WORLD STUDIES

GLOBAL THEME: EQUALITY AND INEQUALITY

Title: An investigation into the impact of Pinochet’s neoliberal

reforms on economic inequalities in present-day Chile

Research Question: How far can Chile’s present

economic inequalities be explained by the neoliberal
economic reforms of Augusto Pinochet between 1973 and
1990?

Session: May 2022

Word Count: 3,998
Candidate Code: jry939
School Code: 4359

1
 Table of Contents

INTRODUCTION 3
i. World Studies Justification 3
ii. Economic Inequality in Chile 4
iii. Why I Chose This Topic 5

RESEARCH METHODOLOGY 5
i. Economics Methodology 5
ii. Historical Methodology 7

HISTORICAL APPROACH 8
i. The Nature of the Pinochet regime 8
ii. The Neoliberal transition 8
iii. Immediate effect on income inequality (1975-82) 9
iv. Pinochet’s motivations and sustained levels of inequality 10
v. Codifying Pinochet’s Economic Ideology 11

ECONOMICS APPROACH 13
i. Current level of income inequality 13
ii. Modelling income inequality 13
iii. Economic concentration 15
iv. Case study: The water industry 17

EVALUATION OF PINOCHET’S ECONOMIC REFORMS TO PRESENT

LEVELS OF INEQUALITY 19
i. Pinochet’s Legacy 19
ii. Assessing the extent of Pinochet’s impact 20
iii. Persistence of income inequality 22

CONCLUSION 23

BIBLIOGRPAHY 24

2
 How far can Chile’s present economic inequalities be explained by the
neoliberal economic reforms of Augusto Pinochet between 1973 and
1990?

Introduction

This essay will discuss the global issue of inequality – namely economic (income)

inequality - in relation to History and Economics to determine the extent to which the

neoliberal reforms under General Augusto Pinochet from 1973-90 in Chile are

responsible for the current level of inequality. This issue is globally significant as the

trend of increasing wealth for the richest in societies across the world shows no sign

of stopping. In fact, a latest UN report1 outlined that this global issue is affecting two-

thirds of the globe. The current level of income inequality in Chile will be determined

using data and information from the last decade (2011-2021). The neoliberal economic

transition arose from the establishment of General Augusto Pinochet’s dictatorship in

1973. The historical study of this political transition is inextricably linked to the

economic agenda of the dictatorship which ensues.

i. World Studies Justification

Inequality must be evaluated with both History and Economics, particularly in this

context, in attempt to bring together the historical nature of the political transition with

the economic ramifications. Economics can quantifiably evaluate inequality however

this cannot be measured simply by income distribution metrics. Initially intending this

to be a pure Economics paper, I discovered the importance of the historical and

1
‘Rising inequality affecting more than two-thirds of the globe, but it’s not inevitable: new UN report.’
https://news.un.org/en/story/2020/01/1055681 [Accessed: 27.9.21]

3
political transition in 1973. I grew to appreciate that understanding the nature of the

changes under Pinochet would be crucial to the question at hand, allowing a more

holistic approach to the multi-faceted problem of inequality. History is useful as it

probes into the nature of political regimes, assessing motivations and ideological

outlooks.

ii. Economic Inequality in Chile

Originally seen as the ‘poster child for the neoliberal model,’2 by Latin American

countries, in recent decades Chile has become characterised by high concentration of

income and the persistence of inequality, as one of the burgeoning issues in society.

While economic inequality refers to the degree that people in a population differ in their

ability to satisfy their economic needs, income inequality arises from differences in

how evenly income is distributed in a population. High levels of this precipitated the

2019-21 Chilean protests, featuring calls to ‘expand social services, fight inequality

and boost protection of the environment’3.This facilitated the 2021 Constitutional

Convention Election culminating in a new leftist president: Gabriel Boric. His fervent

desire ‘to bury the legacy of Gen. Augusto Pinochet’s dictatorship,’4 embellishes the

research question, highlighting its profound significance.

