Part 1 here.

1. The communist party that wasn’t.

There is a certain levity with which some left-wing Chileans approach the communist party that is baffling to anyone that is not Chilean, especially someone like me. I have done my best to understand it, and one answer I have come up with is: “all politics is local”. The Chilean communist party is staid and unreformed, almost a relic that I always assumed would be incapable of surviving into the twenty first century. Even its young adherents refer to the revolution as the final goal of their struggle. Yet, Chileans dismiss this as empty rhetoric and do not seem to take it seriously. Often, I am told to “get over the cold war, this is not Soviet tanks rolling through Prague” or some variant thereof. It is delivered with evident pity for my presumed damaged opinion of communism. People perceive my aversion to the communist party as some kind of personal flaw, akin to having had food poisoning from shellfish, and then refusing to eat mussels ever again, stubbornly allowing one bad experience to ruin a potentially amazing culinary journey. I have tried to put it in local terms: “imagine if you were in Myanmar and told the locals that a military dictatorship really is a horrendous outcome. And they looked at you with pity.” I don’t think I’ve gotten through to many people.

All politics is local. This is painfully true. The communist party of Chile was a fervent opponent of the Pinochet dictatorship. The military junta persecuted and murdered its adherents with a special zeal, but they never gave up the struggle. It feels like its reserve of goodwill is derived from a sense of guilt that some Chileans have for not having opposed the dictatorship more fervently. Its existence is a reminder that there were costs to openly opposing Pinochet, costs borne unevenly. Moreover, they do a very good job of bringing Pinochet into every discussion. God forbid you think for a moment that the new bridge to be built over some Patagonian river has nothing to do with the dictatorship, they will bring it up to remind you. It is the moral whip with which they flog the Chilean political class when they are in disagreement, and they are in constant disagreement. Arguments about the failure of communism as an ideology have not, at least so far, been able to dissolve the seemingly endless reserve of good will that still remains. That’s why all politics is local, larger global evidence is powerless against local conditions.

It reminds me a bit of the outsized appeal that nationalists have in the Balkans. Having been fervent opponents of communism, and having suffered disproportionately from its heavy hand, they gained a lot in stature after the fall of the wall. The Germans, bless their heart, would caution against excessive nationalism, citing their own experiences with the disease. Unfortunately, we insisted on finding out on our own, dismissing their dire warnings. The result was pretty bloody, especially in Yugoslavia. All politics is local, a tragedy is truly absorbed into the national consciousness only if it leaves blood tracks on local soil. Otherwise it is someone else’s folly that could never really happen here. The communist party of Albania gains no more than a thousand votes in any election, it will be dead for at least a couple of generations. Immunizations need not be this costly, but sometimes they are.  I am not suggesting that the communist party of Chile will be successful or even come close to the damage that its ideology inflicted in the rest of the world, although it wouldn’t be for lack of trying. My claim here is that Chile’s downward trajectory is directly proportional to the influence that communists will have in governing it. What some Chileans, even politically active ones, don’t seem to understand, is that communists adhere to a broken model of the world, that’s what communism’s failure is a testament to. Having communists govern is harmful because their understanding of the world is seriously and fundamentally flawed, which, when combined with a religious like adherence to dogma, can be disastrous. You don’t have to search far to see this. Chilean communists have supported and continue to support totalitarian regimes in Venezuela, Cuba and Nicaragua, have clearly chosen sides in the Ukraine conflict, are supportive of the Chinese communist party, among some of their latest hits. These are not strategic mistakes, they are clearly outcomes of an outdated model of the world that has not updated. The communist party of any country can never be just another party by definition. It is fundamentally opposed to democracy; the fact that it chooses to temporarily submit to its rules cannot distract from this essential fact.

There may be another explanation for this, it is possible that Chilean communists are seen as just ‘cultural’ communists, in the same way that people are seen as cultural Catholics or cultural Muslims; people who maintain some vague and non-binding connection to a general idea of communism but are really not that invested in its tenets. I am aware that this is a very charitable explanation and requires a healthy dose of scepticism, but let’s play for the sake of argument. Suppose for a moment that this is true, that there is an historical thread that runs from the communist party that opposed the dictatorship to the party of today and that the name ‘communist’ is simply a political tool that reminds the average voter that the current formation of the party is a continuation of the old PCCh that bled under the dictatorship. Other than that, the name means nothing. If the Ice Cream Party of Chile had suffered the most under the dictatorship, its current incarnation would still be named the Ice Cream Party of Chile, even if entirely staffed by the lactose intolerant. 

