New Constitution for Chile Puts Welfare State First

Tribalism Spells End of Equality before the Law, Clear Property Rights

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More than three-quarters of Chileans voted in favor of a new constitution in October 2020. (Flickr)

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Chile’s Constitutional Convention—which is writing the proposed new constitution—will present the final draft to President Gabriel Boric in July 2022. Chileans, however, will mandatorily vote in a referendum on September 4 to approve it or not.

Considering the first draft of 132 pages—ready since mid-May—if approved, the new constitution would abandon the free-market economic model that has triggered development in Chile. It would hinder the rule of law because the draft would allow indigenous nationalities to enforce their ancestral law and have legal ambiguity in the hierarchy of rights. If Chileans reject the proposed constitution, Chile will remain with the standing constitution.

More than three-quarters of Chileans voted in favor of a new constitution in October 2020. However, leftist ideological agendas and desires for discriminatory law have undermined the process and intent of a new foundational law for Chile.

Recent polls are illustrating the discontent and declining support for the overhaul. According to a June 12 poll, conducted by research firm Cadem, 42 percent of Chileans oppose the constitutional draft; 39 percent favor it; and 18 percent are undecided.

To understand the impact of the proposed new constitution on Chilean prosperity, this investigation assesses three drivers of growth in the country during the past three decades. These are property rights, the rule of law, and economic freedom.

In addition to analyzing the first draft of the new constitution, the Impunity Observer spoke with three experts about the topic. The interviewees are Jorge Gómez—coordinator at the Foundation for Progress (FPP Chile); Guillermo Holzmann—political scientist, analyst, and professor at the University of Valparaíso University; and María Emilia Undurraga—coordinator at the Public Policy Center of Saint Sebastian University and former agriculture minister.

Is a New Constitution Necessary?

For decades, Chile has been a pioneer in Latin America regarding political institutionality and prosperity. The new constitution, therefore, will have the challenge of ensuring continuity of the rule of law and the protection of fundamental liberties.

According to the World Justice Project’s Rule of Law Index, Chile has the third most reliable rule of law in Latin America. Chile’s 2021 score is 0.66 out of one, behind only Uruguay and Costa Rica, which have scores of 0.71 and 0.68, respectively.

Chile, moreover, has been one of the most competitive economies in the Americas. The Chilean economy got a higher score than the United States in the latest Heritage Foundation Index of Economic Freedom. Chile’s score is 74.4 out of 100 points, while neighboring Peru and Argentina have 66.5 and 50.1 points, respectively.

Regarding standard of living, Chileans enjoy the highest life expectancy in South America. On average, Chileans tend to live 80 years. Ecuadorians, Argentinians, and Peruvians have a life expectancy of 77 years, and Bolivians only live on average 72 years.

Undurraga asserts: “Chile has evolved faster than its neighbors, but it still has a long way to go.” She believes that most Chileans have failed to perceive their nation’s accomplishments, such as better access to medical care relative to neighboring countries. Chileans, despite outperforming their neighbors, do not believe there has been enough advancement in the country.

How We Got Here

The Chilean Constitution, in effect, dates back to 1980, when dictator Augusto Pinochet was in office. Nevertheless, officials have enacted several amendments since then.

In 2005, then-President Ricardo Lagos signed the updated constitution with 58 reforms. In a CNN interview in 2020, Lagos contended that those reforms removed all traces of authoritarianism from the 1980 constitution.

The reforms included: (1) cutting the presidential term from six to four years with no immediate reelection, (2) enabling Congress to audit the executive branch, (3) removing lifetime positions from Congress, and (4) taking away the role of institutional oversight from the military.

Many Chileans, however, still oppose the constitution created during the dictatorship. For instance, Undurraga told the Impunity Observer: “I voted in favor of a new constitution because we [Chileans], as a society, need a consensus and to build a basis of unity.”

In response to citizen demands, in 2017, then-President Michelle Bachelet presented to Congress a bill to form a constitutional convention. It did not pass, so in March 2018, Bachelet presented the proposal for a new constitution. It also did not achieve legislative approval.

Although both of Bachelet’s attempts to change the constitution failed, the popular discontent from Chileans with the standing political system and constitution increased. All the experts the Impunity Observer interviewed agreed that the October 2019 protests in Chile were the straw that broke the camel’s back.

The protests started as a reaction against the higher metro fee, which went from 800 to 830 Chilean pesos—around $1.30. Gómez explains that protesters started to demand further changes as soon as civil-society organizations joined the strikes. The violent riots came with calls for reduced inequality, better medical care, and stronger income protections such as the universal basic income.

Gómez and Holzmann argued that all those demands converged in the desire for a new constitution. Chilean scholars contributed to this desire by releasing articles in academic journals and public statements. For example, Alberto Hurtado University Law Professor Miriam Henríquez told BBC that Chileans need a new constitution due to the illegitimate origin of the current one and that Chileans need a constitution that includes all people.

Could the New Constitution Threaten Private Property?

The draft of the new constitution does acknowledge the right to private property. However, it leaves its enforcement in a gray area by enabling expropriation when the land may be considered a public good.

Article 78 of the draft reads: “the owner always has the right to receive the ‘fair price’ in exchange for the expropriated goods.” It also mentions that a specific law regarding the right to private property will provide more specific details on expropriation.

The draft does not include a definition of “fair price,” which could result in controversy. For Gómez, the term would be subject to interpretation and different definitions from officials. He asserts that it would be clearer to replace fair price with market price because it is something objective that market studies could determine.

According to Holzmann, private property is not at risk. Nevertheless, he recognizes the first draft of the new constitution lacks concrete definitions for crucial concepts such as fair price concerning expropriation. He also acknowledges that the provision that guarantees indigenous communities lands is unclear on how the state is going to redistribute these lands, as it may imply a breach of the right to private property.