2
Davis-Hamel, Ashley. "Successful neoliberalism? State policy, poverty, and income inequality in Chile."
International Social Science Review 87, no. 3/4 (2012): pg. 79-101. http://www.jstor.org/stable/41887539.
[Accessed: 16.07.21]
3
‘Chile’s Next President to Govern Historic Transition.’(News article)
https://www.aljazeera.com/news/2021/12/23/chile-next-president-to-govern-historic-transition [Accessed:
29.12.21]
4
‘Gabriel Boric: From Shaggy-Haired Activist to Chilean President.’ (News article)
https://www.nytimes.com/2021/12/21/world/americas/chile-boric.html [Accessed: 30.12.21]

4
 iii. Why I Chose This Topic

My longstanding interest in History, Politics and Economics led to a particular passion

in learning about reasons for inequality, arising from the study of Development

Economics in my Higher-Level Economics classes. Further reading into this field was

incredibly useful in providing a more comprehensive outlook. In particular, ‘Why

Nations Fail,’5 by Acemoglu and Robinson, highlighted the link between political

transitions and economic outcomes. Engaging with news articles about Chilean

protests, I discovered the roots of this unrest with regards to Pinochet’s regime. The

extent to which this impacts current economic, political, and social outcomes in Chile

is discussed and thus important, by virtue of its topical nature.

Research Methodology

i. Economics Methodology

Income inequality in Economics is most prevalently addressed through the Lorenz

Curve and Gini Coefficient. The Gini coefficient is the numerical representation of

income inequality and has a value between 0 and 1. The closer the value is to 0, the

greater the income equality; the closer the value is to 1, the greater the income

inequality6. The Lorenz Curve is used to show the degree of income inequality in an

economy, drawing from income distribution within a region. Both measures are shown

below in Figure 1 and 2.6

5
Acemoglu, Daron and Robinson, James. A: ‘Why Nations Fail – The Origins of Power, Prosperity and
Poverty.’ (2012) pg.5
6
Tragakes, Ellie. ‘Economics for the IB Diploma, Coursebook, Third Edition.’ (2020) pg.355-6

5
Figure 1: Diagram showing basic Lorenz Curve

This shows how the Gini Coefficient can be derived from the Lorenz curve

representation. These were the two, core metrics utilized in the investigation to

quantify income inequality.

I encountered some difficulties when attempting to access data. While some data

was available on the UN Database for Chile, referenced previously, this mainly

included basic information such as the simply the Gini coefficient value. By emailing

various government ministers in Chile, I was directed to certain databases with

more specific data – for example, data representing income distribution per

quintiles, which I was able to utilize in constructing a Lorenz curve in the Economics

approach.

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ii. Historical Methodology

When drawing upon primary source material, there were several considerations to

be addressed. For example, I accessed transcripts of speeches made by Pinochet

to acquire a first-hand account into the nature of Pinochet’s political regime whilst

also encapsulating the extent of change from the previous administration of

Allende. When carrying out this process, it was imperative that I considered the

origin, purpose, value, and limitations of the source at hand. There is clear value in

such primary sources being contemporary accounts - delivered during the time of

the events in question, the speech negates the fallibility of memory thereby

increasing the accuracy of the source. However, the purpose of this source was to

promote and initiate Pinochet’s dictatorship. Thus, it is likely that Pinochet would

overstate the negatives about his predecessor and so the source falls victim to bias

as it is impacted by political considerations. Regarding content, the prevalence of

rhetoric in this speech instead of a focus on the political and economic minutiae is

a further limitation.

Accessing secondary accounts was also useful. Secondary sources benefit from

hindsight and, formed many years after the events discussed, present a more

holistic outlook, including several perspectives. However, a common limitation with

secondary sources is the difficulty they pose in accurately depicting historical

context, due to distance from events. I used a book titled, ‘The Chilean Economy:

Policy, Lessons and Challenges.’7 This gave a more comprehensive outlook on

how Pinochet’s government facilitated the neoliberal economic transition. However,

7
Bosworth, Barry; Dornbusch, Rudiger; Raúl Labán: ‘The Chilean Economy – Policy, Lessons and
Challenges,’ (1994) pg. 249

7
 with respect to content, the book goes beyond the bracket of 1973-1990 so the

focus may be too broad for my investigation, limiting the usefulness of the source.