If this held, these things would be true;

1. Given how unpopular the communists are among the Chilean population, there should have been either an exodus resembling a stampede from the party or a name change would have been in order. Yet, the party continues to  attract new blood, even though it remains rather unpopular.

2. Its political stance would have softened somewhat, it probably would have moved closer to the centre.

3. Given how unpopular communist regimes are in Chile, it would avoid praising them. Yet it keeps doing so continuously.

Since none of these things has happened, it stands to reason that they have at least some belief and adherence to the main teachings and conclusions of communism. In the end, when someone tells you that they’re a communist, you should take them at their word. Especially if they remind you of their love of Lenin on the anniversary of his birth. I want to make a distinction between Marxists and communists here. Marxists as a group are intellectually curious and generally thoughtful. Their insistence on Marx’s critique of capitalism can get a bit overindulgent and tedious, but at least it is based on a scientific attempt at understanding the world. At least the Marxists I have read and talked to. If one listens to Tellier and Jadue speak, it is clear they are not rubbing shoulders with Marxist intellectuals giving them advice. They’re a bad local photocopy of Marxist thought, just like Axel Kaiser is a bad local photocopy of the average Hoover Institution luminary.

2. Living in Chile I learned that the middle income trap is when you’re wealthy enough to buy stuff, but not wealthy enough to understand why you’re wealthy enough.

There is a point on the development path where countries get rich enough to ask themselves the question; “Why aren’t we Denmark?”[1]. It is a natural question that arises when a country has overcome poverty, and there is at least a generation’s length of distance from it. The answer to the question requires genuine introspection, and most of the time it is not that simple. In Chile’s case, in my view, the centre-left governments that governed after the return of democracy were extremely careful in rebuilding the institutional structure that the dictatorship had destroyed. They slowly expanded state capacity and established a Chilean administration that could govern under democratic principles. They understood that state capacity has to be built slowly, having internalized the lessons of past governments that expanded it abruptly and broke the economy in the process. However, this was not sufficient. Something that I learned living in Chile is that institutions are no substitute for human capital. Complements maybe, but definitely not substitutes.

One thing that they could not/did not do, is change the structure of the education system profoundly enough to make a difference. This can be seen in the severe slowdown of productivity growth that begins around 2011, just as the cohort born at the tail end of the dictatorship was coming into the job market.

If one thinks of education as an aggregate productivity boost, it definitely failed. Successful social democracies need enough of a taxable base to provide the services that they promise, and, if the average worker is not productive enough to have a high enough wage to pay those taxes, the social safety net can’t be built. Denmark is Denmark because it is populated by relatively productive people who politically agree to pay high enough taxes to finance social services. It would be nice if wealth taxes could do this as well, but it seems like they don’t. My point here is that the question is valid, but the answer is kind of boring and long term. There are no quick answers, you just have to make marginal improvements, slowly  moving towards the goal of social democracy with a larger tax base.

What I noticed is that in Chile the answer to the question was always some version of “Hacia un nuevo modelo de desarrollo”[2]. It was repeated with conviction and ad nauseam by the new generation of revolutionaries. If you scratched just below the surface though, it was neither new nor much of a model. If you asked for examples, you would get bombarded with South Korea circa the 1950’s or Argentina during the same period[3]. There was really nothing new about the model, just repackaged 1950’s protectionism with a more central role for the state. The new crop of Chilean politicians promised that they could jump the development queue using tools that the political system had not made available because it was defending privilege. The more prosaic truth is that they were really not available to Chile at any time during the last three decades.

