The conversation between Marian Tupy and Axel Kaiser can be found here. The transcript is below.
Marian Tupy: Hello, and welcome to the new episode of Human Progress podcast. Today, I’m very pleased to be talking to Axel Kaiser, he’s the Friedrich Hayek Chair at the Adolfo Ibanez University. He’s a Chilean lawyer, writer and political scientist, and we will be talking about Chile, about its history, about its faint or infamous economic model, depending on your point of view. And hopefully we will get some insights into what went right and what went wrong in one of the most interesting and important Latin American countries. Axel, welcome.
Axel Kaiser: Thank you very much, it’s a pleasure to be with you.
Marian Tupy: So your president-elect of Chile, Gabriel Boric, once said, “If Chile was the cradle of neoliberalism, it will also be its grave.” So can you briefly describe Chile’s economic model, which majority of us call neoliberalism but other people just call liberalism and how and when was it implemented?
Axel Kaiser: Yes, of course. Actually, Gabriel Boric he said that after he won the primary against his opponent Daniel Jadue who is a communist. And Boric is a very far-left person, and he promised to basically terminate the neoliberal model, that’s what they call it, right? So there’s this idea… And it’s not only in Chile, but scholars all over the Western world have argued that neoliberalism was born in Chile with the Chicago Boys. So the Chicago Boys were these Chilean economists who went to the University of Chicago in the ’50s and ’60s, basically, and then onward ’70s and so on. But basically ’50s and ’60s and ’70s. And then they came back and they completely transformed the Chilean economy, which was a statist socialist economy economist, we had this socialist experiment under Salvador Allende, who was elected president in 1970, and he, of course, tried to introduce a central planned economy, and we ended up like Venezuela, basically, right. We had hyper-inflation, we had scarcity of basic goods and services and so on.
Axel Kaiser: So the economy collapsed. And as a result of that, we had a coup that was led by General Pinochet and when the military took over power which is something that… Actually, the parliament asked them to do. Not many people know this, but there was a resolution asking them to do that. Well, then they said, “Well, what do we do now?” And Milton Friedman always observed that the military were not really free market people, they believe in top down organizations and not in the free market or individual freedom, necessarily. So they at first continued to manage the economy in the statist fashion that had been managed for over 40 years, basically since the ’30s, Chile experienced this process of increasing statism in their interventionism of the economy and it didn’t work out.
Axel Kaiser: So at some point through the Navy, a book came into the hands of the military junta because Chile was not a uni-person dictatorship, it was a junta of the different armed forces. And this book was called The Brick, El Ladrillo. It was very thick and it had been a document that had been written by these Chicago Boys already in the late ’60s for a possible victory of the then center-right candidate, Jorge Alessandri who lost to Salvador Allende and it was an economic program to solve all of Chile’s main problems. And this document what was called The Brick, was then implemented from 1975 onwards. This is the same year that Milton Friedman and Arnold Harberger went to Chile and paid a visit to their former students, basically.
Axel Kaiser: And so these ideas were basically that you have to embrace the free market. So they were claiming, and this is true, that for many decades, the Chilean economy had been directed in a very statist way, you had prices fixed, over 3000 prices had been fixed. You had protectionism, so there was no free trade, basically. You had the import substitution system. You had government running most of the companies when it came to public services and a large part of the banking sector, and all of… It was a centralized economy mainly, especially after the Allende regime. And so when Allende came to power, the Chicago Boys, what they did was to re-write this document taking into account the socialist experience. Allende had been supported by the Soviet Union to win the election, that’s something we know now. And so he wanted to create a second Cuba in Chile through democratic means, that was basically the idea that he had.
Axel Kaiser: And then among the measures that the Chicago Boys proposed and then later on implemented, the first finance minister was Sergio de Castro who was one of the main brains behind The Brick, were for instance, opening up the economy to free trade, free trade agreements and all of sorts of getting rid of import taxes and things like that. Privatizing state-run companies. Stabilizing inflation because it was very high and it took a long time to stabilize the peso. So they… In the end, created an independent Central Bank for the first time, almost the first time in Chilean history. They got rid of all most prices that were fixed, so prices were freed to be set by the market, and they privatized social security, that was one of the most important reforms, I think, probably the most revolutionary reform. And yeah… So that very… That’s a very general view of what really happened, but it was basically embracing free market institutions, and it was very radical in the sense that you went from full-scale socialism to a very deep free market reforms in a very short period of time.
Axel Kaiser: So the contrast is dramatic between what happened under Allende and then what had been going on the previous decades and what happened later on under the military regime and then the democratic regimes that maintained these reforms over a period of over 30 years, basically. So the contrast was very, very stark, and people like Ronald Reagan and Margaret Thatcher, leaders like them, they were observing what happened in Chile, and so to a large extent, what happened in Chile with these free market reforms was a backlash against the world for us today, that then set the stage for what happened in the US under Reagan and the Reagan Revolution and Margaret Thatcher in the United Kingdom.
Axel Kaiser: And that’s something that left-wing scholars like David Harvey to conservative historians, like Niall Ferguson agree on it. It was important during the Cold War, it was symbolically very important, and it was also as an example of a nation that had managed to become an economic miracle, that’s the word that was used for Chile after these reforms were implemented and as a role model for the whole developing world and in the symbolic ideological fight against socialism, of course, it was crucial that we had managed to prove that theories of free market really work.
