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

Analyzing how neoliberal economic policies influenced Chile’s transition to democracy post-Pinochet era. Examining the interplay between economic liberalization and political freedoms during this transformative period. You can also find more related free essay samples at PapersOwl about Democracy topic.

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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 also rather small, and the country has a high degree of ethnic and cultural homogeneity (Hillman and D’Agostino 2011, 67-107). However, today’s regime wasn’t always democratic. Between 1973 and 1990, Chile was under an authoritarian regime led by the dictator Augusto Pinochet.

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He took over the government under the first elected socialist, Salvador Allende, whose policies led to a societal division. As a result, a significant disparity between the elite and lower classes arose, and Chile suffered from an economic and social crisis. In 1973, the military overthrew Allende’s government with support from the upper- and middle-classes, as well as the USA (Sharma 1999, 361). It was a turning point for the country and marked the breakdown of the democratic government.

Pinochet, the military leader, saw traditional politics as the cause of instability. As a result, he banned political parties and repressed student associations and labour movements to keep wages low and attract foreign investors. A free-market approach was established where the state controlled the economy and natural resources. The initial effects of the new regime were a rise in unemployment and a decline in wages and living standards. Heavy borrowing, particularly from the USA, to stimulate development and open the country’s economy to the world market eventually resulted in steady economic growth in the early 1980s. The dictatorship ended in a very exceptional way. In 1988, a referendum to end Pinochet’s rule was held, and he voluntarily resigned. Two years later, the country returned to democratic civilian rule under its newly elected president, Patricio Aylwin (Hillman and D’Agostino 2011, 67-107). To further investigate the impacts of neoliberal policies on the democratic political development in Chile, I will briefly summarise relevant academic literature. I will then analyse this literature and investigate possible limitations of previously conducted research. In my conclusion, I will pinpoint issues that require future research and contribute to existing knowledge in the field.

Medina, da Costa Marques, and Holmes examine neoliberalism as a political technology, focusing on the aspects of 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 neoliberalized 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 for 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, where 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 analyzes the relationship between political and social democratization in recent democratic transitions. She demonstrates how the two processes were not entirely compatible in the case of labour reforms in Chile between 1990 and 2001. Labour reforms served to deepen political democracy on the one hand and decelerate social democratization on the other. This was used to announce policy change to legitimize the democratic regime, but also to preserve the liberal economy. Looking at this development raises the question whether marketization sets limitations on the consolidation of a social democracy (Haagh 2002, 86). The democratic transition in Chile differed from those in other Latin American countries, due to the presence of an already restructured stable economy when returning to a democratic regime. Therefore, the political elite was apprehensive about reactions from the private sector and businesses that could disrupt the economy and relations with important actors such as the military and the press. Labour reforms thus arose to highlight progress in social rights, which are typically related to a political opening; however, in this case, it was essential for political actors to restrict social reforms. Therefore, the business sector had a significant 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 abstained from voting on whether Chile should receive a loan from the World Bank, representing about 20 percent of the total votes. Thus, the US government displayed its disagreement with the then regime in Chile and set an example for other democracies, which also abstained from voting (Schifter, 1987). What the majority of Chile’s voters had in common was a goal to effect a peaceful transition to democracy, from both the supporters of the current government and its opponents. The democratic majority favored free and open elections, while the Pinochet government complied with the constitution of 1980, calling for a plebiscite on a new presidential candidate, which eventually took place in 1988 (Schifter, 1987). The referendum was successful in electing a new president in a peaceful manner, and Augusto Pinochet voluntarily resigned.

Judith A. Teichman’s research article deals with democratic quality, poverty, and inequality. It reveals two competing visions of democracy and development in conflict: 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 organizations in achieving greater participation in policy development when these can be seen as endangering their neoliberal agenda. At the same time, civil society actors are supporters of integrating poor communities actively in policymaking and ensuring equitable prosperity through higher state intervention. On the other hand, the neoliberal position sees the integration of these organizations 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 by the neoliberal model, which, to some extent, brought steady economic growth and a reduction of poverty. Scholar Sharma questions what explains Chile’s new democracy’s ability to combine neoliberal economic policies with reformist and distributive programs. They argue 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 is 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 beginning of the Aylwin administration in 1991, important changes in labor law were made, inter alia, minimum wage increases, unemployment and health insurance plans, and the right to organize in labor unions. The new democratic government accomplished improved equity and a decrease in poverty by nearly 50% between 1989 and 1995 through these programs (Sharma 1999, 364). One could argue the government’s ability to realize these safety net programs during economic transition is largely based on its capacity to gain wide support and to surpass intrinsic beliefs in order to implement distributive 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 that the market can regulate itself and distribute resources efficiently. Also, the democratic principle of majority rule is seen as morally unjust because of the repression of individuals and private property rights. This standpoint suggests a subordination of the state to the market, where the state takes over functions that individuals cannot manage themselves. In such a case, workers are 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 attempt to keep the popular sectors’ participation and demands at a low level in order to maintain good relations with businesses and influential actors such as the military.

In conclusion, 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 varied 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. The process began with a significant neoclassical economic restructuring program during the dictatorship of Pinochet (Sharma 1999, 361). While effective in stimulating economic growth, it came at the cost of entirely abolishing democratic principles and neglecting both state-society relations and citizenship rights. After the recovery of the country’s economy, union organizations and social movements mobilized under the common aim of obtaining civil society rights and returning to democracy. It is important to distinguish between a political and a social democratization; policy changes made by political leaders are used to trigger economic growth by all means, while civil society actors are often left out of political decision making. Although the country returned to democracy, the political elite used neoliberal policies to achieve economic stability and therefore keep the inclusion of the popular sector and its demands at a minimum. The example of returning to democracy in a peaceful manner also shows the crucial influence of the global community in the country’s political affairs, specifically the political and economic engagement of the United States in the Chilean government.

Moreover, Garretón asserts that after the transition to democracy in 1990, Chile was faced with a regime displaying both democratic and authoritarian elements, forming an incomplete democracy. The state and its institutions were weak, confronting issues such as tensions between the political elite and civil society, and social and cultural divisions owing to the absence of consensus and a decline of state power. Scholars disagree on whether the transition was ongoing during the two governments post-democratization or if the country might still be in the process of transition. Even though some issues remained unresolved, there were areas in which the democratic consolidation was prosperous: firstly, the end of the dictatorship; secondly, the majoritarian government composed of democratic and progressive forces; and thirdly, unlike 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, but it can also be seen as a success in many aspects. Lastly, there is still room for further research and other aspects that need to be considered, for instance, whether the democratic transition can now 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. Encourages 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.: The University of North Carolina Press.

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The Impacts of Neoliberalism in the Transition to Democracy in Chile. (2020, Jan 28). Retrieved from