The Tradeoff of Labor and Neoliberal Economics: The Case of Chile in the 1990s

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Chile’s economic growth under President Augusto Pinochet has been both lauded and reviled in the international community. During Pinochet’s tenure, GDP grew at an unprecedented 5 percent average from 1976-79.[1] While the upper class in Chile benefited from GDP growth, increased exports, and openness of trade, those on the margins remained excluded. During this epoch of austerity and heightened foreign involvement, Chile became one of the most unequal societies in the world.[2] Not only would those in the underprivileged classes not see the benefits of economic growth, but they would also have to live with increased government repression, human rights violations, reduced social spending and restrictive labor laws. Pinochet’s labor laws remained static during the 1990s, and even after redemocratization, as La Concertación coalition failed to pass meaningful labor reforms due to the perceived necessity of consensus building and adherence to neoliberal economics.

Chilean Labor Under Allende

Chilean labor has undergone decades of reorganization, but several labor groups advocated further reforms. Perhaps the most prominent faction in this process has been CUT, the Workers’ United Center of Chile (Central Unitaria de Trabajadores de Chile), a federation founded in 1953 that “brought together 65 percent of all unions” and today includes “79 percent of unionized employees.”[3] In general, CUT’s size provided influence, and it was the foremost political actor for workers’ rights.

Under Allende, and indeed, even before his election, labor unions were actively involved in Chilean politics through voter mobilization and registration efforts and visible leadership. This de facto power was established more formally under Allende with the signing of an agreement between CUT and the Unidad Popular (UP).[4] Through this pact, CUT gained legal recognition and other benefits, such as increased management and unemployment benefits.[5] Most importantly, it meant “a new system of collective bargaining at the national federation level instead of at the local union or factory level . . . This was part of an attempt to centralize collective bargaining in the CUT and to overcome the previous practice of local unions ignoring CUT and federation recommendations.”[6] Under Allende, labor unions were able to participate in the formal political process as workers’ rights advocates.

Labor in Light of the Coup

In contrast, Pinochet was far more repressive regarding labor relations than his predecessor. Where Allende worked with the CUT and even went as far as recognizing its legitimacy as a Chilean political actor, Pinochet outlawed the organization entirely.[7] After the coup, industry-wide collective bargaining was outlawed and union leaders were often fired, or worse.[8] Pinochet’s crackdown on labor organization and neoliberal economics exacerbated unemployment, which hovered around a historic high of seventeen percent during the Pinochet regime.[9]

The Plan Laboral in 1979 relaxed slightly the repressive changes in 1973, but labor regulations still failed to return to pre-coup levels of free institutionalism.[10] This new labor law implemented collective bargaining at the company level, meaning industries could now be represented by multiple unions instead of just one powerful and bureaucratized union.[11] The Plan Laboral further limited strike options by forbidding strikes in certain industries, allowing strikebreakers, and forcing workers to “accept the conditions offered by the employer or to leave the company.”[12]

La Concertación and the Promise of Development

The lack of real reform during the 1990s regarding labor laws was not unprecedented, given the mixed labor history of the Christian Democrats, one of the main parties that make up the coalition comprising La Concertación. That body was founded in 1988 as the outcome of a center-left plebiscite in order to prevent General Pinochet from retaining his seat of power.[13] The composition of La Concertación included the Communist, Socialist, and most notably, the Christian Democratic parties, as well as other center and left political parties. In pre-Pinochet Chile, the Christian Democrats aimed to widen its labor support base; however, the UP was far more successful in coalition building. The UP reached more formal agreements with the CUT, which was “officially recognized as the organization of the working class,”[14] and was urged to become more integrated with the Allende government. This provided many benefits for CUT, but also made it so that CUT’s hands were bound and tied when it came to labor issues, as was the case when the harshly repressed El Teniente copper miners strike.[15] The elections of 1972 gave CUT somewhat more political legitimacy as the voice of the free labor movement. The Communist, Socialist, and Christian Democratic parties received the most votes, demonstrating UP coalition support among leftist groups.[16] With support for the Christian Democrats came increased opposition against the Allende government, and the Christian Democratic party was able to organize its labor political allies in a coordinated effort against the UP, now without a unified labor base.

La Concertación came to power after the 1989 Presidential Election with the victory of its candidate, Patricio Aylwin, a Christian Democrat and proponent of the “No” vote. This came on the heels of the successful plebiscite election that prevented Pinochet from serving eight more years as president. Aylwin had been a major proponent of the “No” vote in the plebiscite that ousted Pinochet. At the beginning of the decade, La Concertación had a hold on both the legislature and the executive. In the Chamber of Deputies elections of 1989, for example, La Concertación gained 51.5 percent of the vote compared to La Alianza’s 34.2 percent.[17] The PCD alone gained 26 percent of the total vote, or about half of La Concertación’s popular support.[18] Needless to say, La Concertación wielded enormous power during the transition to democracy in Chile, which was built upon the victories in the plebiscite and the strong public support for its electoral proposals.