What I also learned is that this strong desire to find another path towards development makes Chile susceptible to exaggerated promises and magic potions coming from western academics. I think this is a Latin American phenomenon in general, but Chile has had some interesting experiences with it. A good example was the Cybersyn project during the Allende government. If you read Medina’s book (and if you’re interested in Chile at all you should, it is a great read) it’s clear that that degree of hyper-centralization of decision making that the project promised seems highly suspect, especially with the knowledge that we have today about mechanism design. The fact that Stafford Beer, the main protagonist and designer of the project was never able to complete it in any other country where he had the chance to, is a big red flag that reveals something about its chances of success. I view the Mazzucato involvement in Colombia in the same vein, exaggerated promises about a third way to development that will amount to nothing in the end. Interestingly, Beer was paid 500 USD a day for his troubles, which, assuming a six day work week, amounts to about a million in current dollars. Mazzucato is getting paid the same amount in Colombia, which goes to show that the wages of the third way have kept up with inflation.

3. LATAM mean reversion is real

Living in Chile I learned that country peer effects are enormous. This may have been obvious to people who pay attention to these things but I was completely clueless of the magnitude of peer effects across countries. Sebastian Edwards made this point early during the estallido, and I think this is a great quote:

“I’m afraid that this is going to end badly, and that Chile will return to its origins as a run-of-the-mill Latin American country. A country with a weak rule of law, weak institutions, and low productivity. An unequal, segregated, violent, and impoverished country.”

I would have strong disagreements with friends prior to 2019 about the appropriate benchmark to use in measuring Chile’s achievements and/or current well-being. My Chilean friends insisted on comparing with the rest of Latin America, and I found that to be a low bar. If Chile was to escape the middle income trap it would have to put the bar much higher. I still think Chileans should aspire to more than just being better than Argentina, but I understand that when your neighbours are led by Alberto Fernandez, Jair Bolsonaro, Nicolas Maduro and Evo Morales, this has spillover effects. Chile trying to overcome its neighborhood resembles a kid in a favela trying to keep his head down and study his way out while ducking gangs and drugs. It’s an uphill battle.

I suppose the main reason this is true is just the proximity effect, you tend to imitate people that look and behave like you. If there is a common history and a lot of interchange of people and ideas, politics tends to rub off. So it is no surprise that Alberto Fernandez holds court with the Chilean left and gives them advice. Or that the intellectual point of reference for Evo Morales and his movement is imitated by some in the Chilean left. Or that Jose Antonio Kast seems to confer with Bolsonaro on election strategy. The other peer effect is that failed states tend to produce a large amount of desperate people escaping poverty and destitution. The effect of the Venezuelan tragedy on Chile is going to be felt for a long time and will have repercussions for its domestic politics. Right wing anti-immigrant parties are going to have more representation.

4. Living in Chile I learned that the rigidity of rules is proportional to the fragility of norms.

Chile was a rigidly rule based society[4]. By this I mean that rules were rigid and were adhered to in an almost automatic manner by the majority of the population. This does not mean that there were no rule breakers, the corruption and tax evasion cases during the latter part of the decade attested to the existence of some higher strata of Chilean society that did not think rules applied to them. But in general, the majority of the population did not stray, or, if they did, knew that the costs were high. Pre estallido I found this rules’ based society too omnipresent and inflexible. I thought that in the balance between rules and discretion, Chilean society, or its institutional designers, had erred too much on the side of rules, and put too little weight on discretion. I found that the status quo infantilized the average Chilean by overly restricting her discretionary freedom. If you’ve ever lived in Chile, I am sure you have heard – “no se puede”[5] enough times. And, after inquiring as to why, you mostly have received the usual shrugged shoulders. A simple illustrative example; my local Unimarc butcher had both beef and pork meat for sale. If you wanted the beef ground, the nice guy behind the counter would do it for you, but if you asked for pork to be ground he would say “no se puede”. (can’t be done) If you asked why, he would just shrug. However, if you went to a non-supermarket butcher, they would do it without hesitation. I am sure this is a health regulation rule so as to prevent some form of cross contamination. I suspect the person behind the counter has to clean the machine after each grind and the store receives heavy fines if he or she doesn’t. In the case of the supermarket, the rule designer does not trust the discretion of the worker, so it just forbids him from grinding pork meat at all, kind of a blanket rule that just completely bans discretion. In the local butcher shop, the owner is around himself so he makes sure the machine is clean. It’s a simple illustration of what I mean by rules vs discretion, I am sure there are better examples, this is the one that occurs to me right now. Discretion relies on norms; if most people would clean the machine anyway in the example above, the rule would be useless and unnecessary. So how strong norms are, determines how rigidly the rules are designed. At the supermarket, the rule can be either: a) clean the machine after each pork grind or b) don’t ever grind pork. If the norm is strong, you will use a because b is inconvenient and there is no risk. If the norm is weak, you use b because you don’t want to risk making people sick. Again, this is something that may have been obvious to people who pay attention to these things, it wasn’t for me.

