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Chile Is More Equal and More Prosperous Than Ever Thanks to Capitalism

By: Guest Contributor - Mar 24, 2017, 3:08 pm
Chile Is More Equal and More Prosperous Than Ever Thanks to Capitalism
Studies found younger generations have a more equitable income distribution than older generations.

By Luis Alberto Ahumada Abrigo

The Chilean government is promising structural economic reforms under the premise that the current “neo-liberal model” is not creating adequate results and is contributing to rising inequality.

The government argues that change is necessary to ensure greater equality. Equality, a concept frequently praised by the political left, is prompting proponents of a statist system to advocate for the end of the current market-oriented one. However, there is little evidence to assert that Chile’s current economic model has deepened inequality. In fact, the free-market policies of the last 27 years have led to advanced equality and increased opportunities for all. The government’s anti-market rhetoric is just a political tool to capture the public’s attention during election season.

Politicians frequently claim that the capitalist system economically harms many people, while only a small part of the population benefits. So even though inequality is natural and unavoidable, politicians insist on labeling it as a unique and unjust product of the capitalist system. They assert that their policies will end “unjust” inequality and lead to an egalitarian outcome.

Such policies mainly center on increasing taxes on the wealthy and the middle class in order to provide unaffordable social programs. While the promise that certain policies can eliminate economic inequality is attractive, this promise will never be fulfilled through top-down policies.

Fortunately, there are reasonable scholars who research the reality of inequality. For example, Professor Claudio Sapelli, an economist at the Catholic University of Chile, recently published the second edition of a book on poverty, inequality and social mobility. His findings demonstrate that younger generations have a more equitable income distribution than older generations. That is to say, individuals born in 1985 enjoy more equality and greater economic opportunity than those born in 1960.

The main reason for this improvement in opportunity is rooted in education and economic growth. Easier access to higher education led to improved income distribution for those born in the mid-fifties; that is, the young people who grew up after the free market reforms of the 1980s. At that time, the state monopoly on education came to an end and a new economic system based on supply and demand was implemented. Additionally, private education was promoted at the primary level as well as at the technical and university levels. This diversification of institutions set the stage for a transition to a more equitable society with greater opportunities.

The extension of additional educational opportunities, thanks to the deregulation of private education at all levels, established the conditions necessary for young people to be able to specialize, as professionals in either universities or technical schools. Economic growth requires a more specialized labor market, which incentivizes young people to educate themselves so as to improve their opportunities. This ultimately creates higher incomes and generates greater equality.

Sapelli’s study also shows the evolution of social mobility. He finds a substantial improvement in mobility between generations born in the thirties and those born in the eighties. Today, 42 percent of students in higher education are first generation students. In other words, individuals’ opportunities depend to a lesser extent on the education of their parents. This is again due to the opening of educational opportunities to people with fewer resources, thanks to the diversification of educational offerings and economic growth. Nowadays, it is more likely that poor individuals will rise to the middle or upper-middle classes.

Professor Sapelli’s study is an invitation to question the unwarranted fallacies that abound in political discussions and campaigns. Promoters of equality through redistribution have not been able to prove that the present economic system has been counterproductive for the well-being of Chileans.

Sapelli gives us an improved thesis: because of free-market policies, Chile is more equal and more prosperous than ever before in our country’s history. Chileans should think twice before advocating against our freedom and prosperity.

Luis Ahumada is a Political Science major at Diego Portales University. He is from Santiago, Chile. Luis is project manager at Hegel Foundation.