Therefore, to probe deeper into Pinochet’s regime particularly, I accessed the book,

‘Pinochet’s Economists – The Chicago School of Economics in Chile.’8 This gave

a more detailed account on the specific economic reforms undertaken by Pinochet

between 1973 and 1990, with links to their longer-term ramifications.

Historical Approach

i. The Nature of the Pinochet Regime

Pinochet’s regime is characterized by the political economic philosophy of

neoliberalism. This refers to a laissez-faire approach to development by reducing state

intervention.9 This market-based approach led to specific outcomes, exacerbating

income inequality. Firstly, I will show the short-term impact of Pinochet on income

inequality, and then the lasting presence of this dictatorship.

ii. The Neoliberal Transition

The establishment of a dictatorship by Pinochet, following the overthrow of President

Allende, was an indication of the nature of the regime that would follow. This is shown

in, ‘The state of siege in all the territory of the republic.’10 The aim of Pinochet’s

economic agenda was economic growth; in particular, to reduce Chile’s public sector

and by attracting foreign direct investment (FDI) and expanding their export sector,

8
Valdés, Juan: ‘Pinochet’s Economists – The Chicago School in Chile,’ (1995) p.g.3
9
Acemoglu, Daron and Robinson, James. A: ‘Why Nations Fail – The Origins of Power, Prosperity and
Poverty.’ (2012) pg.5
10
‘Document 29: “Military Decrees on Seizing Power” Augusto Pinochet (1973)’ (Speech transcript):
https://library.brown.edu/create/modernlatinamerica/chapters/chapter-10-chile/primary-documents-w-
accompanying-discussion-questions/document-29-military-decrees-on-seizing-power-augusto-pinochet-1973/
[Accessed: 28.7.21]

8
develop Chile’s integration into the global market.11 From the very onset of this

regime, welfare programs and systems to improve living conditions of the masses

were eliminated. For example, under Pinochet, ‘spending on public housing was cut

by 60%, healthcare by 40% and education by 43%’.11 Rather, the focus of the regime

was privatization – in 1973, the number of state-owned enterprises was 596, this was

reduced to 48 in 1980.11

With regards to inequalities, it is seen that, ‘Pinochet was able to exploit his popularity

among those who had benefitted most from the economic growth: the Chilean

elites…”12. This influence will be seen to be crucial in the persistence of Pinochet’s

legacy, beyond 1990.

iii. Immediate effect on economic inequality (1975-82)

It is important to determine how this historical transition affected economic inequalities

at the time. It is postulated that such improvements in the economy, from a

macroeconomic perspective, ‘came about at the expense of lower income Chileans.’ 12

One of the overarching effects included is the marked drop in real wages; in 1978, real

wages dropped to 70% of their 1970 level. This makes the impact of Pinochet and his

policies on the Chilean economy incredibly clear.12 To target inequality specifically, it

is seen that between 1979 and 1981, the top 20% of Chile’s population saw its share

of national income increase from 54.5% to 57.6%.11 However, during the same period,

the lowest 40% saw their share of income decrease from 54.5% to 57.6% 11. With

reference to Figure 1, it can be ascertained that such worsening income distribution

11
Davis-Hamel, Ashley. "Successful neoliberalism? State policy, poverty, and income inequality in Chile."
International Social Science Review 87, no. 3/4 (2012): pg. 79-101. http://www.jstor.org/stable/41887539.
[Accessed: 16.07.21]
12
Sánchez-Ancochea, Diego: ‘The Political Economy of Inequality at the Top in Contemporary Chile.’ (2017)
pg. 342-60