Marian Tupy: Let me ask, is there empirical evidence that Reagan and Thatcher were influenced by what was happening in Chile?
Axel Kaiser: Well, you know, there are comments made by Margaret Thatcher on the Chilean economy, I once read that she had sent observers to see what was going on in Chile. She was also very much influenced by Friedrich Hayek, everyone knows that, and Hayek also was someone that Reagan was well aware of his work and also Milton Friedman, right? And so I think that the ideas overall of the free market movement have found in Chile a place to flourish, right, in the context of the Cold War that were very symbolic because the presence of the Chicago School and even Friedrich Hayek, he came to Chile two times in 1978, in 1980, he briefly met with Pinochet, also Milton Friedman briefly met with Pinochet, which is, you know, that has been used by the left everywhere to attack him. But this is complete nonsense. He never got a cent from the military regime or anything, he was just giving advice about controlling inflations and things like these, the same thing that he did with many left-wing dictators in other parts of the world, and then no one complain about that, right?
Marian Tupy: Including people in China.
Axel Kaiser: Including China, exactly. So the thing is that the Chicago… The Chicago School, if they had to pick a place where their ideas and their way of teaching economics as a positive science was more successful and most clearly influenced by these professors at the University of Chicago, I think that would be Chile. So yeah.
Marian Tupy: Yeah. So I got a couple of points on that, just to sort of set the stage for the younger viewers who do not remember the Cold War, and that was… That’s during the 1960s, the entire world was moving in a direction of greater state control over the economy, greater spending, more regulations, higher taxation and so forth. So the Chilean model essentially was the first one, if you discount Hong Kong, but the Chilean model was the first one that basically said, “Okay, we are going to go in the opposite direction.” And that is why as a natural social experiment, it was so important in the fight between communism on one hand, and capitalism on the other hand, as exemplified by the Soviet Union on one hand, and the United States on the other hand. I was also interested, and I just want to reiterate that The Brick, the program for Chilean reform was actually not written for the Chilean Military, but as you said, and this is something that I didn’t know about, it was written by a political candidate of the Christian Democrats before the 1970 election, it was simply co-opted by the military later on, but it was written for a democratic system.
Axel Kaiser: Yeah, yeah, so that’s very important because there is this theory, Naomi Klein and other people have put in the open… In the public debate that it’s like a… They wanted to have a coup, get rid of the poor, good, Salvador Allende in order to have a laboratory to implement his reforms. This is complete nonsense. This is not true. The Brick, the El Ladrillo, this economic project had been written for Jorge Alessandri, who was a center right wing candidate for the 1970 election, and the democratic candidate was Radomiro Tomic, so he would have never even, I think, intended to apply this program. But with Jorge Alessandri, there was some expectation that he might take some of these ideas and do something about the Chilean economy, which was in very bad shape. People forget this, but Chile is now the most successful country in Latin America still, but it used to be one of the poor countries in Latin America, like below average in Latin America, so it was a very bad performance.
Axel Kaiser: And so the program was written by the Chicago Boys who was among the many Christian Democrats who went to University of Chicago like Alvaro Bardon, for instance, and they wrote it to give it to possible president Jorge Alessandri. And he didn’t win, he lost by a minimal, minimal margin, I think it was like even less than a point or something to Allende, who got only 36% of the votes. But at the time, the parliament could choose between the two first majorities, if no one got 50% plus one vote, so yeah, that’s the story.
Marian Tupy: One more question about sort of historical arcana, you mentioned that Allende wanted to introduce socialism via democratic means. And yet the Soviets were not particularly pleased with him because they didn’t think that socialism could be implemented by democratic means. So their support for him, which was there, but it became lukewarm when they decided that he didn’t want to opt for a full-scale dictatorship, I think, that’s my reading of history. But more importantly, at some point, the Chilean parliament calls on the military to take Allende out. So the question I have for you is, if he was committed to democratic reforms, why did the parliament change its mind about Allende and called for his ouster?
Axel Kaiser: So Salvador Allende had a coalition called Unidad Popular, a governing coalition, and you had, of course, very radical factions that wanted armed revolution, and he was very ambiguous about revolution or institutionality, basically, and he was a weak president. He wasn’t really the leader you need for something like a socialist revolution. So, in the end, what happened was that his regime was very unstable, and you had the radical factions pushing for a very radical agenda, and he was supporting them as well. So on the one hand, he didn’t want the revolution, like the Castro Revolution in Cuba like fighting with rifles, he didn’t rule it out, though. He was saying this is plan B in case our democratic revolution doesn’t work, but he was not ruling out the use of violence. He didn’t like it though, because of his personality. He was a bourgeois guy who enjoyed parties and women above all until… He wasn’t the type of a guerilla type of person, but they…
Axel Kaiser: Under his regime, they systematically destroyed the rule of law and constitutional guarantees. When he won the presidency, he was forced to sign an agreement that he was going to respect the constitution, it was a constitutional reform. He later on declared that he had signed that only for tactical purposes, so he could be elected by the Christian Democrats in the parliament at the moment. And then they started with the massive confiscation of lands and properties in support to terrorists groups that were getting arms from Cuba and other Soviet satellites. He was destabilizing the country systematically with this rhetoric of class warfare and supporting, as I said, armed rebellion in different parts of the country that were killing innocent people. They were kidnapping, killing civilians and killing military personnel and police officers, so it was very messy, a very messy time.
