Tuesday, December 17, 2013

Chile - a degrading liberal state?

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All the signs suggest that Chile is destined to degrade into a liberal state. The cards were always on the table when you consider the anti-intellectual foundations for the nation. The modern 'successful' state was born out of intellectual repression. As it turns out repression can be good, when the ideas being repressed as are socialism. General Pinochet is criticised broadly for suppressing and killing political activists. Those who lost loved ones are however fond of forgetting that the activists were extortionist socialists intent on turning Chile into a socialist paradise. They might soon have their way. So we will explore the question of - cost or 'opportunity cost'.
There are of course those who will argue that life is an intrinsic value; but actually everything we understand about life tells us that it is objective and conditional upon humans recognising the requirements or life-affirming values to sustain and prosper. So how is Chile destined to fail?

Pinochet should be a national hero because he denied individuals rights to those who spurned their value. How can the socialists of the 1960s, like those of today:
1. Be critical of human right violations when they were no less intent upon curtailing said rights. The difference is only one's choice of victims. Pinochet curtailed the victimisation only to the socialists who threatened the rights of others, rather than the socialists who threatened to takeover the country and renounce everyone's rights.
2. Avoid the correlation between personal freedom and prosperity. Since Pinochet's transformation, the nation has achieved outstanding growth. It is true that a lot of the prosperity has resulted from the mining boom. That said, the nation will struggle to sustain the levels of spending being considered by the new socialist government.

The regime of Pinochet is not without its problems. The greatest threat is posed by low standards of education. The truth is that no nation around the world conveys a healthy framework of human values. Chile is no exception in this regard. It however can be considered to be very vulnerable because:
1. Spanish cultures were never famous for their personal or intellectual discipline
2. Spanish cultures always gave primacy to lifestyle considerations
3. Spanish cultures have always been firmly collectivist, spurring the rights of individuals for the sake of social harmony.

Does this suggest that we are destined to see another oppressive political step by the military. Well, that is possible. This government is relatively popular. The implication is that:
1. Chile could see a return to oppressive militarist rule - but this time round the military may be more corrupt than under Pinochet
2. The socialist coalition of 7 parties might well break down, so it loses credibility, and is unable to implement much of its program

In the favour of the socialist government is the health of the Chilean economy as well as the underlying disparity of wealth. Commodity prices have likely seen the bottom, so we can expect export revenues to have reached their low. Chile will however be going against the international trend of austerity. Partially this will serve to debase a currency that is destined to be a 'hard currency' at a time of robust mineral prices and devaluing international currencies (i.e. EUR, JPY & USD). The problem lies in the potential impact of state education. In some respects the reforms could be construed as positive, however given that it could greatly enlargen the state bureaucracy, there needs to be considerable scepticism about the direction of said policy. Nothing can be taken at face value. It matters less than education is state or privately run; it matters more that the values conveyed are healthy. So what exactly is the nature of this program?

Currently, education in Chile relies upon household funding. The implication is that the poor are precluded from entering 'skilled' work which pays higher. The implication is that Chile is trying to elevate its standing as a 'skilled nation'. That is admirable. The problem is that there is only so much demand for skilled labour. You therefore have to wonder whether Chile's skills development will be as beneficial as in other countries, which already have skilled trainers. This is a threat. The opportunity presented for Chile is that they might well be able to position their nation to be the 'skills capital' of the Latino world. That is a strategic opportunity. There is really no centre of commerce in the Latin world. The Australian Stock Exchange, the Johannesburg and Toronto/Vancouver Stock Exchanges are centres of finance serving their respective markets. There is every reason to believe Santiago could displace Toronto, Sydney, NY and London as the Latino centre of capital, particularly given its growing importance to mining and its shared Latino language.

The negative aspect is the expectation that any wealth created can be pilfered by the state 'in the interests of the common good'. In fairness to Chile, the government is only talking about raising its tax rate from 20% to 25%. This might be construed as recognising its improved sovereign rating - barr immense changes like this. The government is also talking about dropping tax concessions on capital works. Large scale mines tend to undergo expansion. Tax deductions on further capital expansion therefore favours further 'expansion' to defer mining profits, and therefore taxes, until later years. In Chile, the mines are immense. So the miners are able to defer taxes. Deductibles are bad policy as they greatly complicate and distort a 'user pays' system, but so does relying on income taxes. The question is for how long will miners be able to defer tax through deductibles. It is fair to say it will not make much difference because they will merely restructure their spending accordingly. In that case, we can expect 'corporate loopholing' to leave the budget under-funded, demanding more tax increases. The nation should move towards a consumption tax with user pay charges on identifiable and privatised services. Education, if it must be state-funded, should be on the basis of a voucher system, so that people's education dollar is discretionary. If families don't use their education coupon, then perhaps it should carry over towards their social security. The funds should go into a resource fund to protect future savings from inflation. Of course must depends on the nature of education policy; however a state solution is generally a bad idea. Is there any reason to think it will be worse than any other nation? No, but relativism is hardly a solution to what might be construed to merely a 'funding problem' for education. This is a justification for a coupon system - not a Western style state system which has decimated student's capacity to learn. One could be forgiven for hoping for a crisis of confidence from rising inflation to precipitate the suspension of the Bachelet-government's program.

Her other reform initiative is constitutional reform to adopt an electoral system. The problem with representative democracy is that it causes bitter in-fighting over an issue which is really superfluous. Representative democracy is extortion. Policy development should be about 'good rational ideas', not extorting influence as a 'numbers game' or strategic manipulative game-play, that electoral politics ultimately descends into, with lobbyists buying votes. This is not a paradigm that has served any Western nation in the last 80 years. It will never achieve its stated goals - because its is institutionalised corruption, on a poorly conceived idea. Its not stable government; its repressive, disenfranchising, alienating tyranny. The fact that it constraints political leaders almost as much as its citizens is not a saving grace. It is a capitulation that is destined to end in tyranny by forcing the renunciation of the human mind. Having said that, her proposal for reducing the entrenched power of the mainstream parties could be construed as a positive. If they adopted a system like NZ or the Philippines MMP list seats, or even Australia's proportional electoral preferencing system, then minor parties would have greater voice. It would still however be a 'extortion-based' system, where parties are rewarded for extortion. In fact, we might argue that it affirms the wrong value. It says that any competitive system is fair, even though the system rewards or affirms extortive imposition of force.

Of course, the Bachelet-government can be praised for its initiative to liberalise abortion and gay rights. She is not exactly a new face in politics, having led a coalition government from 2006-2010. In that time, she was undoubtedly challenged by her thin majority and the global financial crisis, even if commodity prices were relatively high in this period. On reflection, it does not seem that the Bachelet-government poses such an immense threat given that she will have to rely on the Right for some concessions, and her 7-party coalition might end up being a substantial vulnerability regardless.

It is difficult to compare Chile to Nixon's New Deal. There might be 'centre-left' protesters clamming for change. But at this point there is no crisis demanding such policy. This might however occur by necessity. If Westerner governments are going to continue to poor USDs on the global market, then 'relatively' hard currencies like Chile will be forced to debase their own currencies to remain competitive in international markets. We can expect therefore some profligate spending. The positive news might well be the plan to direct this spending towards 'value-added' education. The question is whether the nation's leader is able to pull off that feat. Its plausible that Chile will be a Mecca of learning for the region. The question is - how well will they do. This demands some understanding of the current value of Chilean education. Perhaps the outlook is positive given its 'discretionary' funding model to date. That question demands investigation.

For more information on the Chilean economy, read BBC News.

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