9
will have a noticeable effect on exacerbating income inequality. This can be

consolidated by looking at the change in Gini coefficient. While it measured 0.49

between 1969-71, after the implementation of neoliberal reforms, it rose to 0.52 in

1979-81.13

iv. Pinochet’s Motivations and Sustained Levels of Inequality

It is irrefutable that the Chilean economy undergoes rapid economic growth in this

period; between 1973 and 1990, there was 8% annual GDP growth on average.14

However, the two areas central to the causation of inequality include the strength of

trade unions and level of market concentration, amplifying the role of business elites.15

While the elimination of welfare programs by Pinochet was analysed previously, the

approach to trade unions is significant. Trade unions are crucial in contributing to lower

wage dispersion and thus a more equal economy. However, under Pinochet, trade

unions were systematically eliminated; calls for a higher minimum wage, for example,

were silenced. This led to a reduction in overall wages and suppressed a facet of the

economy and society which is seen to be progressive.14 Instead, because this would

be more conducive to economic growth on a large scale, Pinochet allowed the

influence of business groups and large corporations to grow – and eventually this

permeated into policymaking. Through privatization as the cornerstone of economic

neoliberalism, much of the market was acquired by large conglomerates leading to

greater market concentration13.

Regulation was overlooked and capital concentration increased significantly under

Bosworth, Barry; Dornbusch, Rudiger; Raúl Labán: ‘The Chilean Economy – Policy, Lessons and
13

Challenges,’ (1994) pg. 249

14
Davis-Hamel, Ashley. "Successful neoliberalism? State policy, poverty, and income inequality in Chile."
International Social Science Review 87, no. 3/4 (2012): pg. 79-101. http://www.jstor.org/stable/41887539.
[Accessed: 16.07.21]
15
Sánchez-Ancochea, Diego: ‘The Political Economy of Inequality at the Top in Contemporary Chile.’ (2017)
pg. 342-60

10
Pinochet: ‘of the 500 companies in public hands in the early 1970s, 481 were

transferred to a small number of private players within the private section.’16

Furthermore, the extremely high level of market concentration is shown in,

‘privatization together with the allocation of credit to a few business groups increased

the size concentration of firms and further enhanced the economic power of the 20 or

so major industrial and banking groups.’17 This can be seen in relation to the water

industry; Pinochet strengthened private water rights, adopted a market-based

allocation system and reduced state oversight.18 The maintenance of this in modern-

day Chile can be found in, ‘part iv’ of the Economics Approach.

This dynamic of a few firms holding too much power under Pinochet led to growing

profits for the richest while the incomes of citizens at the bottom decline therefore

exacerbating income inequality.

v. Codifying Pinochet’s Economic Ideology

A key turning point in Chile’s history is the constitutional reform held in September

1980. Not only would this ensure that Pinochet would remain in power with a ‘rule by

decree,’19 until 1988, but the influence of this constitution is crucial. It was only in 2020

that calls to reform this constitution materialized, leading to the process of a new

document being created in 2022. The 1980 Constitution entrenched the radical,

16
Davis-Hamel, Ashley. "Successful neoliberalism? State policy, poverty, and income inequality in Chile."
International Social Science Review 87, no. 3/4 (2012): pg. 79-101. http://www.jstor.org/stable/41887539.
[Accessed: 16.07.21]
17
Yotopoulos, P. (The (rip) tide of privatization: Lessons from Chile. World Development, 17(5), (1989). 683–
702.
18
‘The Heavy Price of Santiago’s Privatised Water.’ (News Article) https://www.theguardian.com/sustainable-
business/2016/sep/15/chile-santiago-water-supply-drought-climate-change-privatisation-neoliberalism-human-
right
[Accessed: 25.8.21]
19
Valdés, Juan: ‘Pinochet’s Economists – The Chicago School in Chile,’ (1995) p.g.137

11
neoliberal economic policies under Pinochet in Chilean society. For example, Article

