Chile: copper-bottomed?

The victory of former student leader and activist Gabriel Boric in Chile’s presidential election is the culmination of a sweeping change of mood and direction among Chilean voters.  In a 56% turnout, the highest since voting was made voluntary, 35-year old Boric took 56% of the vote compared to ultra-right Antonio Kast’s 44%.  

Boric has pledged to stop mining projects that damage the environment, increase taxes on the rich, end private pension schemes and remove student debt. During his victory speech, Boric, who is part of a broad left-wing coalition that includes the Chilean Communist party, said he would oppose mining initiatives that “destroy” the environment. That included the contentious $2.5bn Dominga mining project that was approved this year. 

Earlier this year, elections to Chile’s Constituent Assembly resulted in a majority for the (disparate) left.  The Assembly is supposedly rewriting the Constitution to replace the authoritarian structure of the Pinochet military regime after 40 years.  But Chile’s Congress (parliament) is split down the middle between right and left coalitions.

Chile is the richest country in Latin America as measured by GDP per head.  But its 20m population makes it tiny compared to Mexico or Brazil, which have populations six to ten times larger and GDPs four to five times larger.  Argentina and even Venezuela are much larger in population and GDP.

Nevertheless, Chile’s real GDP growth rate has generally been slightly faster than the rest of Latin America and its governments have thus been relatively stable.  Many mainstream economists and political theorists often use this to claim that Chile is a ‘free market’ capitalist economic success story and consider Chile as the “Switzerland of the Americas”. Chile is a member of the OECD, the rich nations club, and in the (NAFTA-USMCA) trade bloc with Canada, Mexico and the US.

But this apparent success story is only relative in GDP growth compared to other Latin American economies.  Moreover, such gains have mainly gone to the rich in Chile.  Income inequality is among the worst in the OECD, only surpassed by Brazil and South Africa. 

The income share of the bottom decile in Chile is one of the lowest in the world.  Only a few countries, largely from Latin America, have lower income share accruing to the bottom decile of the distribution and this share has deteriorated in relative terms in the last 20 years.  Social spending (as a share of GDP) in Chile appears higher than in Mexico and Peru.  But public services have been reduced, forcing people to use private profit operations.  In particular, pensions are dominated by private sector companies and most Chileans find their savings for retirement are just too meagre to fund a decent standard of living in old age.

This was one of the big issues in the election and led to the widespread protests against pro-capitalist policies in 2019 (before COVID) which has now culminated in Boric’s election.  The IMF found that ‘replacement rates’ (ie pensions relative to average working income) in Chile are very low relative to other OECD economies, and this deficiency is even more pronounced for females than for males.

Amid high and rapidly increasing costs of living alongside limited income growth and low pensions, many households have accumulated considerable amounts of debt.

Taxes on the rich are very low, so that income redistribution is lower than almost all OECD peers and many other poor economies.

Chile’s relative economic success has always been based on its copper and mineral exports.  If copper and mineral prices are high and rising, Chile’s economy does better and conversely – but of course, little of that ‘trickles’ down from the profits of multi-nationals to the average Chilean household.

There have been some Marxist analyses of the Chilean economy that show how the profitability of Chilean capital has been driven by the copper cycle. Diego Polanco in his study for the whole of 20th century noted that “capital accumulation is driven by profitability” and that “the profit rate is a crucial variable for economic growth.”  Polanco found that and collapse of profitability explained the crisis phases in the Chilean capitalist economy.  “While Chile was a surplus labor economy, technical change had favorable contributions to the profit rate. However, once the process of urbanization advanced, Marx-Biased Technical Change took place, having a negative contribution to profitability.”  The neo-liberal period under Pinochet from the 1970s saw a rise in profitability enabling the regime to maintain its control for decades.

In a more recent study, Gonzalo Duran and Michael Stanton found that the rate of exploitation in Chile’s economy rose or fell according to the movement of the copper price. Profitability fell during the 1990s as copper prices stayed low and Marx’s law of profitability operated to lower the rate of profit. “In contrast, during the copper super-cycle period of 2004–2009, profits related to wages went up enormously due to the rise in copper prices, but new capital was still imported at low cost and wages were relatively constant. In other words, profits went up relatively to capital and wages and the ROP rose as a consequence.”

However, with the end of the commodity price boom from 2010 across Latin America, there was relative economic stagnation and a fall in the ROP.

My own measure of Chile’s profitability is based on the Penn World Tables IRR series. It delivers a similar trajectory for the profit rate: a drop in the rate from the mid-1990s; then a recovery in the commodity boom from 2003 to 2010, and then with the collapse of commodity prices from 2010, stagnation and decline in profitability.

The IMF’s own recent measure from 2006 confirms this general trajectory for all Latin American economies after about 2010.

