Chile Is Region’s Economic Indicator

Chile has always been a sort of leading indicator in Latin America, foretelling the direction other countries are headed or suggesting where they should be going.

In the 19th century, it was one of the first nations in the region to adopt a functioning model of constitutional democracy. Toward the close of the last century, it experienced one of the first confrontations between local government and foreign ownership of valuable natural resources--its huge nitrate deposits.

More recently, Salvador Allende made the first modern attempt to combine socialism and democracy in the region, and Augusto Pinochet put in practice the most effective and brutal authoritarian experiment in Latin America.

Finally, since 1989, Chile has been considered by many to be a model of successful transitions in the region, combining economic growth with an increasingly emphatic social policy and a broadening democratization of political life. No scenario can ever be as rosy as this quick description suggests, but last month’s primary elections tend to confirm the country’s role in the region.

By a wide margin, socialist Ricardo Lagos became the Concertacion alliance candidate for the presidential elections in December. He defeated Christian Democrat Andres Zaldivar by a 3-to-1 margin, and became the first socialist at the top of the ticket of a coalition that has governed Chile since the return to democracy in 1989. Lagos is a heavy favorite to win in December. And while Lagos represents about as moderate a left as one can imagine, there is no mistaking the importance of his probable arrival at La Moneda, the presidential palace, for Chile and for the Latin American left.

Lagos will face two basic challenges: proving that the left can govern effectively, competently and democratically, and showing that having a socialist president does make a difference. He can address these tasks on three fronts, and his success or failure will determine the impact of his likely victory in December.

First, Lagos will have to make significant headway in removing the “locks” or safeguards imposed by the Pinochet dictatorship before it left power to protect its policies, people and crimes. Until now, the Concertacion governments of Patricio Aylwin and Eduardo Frei have proved impotent in the face of these safeguards. The appointed senators, who have a virtual veto on all constitutional amendments, are still in place. Until they are removed from office, significant legislative changes are practically impossible.

This leads directly to the second front, that is, the abysmal inequality plaguing Chilean society and against which the democratic regimes of the past decade have proved powerless, despite the advances in reducing extreme poverty. By the numbers--and they are questionable, in part--the distribution of income in Chile is worse even than in Mexico. Changing this sorry state of affairs will take time and effort, but it can only be achieved through a pro-active social policy, not by mere trickle-down.

The basic premise of any such policy consists in empowering anew the Chilean labor movement, restoring the rights it lost after the 1973 coup d’etat and creating new ones for more recent contingents, particularly the seasonal laborers in the fruit export industry. The workers’ movement in Chile was traditionally one of the strongest and most combative in Latin America. Today it lacks basic union rights and enjoys little or no access to collective bargaining, unemployment insurance and the right to strike. Without such empowerment and the legislative reforms it entails, it will be difficult to even make a dent in inequality.

Finally, Lagos will have to address and perhaps redefine Chile’s insertion into the world economy. A social policy based on greater labor rights and on a higher tax take to improve education, health and housing obviously will not please every foreign investor. Fortunately, Chile is one of the few nations in the region with regulations restricting foreign speculators. Still, a Lagos administration may have to strengthen the existing controls and decide whether Chile wishes to continue to go it alone on such matters and on trade negotiations, or finally join Mercosur, the free-trade bloc in South America. Together with Brazil and Argentina, and to a lesser extent Uruguay and Paraguay, Chile could develop regional deterrents to short-term capital inflows, and also harmonize social policies across the so-called southern cone. Until now, Chile has preferred to wait for accession to the North American Free Trade Agreement or the Latin American Free Trade Zone, neither of which seems imminent.

Ricardo Lagos is an experienced, committed politician. Few Latin American left-of-center leaders are as well-equipped as he to design and implement an alternative to radical free-market policies in countries like Chile, Mexico, Peru and Argentina. As so often before, everyone is watching Chile to see where it goes.