920 mentions involvement in, ‘trade unions,’ as a form of, ‘terrorism,’ and, ‘intrinsically

contrary to human rights.’ Such restrictions on involvement in trade and labour unions

meant that workers were unable to campaign for better wages, living standards and

working conditions, as discussed previously. This is key as a crucial factor in furthering

income inequality became entrenched in the Chilean constitution. Another such

example is Article 1920: ‘the right to develop any economic activity,’ and, ‘No arbitrary

discrimination in the treatment that [is] to be granted by the State and its organisms in

economic matters.’ This encapsulates the laissez-faire, neoliberal approach of

Pinochet highlighting the importance of Economics to his regime.

20
Chile’s Constitution of 1980 with Amendments through 2012:
https://www.constituteproject.org/constitution/Chile_2012.pdf
[Accessed: 28.11.21]

12
Economics Approach

i. Current level of income inequality

Data from the World Bank shows that the most recent Gini coefficient value recorded

is 0.44.21 Research papers and academic journals such as Yitzhaki’s, ‘Relative

Depravation and the Gini coefficient,’22 highlight 0.4 as a particularly important point

on the scale. It is seen by economists that inequality above this level is frequently

associated with political instability and growing tensions, demonstrated by the

outbreaks of civil unrest in Chile. The fact that the ‘gap between rich and poor has

widened in recent years as the combined wealth of its billionaires is equal to 25% of

its GDP’23 highlights the extent of this problem.

ii. Modelling income inequality

To make this clearer, I attempted to find a Lorenz curve representing the latest level

of income inequality in Chile. Unable to access one however, I assessed income

distribution data in Chile. By looking at the distribution of income by quintiles, a Lorenz

curve can be formed. This is shown below in Figure 3.

21
Gini Index (World Bank Estimate) – Chile:
https://data.worldbank.org/indicator/SI.POV.GINI?locations=CL&most_recent_year_desc=true
[Accessed: 23.11.21]
22
Yitzhaki, Shlomo. “Relative Deprivation and the Gini Coefficient.” The Quarterly Journal of Economics, vol.
93, no. 2, Oxford University Press, 1979, pp. 321–24, https://doi.org/10.2307/1883197. [Accessed: 23.11.21]
23
How Pinochet’s economic model led to the current crisis engulfing Chile.’ (News article)
https://www.theguardian.com/world/2019/oct/30/pinochet-economic-model-current-crisis-chile
[Accessed: 28.8.21]

13
Figure 3: Table showing the income distribution per quintiles in Chile in 201924

Using this data, I was able to plot the Lorenz curve shown below in Figure 4.

Figure 4: Lorenz Curve of Chile

Lorenz curve of Chile in 2019

100

90
Cumulative percentage of income

80

70

60 Cumulative
percentage
50 of income
40

30
Equality
20

10

0
0 10 20 30 40 50 60 70 80 90 100
Cumulative percentage of population

24
Chile – Income Distribution (Internet webpage database)
https://www.indexmundi.com/facts/chile/income-distribution
[ Accessed: 29.12.21]

14
This further consolidates the extent of income inequality in Chile. By comparison of

the orange line (an indication of perfect equality) to the blue line (Chile’s income

distribution), it is possible to extrapolate the Gini coefficient stated by the World Bank,

using the calculation depicted in Figure 2. The relatively high level of income inequality

in modern-day Chile can be seen through comparison with other nations. The

Organisation for Economic Co-operation and Development (OECD) Income

Inequality Data shows that among a group of thirty of the world’s wealthiest nations,

Chile has the third highest level of income inequality, showing how it remains a

pressing issue.25

iii. Economic concentration

Drawing from the general backdrop of income inequality, a particularly pertinent issue

in modern-day Chile is the extreme concentration of economic power, in addition to

political influence. Sanchez-Ancochea’s 2015 paper26 highlights the degree to which

this impacts economic inequality, Figure 5 below shows an elaboration of the OECD

data included previously to highlight this.