In contrast, Undurraga believes that the new constitution would undermine private property. For her, land redistribution through expropriation is a possibility, in which the state would pay landowners a “fair price” to give their land to other people. Undurraga said that this would only create even more uncertainty.

The 1980 constitution establishes: “No one can, in any case, be deprived of his property, the assets affected, or any of the essential faculties or powers of the domain, but by virtue of a general or special law that authorizes expropriation for public utility or national interest, qualified by the legislator. The expropriated may protest the legality of the expropriation act before the ordinary courts and shall always have the right to be compensated for the patrimonial damage effectively caused, which will be determined by agreement or by a sentence dictated in accordance with the law by the said courts. In the absence of an agreement, the compensation shall be paid in cash.”

Fitch Ratings, a world-renowned credit agency that releases the Country Risk Index, has expressed in an article that the draft’s provisions “do not eliminate uncertainty regarding the business environment and the state’s functions.” Similar to the experts that the Impunity Observer interviewed, Fitch recognizes some matters remain unclear in the proposed new constitution. Nevertheless, Fitch also mentions that “the convention rejected many of the aspects that affected the business environment.”

Another aspect to take into consideration is uncertainty regarding environmental rights. The proposed new constitution, in article 103, grants environmental rights such as the preservation and maintenance of nature and the restoration of its natural cycles. “It is not clear if environmental rights are more important than property rights, and if they could enable expropriation,” Holzmann expressed.

Rule of Law Down the Drain

The constitutional draft has an “intercultural” and “plurinational” approach to justice. In contrast to the current constitution that establishes a nationwide judicial system, the draft seeks to allow the nine indigenous nationalities that reside in Chile to enforce their own style of justice (Mapuche, Aymara, Rapa Nui, Diaguita, Atacameño, Quechua, Colla, Chango, Yagán, Kawashkar).

The proposed new constitution reads: “In the case of indigenous people, courts and their officials must adopt an intercultural perspective in the treatment and resolution of matters within their jurisdiction, taking account of the customs, traditions, protocols, and regulatory systems of indigenous peoples, in accordance with international human-rights treaties and instruments to which Chile is a party.”

Undurraga argues that this distinction could fuel polarization among Chileans, even if its goal was to encourage consensus: “The draft constitution will divide our society by granting autonomy to certain territories and different justice approaches inside the state.”

Such a differentiation of judicial systems could also undermine the rule of law. Explicitly under this constitutional approach, not everyone is equal before the law.

“We still do not know how the state is going to interact with the different judicial systems, or how they are going to interact with one another. We must remember that we will have nine different judicial systems apart from the Chilean,” Undurraga told the Impunity Observer.

Gómez asserts that the new constitution, if accepted, will not serve as a counterweight to rulers and powerful groups. Instead, “it will give more decision-making power to politicians and bureaucrats by leaving unclear definitions at their mercy.” In addition to the undefined term fair price, the constitutional draft includes other concepts such as “natural common goods.” Their meaning remains unclear.

Gómez claims politicians are mistaking the constitution for a political plan. For example, Gabriel Boric is constantly encouraging Chileans to vote to accept the new constitution.

Moving Towards a Welfare State

For all three experts, it was predictable that Chile would move toward a welfare state, understood as dense, all-encompassing coverage with public services. Gómez explains that Chilean society has been acquiring new social values through higher education and social mobility. As they adopted more progressive, cosmopolitan values, their pursuit of a welfare state became more passionate, Gómez explained.

Political scientists Ronald Inglehart and Hans Welzel detail in their book Modernization, Cultural Change, and Democracy: The Human Development Sequence how the enrichment of a society leads to an evolution in its values. They conclude that it is natural for societies to take the path to progressive values as the societies evolve.

While the proposed new constitution seeks to expand the welfare state—including comprehensive, universal medical care and a right to tuition-free higher education—it does not emphasize creating wealth in society. “If the state does not focus on producing wealth and income, it will not be able to provide these services,” Gómez said. If that is the case, all the new rights and services that the state provides will remain on paper only.

Government expenditure comes primarily from taxes, tariffs, and borrowing money for short or long-term investments. Social spending is no exception and must be paid for. “With a stagnant economy and all these promises of better state-provided services, my main concern is that the government will enter into new debt to pay for these,” Gómez told the Impunity Observer.

The constitutional draft, for instance, would dismantle the mining industry, an important economic sector in the country. Although the convention did not include the nationalization of mining companies in the final document, the proposed provisions would profoundly impede any private entrepreneurship in mining.

The new proposed constitution would heavily regulate land amenable to mining—including reparations, state ownership of some mining lands, and preferential treatment for traditional miners. Congress would have to create a new mining law to provide further details on the topic.

Despite overwhelming approval for the idea of a new constitution in 2020, the future of the Chilean political system is uncertain. It appears that the constitutional draft has disregarded the priorities of the citizens that backed this effort. They supported a new constitution to build a national consensus and achieve common prosperity.

The new proposed constitution focuses on results rather than means. It emphasizes the protection of human rights, environmental rights, plurinational justice, and the welfare state, but it disregards wealth creation. The rule of law, property rights, and fundamental liberties have become matters of secondary concern.

Although President Boric favors the new constitution’s approval, he has already recognized that he would accept the decision of Chileans. The document’s future is uncertain, and Chileans have until September 4 to make up their minds.

Mauro Echeverría

Mauro Echeverría is Econ Americas’ deputy editor. He holds a BA in international relations with minors in political science and anthropology from the San Francisco University of Quito. Mauro leads the research on local economic development at the Ecuadorian think tank Libre Razón.

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