From the "Socialist Experiment" to the Military Regime – the Structural Rupture of Social Systems
By Jörg Sancho Pernas
Salvador Gossens Allende is often called the first democratically elected socialist president in world history. The period of his rule in Chile between 1970 and 1973 witnessed an attempt to construct a "Chilean path towards socialism" with great creativity and popular enthusiasm. It also encountered serious opposition from vested interests in society, the army, and the United States government abroad. Allende’s aim was to reach the status of socialism as "point of no return" (Nohlen, Dieter/ Nolte, Detlef (1995): p. 288). Therefore, it is interesting to observe the fact how Allende’s system failed. The paper analyses the structural rupture of the Chilean social system – the transition from a "Socialist Experiment" to the Military Regime of General Augusto Pinochet.
This paper should underline my thesis that the social system has been a victim of the neoliberal economy of the military regime. The regime aimed to reestablish public order and economic life at the cost of social inequity. The Allende administration realized great affords in establishing a welfare system. But, was it really possible to finance all those social achievements? The Pinochet government introduced significant cutbacks in the social sector by reducing the social spending from 17,2 % of the PIB (1971) to 11,0% (1980).
Allende’s first two years are marked as the plan for the ‘Chilean Path to Socialism’. The strategy of the party Unidad Popular (UP) was clearly expressed in the opening sentence of its economic program: "The central policy objective of the united popular forces will be the search for the replacement for the present economic structure, doing away with the power of foreign and national monopoly capital and of the latifundio in order to initiate the construction of socialism." (Zammit, J. Ann (1972): p. 266) It required major structural changes in order to achieve such a transition to socialism. The political model of the Allende administration was based in pluralism, democracy and liberty. The task was to "use the bourgeois institutional framework to achieve the changes in the political, economic and social field which the country is demanding and needs – and to achieve socialism." (Allende, Salvador (1972): p. 19) Allende tried to push forward the structural transformation faster than his predecessor Eduardo Frei. Allende forced notably the nationalization of the industrial sector (especially copper mines) and implemented an effective agrarian reform by eliminating the latifundist class.
The basic action plan of Allende's government was the definition of an income policy which determines the constitution of a subsistence wage and minimum wages in the different regions of the country. Wages should be tied to the rate of inflation related to the cost of living every six months. Extremely high salaries of all government authorities should be limited according to national circumstances. Another goal of the wage policy was the elimination of salary discrimination because of sex or age. The social security system should be improved and made accessible to all kinds of classes by eliminating bureaucracy, privileges and inefficiency. All Chileans should receive free medical and dental care provided by the State. By developing the construction industry, a large housing program was planned so that every family could have become house owner. Regarding the rights of women the political program of UP was very progressive: It demanded the establishment of full status of married women, as well to establish the legal status of children born out of wedlock. A divorce legislation was planned which also protects the women’s and children’s rights. The legal distinction of blue and white collar worker should be ended. The action plan included the establishment of a democratic, integrated and planned educational system by providing the good educational facilities for all kind of people (Zammit, J. Ann (1972): p. 270-272).
The socioeconomic economic reality was that wages were raised at the expense of profits by squeezing the private sector, especially those private enterprises which were to be taken over by the state and should be run at a lower rate of profit. By the end of 1971, 150 industrial plants were under state control, including twelve of the twenty largest firms. Unemployment declined as the economy expanded, inflation was kept under control, and workers' incomes rose by fifty percent, what constituted a huge increase.
In July 1971 the U.S.-owned copper mines were nationalized. Allende argued his claims with the excess profits gained by the American copper mining companies during the last decades: "[....] 40 years ago foreign capitalists invested $ 30 million in Chile. Since then they have withdrawn from the country the not insignificantly sum of $4,500 million. It should be remembered that copper produces about 70 per cent of our foreign exchange earnings and finances a significant part of the fiscal budget." (Allende, Salvador (1972): p. 21) So Chile owned the two big American companies Anaconda and Kennecott Copper. In the case of both mines there was no compensation.