25
Income Inequality – OECD Data (Internet Webpage):
https://data.oecd.org/inequality/income-inequality.htm
[Accessed: 25.11.21]
26
Sánchez-Ancochea, Diego: ‘The Political Economy of Inequality at the Top in Contemporary Chile.’ (2017)
pg. 358-61

15
Figure 5: OECD Income Distribution – comparison of deciles27

Figure 5 presents the income share of the bottom 40%, the middle 50% and

the top 10% during the period 1987-2011. To maintain the focus on the current

level of economic inequalities, the income shares of the top 10% stands at

40.7%27.

The extreme concentration at the top of income-earners in Chile highlights the starkly

low level of social mobility between 90% of the population and the top decile. So-called

crony capitalism has become more widespread – this refers to the concentration of

money amongst a small group of well-connected magnates. Such influence has been

instrumental in protecting rents and avoiding competition. For example, the beer,

tobacco, and domestic air travel markets are dominated by a single company (with

87%, 95% and 74% market shares respectively.)27

27
Sánchez-Ancochea, Diego: ‘The Political Economy of Inequality at the Top in Contemporary Chile.’ (2017)
pg. 358-61

16
iv. Case study: The Water Industry

Problems with the water industry were repeatedly voiced as major concerns during the

2019-21 Chilean protests. This is seen in; ‘A recent protest saw at least 2,000 people

take to the capital’s streets to demand the repeal of laws that privatised Chile’s water

supply.’28 This directly relates to the purpose of the investigation as it was under

Pinochet that the commodification of water was established. The ‘unnecessarily high

pricing,’28 of water is seen to have exacerbated income inequality. While many

privatised water systems are regulated by a separate institution, the government body

in charge of this – the Water Directorate – has no control. Instead, this has been

handed over to private owners, leading to the setting of high prices. Auguas Anginas,

until very recently, was the subsidiary which monopolized the market for Santiago,

selling water to 6 million of the city’s 7.2 million residents, with a very steep tariff. A

representation of such a monopoly is shown below in Figure 6 and 7.29

Figure 6: Industry in perfect competition Figure 7: Monopoly

28
‘The Heavy Price of Santiago’s Privatised Water,’ (News article)
https://www.theguardian.com/sustainable-business/2016/sep/15/chile-santiago-water-supply-drought-climate-
change-privatisation-neoliberalism-human-right
[Accessed: 15.10.21]
29
Tragakes, Ellie. ‘Economics for the IB Diploma, Coursebook, Third Edition.’ (2012) pg.221-2

17
By comparing Figure 6 and 7, it is shown that unlike an industry in perfect competition,

the formation of Auguas Anginas as a monopoly leads to a higher price and lower

output. This is shown by the increase from Ppc to Pm and the decrease from Qpc to Qm

in Figure 6 and 7. Whereas in a perfectly competitive industry, shown in Figure 6,

allocative efficiency is reached (shown by MB [marginal benefit] = MC [marginal cost]),

a monopoly does not highlight allocative inefficiency. Market failure is also depicted.

Figure 7 shows the inefficiencies that result in a monopoly: area C, consumer surplus

in monopoly is smaller than area A, in perfect competition. Furthermore, by looking at

area D, we can see that because of the formation of Auguas Anginas in Santiago as

a monopoly, the producer surplus has increased by taking away a portion of the

consumer surplus, due to the higher price of water. This deepens economic

concentration. Regarding inequalities, there are negative impacts on the distribution

of income. Since Auguas Anginas charge an even higher price due to the high

influence of private individuals and lack of regulation, there is a greater redistribution

of income away from consumers and toward the owners of the monopoly in the form

of higher profits. As water is a necessity, those on lower incomes are affected more

as a larger proportion of their incomes is spent on necessities – thereby exacerbating

inequalities. In fact, the price of water in Chile has in fact increased so much that,