Axel Kaiser: And it’s true that Fidel Castro came to Chile when Allende was elected, and he spent almost a month in Chile trying to lecture him about how to create a second Cuba in the country, and he was very close to Castro. But Castro saw that Allende did not had the substance to be a true revolutionary who wanted to kill as many people as he was willing to do, but other people in the coalition of Allende, they were willing to do that. And actually, it’s very interesting because there is a general, a KGB general, General Leonov who gave a speech in Chile 20 years ago or something, and he said that the Soviet Union had shipped tanks and armed men to Chile so that Allende could consolidate classic Soviet-style dictatorship, but they feared that the weapons were going to fall into the hands of the enemy, so in the end, they stopped the shipment.
Axel Kaiser: But what happened then was two-thirds of the Deputies Chamber on August 22nd, 1973, they declared the government regime of Allende to be unconstitutional because of these massive violations of fundamental rights, including freedom of speech to persecuting journalists and systematic abuses of human rights violations. That’s also something that no one says today, but the Allende regime was denounced by the Deputies. Most of them were center-left, a large part of them for being responsible of systematic violations of human rights and of trying to impose a totalitarian Marxist regime. I’m quoting literally what the resolution said. And so they asked the military to put an end to this government. The Supreme Court also said that the government was unconstitutional, and so on and so forth. And in the end…
Axel Kaiser: On September 11, 1973, the military intervened. But the funny thing here is that Pinochet had been appointed commander-in-chief by Allende himself, and he didn’t want to intervene militarily against Allende. And when the navy said we are going to intervene and get rid of this government, then last minute, Pinochet and the army decided to join, but Allende thought to the last minute that Pinochet was loyal to him. And he changed his mind in the last minute, so this was not something that was really prepared in advance, many years or something. They completely destroyed the country’s economy and the country’s possibility of living in peace, and 70-80% of people were supporting this coup, they had… It’s like if you went to Venezuela right now, how many people would not support a coup against a regime that starving them to death, right. So that’s a tragedy, but it’s what happened.
Axel Kaiser: And then we have this economic reforms, which was also sort of a coincidence that in the end, the military did this, this is… Milton Friedman called it a political miracle more than an economic miracle for that reason because you would not expect military to make these reforms that undermine their own power. If you give a space to the free market and individuals, you are undermining your own power, and you see this… The problem that China has, for instance, with the big companies and people like Jack Ma and people like that. They’re trying to maintain a balance between the parties’ control on power, grip on power and this new business people that can challenge them, so yeah, that was…
Marian Tupy: It’s a good example that history is very often contingent, but I think it’s very important to get the background straight, that is why I’m so keen on… Excuse me. Keen on talking to you about the background because, of course, how those reforms were implemented and by whom they were implemented, that will play a few… That will play a role in our discussion in a few minutes. So before we get on to what’s happened in Chile in the last three years, let’s just pause and talk about the empirical results of the Chilean model. What has it accomplished, both absolutely, in terms of absolute changes in Chile and also relatively to other Latin American countries?
Axel Kaiser: Yes, well, so first of all, we have to understand that these reforms were introduced in the ’70s and ’80s. They were kept untouched once democracy returned in the late… Well, it was 1990, basically. We had this constitution that was made in 1980 by the military regime, but basically by the civil advisors of the military regime, and this constitution established the return to democracy in a period of 18 years. We had a referendum, and the question in the referendum in ’88 was Pinochet would be a president, elected with Congress and everything, so democracy would come back, and he being the president or not. He lost, and democracy was re-introduced with another president, Patricio Aylwin, who was a Christian Democrat and who had been in favor of the coup, but then had been an opponent to the military regime.
Axel Kaiser: So they maintained this economic reform, they even deepened these reforms like the system has been more under democratic regimes than it was under neo-feudal regime. And so they privatized more state-run companies, they celebrated more free trade agreements. They deepened the reform that has created the voucher system for schools and so on and so forth, so they deepened the reforms. Of course, they increased social spending, and this is the first thing we have to consider. So what happens in terms of numbers? So per capita income quadrupled. We began the nation with the highest per capita income in Latin America.
Marian Tupy: Between 1975 and 2020?
Axel Kaiser: 1975 and 20… Let’s say 2015.
Marian Tupy: Okay.
Axel Kaiser: 2015, so it quadrupled. The middle class exploded, so we went from having, as defined by the World Bank, we went from having, I think, it was like less than a third of middle class to two-thirds of a middle class country. Our poverty went down from over 50% to less than 10%, people living under the poverty line.
Marian Tupy: Is this relative… Forgive me. Is this relative poverty line or absolute poverty. This is relative by Chilean standards.
Axel Kaiser: This is by Chilean Standards.
Marian Tupy: Okay, okay, please carry on.
Axel Kaiser: Yeah. Then we had a decreasing inequality, which is a very big thing that everyone talks about, that yes, you had economic growth and all of that, but inequality increases, this is not true. Inequality, actually, diminished over this time period. Actually, the Gini index from 1990 to 2015 fell. It was 0.57, and it fell to 0.47.