The estallido, I think, was partly a rebellion against the rigidity of Chilean society. The problem is that the actual effect was the opposite of what was supposed to happen. As I am writing this, the Republican Party holds the majority in the new constitutional convention, and they don’t strike me as the live and let live types. Chile is experiencing a right wing backlash that was predictable and forewarned since the beginning of the estallido. I also think that too many people, including public intellectuals, over-learned the estallido lessons. The “see, that’s why we can’t have nice things” attitude is too prevalent. By this I mean to say that, for people who think Chileans need to live under strict rules and be given very little discretion, the chaos of the estallido solidified those beliefs. I saw this in the debate over parliamentarism during the last constitutional convention – people arguing from current conditions to make the point that Chile was not ready for it. The main argument basically was – “have you seen the state of political parties in Chile? Do you think a parliamentary democracy could flourish here with this kind of political incompetence?” To me this is a good illustration of the rules vs discretion argument. Discretion allows the building of norms that survive because they serve a purpose. The current Chilean political system is built around a very rigid presidential system, so the parties that exist have the problems they have exactly because they are built to serve under that system. If you give them different incentives, as a parliamentary system surely would, you should see a completely different party system. But this needs discretion, a prime minister who is willing and capable to form large coalitions, and parties that are built around finding common ground. Incidentally, it is no surprise that parts of UDI and the Communist Party of Chile found common ground in killing parliamentarism in the first constitutional convention. It was one of those things that would have increased discretion in Chile, but the extremes naturally disliked it.

5. The Frente Amplio section:

• Frente Amplio is more of an aesthetic than a political movement, so policy details are an afterthought. If you view them through this lens, you will never be disappointed, and might even witness beauty previously inaccessible to your vulgar and undeserving self.

Frente Amplio is mostly a middle/upper class movement. In a sense they mirror the same affluent yet rebellious spirit that Martin Gurri writes about in his book, “The Revolt of the Public”. They also represent the same driving force that he highlights, the idea of negation as a main driver of a movement. The raison d’etre of FA is to stand outside throwing rocks, without offering any real practical solutions to Chile’s problems. Even the solutions that they did offer were not well thought out and mostly decorative. All they did, prior to coming to power, was to weaken institutions and the public’s trust in them. The irony is that they would have to rely on the same institutions at which they threw figurative Molotov cocktails, to govern. I find that FA is more of an aesthetic in the sense that their role has been to point at the truly dreadful bits of Chilean society and scream bloody murder. That’s a useful role, and it should be played by someone in the political realm, but they should not be given the keys to the asylum, as they’re not particularly suited for the quotidian tasks of governing. FA should exist as a reminder for future governments of what happens when one makes unwise and hasty decisions, in the same way you should keep an Argentine flag on your desk when making monetary/fiscal policy.

I wrote a short story called Cristóbal, whose main character is an embellished blend of the armchair lefty I met at parties and the revolutionary pundit that flooded the Chilean public square during those heady days of the October revolution. In that story, I wrote the following line:

And there is the problem, my friend, you see the state as an object, and I see it as a mother holding a baby

It was an offhand line, mostly in jest, a bit of exaggeration to highlight the fact that the character of the story was pure symbolism and no substance. A year after I wrote the story, when Boric won the presidency, the new interior minister, Izkia Siches said the following in an interview:

I like to think of the Ministry of the Interior as a mother who takes care of her country.