The fall in profitability after 2010 led to slowing growth in GDP, investment, incomes and a further squeezing of public services prior to the COVID slump.  With COVID and the health disaster, there was a collapse in the economy, with the main impact falling on those with the lowest incomes and worst jobs.  The pro-capitalist forces have been forced into retreat politically.

The victory of Boric could open up a new chapter is Chile’s political economy.  Indeed, there are huge opportunities for the Chilean economy to increase investment and diversify the economy.  The IMF finds that even under the previous regimes there has been some development in non-mineral and technology exports.  This must be the way for Chile to go.

So will Boric revive the socialist experiment began by Salvador Allende in the early 1970s?  So far, that seems unlikely, as Boric’s program is moderate by those standards; with no plans to socialise the economy, but merely to try and redistribute the largesse appropriated by capital somewhat more evenly.  The multi-nationals and the forces of the reactionary right-wing in the Chilean business sector, Congress and the media are gearing up for an incessant campaign of attack against the new President.

14 thoughts on “Chile: copper-bottomed?

  1. Honestly. I know most of your readers don’t subscribe to the FT but the amount of copy/pasting is ridiculous. Have some morals Michael!

    1. I have sourced most of the basic election info from basic sources with a few phrases from the ft which many readers do not have access to. But the bulk of post is from imf sources and papers by various Marxist authors. So hardly ridiculous. My morality remains intact

  2. Michael,

    Do you have data on the level of profits generated by the Chilean mining industry and the taxes and royalties paid by the industry?

  3. “So will Boric revive the socialist experiment began by Salvador Allende in the early 1970s? So far, that seems unlikely, as Boric’s program is moderate by those standards; with no plans to socialise the economy, but merely to try and redistribute the largesse appropriated by capital somewhat more evenly. The multi-nationals and the forces of the reactionary right-wing in the Chilean business sector, Congress and the media are gearing up for an incessant campaign of attack against the new President.”

    This is a crucial aspect of the Boric government that is not only limited to the Chilean, but the whole Western Left.

    In the West, the so-called Center-Left, or “Democratic Left” etc. etc. is subdivided in a plethora of factions and sects. With varying degrees of radicalism and intellectual sophistication, they all have one single thing in common: they bet on what in the Soviet debate of the 1920s was summed up as the “Stabilization of Capitalism”.

    In other words, the center-leftist is a believer of the stabilization of capitalism. They bet/believe that, no matter the situation, capitalism will always find a way to survive and come back stronger. That’s the basis of every variation of what, in Western political jargon, the leftists call “moderation” (also known as institutionalism, conciliation or republicanism, depending on the country). Such urge may arise, in one extreme, from the sheer fear of capitalist revenge/retribution when a revolution inevitably fails (because capitalism will always stabilize, according to the center-leftist creed) or, on the other extreme, from the excitement and hope to “humanize” capitalism (i.e. socialism as a mere ethical-moral code for behavior in a capitalist society; reformism). All of this has the same root: the belief/fear capitalism will always survive, and always come back.

    There’s nothing wrong with analyzing the concrete situation and coming to the conclusion capitalism has really stabilized, and the a revolutionary wave is over. On the contrary: that’s an extremely valid hypothesis/analysis. The problem is when this punctual analysis becomes dogma, which it has become in what we nowadays call the Center-Left in the West. Such blind ideological dogmatism can lead to dangerous conclusions and, really, a greater blood bath than if a revolution attempt had really happened – the greatest example of this being, ironically, Allende’s government (on the side of fear; on the side of capitalist adoration/sabotage, we have the failed German Revolution of 1918-19).

    That’s why we have science, we have the numbers. Both point to the direction capitalism is in a moment of crisis, not a moment of “stabilization”. 2021 remembers the 1930s, which resulted in WWII, not a moment of capitalist stability. That’s why Boric has already lost, before the game even begun – it is now just a matter of counting the bodies.

    1. This debate predates the 1920s. In the pre-Grand period, the renegade moderate wing of the German Social Democrats already defended this. Rosa Luxemburg fought with them because of this position.

    2. While having it’s one logic that a sort of abstract sense, this sort of pessimism leaves people to the mercy of capitalism in the interim to the hoped revolution (that can go any way in any case). In the Chile case there is the lack of welfare state including privatised pension system which there is an obligation to try to ameliorate (not withstanding the IMF spin that perceived inequality not actual is the real problem) . That requires a new constitution to really advance. To boot the Far Left in the Constituent Assembly already blew it , a large part of the reason for the 1st round Election debacle in December with depressed voter turnout that only the fear of the Far Right Kast reversed with the record 2nd round turnout . Hench the ball is even more in the Reformist court now

  4. Chile has a large resource of Lithium as well as copper. Electrifying the world’s economy will require tremendous growth in demand for these elements. Also the greens are in favour of mining these materials so opposition to mining will fade.

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