The Chilean Model

If you want to see an example of where these CEOs want to take us, here’s an article about Chile, fully privatized. Written by someone from Chile living in Canada. Very clear.

The fictional middle class
January 15, 2009 Ricardo Acuña
The Vue Issue: #691

Sometimes, taking a close look at things happening elsewhere can provide
you with a significant amount of information about how things are playing
out at home.

Recently I had the opportunity to escape part of winter and spend three
weeks visiting family and friends in Chile—the country of my birth,
and a place whose politics and economy I have followed closely my entire
life.

These days, Chile is often held up around the world as a neoliberal success
stories. Virtually all aspects of Chile’s economy were privatized
during the Pinochet dictatorship that lasted from 1973 to 1990, and
subsequent governments have continued the capitalist trend by signing free
trade deals and keeping the country’s borders wide open to virtually
unregulated foreign investment.

As of 2006 Chile boasted the highest nominal GDP per capita in Latin
America as well as some of the world’s highest project growth rates.
The problem, of course, is that Chile’s neoliberal economic system
has also resulted in one of the world’s worst income distribution
rates—the poorest 20 per cent of Chile’s population earn only
about 3.3 per cent of the country’s GDP.

It was quite surprising, therefore, to arrive in Chile and discover what
appears to be a thriving middle class: many late model cars on the road,
nice televisions, stereo systems and computers in every house, and many
families with a second home on or near the beach.

This was not the Chile I remember from previous visits, and certainly not
the Chile I expected to discover based on my understanding of the
country’s income distribution.

If you dig a little deeper, though, you quickly discover the reality:
Chile’s middle class is largely an illusion.

Chile’s rapidly increasing GDP and recent copper boom have provided
Chileans with a sense that economically they are doing better than they
actually are. The result has been people accumulating massive levels of
personal and household debt to pay for the lifestyle they are convinced
they should be living.

As is currently the case around the world, cars, houses and electronics are
largely paid for through consumer loans or credit cards. In Chile, however,
this trend has now also extended to clothing, groceries and utilities.
This has become so commonplace in Chile, that when you present your credit
card at the grocery store to purchase your food for the week, you are met
with the question of whether you would like the purchase to appear on your
card all at once or in installments. Purchase gas at the local Esso and you
are asked the same question—all at once, or in installments.

Of course, banks and credit companies are going out of their ways to
encourage this lifestyle. Chile’s two biggest department stores,
Falabella and Ripley’s, offer small discounts on any purchase made
with the store credit card.

The reality is that the incomes of most Chileans have not kept pace with
either the rate of inflation or the growth in the economy. This is
aggravated by the fact that wholesale privatization has meant that most
Chileans must pay for private schools for their kids (the cost of tuition
in a mediocre private school is equivalent to a starting teacher’s
salary), private health insurance and private pension plans, and the fact
that you can’t drive anywhere in the country without paying
outrageous tolls for private roads and highways.

If you were to eliminate credit overnight in Chile, you would end up with
80 per cent of the population in poverty and only 20 per cent enjoying the
fruits of the “economic miracle.”

Alberta, like Chile, is a jurisdiction that has experienced tremendous
growth in GDP over the last 20 years thanks largely to a boom in its main
natural resource. Also like Chile, Alberta is a place where people’s
incomes have not kept pace with either the rate of inflation or economic
growth.

Albertans are carrying more personal and household debt today than ever
before, and the support package that the federal government recently
approved for banks is designed to ensure that they can keep lending money
to consumers at the same pace.

As the provincial government continues to ponder further privatization of
health care, education, and infrastructure, it is important that we keep
examples like Chile in mind. In Chile these policies have resulted in a
very wealthy elite and 60 per cent of the population (the supposed middle
class) on the verge of bankruptcy. Yes, Alberta started from a better place
in terms of income distribution, but if we are not careful, we will end up
in the same place as Chile—with no middle class and a population
entirely dependent on credit.

All it would take to keep us from this eventuality is some thoughtful and
visionary policies: a living wage, income keeping up with the rate of
inflation, a tax structure that will actually achieve fair income
distribution, strict regulations on lending practices by banks and no
privatization of public services. With the looming economic and credit
crisis, the window of opportunity for Albertans to turn things around is
rapidly closing—let’s change things while we can.

Courtesy Kathy Guest

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