Marian Tupy: And is this calculated by the World Bank, by an impartial…
Axel Kaiser: Yes, of course, yes, yes, yes. And then you have the studies that were made by Professor Gert-Jaap Polinder at the University of Antunez La Catolica, a catholic university in Santiago, recent study show that Chile has achieved social mobility that is comparable to, and even higher, than developed countries, and you have income inequality that is comparable to developed countries when you take into account the generations. Because if you just take an average, which is the Gini index, where you have people who did not go to school or university who are older and you mixed everything, you know, also with people that are going to school and universities, you get a higher Gini index basically, you get more inequality, but if you take into account the generations and you compare my generation to my father’s generation, for instance and you take your own generation as a point of reference where you say, “How am I compared to people who were born in 1981?” And then inequality, it’s much lower than in the case of my father who was born in 1947, because at the time only a few people went to university, finished school. Now, everyone is finishing university, not everyone, but a lot of people are going to university or technical higher education schools, and almost everyone is finishing school, so the inequality and income has decreased dramatically when you take that into account.
Axel Kaiser: These studies were done by Professor Gert-Jaap Polinder and they are very, very good. But of course, in the public way everyone or many people opt to ignore them, and so we have the highest human development index in the region, right.
Marian Tupy: And that’s calculated by the United Nations.
Axel Kaiser: By the United Nations.
Marian Tupy: It’s not exactly biased bias in favor of liberal economic reforms.
Axel Kaiser: Yeah. No, no, no, exactly, not really. But when people like these statistics, and if you take them into account, and it’s very interesting that the same United Nations has this program for development, and they issued a report on Chile some years ago, and they concluded that all measures of inequality showed that Chile was made a lot of progress. So even the UN was acknowledging this that I’m telling you about. So inequality went down, poverty went down. Social mobility skyrocketed, actually there is the OECD 2017-2018, a report that’s called “A Broken Social Elevator”. Chile had more social mobility than all OECD countries, when it’s measured by the [0:27:51.7] ____ you have… You were born to the bottom 25% of income to get it, to make it to the top 25%. And so we are better than Germany in that sense. We had better results in the US and Holland, whatever you know.
Axel Kaiser: So it’s really incredible what was achieved in Chile, I don’t think you have many examples. I heard an economist sometime ago say that there is no other country that has comparable numbers in such a short period of time in economic history, in recent economic history. I am not sure about that because I would have to go and look into it, but it wouldn’t surprise me because the country was completely transformed in a period of less than one generation. I mean, my father, when he speaks to me about was what was the country like when he was growing up, people didn’t even have shoes, many people and let alone, you know, houses with electricity and things like that, we didn’t have that. And so Chile became almost a developed country, and this was due to economic freedom, and you have the measures by the Fraser Institute in 1975, for instance, Chile’s in the ranking, the Fraser Cato Institute. I don’t know if they were doing it together at the time, but they have the numbers…
Axel Kaiser: Chile was one of the countries in the world with the lowest degree of economic freedom, and we were extremely poor and then we jumped and at the time Venezuela was the 13th country with more economic freedom in the region, and it was much more prosperous than Chile. There was no comparison. We would envy Venezuela. And now it’s the complete opposite. Chile has been for many years, the highest ranked country in terms of economic freedom in the region, now we have followed many, many positions in the last five years, but still, and Venezuela is the last one in the world. So you can, of course, use these two countries as a case study that shows you that when you have higher degrees of economic freedom, you have very good results.
Axel Kaiser: So I wrote a paper for Cato with all the numbers, Cato Journal, people, if they are interested in really taking a look at the numbers in detail, they will find them, find these numbers in this paper that’s called “The Fall of Chile”.
Marian Tupy: Yeah, I’m very much encouraging our viewers to go to Cato.org, and just type it in the search engine your name, and I’m sure that paper from Cato Journal will come up. So, okay, those were the successes, what were the main criticisms or what are the main criticisms of the Chilean model and are they justified?
Axel Kaiser: Well, the main criticism is that the model created conditions where some people made a lot of money and became very, very rich, and most people did not really experience that much progress, and so you have inequality, a high degree of inequality. So the main criticism you have these sort of abusive elites that have used neoliberalism to enrich themselves, and then you have the rest of the people who might have become ill [0:31:25.6] ____ I don’t know, but really are not having the same, experiencing the same amount of progress or same opportunities. And so inequality is the great criticism. Is it true or no? No, it’s not true. Yes, some people got very rich, like in every process of progress, you have people that are going to have more success than others, that’s of course inevitable. It’s not the case that it wasn’t like that before Chicago Boys made their reforms, because you had crony capitalism, it was basically a rent-seeking society and people with good political connections, they would be very well-off and the rest would not have even the chance to have a stable currency to buy their groceries, right?
Marian Tupy: So this is not true in the way that they present it. It is true that we have inequality, but inequality in Chile has always been more or less the same. Actually, there are some studies and estimations that calculated inequality in Chile since the mid-19th century, 1870, 1860, and they calculated inequality, I don’t know how they did that, but they did it, and this is serious studies. And they showed that inequality has been, it’s measured using the Gini Index, more or less the same, it doesn’t matter what regime you have, open economy or socialism. Socialism in Chile did not reduce inequality, it is a lie, when Naomi Klein, and people like that, say that. It’s not true. And what did reduce inequality was the free market, if you take into account… It’s still high compared to other countries. The aggregate Gini Index is not high if you break it down to generations and you do the analysis, but that’s the main criticism. And perception of inequality in Chile increased as a result of this discourse.
