for autonomy were ignored. New Mapuche organizations started becoming visible, such as the Consejo de Todas las Tierras (Council of All Lands).

social movements in confrontation with neoliberalism 243 In the second half of the nineties, a new conflict emerged with the installment of a grand hydroelectric plant in the area of the Upper Bio Bio. This meant the flooding of extensive areas including a Pehuenche11 cemetery. CONADI,12 a public institution created to address indigenous demands, intervened and its director was sacked in order to favor and approve the land transfers that made Ralco Hydroelectric possible. A state institution would not be allowed to turn into an obstacle to market expansion and foreign investment. During the beginning of the current decade, Mapuche mobilizations increased and other organizations emerged such as the Coordinadora Arauco Malleco (CAM). The government, in the meantime started moving in two directions. On the one hand it addressed some demands through a development plan. On the other, it implemented a policy of police occupation in the Araucanía Region with intelligence plans entrusted to the carabineros (armed police force), to the investigation police and to regional prosecutors. Together they have criminalized the Mapuche protests revamping laws from the times of dictatorship such as the Anti-terrorist Law. Moreover, military justice has been given broad jurisdiction. In spite of all of this, the Mapuche mobilizations continue. They worry public authorities and have conquered a space in the public agenda. By the middle of the first decade of the new millennium, an extraordinary massive social movement made its discontent visible and demonstrated against the neoliberal logic currently ruling the national education system. We refer to the secondary students’ movement that in May 2006 mobilized up to 400 thousand students. It extracted a few concessions from government such as those regarding school transportation passes, food rations, and payment exemption for university access tests. This secondary students’ movement caused the fall of the Education Minister and forced President Bachelet to intervene creating a commission to study alternatives to LOCE13 (Ortega et al, 2006). The Chilean education system, inherited from the dictatorship, firmly entrenches social disparities and favors market logic to ensure

11 The Pehuenche are an indigenous people who are part of the mapuche culture living in the Andes mountains in the Center-South of Chile and Argentina. 12 (CONADI) Corporación Nacional de Desarrollo Indígena (National Corporation for the Development of Indigenous People). 13 Constitutional Organic Education Law promulgated by Pinochet three days before leaving government in early 1990.

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educational freedom. The well to do, approximately ten percent of the population, sends their children to paid, private schools. The rest of the population distributes itself among schools dependent upon local governments or “private administrators.” In both of these cases, the state subsidizes child and adolescent studies with an allowance per student delivered to school managers. In the first case, local governments create “corporations” to manage schools; in the second case the state promotes the emergence of business people who would supposedly ensure both educational freedom and quality. This was the strategy employed to put an end to the former Educational State. When the secondary students’ movement started in May 2006, the monthly state allowance per student amounted to US$ 60, while schooling in private centers cost some US$ 300 per student per month. A difference of one to five, but that in terms of educational results meant, and continues to mean, that 70 % of students in public centers do not reach the necessary scores to access public universities while 70 % of students in private centers do so. Thus, what the secondary students demanded was a greater role for the state in addressing the problems of quality in public education, which had deteriorated for the poor and been guaranteed for the rich. In reality, and without considering some episodic worker mobilizations such as those in the forestry, copper mining or public administration sectors, the largest social mobilizations at the beginning of this century with the greatest anti-neoliberal contents have been those of the Mapuche people and the secondary students. Both have had an anti-systemic character. They confronted the state demanding it to curtail forestry company action, restitute lands, and recognize the rights of a people-nation. And they faced the effects of inequalities created and exacerbated by neoliberalism in the education of the new generations of Chileans. In the current Latin American context, Chile continues being a model for neoliberal development. However, social contradictions are ripening in its midst. New social movements are emerging both as traditional and new paths of resistance to neoliberalism.