‘people are regularly left without running water for days at a time.’ 30

30
‘The Heavy Price of Santiago’s Privatised Water,’ (News article)
https://www.theguardian.com/sustainable-business/2016/sep/15/chile-santiago-water-supply-drought-climate-
change-privatisation-neoliberalism-human-right
[Accessed: 15.10.21]

18
Evaluation of Pinochet’s reforms to present levels of inequality

To target the crux of the research question, it is imperative to put both the History and

Economics approaches together and elucidate the persistent effects of Pinochet’s

reforms on economic inequality in Chile. First, it is important to note that income

inequality in Chile has reduced since Pinochet was in power. While the Gini coefficient

was 0.55 in 1990, the latest recorded data (2017) shows the value is 0.44. 31 While

this can be attributed to the role of the subsequent, centre-left coalition governments

named Concertación in promoting socioeconomic welfare policies to improve

distribution, inequality remains a pressing problem. Therefore, this seems to suggest

that although Pinochet’s impact still plays a factor, there is an indication of a changing

direction of travel.

i. Pinochet’s Legacy

The findings through the History approach established the groundbreaking neoliberal

reforms undertaken in Chile between 1973 and 1990. Two of the major facets of this

were the level of market concentration and weak nature of trade unions. The

conclusions drawn from the Economics approach attribute the current level of

inequality partly due to these factors. Essentially, it is put forward that Pinochet’s

regime transformed the political economy of Chile, with a deepening of concentration

at the top. This notion is reinforced by Sanchez-Ancochea’s influential paper, ‘The

Political Economy of Inequality at the top in Contemporary Chile.’32 To confirm this,

the History approach showed that in 1990, the top decile in Chile received around four

31
Gini Index (World Bank Estimate) – Chile:
https://data.worldbank.org/indicator/SI.POV.GINI?locations=CL&most_recent_year_desc=true
[Accessed: 23.11.21]
32
Sánchez-Ancochea, Diego: ‘The Political Economy of Inequality at the Top in Contemporary Chile.’ (2017)
pg. 340-53

19
times more than the bottom four deciles combined. Such concentration remains in

Chile today, albeit to a lower extent. The findings in the Economics approach

highlighted that the combined wealth of Chile’s billionaires is equal to 25% of GDP.33

The impact on trade unions is also striking. The History approach showed that under

Pinochet, ‘the share of union workers in the total labour force went from 33.7% in 1973

to just 9.8% in 1985 while union size halved.’33 The Economics approach can be

utilised to identify that while trade union strength relatively grew after 1990, it was

never able to fully regain it its influence. The fact that, ‘in 2013 the percentage of

workers under collective bargaining or under joint contract—a weaker type of

agreement—was below 12 %, more than four percentage points lower than in 1990,’33

highlights this. Ultimately, it can be ascertained that Pinochet’s reforms still influence

Chile.

ii. Assessing the extent of Pinochet’s impact

While so far it has been postulated that Pinochet’s reforms were irrefutably impactful,

it is important to ascertain the extent to which this is true. Therefore, by combining the

History and Economics approaches, I decided to use a difference-in-difference

analysis. This would contextualize Chile’s trend of income inequality with other Latin

American countries, allowing a more informed judgement on whether the persistence

of income inequality can solely be attributed to Pinochet. Therefore, I constructed a

graph representing the change in Gini Coefficients from 1971 to 2017 of three Latin

American countries. This is shown below in Figure 8.34

33
‘The Heavy Price of Santiago’s Privatised Water,’ (News article)
https://www.theguardian.com/sustainable-business/2016/sep/15/chile-santiago-water-supply-drought-climate-
change-privatisation-neoliberalism-human-right
[Accessed: 15.10.21]
34
Income Inequality – OECD Data (Internet Webpage):

20
Figure 8: Gini Coefficients of Chile, Brazil, and Argentina from 1971 to 2017

Figure 8 shows that during Pinochet’s rule (1973-1990) the income inequality of Brazil,

Argentina and Chile all increased. Therefore, this may be seen as a caveat to the initial

conclusion that Pinochet is solely to blame for levels of income inequality in Chile.

