The global economic system appears to be on the verge of change

We know the covid-19 pandemic has changed the game. But what if some things were already changing and we missed the signs? For example, the tectonic plates of the global economic order of the past 50 years have already shifted and the pandemic has only accelerated these changes. President-elect of the United States of America, Joe Biden will have to heed some of these signs as he returns America to a moral and sane place and crafts the legacy he intends to leave behind. In his acceptance speech, he promised to “heal”; economic policy could be a starting point.

Biden may want to look south toward Chile for some early signs. In the South American nation’s recent referendum, 78% of voters voted to change its constitution, which has been in place for more than 40 years. This referendum is important for two reasons. The first is cathartic: this constitution recalls the dark days of the republic when a democratically elected president was overthrown by a US-backed dictator. The brutal reign of Augusto Pinochet exterminated thousands of political dissidents, except for tens of thousands who were imprisoned, tortured and mutilated. He drafted a constitution that was devoid of stakeholder input and passed by a sham vote in 1980. Chileans wanted this canker removed from their public life and they could only change bits and pieces; they finally have the opportunity to completely revamp it now.

However, it was not easy. Chileans had to fight for it, which included prolonged street protests. But here’s the thing: Serious protests actually started about a year ago over subway fare hikes, but this issue, like the proverbial spark in a powder keg, has energized people on a host of other concerns. fuels. These included, among others, worsening income inequality, poor health and education infrastructure, and persistently low wages and pensions. The people considered the constitution, which also set out Chile’s economic policy, to be the ancestor of these shortcomings. So here is the second reason for the importance of this referendum: an overhaul of the constitution is also a chance to redo economic policy.

The overhaul of Chilean economic policy could then present the first sign of an impetus to overhaul the dominant and dominating global economic system. Eyebrows might be raised at the geography of the disruption, as Chile was perhaps the best-performing nation in Latin America when viewed through the conventional prism of gross domestic product (GDP). Yet what ignited the spark in this Andean republic was the fact that its economic philosophy closely followed the Chicago School model popularized by the late Nobel laureate and economist Milton Friedman, who put the emphasis on monetarism, free markets and an increased role for the private sector. This recipe was seen as favoring only the elite and impoverishing the masses. What made matters even worse was the fact that many Chilean economists – later dubbed the Chicago Boys – were trained by Friedman at the University of Chicago, all of whom held critical government positions. Friedman faced continual criticism for visiting Chile and advising dictator Pinochet. The famous German-American sociologist and economic historian (and student of Friedman), Andre Gunder Frank, criticized the economic policies of his former professor in an open letter to the Indian economic and political weekly.

The Chilean economy performed well initially, with rising GDP per capita and increasing foreign capital inflows. At the same time, inequalities have also widened, implying that the fruits of the economic program have not been distributed evenly. Chilean industry is understandably not enthusiastic about the referendum. According to an October 25 New York Times article, “Last year, the United Nations Economic Commission for Latin America estimated that almost a quarter of total income goes to 1% of Chile’s population. To cover the high cost of living, the Chileans are heavily in debt. The Central Bank found last year that on average almost three-quarters of household income was used to pay down debt.

If the referendum brings hope, there is a long way to go. Attempts are underway to ensure that politics does not veer too far left. A warning shot has already been fired: Fitch Ratings recently downgraded Chile’s ratings and added a rather open statement about what could trigger future downgrades: “A significant deterioration in Chile’s economic institutional strengths, for example through that weaken its macroeconomic policy framework. “It may be premature to predict the kind of Chilean economy that will eventually emerge. It is also highly likely that many key elements will remain, with the policy only aimed at course-correcting: preventing the concentration of wealth between a few hands in the name of laissez-faire or guaranteeing a greater role for government in the provision of essential social services.

It is undeniable, however, that two nations are on the cusp of significant change: Chile with a new constitutional opportunity and the United States with new leadership. These developments may simply be the catalysts needed to change the course of the global economy that gained momentum with the elections of Margaret Thatcher and Ronald Reagan in the UK and US respectively.

As economic developments after the 2008 financial crisis showed, these policies are well past their expiry date.

Rajrishi Singhal is a political consultant, journalist and author. His Twitter handle is @rajrisishinghal.

To subscribe to Mint Bulletins

* Enter a valid email address

* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our app now!!