Inequality and Unrest in Chile

Courtesy of economist.com.
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By Tanner Weigel, Editor-in-Chief and Staff Writer

Recent protests in Chile, especially in Valparaíso and Santiago, have exposed deep social rifts within a country that has otherwise been seen as an island of stability in the region. Originally sparked by increases in metro fares in the capital, continued protests have coalesced around much broader themes of general inequality in Chilean society. Of all OECD countries, Chile ranks as one of the worst for income inequality.

I lived in Santiago from 2011 to 2013, and I have followed the development of these protests closely. Santiago is by no means the only urban center with stark divides between the ultra rich and the abject poor. But I was still taken aback by how mansions hovered in the hills above some of the worst slum neighborhoods. Sleek high-rises and posh enclaves are really not that far from some of the poorest areas. However, a range of hills literally separates the majority of the wealthy northeast quadrant of the city from poorer areas.

During my time in Chile, I met people from across the socioeconomic spectrum, but mainly lived and worked in those areas that were least well off. It is not surprising to me that mass transit fares would have sparked the recent waves of protests, because so many of the working class have to travel long distances to reach their places of employment. And if you already face a meager salary, an increase in any aspect of cost of living is going to hurt. To be sure, though, transit costs are but one component of many pent-up grievances.

A sleek business district in Santiago, Chile. Courtesy of en.mercopress.com.

With a high per-capita income, Chile has been held up as a success story for the neoliberal economic model. But this episode of protests (which were not entirely peaceful, nor necessarily organic according to one outlet) seems to presage a renewed emphasis on greater government intervention in and scrutiny of the marketplace.

From my experience on the ground, feelings of social and economic inequality are nearly palpable in the atmosphere of some of the neighborhoods I frequented, and solutions were no doubt lacking. But I fear that some responses to the protests will be far too simplistic.

For example, the New York Times editorial board writes that “the obvious path for Chile is for the government to spend more money improving the quality of life for a vast majority of Chileans, who are exposed to the vicissitudes of a market economy while being denied a sufficient share of the benefits.” The Times also quoted a Chilean business mogul who is willing to “spread the wealth more evenly.”

These sentiments appear to oversimplify the notion of inequality. The mere fact that someone in my country is really rich, for example (and even getting richer), does not automatically make me materially worse off. Furthermore, in an interview with the Wall Street Journal, Nobel laureate Angus Deaton commented that “inequality is partly a marker of success, so that if someone thinks of something, some new innovation that benefits us all, and the market works properly, they get richly rewarded for that. And that’s just terrific. And that creates inequality. So some of the greatest inequalities in the world have come from the greatest successes.”

In addition, economist Anne Bradley argues that “rising incomes across all income groups (even if at different rates) is most often the sign of a vibrant economy where strangers are encouraged to serve each other and solve problems.”

Mass demonstrations in the center of Santiago. Courtesy of france24.com.

The issue is not necessarily on the disparities of income, then, but whether the economic system allows those at the bottom to have opportunities to improve their lot in life (i.e., the mobility aspect of the equation). A really poor country might have very low income inequality. But would I rather live there, or try my hand at moving up in a more developed country with higher inequality, but more opportunity?

To be sure, inequality should (rightfully) cause anger when it is based on systems of exclusion. But to blame systemic problems solely on free markets is counterintuitive: exclusion is the antithesis of free markets! Markets are certainly imperfect, but it’s tiresome to constantly hold them up as the proverbial bogeyman.

Instead, as Anne Bradley again argues, systemic inequality persists (i.e., those from the bottom have no path to higher income categories) when “institutions, such as those that have persisted on Wall Street [in the U.S.], encourage cronyism.” You could probably add corruption to that list as well. In the same interview with the Wall Street Journal, Angus Deaton also cautions that inequality becomes a problem when the rich use their influence to manipulate the system.

So do governments, like in the case of Chile, need to do more to alleviate poverty and build a more robust social safety net? Probably. And I don’t want to diminish the sincerity of many of the protesters throughout the world who are tired of seeing elites using their power, wealth and influence to close doors to upward mobility for those at the bottom. But I do wish our debates about these issues were more nuanced. Markets and social conscience do not have to be mutually exclusive.

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