After a few months, she was received with gunshots in southern Chile. While governing, her symbolism clashed with the reality of violence and it was found insufficient. She lost her post soon thereafter and someone more adept at governing and less symbolically minded took her place. I am not saying that the metaphor of the state as mother is particularly wrongheaded or worthy of ridicule. It’s just that, in this case, there was really nothing else behind it, it was merely performative, with nothing of substance to sustain it.

• Chile will heal once the likes of Giorgio Jackson and Gonzalo Winter become the highly opinionated baristas they were meant to be.

When I was a graduate student, both during my MA and PhD I had the horrible[5] habit of studying in coffee shops, both in Vancouver and Toronto. I could not really concentrate in silence, the bustle of the typical coffee shop somehow distracted me from the fact that I was studying, and forced me to concentrate. It makes no sense, but such is life, you try to adapt to your own peculiarities. So I spent a lot of time in coffee shops, in some I even became the insufferable regular. In my experience, non-chain coffee shops tend to attract a lot of baristas with pretty strong left wing views. I don’t know why the self-selection into that profession is that strong, it just is. And I spent a lot of time in these kinds of coffee shops. Once I became friendly with the barista, and he or she learned that I was an economics student, I entered into an infernal loop of half-baked theories about how economics works. It was mostly conspiranoical with a touch of Marxism, just throw a dart named neoliberalism at the what-to-blame-on-it-this-week board and see where it sticks. I was not really equipped to deal with these people, and I still am not. I can’t really follow the logic and often lose the thread of the conversation. I tried to avoid confrontation and was always in great terms with everyone. With some I became good friends.

Jackson and Winter remind me of those baristas. They have the same half-baked ideas about the world and do not seem to be able to construct an internally consistent argument. There are many examples of this, too many to spend time listing. What is interesting about this is not the similarities between these two and your average Vancouver barista with confused ideas about why things are the way they are. It is the fact that the political system does not have the correct incentives to force them to update their beliefs or unceremoniously escort them out. People like Jackson and Winter should be a phase of life that a country overcomes, just like puberty. Most of the baristas I was exposed to were in their early twenties, Jackson and Winter are in their mid-thirties and have been in parliament for a while. Yet they continue to behave like they’re serving lattes to exhausted graduate students. It’s possible they will eventually learn, but it seems to me that whatever political system allowed such a duo to be in charge has some serious flaws and needs to be revamped. I suppose that’s my point, the fact that people like them can ascend to power and actually influence decision making in Chile is a signal that the political system needs to self-correct somehow.

• Chile took unnecessary risks so that a group of political teenagers could transition into adulthood.

One thing I learned living here is that Chile has less room to throw temper tantrums than richer countries. This is generally true for most middle income countries, investors are more sensitive to political risk than in other, more mature OECD members. But Chile’s safety buffer that had been built over the last three decades was really impressive. A simple example; with a colleague we wrote a study of the costs of Chilean debt over the past thirty years. In the early noughts Chilean debt was mostly (70%) owned by the Central Bank[6], surely an indication that the dictatorship had left the Chilean government without international credit options. By the end of the Lagos government, Chile was a net saver. Even though the real interest rate that the Chilean government pays on external debt increases during these years due to inflation plunging[7], it remained fairly low. The Lagos government basically re-introduced Chile to international borrowing markets and built a reputation for responsibility and fiscal prudence. In this aspect Lagos is the beginning of the return to normalcy for Chile, and the foundations that he built were expanded on by future governments. Some countries get lucky in getting the exact right leader at the exact right time. Electing Lagos was probably one of those moments where Chile’s stars were perfectly aligned. Our study went through some possible scenarios and, even though the increase in the interest rate in the worst-case scenario was large enough, in the past thirty years Chile had built enough of a cushion for itself to withstand substantial external risks. It was this cushion that came in handy during the pandemic. This is one of the many examples of the expansion of state capacity during the last three decades that gave Chile some space for managing public policy and relaxed the constraints of governing.

