The Impacts of Neoliberalism in the Transition to Democracy in Chile

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The Impacts of Neoliberalism in the Transition to Democracy in Chile essay

Compared to other developing countries in Latin America, Chile’s political and economic development is distinctive. The country is one of the democratic exceptions, owing to its relatively poor and small population at the time of Spanish colonial rule. The indigenous population is rather small as well and the country has a high degree of ethnic and cultural homogeneity (Hillman and D’Agostino 2011, 67-107). While today’s regime is democratic, it has not always been that way. Between 1973 and 1990, Chile was considered an authoritarian regime led by the dictator Augusto Pinochet. He took over the government under the first elected socialist Salvador Allende, whose policies led to a division of society. As a result, a great disparity between the elite and lower classes arose, and Chile suffered from an economic and social crisis. In 1973, the military overthrew the government of Allende with support of the upper- and middle classes as well as the USA (Sharma 1999, 361). It was a turning point for the country and the breakdown of the democratic government.

Pinochet was the leader of the military and thought traditional politics to be the cause of instability. Thus, he banned political parties, repressed student associations and labour movements to keep wages down and to attract foreign investors. A free-market approach took place, where the state had control over the economy and natural resources. First results of the new regime were a rise in unemployment, and a decline of wages and living standards. Heavy borrowing – in particular from the USA – in order to stimulate development and to open the country’s economy to the world market, eventually resulted in a steady economic growth in the early 1980s. The end of the dictatorship happened in a very exceptional way. In 1988, a referendum to end Pinochet’s rule took place, and he resigned voluntarily. Two years later, the country returned to democratic civilian rule with its new elected president Patricio Aylwin (Hillman and D’Agostino 2011, 67-107). In order to further investigate the impacts of neoliberal policies on the democratic political development in Chile, I will now briefly summarise the academic literature relevant to the topic. I will then analyse said literature and investigate possible limitations of previous conducted research. In the conclusion, I will provide issues that require future research and contribute to existing knowledge in the field.

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Medina, da Costa Marques and Holmes examine neoliberalism as a political technology with focus on the aspects on how neoliberal policies unfolded in Chile and how these policies adapted to the post-dictatorship settings of the 1990s and 2000s. The authors consider two case studies. The first one looks at how energy policies were neo-liberalized in the late 1970s, when the National Energy Commission under the Chicago Boys abolished the country’s expanding nuclear energy program. The second one looks at how neoliberalism was used in the approval of the HidroAysén project, which included the building of five mega-hydroelectric dams in Patagonia (Medina, da Costa Marques and Holmes 2014, 305). When Chile transitioned to a democracy in 1990, the government finally reacted to demands of the national and global pressure to use environmental impact assessments (EIAs) and increase environmental protection. Comparing the two cases helps to show the persistence of neoliberal practices from dictatorship to democracy, in which neoliberalism can be seen as flexible and able to adapt to new challenges and political systems (Medina, da Costa Marques and Holmes 2014, 323).

In the following article, Haagh analyses the relationship between political and social democratization in recent democratic transitions by showing how the two processes were not (completely) compatible in the case of labour reforms in Chile between 1990 and 2001. Labour reforms served the deepening of political democracy on the one hand, and the deceleration of social democratization on the other. It was used to announce policy change to legitimize the democratic regime, but also to keep the liberal economy intact. Looking at this development raises the question whether a marketization sets limitation on the consolidation of a social democracy (Haagh 2002, 86). The democratic transition in Chile was different from the ones in other Latin American countries, owing to the presence of an already restructured stable economy when returning to a democratic regime. Therefore, the political elite was concerned about reactions of the private sector and businesses that could disturb the economy and relations with important actors such as the military and the press. Labour reforms thus arose to mark progress in social rights which is mostly related to a political opening, although in this case it was essential for political actors to restrict social reforms. Hence, the business sector had a powerful impact on the decisions made by political leaders (Haagh 2002, 108). Another important actor involved in the political transition in Chile was the United States. In 1986 the US was abstaining from voting on whether Chile should receive a loan from the World Bank, with about 20 percent of the total votes. Thus, the US government showed its disagreement with the current regime in Chile and set an example also for other democracies which abstained from voting (Schifter, 1987). What the majority of Chile’s voters had in common was the goal to establish a peaceful transition to democracy, both from the supporters of the current government and its opponents. The democratic majority was in favour of free and open elections, while the Pinochet government complied with the constitution of 1980, calling for a plebiscite on a new presidential candidate that eventually took place in 1988 (Schifter, 1987). The referendum was successful in terms of electing a new president in a peaceful manner and Augusto Pinochet resigned voluntarily.

Judith A. Teichman’s research article deals with democratic quality, poverty, and inequality. It reveals two competing visions of democracy and development at the conflict between the neoliberal perspective supported by political-technocratic leaders and the community development perspective found among their civil society critics. The community development perspective challenges the neoliberal viewpoint, making its exclusion from policy development tangible (Teichman 2009, 67). The Chilean government refuses the demands of civil society organisations in achieving greater participation in policy development when these can be seen as endangering to their neoliberal agenda. At the same time, civil society actors are supporters of integrating poor communities actively in policy making and of ensuring equitable prosperity through higher state intervention. The neoliberal position on the other hand sees the integration of these organisations and local communities in policy decisions as ineffective due to a lack of technocratic knowledge. It advocates the market as the most efficacious instrument in reducing poverty and argues that for instance NGOs follow certain interests and do not have the needed expertise to participate in policy formulation (Teichman 2009, 83). Through the success of the economic model in Chile political leaders are persuaded of the neoliberal model, which brought to some extent steady economic growth and a reduction of poverty. The scholar Sharma questions what explains that Chile’s new democracy has been able to combine neoliberal economic policies with reformist and distributive programs. It argues that it is the state’s organizational and institutional capacities that are crucial for countries engaged in economic restructuring. The author takes the view that building and reviving the state’s administrative and institutional capacities are essential for facilitating economic growth with redistribution (Sharma 1999, 347).