Axel Kaiser: Of course, you also have, and I don’t wanna say that this plays no role, the Tocqueville paradox that we observe in democracy in America, right? The more equality you have, paradoxically, the more sensitive are people to inequality. So it becomes something that bothers you more if you are closer to someone and you can compare yourself with this person than if you have two different worlds. You are so far in your reality that you cannot even compare yourself to people on the top. But Chile became a middle-class society, and so the expectations changed and also that plays a role, but I believe the main aspect driving the crisis we’re experiencing now is ideology and it’s that people are not being told the truth, the truth, which is that the country has been extremely prosperous and that inequality has gone down substantially, and social mobility has increased substantially, and so that’s the main criticism.
Axel Kaiser: Of course, if you go back to the 70s and 80s, people argue, “Well,” from the far left they say, “No, this regime, this free market, this neoliberalism was imposed under a dictatorship, therefore we have to get rid of it, basically.” Which is a very bad argument because why would you get rid of something that’s working and that was maintained under more years under democracy than it was under a neo-feudal regime. Right? Why would you do that?
Marian Tupy: Yeah, I grew up in a socialist country too, and the interesting thing was that the critics of capitalism and the promoters of socialism, they always focus on income inequality, how much people are having in their pockets, but they ignore many other sorts of inequality. So I can tell you from living in communist Czechoslovakia that incomes were remarkably equal. The communists were earning, the communist governments and so on, were earning, government officials were earning generally more than ordinary people, so we didn’t have a great deal of income inequality, but there was another type of inequality, which is that the Communist apparatchiks had their own hospitals that ordinary people were not allowed to go to, they had their own grocery stores, which had all the products that ordinary people didn’t have. That they were above the law very often, that they couldn’t be brought to trial for human rights abuses, that’s another type of inequality, which is never discussed, and so the subject of inequality is…
Marian Tupy: So in a sense, socialism properly applied, has created a sort of neo-feudal society…
Axel Kaiser: Yes.
Marian Tupy: Where you had the politically connected party members at the top living by completely different rules than other people and that’s something that should be talked about more. So then you talk about the power of ideology, how come that this particular ideology, the opposition, the illiberal ideology, took off in Chile to the extent that it did? Why wasn’t there more defense of the quote unquote “neoliberal model,” or alternatively, why did the defense collapse in the view of what you argue are false arguments?
Axel Kaiser: So I wrote this book in 2009 called The Fatal Ignorance, and I was predicting that everything was going to collapse because the left and public discourse were moving towards this program of destroying neoliberalism, and at some point we would pay the price, because I was seeing even business people endorsing this rhetoric, right? And not completely like a maximalist, left-wing person would, but they were saying, “Yes, there is too much inequality, we have to do something about it.” And so the political economy of the country was gradually shifting from a focus on economic growth and freedom to redistribution, basically, and making the state bigger. And actually, some business people read the book and then we created Foundation for Progress. I’m the President of the board right now. We have been, over the last eight years, trying to defend the free market institutions. So what happened was that, first of all, when the Berlin Wall came down in 1990, ’89, it was the same time that democracy came back to Chile. And so it was a happy coincidence because socialism was completely discredited and market capitalism was experiencing a good moment and…
Axel Kaiser: And so people on the center-left, the Christian Democrats who had never been in favor of free markets really, and they said, “Well… ” and actually the economy was growing at 7 to 8% when they came into power, right? So they said, “Let’s keep it this way. Don’t go back… Let’s don’t go back to socialist idea, statism, this isn’t work, this didn’t work.” And they had also… They were afraid that Pinochet was still the Commander-in-Chief of the Army, and if they try to undo this economic reforms, probably they would have a reaction coming from the military and part of the population, so they kept this system and then they just continued to do what you do and you are already maintaining a some form of institutions and you are working according to their principles and…
Axel Kaiser: But they never really believed in it, deep down in their hearts. This is the center-left in Chile. The center-left did all these things, but they never really like Margaret Thatcher or Reagan or conservative movement in US for now or even England. They never really believed in the market, actually, there’s a very famous phrase of Patricio Aylwin when he said, “The market is cruel and it creates poverty and all these things… ” Completely confused. He didn’t know anything about economics, most of these people don’t. But we have to accept it because it has some positive effects. So what happened that the far-left never accepted the free market system, not even for pragmatic reasons, and they, from the start started saying… I mean, said that this was immoral. We had to go back to a socialist system and so on and so forth, and deep down the center-left who was, of course, not following this idea, agreed with them, I think, in terms of principle that the market was cruel and you need something that’s not as cruel and your government to take care of people.
Axel Kaiser: And over the decades, what happened was that this narrative started to become more and more hegemonic in public discourse, and the center-left started to… Gave in and say… And said to the far-left, “Maybe you are right.” They started saying, “Maybe we should have done things differently, and corrected these problems that are created by neoliberalism.” And so it became a new fashion to speak about inequality and to speak about redistribution, and of course, you had people becoming very, very rich as well.
