Chile’s Constitutional Proposal Represents a More Radical Turn into Neoliberal Constitutional Politics

–Benjamín Alemparte, academic and researcher, University of Chile

The recent election in Argentina of Javier Milei as new President has brought a renewed attention to the southern American region in terms of a more radical turn into libertarian economic policies. Milei’s candidature, a Thatcher-lover according to the Financial Times, suggested an ultra-neoliberal “shock” including, among other measures, a significant reduction in public spending, the dollarization of the economy, necessitating an ambitious strategy to privatize state-owned enterprises, the closure of the central bank, and the removal of specific currency controls. Navigating Milei’s stormy crusade represents a unique challenge in a federal country marked by a longstanding struggle among the Provincias, notably with Buenos Aires being one of the three exceptions where Milei did not emerge victorious, and an upcoming Congress dominated by a vigilant and reactive opposition. Clearly, the risks are high, and the potential for increased unrest among the country’s unions and general population is imminent.

The language of the “shock” first coined in 1975, through a letter from Milton Friedman to Pinochet and made popular by Naomi Klein’s 2007 book have shown different trajectories.[1] The scene is familiar to what happened just a few years ago in Bolsonaro’s Brazil. In 2019, Bolsonaro gained power promising an ambitious agenda based on liberalization and privatization combined with a social conservative vision. Paulo Guedes, Brazil’s Minister of Economy during Bolsonaro, graduated from the University of Chicago. In the 1980s, amid the Pinochet era, he lived in Chile to gain firsthand experience and insights into the reforms being implemented by the Chilean Chicago Boys in the country. Both Bolsonaro and Milei have publicly expressed their admiration to Pinochet’s Chile transformation. In Argentina, Milei praised in his victory’s discourse the nostalgia for, as he interpreted, a return to Juan Bautista Alberdi’s constitutional vision: Individual freedom as a “sacred” boundary beyond which the authority of the state concludes. During these years, Bolsonaro and Milei have vindicated a form of economic authoritarianism that could change the history of development for these two protagonist countries in the region. In many ways, everything suggests that the ideological paths of neoliberal authoritarianism in the region are more alive than ever.

In October 2018, just days before Bolsonaro’s presidential elections, José Antonio Kast, today Chile’s far right leader, visited the candidate and gave him an edition of the book so-called in Spanish “El Ladrillo” (The Brick) with the economic plan written by the Chicago Boys just before the 1973 coup. Additionally, Kast shared a copy of “Economía y Sociedad,” a magazine authored by José Piñera, a former adviser to Pinochet and the architect of the initial version of pension funds privatization. This model was subsequently exported worldwide and served as a blueprint for the following decades. Today, five years later we have Kast as the leader of the party that took control of the Constitutional Council and dominated the last months of constituent discussion. Furthermore, it is at least ironic that it is José Piñera who has recently published in his magazine (October 31, 2023 edition) a note that bears the name “The “win-win” Constitution for the Liberal Revolution.” In this document, Piñera boasts that whatever the outcome, this is a win-win for the capitalist project and in particular for what he calls “the free market model and free society.” In his opinion, the Council’s proposal goes further than the current Constitution, since it explicitly introduces into the constitution the pension system which operates on the principle of individual capitalization, where each member maintains an individual account for the deposition of their social security contributions. According to Piñera, this system, created in 1981 now enters the Constitution “by explicitly protecting the property of the funds and contributions of workers, as well as freedom of choice.”

The recently drafted constitutional proposal by a Constitutional Council dominated by the far right party Republicanos, whose leader is Kast himself, represents a more radical turn into neoliberal constitutional politics. A national plebiscite next Sunday, December 17, will determine Chileans’ stance on this proposal, marking a critical juncture in the country’s “hectic” constitutional history. As I have previously argued, if the country once served as a testing ground for introducing neoliberal-inspired economic provisions into the 1980 Constitution, it stands today—after two constitution-making process in three years (2020-2023)—as a case study for scholars interested in comparative constitution-making.