Rather, it may be seen that Chile is simply an example of the regional trend of

increasing inequalities in Latin America at the time. While one may claim that it is

rather the failure of the subsequent Concertación governments leading to the relatively

high level of income inequality in Chile today, this can also be put in context with other

Latin American countries. From 1990 to 2017, while the Gini coefficient is seen to have

decreased by 0.08 and 0.06 for Brazil and Argentina respectively, this figure is 0.13

for Chile. So, in the context of Latin American countries, it is seen that the efforts of

subsequent governments to increase socioeconomic policies aimed at improving

welfare yielded success to an extent showing they cannot be fully blamed for current

inequalities.

https://data.oecd.org/inequality/income-inequality.htm
[Accessed: 25.11.21]

21
 iii. Persistence of income inequality

On balance however, Pinochet’s role in the persistence of income inequality is clear.

The grand scale of privatization established by Pinochet led to key changes in Chile’s

economy. At the time, the five most powerful conglomerates controlled 69% of the

assets of the 100 largest firms.35 The case study of the water industry illustrates this

continued influence, from the perspective of monopolies and thus greater inequality.

One may point at the 1980 constitution which ultimately codified Pinochet’s legacy

allowing it to persist until 2022. It can be argued that through the maintenance of the

constitution from 1980-2020, Pinochet’s neoliberal model became the cornerstone of

Chilean society. However, welfare reforms have been proposed by subsequent

governments but ultimately the influence of the business elite, enabled by Pinochet

during his years in power, was never eroded. This is shown as former President

Bachelet’s welfare proposals were, ‘watered down,’35 by the business elite in 2015.

Nevertheless, the constitution can be regarded as a subsidiary factor in persistent

unequal economic outcomes.

Overall, it is strongly contended that despite Chile being part of a regional Latin

American trend, Pinochet’s policies were crucial in exacerbating inequality, shown

through the History approach. This led to the prominence of business elites in

controlling Chilean society and the economy, consolidated by the 1980 constitution.

This is epitomized in, ‘the legacy of Pinochet’s economic model underlies existing

social protection systems largely because political elites have refused to contemplate

structural changes.’36 Thus, despite more ambitious efforts by subsequent government

35
Sánchez-Ancochea, Diego: ‘The Political Economy of Inequality at the Top in Contemporary Chile.’ (2017)
pg. 352-3
36
How Pinochet’s economic model led to the current crisis engulfing Chile.; (News Article):
https://www.theguardian.com/world/2019/oct/30/pinochet-economic-model-current-crisis-chile [Accessed:
28.8.21]

22
to increase welfare policies, the stranglehold of the business elite and market

conglomerates is seen to be the primary factor in the persistence of income inequality

in Chile.

CONCLUSION

Overall, Chile’s current level of economic inequality can strongly be explained by the

reforms of Pinochet between 1973 and 1990. I crucially discovered the specific impact

he had on business elites which outlived his dictatorship, directly affecting inequalities

today. This is presented as the primary factor in favour of this conclusion; a

contributing factor to this persistence was the maintenance of the 1980 constitution.

While the current level of inequality may be attributed to failures of subsequent

governments, the difference-in-difference analysis showed the relative success of

Pinochet’s successors in reducing income inequality, in comparison with other Latin

American countries, used as a benchmark. This analysis, however, also showed Chile

as an example of the regional trend between 1973 and 1990. Thus, a slight limitation

and potential extension would be to access further information about the political and

economic changes in other Latin American countries, to reach a broader conclusion.

This could form an additional research project about trends in income inequality across

a variety of other countries, highlighting the global significance of this issue, but I

believed maintaining the focus on Chile was important. Furthermore, as a new

constitution is currently being written, a future investigation into how successful it has

proved regarding reducing income inequality would be deeply enriching. The History

approach presented a holistic view of reforms under Pinochet while the Economics

approach helped to quantify the immediate outcome, as well as the current situation.

23
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