The estallido and its repercussions was an entirely unnecessary risk. The pension withdrawals, the antagonism towards foreign investors, the increased political risk, the peso depreciation, all of it was completely unnecessary. A lot of commentators seemed to not understand the basic idea of risk. For example, when the inflationary surge became obvious in 2021, I heard a lot of “it’s a worldwide phenomenon” coming from Punditistan. On the simple level, Chile was experiencing inflation that was higher than a lot of other countries, and it remained persistent for quite a bit. So yes, it was a worldwide phenomenon but it didn’t have the same effect everywhere, which is a very basic misunderstanding of the difference between aggregate and idiosyncratic effects. On a deeper level, a lot of people misunderstood the whole idea of risk. Of course Chile was unlucky that the estallido was followed by a worldwide pandemic and a European war that increased food prices, but the whole point of avoiding unnecessary risks is to take actions so that, in case bad things happen, you’re not completely exposed. Hope for the best, prepare for the worst.

There are many cases of the new generation of Chilean politicians misunderstanding risk. This interview with Vlado Mirosevic is particularly revealing, here is the money quote,

“Wasn’t the Concertación an experiment and a political innovation? It was. I don’t think one could say it was incoherent. They played a role in a historical moment. In this case, we have agreed on the three pillars that I just mentioned. I ask those who look at us with suspicion, why the hell don’t we give ourselves permission to make a political innovation? And if it doesn’t work out, well, it didn’t work out. What’s the big deal? Too much is demanded of the FA, as if we have all the answers. History has never been built in the way we are judged. A little patience. That’s why I don’t take it so seriously when they say the FA has to be perfect. Perfect my ass. Hopefully it works out well. And if it goes wrong, we’ll say so. What’s the big deal? And then bye-bye.”

The new generation does not understand that the difference between the Concertacion and FA is that the first took necessary and calculated risks in innovating Chilean politics while the latter took unnecessary and uncalculated risks[8]. This kind of childish approach to politics is why Chile is struggling now. People who did not understand the constraints of governing insisted on breaking things so that they could find out. FA is like the kid who doesn’t believe that actions have consequences and has to light the match to watch the flames himself. After the first year of FA in government Boric eventually conceded as much, but members of his coalition still insist that it’s too much to ask them to be prepared to govern since they’ve never governed before. It’s all a bit too much dilettantism to be taken seriously.

6. Class consciousness is too important in Chile

This is not a blanket statement, but an observation about the median. Chile is a highly segregated society; it is the first thing that you observe when you start living here. It is not only that the rich and poor don’t mix in neighbourhoods, but they also don’t mix anywhere else either. Chileans of different social strata are citizens of two entirely different countries. They have superficial commonalities; the asado, the cueca, the fonda and others, but in the end, their stories of the country do not overlap. Both try to avoid each other and don’t feel comfortable in the other’s company. It seems unfair to criticize only one side for this state of affairs, but a country is often a reflection of its elites, and this kind of segregation is a symptom of that fact. One cannot get confused of this since there are very few faces in Chilean politics or business that represent the lower/middle classes. Even just walking around Santiago and looking at advertising you are bombarded with faces that look nothing like the average Chilean. In fact, if you based your idea of what the average Chilean looks like only on advertising, you could not be blamed for thinking that you’re living in some central European country. It’s bizarre, especially if you’re not from here.

This kind of segregation makes group participation extremely salient, which makes the social circle very tight and difficult to break out of. There is some evidence that social circles are too important in determining incomes, which suggests that segregation has real income effects. But it also has negative effects on the elite itself, as it becomes insular and inbred, it shuns competition and becomes provincial both in outlook and behaviour. Lack of competition seems rampant in the higher echelons of the Chilean elite; it appears to be unproductive given the amount of resources it receives. This makes meritocracy much harder to defend and resentment easier to proliferate. Class belonging or one’s attitudes towards class divisions become central in defining one’s political identity, and that is extremely important in determining how people view the world. It facilitates the formation of political teams that are too far from the center and creates a fragile equilibrium where polarization is too easy following any negative shock. This seems like something that won’t go away and will determine political cycles more than other phenomena. The new Chilean left seems to be a form of repudiation of this state of affairs, something that is understandable, but the fact that they themselves are mostly scions of the Chilean elite is something that has not escaped the median voter. I don’t know how you solve this problem, but at least admitting it is a good first step.

Footnotes