This post examines some of the neoliberal features embedded in the proposal, which, despite nominally defining Chile as a “social and democratic state of law,” (Art. 1.3), falls short of establishing the necessary constitutional infrastructure, thus obstructing future efforts to shape such a state. A genuine commitment towards democratic constitutionalism should not close doors but rather encourage ongoing deliberations regarding the constitutional design of key social and economic rights provisions. In this sense, the work of the Constitutional Council shares a common feature with the previously rejected proposal from its predecessor, the Constitutional Convention—namely, its maximalism. This approach not only signals a lack of trust in the regular law-making process and day-to-day policy-making across various social domains but also constrains legitimate democratic decision-making. It narrows the debate to the traditional programmatic preferences of the political factions that held the most influence in drafting the constitutional text.

In 1980, Friedman published “Free to Choose” advocating for the primacy of market solutions to various social problems.[2] The book adopted a didactic approach, promoting the expansion of market applications into areas where the state traditionally played a central role. Rather than emphasizing a universal national welfare policy, “Free to Choose” called for the empowerment of individuals to make choices within the developing market of social services, prioritizing their ability to select the most advantageous options. Of course, as we know, “free to choose” essentially applies to those who can afford it. José Piñera himself acknowledged that the concept of establishing privatized pension funds in Chile originated from his reading of Friedman. More than forty years later, these ideas resurface in a more radicalized form within the upcoming constitutional proposal set to be subjected to plebiscite.

In social security, after a popular initiative supported by the citizen-run organization “Not with My Money” which defended individual property rights over pension funds, the constitutional proposal not only codifies the existing individual system of capitalization, but also makes unconstitutional any form of solidarity within the pension funds. The constitutional proposal states that individuals “will possess exclusive ownership rights over their old-age pension contributions and the resulting savings” and will also enjoy the “freedom to choose” whether the state or a private institution manages and invests these funds. Additionally, the norm declares that under “no circumstances” may individual funds and savings “be subject to expropriation or appropriation by the State through any mechanism.” (Art. 16.28 letter b). This proposal closes the door to any form of social solidarity within the funds, being so radical that even measures proposed in 2020 during the past center-right government of Sebastián Piñera, such as the Programa de Ahorro Colectivo Solidario, would be impossible to enforce.

In relation to healthcare, Friedman’s freedom to choose represents the constitutionalization of the current system structured around private health insurance companies (ISAPREs) prohibiting the establishment of a health insurance system funded collectively (Art. 16.22 letter b). Moreover, in education, the proposal fundamentally prioritizes the freedom of teaching over the traditional right to education and constitutionalizes a form of voucher “guaranteeing financing (of the demand) per student in private and state establishments” (Art. 16.23 letter e). It also creates budget limitations for the public funding of public educational initiatives. In this topic, the proposal prohibits the system of public financing of education from being conditioned by freedom of education criterions, ensuring the allocation of public resources to state and private institutions according to “criteria of reasonableness, quality and non-arbitrary discrimination” (Art. 16.23 letter f). The above, following some jurisprudence of the Chilean Constitutional Court, will inevitably challenge different schemes for funding state universities.

But the proposal not only enforces a neoliberal approach to these key social rights provision. In addition, through an innovative strategy of designing economic provisions limiting state intervention, it represents a perfect example of constitutional maximalism towards state minimalism. This approach effectively locks in a non-interventionist state incompatible with a social and democratic state.

Allow me to conclude by highlighting examples of provisions that limit the state’s regulatory powers, weaken legislative intervention, and consolidate a regressive tax policy within the constitution.