After the liberalization of capital markets and a privatization program under the rule of Pinochet, the economy was stabilized and experienced sustained growth, however, poverty and inequality increased drastically. With the end of the dictatorship and the begin of the Aylwin administration in 1991 important changes in labour law were made, inter alia minimum wage increases, unemployment and health insurance plans and the right to organise in labour unions. The new democratic government accomplished through these programs improved equity and a decrease in poverty by nearly 50% between 1989 and 1995 (Sharma 1999, 364). One could argue the capability of the government to realise these safety net programs during economic transition is to a large extent based on its capacity to gain wide support and to surpass intrinsically beliefs in order to implement distributing policies successfully. Hence, neoliberal policies can occur in different forms and are compliant with post-dictatorship democratic rule. Furthermore, Posner assesses the Chilean popular sectors’ ability to promote their interests within Chile’s new democracy. The author aims to understand how market-oriented reforms implemented in Chile affect state-society relations and the outlook for democracy. The research identifies how the state with a liberal welfare regime controls the ability for collective political action among the popular sectors in relation to an export oriented development model (Posner 1999, 8).

From a neoliberal standpoint a democracy with state intervention is highly inefficient in economic terms, owing to the assumption of the market being able to regulate itself and efficiently distribute resources. Also, the democratic principle of majority rule is seen as morally unjust, because of the repression of individuals and private property rights. It suggests a subordination of the state to the market, where the state solely takes over functions which individuals cannot manage themselves. In this case, workers will be subjected to the market without protection and can experience low wages, unemployment, or absence of social welfare programs. Posner’s study shows that political actors with neoliberal interests will try to keep the popular sectors’ participation and its demands at a low level in order to maintain good relations with businesses and powerful actors such as the military.

To conclude, one could argue that research shows in many cases how neoliberal reforms and the development of a stable democracy were not always compatible. Many actors with different motives were involved in the transition process, such as the state and the political elite, the business sector, the global community, and the popular sector. Consequently, neoliberal policies can be altered and are adaptable to new political and socio-economic conditions. It started with a sharp neoclassical economic restructuring program during the dictatorship of Pinochet (Sharma 1999, 361). While it was effective in stimulating economic growth, it came at the cost of abolishing democratic principles entirely and neglecting both state-society relations and citizenship rights. After the recovery of the country’s economy, union organisations and social movements mobilised under the common aim of obtaining civil society rights and returning to a democracy. It is to differentiate between a political and a social democratization, where policy changes made by political leaders are used to trigger economic growth by all means, while civil society actors are often left out and excluded from political decision making. Even though the country returned to a democracy, the political elite tried with neoliberal policies to achieve economic stability and therefore keep the inclusion of the popular sector and its demands at a minimum. The example of the return to democracy in a peaceful manner shows as well the crucial influence of the global community in the country’s political affairs, more precise the political and economic engagement of the United States in the Chilean government.

Moreover, Garretón mentions that after the transition to democracy in 1990 Chile was facing a regime with both democratic and authoritarian elements, an incomplete democracy. The state and its institutions were weak and confronting problems such as tensions between political elite and civil society, cultural and social division owing to the absence of consensus and a decline of state power. Scholars are disagreeing on whether the transition was ongoing during the two governments after democratization or if the country might still be in process of transition. Some issues were left unresolved, however, there are areas in which the democratic consolidation was prosperous. Firstly, the end of the dictatorship, secondly, the majoritarian government made up of democratic and progressive forces, and thirdly, different from other cases of transition in the region, the absence of an economic crisis (Garretón 2003, 148). The so-called political transition or democratization in Chile has flaws and yet, it can be seen as a success in many respects. Lastly, there is still room for further research and other aspects that have to be taken into consideration, for instance whether the democratic transition can nowadays be seen as completed and how the current government has adapted to new forms of neoliberal policies.


Hillman, Richard S., and Thomas J. D’Agostino. 2011. Understanding Contemporary Latin America. Boulder: Lynne Rienner Publishers.

Medina, Eden, da Costa Marques, Ivan, and Christina Holmes. 2014. Beyond Imported Magic: Essays on Science, Technology, and Society in Latin America. Cambridge, Massachusetts; London, England: The MIT Press.

Haagh, Louise. 2002. The Emperor’s New Clothes: Labor Reform and Social Democratization in Chile. Studies in Comparative International Development, Volume: 37(1), 86-115.

Schifter, Richard. 1987. U.S. Is Encouraging Democratization in Chile. New York Times, 12 August 1987.

Teichman, Judith A. 2009. Competing Visions of Democracy and Development in the Era of Neoliberalism in Mexico and Chile. Research Article, Volume: 30 issue: 1, 67-87.

Sharma, Shalendrad. 1999. Democracy, neoliberalism and growth with equity: Lessons from India and Chile. Taylor & Francis Group. Contemporary South Asia, Vol. 8(3), 347- 371.

Posner, Paul. 1999. Neoliberalism and democracy: The state and popular participation in post-authoritarian Chile. ProQuest Dissertations.

Garretón, Manuel Antonio. 2003. Incomplete democracy: political democratization in Chile and Latin America. Chapel Hill, NC etc.: University of North Carolina Press.

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