Axel Kaiser: At the time where the poor were making more progress in terms of income than the rich, yeah, so this also started showing the cumulative gains of the 10 poor… The poorest 10% are five times higher or even more than the richest 10% over a period of 15 years, right? So in the end, this ideology of re-distributionism became dominant at the universities, schools, the media, and everyone was endorsing this. The Catholic Church, of course, that never believed in market in Latin America, which was very influential, politicians all over the political spectrum, intellectuals and lawyers, philosophers and so on and so forth. So ultimately, it was impossible to fight against this wave of ideas that took over the public’s fear in Chile, and I was probably the only one at some point who was defending the free market institutions, and a few other economists were very shy saying things about growth and numbers that people did not understand, but on defending, making the moral case for the free market institutions, I think I was the only one at some point, and I was being attacked from the right and the left.
Marian Tupy: So nice people don’t believe in markets, if you…
Axel Kaiser: You’re right.
Marian Tupy: If you want an easy applause, you talk in platitudes rather than defending the market.
Axel Kaiser: Yeah, and I was considered very radical because I was saying that we had to defend this free market institutions and that I was a fan of Friedman and Hayek, and I was considered to be a radical free market fundamentalist. And I was warning them that at some point the left was going to destroy everything because the center-left was not containing the left, it was being the useful idiots… Idiots of the left, of the far-left. They became the useful idiots of the far-left and the center-right was ashamed. And you had rich people with a lot of guilt, because they had made all of this money looking at all these debate and trying to accommodate their positions to what the left was saying or to feel better about themselves and to look better to the public, but what in the end happened is exactly what I predicted, they… Then came Bachelet’s second term, where she really did a lot of damage to the free market institution…
Marian Tupy: Well, let’s pause that…
Axel Kaiser: She literally said that her plan was to retain… Yeah.
Marian Tupy: Let’s pause there for a second. Michelle Bachelet second… For our viewers, in Chile you can be a president only for one term, but you can run again later, right? So she was a president for one term and she didn’t introduce many changes, but then she comes back, which years were that?
Axel Kaiser: So, she was… If I’m… If I remember correctly, 2006 to 2010, I think she was there. And then she was from ’14 to ’18.
Marian Tupy: Okay, and in that second term, she introduced these reforms?
Axel Kaiser: Yeah, in the second term, the Concertación was finished, which was the coalition of center-left wing governments that run the country from 1990 to 2010 including her first administration, that was finished, and then Nueva Mayoría which was a very radical left-wing coalition which included the Communist Party that had been excluded before came into power with Bachelet, and she declared that her aim was to terminate neoliberalism. She used that word. And they did everything they could, they had a majority in Congress, so they passed this disastrous styled reform, they substituted [0:45:33.5] ____ voucher system that we had for school children in Chile, they introduced the higher free education for a percentage of the population and things like that. And then [0:45:50.5] ____ stagnated, the economic growth went down from over 15% to less than 2% investment cost and all of these things, and then Piñera came back, Sebastian Piñera he came back into power and…
Axel Kaiser: Because I think this was also Piñera’s second term, right, where we are having now, it’s finishing now in March is his second term. So it was Bachelet, Piñera, then Bachelet and now Piñera again, right? He came back promising better times, yeah, that he was going to fix the economy, but he could not deliver and he didn’t deliver it because he was very, I think unskillful as a politician, he had majority in the parliament, but he didn’t know how to use the enormous political [0:46:36.1] ____ he had in his favor to pass on reforms and in the end, in 2009 we had this crisis that everyone’s still aware. You had organized groups destroying the city. I think that there was an element of Venezuela in that as well. You had hundreds of thousands of people going on the streets because, as I don’t wanna say this all the time, I predicted this would happen, and other people also said this would happen, [0:47:02.8] ____ had false diagnoses saying that you had to change neoliberalism, you had Bachelet’s sector making several reform that produced economic stagnation, and this frustrated people.
Axel Kaiser: Salaries stopped growing and all of these things. And then Piñera didn’t fix it, but the public narrative was that this was the fault of neoliberalism, and the country exploded and many people were of course very frustrated because of their salaries were not going up. You know, there was not enough investment in the country, due to Bachelet’s socialist reforms, it’s not the free market doing this, but people did not see it in that way, because when you have media controlled by left-wing activists who are not journalists basically saying all the time that this is to blame on neoliberalism and the rich, right, it’s not a surprise that people end up believing that, right, because they are not getting the stories straight. So, in the end, you had 2019. And what did Piñera do? He offered the Constitution as a scape goat for what was going on in the country…
Marian Tupy: Let me just interrupt you there for one second, we’ll get to that in a moment. So basically, it can be summarized as the left comes back to power in Bachelet’s second term, and now it’s infused with many more far left elements, they introduced a bunch of reforms which reduces economic growth and as a result of that, people become unhappy, and that’s part of the reason for the blow out of these massive riots in 2015. And then the President, who is Sebastian Piñera, he’s in his second term now, has to react. What was his reaction?