A legal reserve in the context of fundamental rights constrains the regulatory authority of the state across various domains. It is stipulated that “only the law may limit or restrict the exercise of fundamental rights” (Art. 23.1). This provision significantly narrows the scope of administrative power. It implies that various decrees and resolutions enacted by the Administration to implement the law and consequently impose limitations on fundamental rights might be deemed unconstitutional. Traditional examples of this are regulations underpinning a substantial portion of environmental legislation, e.g. establishing environmental emission or quality standards. In this vein, the proposal undermines the enforcement capabilities of the Administration. The stipulation that the conduct subject to sanctions must be defined “in its essential core by law” (Art. 16.9 letter b) distinctly favors regulated private entities. This onerous standard is currently and reasonably applied to criminal offenses, where the conduct must be explicitly defined. Consequently, this limitation could severely curtail the supervisory authority of the state in areas such as healthcare, where the current health code dictates the possibility of establishing conducts subject to sanctions at a regulatory level, or at a local level, by restricting municipalities in their ability to issue ordinances and impose sanctions for non-compliance.

In a similar line, the proposal creates new frontiers of state liability for legislative intervention. By doing so it opens a space of much judicial dispute, because through a special clause, the proposal notes that the state is “obligated to compensate for discriminatory, disproportionate, or retroactive public charges” and demands that a special law “will outline a procedure to ensure the effectiveness of this compensation” incorporating “a mechanism to enforce the State’s financial responsibility for actions of the legislator that violate this Constitution, as determined by the Constitutional Court.” (Art. 16.31 letter e). Surely, this provision will work as a deterrent from state intervention in many areas now dominated by private parties.

Finally, in the context of a new right to an adequate housing (Art. 16.29 letter c), the proposal includes a provision that states that the property designated “as the primary residence of the owner”, “will be exempt from all property taxes and land-related contributions, where applicable.” (Art. 16.29 letter c). Besides the clearly regressive nature of this disposition, benefiting the wealthiest or higher income sectors, the measure has already proven to pose a clear risk by attacking the budgets of the poorest local governments or municipios. Another tax regression is a clause that states that “Expenses that are objectively necessary for the well-being, care, or advancement of an individual and their family will be considered deductible when calculating the relevant taxes.” (art. 16.31 letter b). As per some experts, the outcome of this change could exacerbate the regressive nature of the Chilean tax system. This shift is expected to elevate the significance of indirect (value added) taxes while diminishing the prominence of a traditionally progressive tax, such as the direct tax on income.

In conclusion, the proposal moves the horizons of the future political discourse. It attempts to settle conversations about justice, equality and dignity that currently are being highly contested in the country. In doing so, it makes it impossible for the political process to deliver the kind of legitimacy that Chileans expect. Notably, if the proposal is approved, it would bring a renewed constitutionalization of politics meaning many social democratic or welfarist draft bills that will be contested on constitutional grounds. However, the following results more troublesome: Democracy needs a degree of compromise with a genuine principle of social solidarity, and the proposal excludes this principle in areas such as healthcare, education, or social security. No social and democratic state of law can be built within these constitutional boundaries.

In the end, the proposal shares a Hayekian-based attempt to restrict state intervention in the marketplace and is completely indifferent to the dangers that are posed in the country as a consequence of highly concentrated economic power. As Jedediah Purdy has recently argued, “market ideologists such as Hayek and Friedman, like their many followers, hold that we cannot decide to organize our division of labor and wealth, our material interdependence and system of economic power, outside a certain formula of economic life, on pain of poverty, tyranny, or both.”[3] This is ultimately the case of their most notorious current followers in the region such as Milei, Bolsonaro or Kast. Everything seems to show that, regardless of the outcome of the upcoming plebiscite in Chile, the constitutional discussion is likely to remain highly controversial.

Suggested citation: Benjamín Alemparte, Chile’s Constitutional Proposal Represents a More Radical Turn into Neoliberal Constitutional Politics, Int’l J. Const. L. Blog, Dec. 12, 2023, at: http://www.iconnectblog.com/chiles-constitutional-proposal-represents-a-more-radical-turn-into-neoliberal-constitutional-politics/

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[1] Milton Friedman and Rose D. Friedman, Two Lucky People: Memoirs, University of Chicago Press (1998).

[2] Milton Friedman and Rose Friedman, Free to Choose: A Personal Statement, First Harvest edition (1990).

[3] Jedediah Purdy, Two Cheers for Politics: Why Democracy Is Flawed, Frightening—and Our Best Hope, Basic Books (2022).