Examining the Fundamentals of Chile’s Domestic Turbulence
On September 4th of this year, Chileans voted in an exit referendum to approve or reject a proposed new constitution for the country. The vote, which saw the ‘Reject’ option (61.86% support) soundly defeat its alternative (38.14% support), has cast doubt on the continuation and, by extension, success, of the much-needed constitutional process.
Two years earlier, in October 2020, Chileans had delivered a yet more overwhelming verdict as they approved the need to rewrite their fundamental law by a categorical 78.27% in favour of change. Understandably, with the enormity of popular repudiation, this moment is considered the political death of the current constitution. Clearly, then, a replacement must be found yet, with the failure of its end proposal, the initial reform process has run its course, and there is no clear protocol for the next chapter in this major political saga.
For risk analysts, however, such an unstructured future provides an important opportunity – and need – for a more long-term, fundamental understanding of Chilean society, polity, and economy. Periodic analyses of more structured processes, such as that of the initial constitutional reform, often lead to one missing the forest for the trees, as the focus lies almost myopically on the major milestones represented, in this instance, by the major plebiscites that define the project’s beginning and end. Without these clear operational chapters, by contrast, intelligence must be sourced from deeper, more underlying features of the country in question.
Consequently, the following trends must be appreciated when crafting an impression of Chile’s economic, social, and political outlook:
Imperative Economic Overhaul
What sits beyond doubt is that the economic pillars on which Chilean society and polity are presumably expected to operate are deeply ill. The entire constitutional process, after all, was initiated in response to the unprecedented social unrest of late 2019 – the so-called ‘estallido social’ – which, in turn, is widely understood to have been a response to the country’s failed economic structures. London Politica’s Luciana Markstein provides more information on these protest motivations in her writing on the subject.
Since the neo-liberal reforms of the 70s and 80s, Chile has taken a distinctly laissez-faire approach to the economy, with the state seen as ‘subsidiary’ – i.e. existing mainly to support private sector activities. As with most policies, excess is the enemy of success, and Chile’s excessively idle approach to private enterprise has caused severe social inequalities nationwide. The phrase: ‘zonas de sacrificio’, referring to vast swathes of the country whose economic, environmental, and general wellbeing has been sacrificed for others’ economic benefit, has entered common discourse and has been a feature of all recent electoral debates. A seemingly endless string of corporate scandals, ranging from water treatment failures to chemical poisoning of schoolchildren, to industry-wide price fixing on essentials has repeatedly highlighted the need for proper government intervention and regulation.
Importantly, public discontent has increasingly sharp political connotations. In January of this year, for instance, Chile’s previous government had granted a controversial, multi-million-dollar lithium extraction deal to Chinese firm BYD and local firm Servicios y Operaciones Mineras del Norte. This action, however, was widely televised and caused strong public backlash among Chileans. Shortly afterwards, the entire contract was suspended by a tribunal in Copiapó, northern Chile, after the governor of the region filed a lawsuit against the proposed contract on behalf of local communities and indigenous groups.
Such contractual backtracking, combined with the strong ideological legacy of neo-liberalism, has certainly encouraged right-wing political groups and corporate lobbyists to claim that Chile’s political shifts are reducing the country’s overall attractiveness for investors. While these comments may represent some actors, they do not accurately reflect the nature and outlook of current Chilean market trends which, as shown by the International Trade Administration (ITA)’s most recent overview, continue to look relatively strong.
The reason for this political misrepresentation of trends lies in a key misunderstanding: as identified by the ITA, Chile remains a market-friendly economy, with low levels of corruption, solid business practices, and an active participation in international trade. Instead, what is shifting is the regulatory and redistributive role of government in the wider economy. While this will undoubtedly change the country’s overall relationship with business, this change should neither be expected to significantly shut off the Chilean economy to investment nor be expected to erase the key facets, identified above, that help make this market attractive in the first place. To take the water treatment scandal mentioned earlier, private entities will likely remain welcome to manage such facilities, but will find new, tougher regulations and penalties to guarantee the quality of its product and to ensure the provision of adequate emergency measures – something that, astonishingly, was not in place before.
Polarisation and Political Extremism
Beyond the economy, Chile’s present turbulence has much to do with an increasingly polarised society represented by a decreasingly capable polity. While much may have changed over the years, the Chilean political class remains heavily influenced by an old guard. This is not, as is often assumed, exclusively true of more conservative groups, and can be seen across all mainstream political parties. The term ‘mainstream’ here refers to parties that have had a significant presence in Chilean politics since the return to democracy in 1990 and include – from political right to left – the UDI, RN, CD, PPD, PS, and – to a lesser extent – the PCCh. None of these entities have successfully escaped what this report will term a ‘transitional trap’, with each group continuing to request popular support on the basis of their postures during the democratic transition of the late 80s and 90s, as opposed to appealing to the public on more contemporary concerns. What this produces, then, is a political class increasingly considered a ‘one-trick pony’ which, in turn, creates a vacuum of political dynamism that has been filled by more populist and extremist elements such as, on the far-left, the incumbent ‘Frente Amplio’ of President Gabriel Boric and, on the far-right, the ‘Partido Republicano’ of former presidential hopeful José Antonio Kast. The new far left represents a more revolutionary than reformist approach to change with provocative, and often highly insensitive, contributions to the general culture war. The new far right, for its part, represents precisely the aspects of the country that most require change and which are, nonetheless, most unwilling to lend themselves to this.
These two new entities have rapidly garnered considerable attention, concern, and – in the case of the Frente Amplio – high-profile positions of power, which has led many observers to incorporate more extreme predictions into their long-term plans and investments in Chile. Nevertheless, while the expression ‘prepare for the worst but hope for the best’ will eternally remain wise in its key tenets, the need for pessimism may well be overblown in this particular case. While organisations, businesses, and individuals may recoil at one or more of these groups’ postures and attitudes, it is important to appreciate the underlying electoral processes that have brought such groups to the forefront of Chilean politics which, in turn, should reassure the readership of a more optimistic outlook for the country and a more stagnant outlook for extremism at large. As made clear by the earlier, more in-depth analysis of mainstream party decadence, what voters have insisted on, beyond specific policy, is to force political change and congressional renovation. Consequently, the polemical positions of Chile’s current political protagonists should not be considered representative of wider electoral views; nor should they be expected to survive what now appears to be an imminent collapse of the old guard. In last year’s presidential elections, for example, both final candidates were anti-establishment choices, while the overwhelming majority of first round candidates were – or claimed to be – political outsiders. Even within the mainstream coalition of former President Sebastián Piñera, the bloc’s primaries were won by Sebastián Sichel, who ran as an independent against far more seasoned, party-sponsored competitors. As Luciana Markstein’s article details, the same pattern of anti-establishment voting flooded the Constitutional Convention in 2020 with independent candidates, leaving mainstream parties with pitiable shares of the vote.
What these electoral trends indicate, therefore, is not a sustainable and deep-rooted rise in extremism – the foundation of worst-case scenarios – but a loud collapse of the old political class. While this collapse is ongoing, extremist groups will remain in the spotlight, only to fade once completing their initial, disruptive role.
Final Thoughts
The current political, economic, and social processes taking place in Chile are fascinating and often unprecedented. Despite the tumults and excesses of some of its protagonists, the process remains thoroughly democratic at heart and, given the lack of any one bloc’s political majority, will, therefore, be forced to maintain some form of balance as it develops. Ultimately, the verdict on Chilean risk remains one of relative calm and optimism in the context of significant and fundamental change.