Axel Kaiser: Well, his reaction was to gave in to the demands of the far left, which consisted in destroying Chile’s Constitution. Why did they want that? Well, basically, because some fundamental aspects of the free market system that we have in Chile are anchored in the Constitution, if they get rid of the Constitution, they can go back to socialism but full-fledged socialism. So now what we are having it’s a Constitutional Convention, I was opposed to that. I voted for the no in the referendum to change the Constitution, and then I will vote no in the referendum that will be celebrated in order to approve the draft that they are preparing, the constitutional Convention ended up being controlled completely by the far left.
Marian Tupy: Let’s go through the steps individually, so Sebastian Piñera, first of all, admitted there will be a new Constitution, Constitutional Convention, then there was an election, which elected members of the Constitutional Assembly, and those members of the Constitutional Assembly are now negotiating the terms or the draft of the new Constitution. How is that going?
Axel Kaiser: Well, awfully, because the right, center-right political forces don’t have a chance of doing anything, and the far left is approving things like the nationalization of natural resources, nationalization and confiscation of private property, the end of the dominant domain regulation that’s in the Constitution, so that politicians can expropriate your property without paying what you deserve.
Axel Kaiser: I don’t know. The Central Bank has not been decided yet, but I assume that they will undermine the independence of the Central Bank. They are voting in favor of restricting freedom of speech in order to adjust it to the radical left view of history. They want to create a federalist system, Chile had never been a… There was an experiment and it failed dramatically. They want to create a federalist system in the country with different autonomous increasing the size of government, like creating different local governments, which would be a complete mess. So it’s… Anything you can expect from the far Marxist left Latin America, controlling a constitutional convention that you are having now. And it’s a plague to survive anti-politics, especially in favor of indigenous groups that do not really exist in the form that they are presenting them. Because Chile, like most of Latin America, is a very mixed country. It’s not like you have these pure indigenous people living in reservations, that doesn’t exist, so it’s a Chavista constitution, basically.
Marian Tupy: So they are actually introducing a racial element into the Chilean constitution which…
Axel Kaiser: Yeah, they are institutionalizing racism, basically. They’re even saying that laws that are for non-indigenous people will not apply to them. And that even criminal law will have different sanctions for them, for the same deeds, for the same crimes. They kill someone, they don’t get punished. If I kill someone, I get punished. If they kill someone, they don’t get punished same way.
Marian Tupy: So that’s essentially a full-fledged rejection of the Enlightenment…
Axel Kaiser: Absolutely.
Marian Tupy: As interpreted by equality before the rule of law.
Axel Kaiser: Absolutely, and that’s exactly right, that’s exactly right. This is a pre-modern constitution based on identity politics and the rejection of the rule of law and reason, which… It’s a basis of the Western success in the end.
Marian Tupy: Yeah, maybe pre-modern and maybe post-modern…
Axel Kaiser: Post-modern. Yeah.
Marian Tupy: But they both agree on that. And of course that introduces another potential source of fission in Chilean society, when people start distinguishing themselves along racial lines much more than they were used to. That creates a potential for a lot of trouble down the road. So what’s going to happen next? What is the share of the national assembly, or rather the constitutional assembly that has to approve the new draft of the constitution, and then it goes to the people for a final approval, and what is the share of the population that has to vote to approve of it?
Axel Kaiser: So two-thirds of the members of the 155 members have to approve each norm and then the final draft. And then we have the referendum, where 50% plus one vote make it happen that the new constitution is approved or rejected. And if it’s approved, now no one really knows when it’s going to be in effect because it’s a complete re-foundation of the country. It’s starting a country, it’s creating an imaginary country from scratch. So they’re getting rid of the independence of the usual branch of government, they are getting rid of the Senate, so they are… Just like the Venezuela constitution did, we are eliminating the Senate, we have Deputies Chamber and Senate, and they’re getting rid of the Senate. And we have now senators that had been elected, they were elected last year in December, so they are destroying the unity of the state, a territorial state, unitary state, destroying that, creating new autonomies with their own governments. They are creating this parallel justice system for indigenous people. They’re destroying everything.
Axel Kaiser: And though I don’t believe that our constitution that could survive, I think if we try to apply that the country was descend into chaos, complete chaos. And at that point, you will be surprised if people and politicians are starting to calling me to have conditions, so order can be re-established and the new constitution can be drafted that will really work out and that would provide a basis for governability. Because I don’t see any chance of Chile with a constitution like that being stable and not descending into chaos and civil conflict, and maybe it’s even civil war. I don’t believe in civil war because I don’t think the armed forces are going to split, but that you will have civil strife among the population and people fighting against themselves when they come to the indigenous population comment on someone, “This is not your land anymore, it’s mine, because the Constitution says that all the land that we were… That were inhabited by indigenous people are to be given back to us.”
Axel Kaiser: Well, you start having that insecurity on your property rights and all of that, you will have massive chaos. And so I hope that the constitution gets rejected, but if it is approved in the way that this… The form that it is taking now, because we don’t know if in the end, they will moderate some things, I don’t believe that. But if they moderate the constitution enough, maybe you will have something that can work, but if they don’t do that, you will have complete collapse in Chile and I am sure of that. And you will have a long period of time with crisis. I don’t know if the Senate and Congress, which is much more balanced than the Constitutional Convention in terms of political equilibrium, it’s almost 50-50 and in the Constitutional Convention, the left and far left have over two-thirds, maybe they could invent something in order to change the constitution after it had been approved. This is things that the lawyers invent all the time to get away with something, because the constitutional law is a very… Not as clear as civil law. It’s very debatable and very open to interpretation thing. And so…
Axel Kaiser: It’s a period of huge uncertainty. And I’m sure that if the constitution is approved, that Chile will have a very, very tough period in front of… In the near future. And that if we try to implement an insane constitution, we will descend into chaos. I’m certain of that.