Nationalization however caused an escalation of ongoing U.S. plans to destabilize the Chilean economy by cutting off loans to Chile and blocking World Bank and other sources of money. As a result of the economic sanctions, Chilean industry ran into problems getting spare parts, technology, and new machinery. Meanwhile inflation returned because workers and peasants now had more money to spend; prices drove up, while shortages of goods were occurring. Agriculture declined as the land reform disrupted production, and landowners took land out of production.
At the end of the era of Allende the social system was finally at the end of its capacity. The fact was that the social system was burned out and the military coup was programmed.
The coup of the military regime changed not only the political landscape of Chile, especially the socioeconomic life was affected. The dictatorship switched from destroying the old order to constructing its version of a new Chile. Civilian technocrats known as the "Chicago Boys" had a great impact in economic politics. The main target was to convert the economic system from import substitution to a system of free-market economics. Radical programs of privatization and liberalization were introduced by returning a significant amount of property to its former owners. Other targets have been the massive reduction of tariffs, government welfare programs and deficits. The result was economic growth from 1976 to 1981, what was called the "Chilean Miracle".
The cause of the economic growth was the influx of private foreign loans until the dept crisis of the early 1980s. The disadvantage of this kind of miracle was the increase of unemployment: Dieter Nohlen mentions that during the entire dictatorship unemployment was at an average of 17.3 % and sometimes between 20 % and 30 %. He also points out that by comparing the figures of previous years, poverty has increased during the government of Pinochet (Nohlen, Dieter/ Nolte, Detlef (1995): p. 322). Combined with the economic liberalization, the Chilean government introduced a series of social reforms in order to reduce the role of the central government in social security, labor disputes, health care and education. These reforms were created in order to shrink the central government, decentralize administration, and privatize previous state functions. For example, in 1979 the government privatized the health system by establishing private health insurance companies. The transference of the market principles towards the health sector was justified with the following arguments: guarantee of free choice of doctors, more efficiency of the health sector, equity of chances (Friedmann, Reinhard (1990): p. 80/81). At this point it should be marked, that the military regime was deconstructing the welfare state by leaving the citizens at the mercy of the private market. The government focused its social assistance only to provide the basic need of the poorest citizens.
In 1981, the pension system in Chile was reformed by the military regime. The target was the privatization of the social security. The reason was that by the early 1970s, there had been thirty-five different pension funds (although three of them served 90 percent of contributors) and more than 150 social security regimes for the various occupational groups. This expansion was leading to inequities in the social system. The newly incorporated groups obtained by law special treatments and new benefits. There also had not existed before a standard retirement age for all groups of pension funds. In order to be covered by the pension fund people had needed to have a job, because coverage continued to depend on the employment history of the main beneficiary. So the pension funds had never reached all Chileans. The new social security system was based on private investment companies, the so called AFPs (Administradores de Fondos de Pensiones) which should secure the old age pensions. The AFPs nowadays compete with each other. Since 1983 salaried employees can only contract the obligatory private insurance. But the insurance company can be selected independently by oneself. Changing from the public to private insurance the contributions accumulated have been transferred accordingly. There was a deadline for the insurance change of 5 years. The contributions of the insurance contractors are invested with the new pension system at the private capital market. The contractor gains a share of the profit. The age of retirement amounts to 60 years for women and to 65 to men. The pension is calculated of the accumulated contributions and the profits of the pension fonds. The state still gives a guarantee for a minimum pension by contributing additional payments to the insurance. (Nohlen, Dieter/ Nolte, Detlef (1995): p. 325/326).
By resuming the facts, I want to demonstrate the structural rupture of the social system: The socialist experiment of Allende achieved various social reforms. A intensive political and socio-economic change could be observed. But with the radical changes the society begun to be polarized what was a threat to democracy. Economic, social and political problems occurred and were harmful for the maintenance of social benefits. The military believed to have a solution for all those problems and established a dictatorship with a neoliberal framework. During the dictatorship the socialist welfare system was substituted by a privatized social system. The government only provided social care for the poorest people.
Therefore we can say, that the military coup introduced the rupture in the social system. The social system was a victim of neoliberal politics. Social security, health care and welfare became to be goods of a private market which are controlled by demand and request.
Thursday, 29 October 1998