During the 1989 presidential election, La Concertación ran on a platform of orthodoxy in economic supervision. “Economic management would be careful and moderate.  There would be income redistribution and greater social expenditures, but no attack on private property.”[19] La Concertación and promoted the idea of increased economic justice, but the realities were far from ideal.[20]

Just as income redistribution could not live up to campaign promises, labor standards similarly failed to improve substantially. President Aylwin relegalized organizations like CUT, strategic laborers were permitted to strike, and dismissal was permitted only with just cause.[21] The 1979 Labor Plan controversially granted employers the ability to fire workers without just cause, which was often used for the political repression of activist workers.[22] However, while unions gained some autonomy, the state maintained influence, as “Unions must register with the labor inspectorate and renew their registration annually if they wish to be considered legal by the state authorities. The state would also prescribe the minimum number of workers needed to form a union. Unions must report elections to the authorities by certified letter”[23] However, Aylwin’s reform failed to liberalize the stringent legislation limiting collective bargaining rights. State-owned industries remained barred from collective bargaining; plant-wide unions were allowed to bargain collectively, but industry-wide unions could not. Labor reforms under Aylwin were anemic at best, and did not go far enough in returning Chile’s labor relations to the level where they were before Pinochet came to power.

In 1994, Frei was elected with 55.4 percent of the vote as a Christian Democrat under the banner of La Concertación, and he promised to improve labor standards substantially. One of his first acts as president was to pass Law 19.269, that allowed public sector employees to officially organize, granting them official recognition where before they had attempted to wield labor power that they did not have.[24] Frei aimed to expand collective bargaining to new unions, which could have include such rights as working condition standards even though the reform would have allowed firms to remove issues from the bargaining process as they saw fit, making the expansion of issues a moot point.[25] Furthermore, these new reforms aimed to prevent firms facing a workers’ strike from hiring scabs. Overall, Frei’s proposed labor reform aimed to make the labor market more protective, as the government would have a hand in labor matters by increasing worker rights. Unfortunately, the legislature failed to pass the reforms.


The Failure of Reform: Consensus Building

The perceived need for a smooth transition meant that concessions within La Concertación were common, especially when it came to the Christian Democrats, contributing to such feeble labor reforms. “We can describe political leaders’ change of opinion on labor matters … as a process of adapting to the constraints faced by the new governing alliance. Evidence that such a process was taking place can also be deduced from the way in which the Aylwin government single-handedly scaled down important areas of its legislative program” [26] The lack of general support for labor and the constraints of a legislature that was often austere in its reforms meant that La Concertación faced an uphill battle in their struggle to improve labor standards and expand workers’ rights.

A large amount of effort was necessary to garner the support to repeal the Plan Laboral, and La Concertación never gained the adequate cooperation necessary. The initial partnership among separate parties under the banner of La Concertación made sense given the context of the plebiscite, but after the No vote was successful, La Concertación divided internally as it no longer had the same shared purpose. The alliance between the left and center-left parties suffered internally, and the issue of labor support was a contentious one. Different parties wanted different amounts of concessions in the trade off between keeping economic reforms and restoring social justice that had been curtailed during the period of Pinochet’s leadership.[27] Indeed, Christian Democratic senators in La Concertación opposed Frei’s labor law on the grounds of wanting to protect business to sustain economic growth, preventing the bill from moving forward.[28] This disconnect among La Concertación prevented a unified labor plan. Much of the blame for lack of labor reform lies with the Chilean legislature’s inability to agree. While La Concertación had a relatively large majority of the electorate at this point, it still failed to reach sufficient agreement with other groups for the perceived requirement of consensus

Neoliberal Economics and the Tradeoff of Social Policies

Labor reform was seen as a trade-off to neoliberal economic reforms. Workers’ rights were seen as coming at the expense of economic growth. “Leaders of the incoming democratic coalition had accepted the neoliberal economic model of the Pinochet years, and they were concerned with appeasing a business sector that staunchly supported that model”[29] Economic neoliberalism was largely untouchable as redemocratization moved forward, resulting in a lack of real action towards reducing inequality.

Under neoliberalism, social democratization programs languished, and Chilean inequality became more marked. Politicians respected their ties to business leaders and were reluctant to facilitate the passage of new labor laws. Neoliberal economics and GDP growth took top priority, while labor issues were often marginalized. As such, concessions were made to the business leaders and open trade remained in place, including “limit[ing] investments in public enterprises and social services while giving in to the demands for subsidies of private companies.”[30] The CUT was at a disadvantage because of its lack of persistence; the fragile democracy superseded major labor contentions that might result if CUT pursued its agenda to a larger degree.


La Concertación promoted labor reform and a reduction of inequality after replacing the repressive Pinochet regime. However, the need for consensus politics in the transition to democracy prevented any major changes. Maintaining neoliberal economic policies also curtailed labor reform. While Chile is currently seen as a model of economic growth in the last quarter century, it remains relatively regressive in terms of basic labor and workers’ rights. Although Pinochet has been physically absent from Chilean politics for two decades, the shadow of his influence lingered on.

References for this article can be found here.