Marian Tupy: What are the chances right now, how would you handicap the chances of the constitution being adopted, A, in the constitutional assembly and then B, in the referendum?
Axel Kaiser: I think it’s very high. I think it’s 80% in the constitutional assembly that they will approve an awful constitution. A very bad constitution. That you… As I said, undermines the rule of law, destroys property rights, creates uncertainty for everyone and increase dramatically the size of government and destroys the territorial unity of Chilean state. And all of that. I believe there’s a high chance of that an 80%. And that it will be approved in the referendum? I think it’s still 60% that it will be approved. Because I’m see… I’m taking a look at the… Every day at the… Or every week at the surveys, opinion polls, basically. And most people say they’re going to vote for the constitution. Now, that it is… The chance that it will be rejected is growing by the day, because many people are starting to realize, “Oh my God, this is not what we wanted,” right? It’s… Remember that the entry referendum, the Yes for a new constitution, won with almost 80% of the vote. So it was a crushing victory to create a new constitution, but no one expected… I expected it, because that’s why I voted against it. But most people did not expect to call this great.
Axel Kaiser: So you are seeing even center-left wing people saying, “No, no, no. This is not what we wanted, this is completely unviable and this will destroy the country, so we have to do something about this.” And so they are starting to wake up. A little late and not with the energy that would be required in order to stop this madness, because it’s real madness. One of the provision says that all sentences in the usual system had to include feminist language. This is crazy. With gender perspective, even civil law, everywhere. You have to include in your language a sense of gender, a gender perspective. No one know what knows what that means. And you have judges that are sitting there for decades and they have to be now trained into… Like that’s one detail I can offer to as a proof of how insanity is what they are trying to decide. And it’s not going to be viable to implement. It’s as simple as that. So we will have this for… So I’m very pessimistic. But as I said, I’m raising hopes that the Chilean people will wake up and they will reject the final version of the constitution if it’s very bad.
Marian Tupy: Well, constitutions are a mirror or an outcome of the age that they are written in. The United States was very fortunate that its constitution was written at the height of the enlightenment and it endures. It’s very difficult to put a constitution together in this day and age when in postmodernist, relativist world, issues such as you race are at the forefront of people’s minds rather than the protection of life, liberty and property. Last question if I may. What lessons can we draw from the Chilean experience with the liberal economic model and the subsequent public reaction? In other words, somebody on the other side of the world, what should they understand about what happened in Chile, what is happening, and what could happen?
Axel Kaiser: I think the implosion of Chile, because it’s imploding, is the result of years of having lost the value of ideas, of allowing the far left and the left to create cultural hegemony. That’s the Gramscian term I like to use from Antonio Gramsci. They took over the universities. This you can see also in the United States, you can see different parts. They took over schools. They control the media and so on and so, the public ideology that prevails is completely opposed to the enlightenment principles and the idea of a rule of law and free market. And so it’s a post-modern constitution, because post-modernism in the end, exerted enormous influence in the public sphere. And so if something we can learn is that Hayek was very right when he said in the long run, these ideas that define social evolution. And this is something crucial that we have to learn. And it’s very important for the United States, I think, also, to observe what’s going on in Chile. Because Chile was the most prosperous country in Latin America, probably still is, but it’s deteriorating so fast and it might even collapse soon, that you have to understand also human societies are also capable of that.
Axel Kaiser: Of being in a process of prosperity and development, and you would say material improvement for everyone. And suddenly, people reject all that and want to destroy all that, without understanding the idea, deep down. But… And that’s due to the influence of ideologies. And they start at the universities, they start with public intellectuals, they start… And then people start thinking in ways that were not at least so pressed in in the past. And then they endorse this narrative and this agenda of transformations. And many of them believe it’s going to be for the better, but it’s not. It’s going to be very horrible. So I think that’s the main lesson, ideas. Ideas, ideas, ideas and the power of ideas. And that’s why we can’t abandon the fight for freedom in the public sphere. And we have to recover universities. So I think that’s the greatest tragedy in the Western world. We have lost the university and the humanities to post-modern fools. Because in the end, they are not offering a real alternative either, right?
Marian Tupy: Yeah. So the lesson there is that if you allow people with illiberal ideas to dominate the media, the education of your children, from primary school to universities, you are going to end up with a population that is ready to embrace illiberal ideas and destroy liberalism. So that’s the essence of it. They may call it neo-liberalism, but I just call it straight, good old liberalism.
Axel Kaiser: It is.
Marian Tupy: It emerged in the 18th century, and that has served humanity so well. Well, Kaiser, thank you very much for having this interview with me. I greatly appreciate it. I’ve never been to Chile, although I’ve been reading about Chile for two decades. And I’ve been a huge admirer of the progress that Chilean people have made. And I wish you all the best and also all the best to your country.
Axel Kaiser: Thank you, Marian. It was a pleasure to have this conversation with you.