Conclusion As made evident from this brief synthesis of recent Chilean history, social movements have played very active roles in the seventies and the

social movements in confrontation with neoliberalism 245 eighties, that is to say during the UP and later, during the military dictatorship. In both cases, although in very different contexts, they faced serious and complex problems with the state. During the UP, the problems were with its weak democratic nature, and during the dictatorship, with its radically coercive and repressive form. But in both stages, political parties, and in particular the political left wing, were unable to foster the development of a genuine or authentic popular policy, among other reasons, because of the tendency to focus policies on the state rather than on society. During the UP, the conflict between the dynamics of the “popular power” (the new state territorial organizations) and state dynamics (the alliances and the frustrated negotiations with the political Center) could not find a way out. On the contrary, they caught the people disarmed both politically and militarily during the 1973 coup d’état. Neither reformists nor revolutionaries could confront the military coup. Moreover, they were unable to articulate a unified front to resist the military in power during the first years of the dictatorship. This is why what the political Left did not know what to do in the first years of the dictatorship, the people had to learn with weakened political parties or simply without them. During the dictatorship, in the phase of reconstruction of the popular movement, the logic and protagonism of the social organizations was much more relevant than that of the parties. Certainly, the fact that parties were privileged targets of selective repression cannot be ignored. A network of organizations and practices emerged, rendering testimony of a popular movement with strong territorial roots, new actors and new socio-political concerns, such as popular economy, popular religiousness, human rights, feminism, youth culture, and others. In the following phase of “protests,” the people became active. Even though the political Left grew and gained prestige, their protests ended without converging with popular dynamics. There were several reasons, but most important of all, because of the distance between their actions and popular organization practices. Illustrative was that the Left remained unable to suggest popular economic programs, gender equality, territorial democracy or communal programs. The Left’s anti-dictatorship struggle strategies placed their accents on the forms of struggle and on extending mobilization, but seldom focused on the socio-political contents emerging from social organization practices. When struggle strategies declined, the Left had no option

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but to support the Center in their intra-institutional practices. This was the “second historical defeat” of the Left in less than 20 years. What both defeats share in common (the coup d’état and the one in the eighties) is the fixation of the Chilean Left with the state. Politics was conceived only as action geared to modifying the state without admitting that such change cannot be the total action of wellintentioned and enlightened persons acting on behalf of the people and on their benefit. The Chilean Left needs to re-read their own past in order to calibrate their own experience as a social left, that is to say, as a political form projecting the practice of social movements from the base into the public space. These practices are concrete experiences of social construction (neighborhood communities, solidarity from the base, exercise of rights, etc.) that need to be projected and enhanced politically. The popular project or the configuration of popular politics cannot be but a profoundly social action. The tragedy of the Chilean Left is that having geared towards the state they mobilized the people, protagonized an epic (the UP), and later resisted the dictatorship heroically, but always they failed. They could not avoid the 1973 coup d’état nor topple the dictatorship through social mobilization. Both the Left and the social movements came weakened to the democracy recovery phase. Frustration spread among the young militants. Mistrust regarding politics in general and especially regarding the political Left predominates among the new generations. This explains why the new social movements, even those with an antineoliberal orientation, at this stage have weak links with the political party system, with the political Left and with other social movements. Many of the actions and efforts of social organizations, especially among young university students and in the popular neighborhoods, are undertaken without political party involvement or with weak parties. They rely upon self-management with veiled or explicit mistrust towards the state, institutions and political parties. This attitude reveals a criticism towards the past but also requires new roads to be built. Self-management is a proposal of autonomy, of action control, of democratic exercises from the base, but it also needs to confront problems. Specifically, this includes such problems as their articulation with others (meeting spaces, exchanges, agreements, etc.), with knowledge production that requires sharing (relative to the historical memory, the popular culture, the struggles and demands of diverse social sectors), and with the development of new political orientations (relative to

social movements in confrontation with neoliberalism 247 constituting power, to base and territorial democratic forms, the exercise of rights, etc.). Relearning “social change” is no easy task. But it is strictly necessary if a different world is going to be built. Reiterating the past is easier, but the results are more predictable.

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