This year, Gabriel Boric won the Chilean Presidency by riding a populist wave of anti-market sentiment. Populism is a political tool not tied to any particular ideology, and it can drive people to very dangerous conclusions. In this case, Boric convinced Chile that the rich elites maintained power in his nation at the expense of everyone else. I know that what happens in Chile only slightly affects the readers of this blog in the short run; however, the rising communist sentiments in Central and South America can tell us a lot about the movements that have already begun in the US. So let’s dive into a little Chilean history and the current political climate.

Until about 1990, Chile operated under a military dictatorship, which fell to a democratic process which stands to this day. Leading up to, and likely contributing to, the fall of the military dictatorship, a group of Chicago trained Chilean economists began pushing for greater economic freedom and privatization within the Chilean government. The “Chicago Boys,” as they were known, made regulatory changes that allowed the Chilean people to bust out of poverty in what Friedman referred to as, “The Miracle of Chile.” For starters, most tariffs and trade restrictions were dropped, coupled with new free trade agreements with from the USA , South Korea, the EU, and many others. This forced Chilean producers to compete at a global scale, which drove down prices in Chile and allowed their goods to begin selling around the world. Additionally, many industries were opened up to private business. For example, while the state did not give up its control of Codelco, the state run copper company in Chile, private businesses were allowed to begin starting new mines. Now, Chile is the largest copper exporter in the world. The last major overhaul I want to highlight is the Chilean pension system (which is truly fascinating, and we should do something similar instead of Social Security which is terrible). Before the Chicago Boys began pushing reforms, Chile ran a pension system that functions very similarly to American Social Security. In the 1980s, the system was overhauled and individuals had privately managed brokerage accounts that they could begin withdrawing from after reaching retirement age. The government still guarantees a minimum payout; however, this change removed a massive government liability, flooded Chilean markets with local equity, and unlocked massive economic growth. Largely as a result of these reforms, Chile comes in #19 on Heritage Foundation’s Economic Freedom Index, which is even more impressive when you realize that the USA came in at #20.

Currently, Chile is falling into the same trap of socialism promoted by populism that has plagued other South and Central American nations before it. It has been hard to miss the ills socialism created for Argentina; however, Mr. Boric still makes socialist promises to the Chilean people in the name of ending inequality and ushering in a new era of prosperity for all in Chile. He plans to target the private pension system along with Chile’s numerous free trade agreements. Additionally, he wants to increase the minimum wage by 60%, reduce hours in the normal work week, and significantly increase businesses responsibility to pay into the nation’s social safety net. All of this, he says, will eliminate the massive inequality in the country. What is missing here is that inequality and universal poverty are not the same thing. The chart below displays different levels of poverty in Chile, where data is available, over the last few decades. Obviously, poverty continues to rapidly decline in Chile. Despite the inequality in Chile, poverty continues to plummet because economic growth benefits all through efficiency gains.

Chileans are growing better off year after year, and an attempt to redistribute wealth through state control will likely set back decades of economic progress in one of the freest nations on earth. Socialism robs individuals of their personal freedom and dignity that God granted to all people made in his image. A socialist Chile is not just bad for the economy; it is bad for Chileans as people.