Unlike other Latin American countries, where the leftwing leaders are the fiercest enemies of market-friendly policies, Chile’s market-based economic model is being endangered from within. A scandal, provoked by an investigation that uncovered a toilet paper price-fixing cartel, has damaged public trust and fueled calls for the state to produce and distribute goods and services and regulate prices.
Chileans still believe in markets; they just increasingly suspect that Chile lacks a level playing field. People fear that the invisible hand of the market has been captured by special interests and politically connected businesses, and recent scandals have only reinforced this fear.
Since democracy was restored in 1990, Chile has developed using a market-friendly economic model. Center-left and center-right governments alike have promoted socially-oriented neoliberal policies that foster competition and allow the market to assign resources and provide access to public services. The government’s role is restricted to regulating markets and ensuring competition. Yet, the insufficient regulatory frameworks have made Chile an extreme example of unfettered neoliberalism. To be sure, as democracy has consolidated and the economy has expanded, the regulatory power of the state has also strengthened. But it hasn’t yet strengthened enough to protect Chilean consumers. In several sectors, market-concentration is too high to allow fair competition, with three or fewer players dominating and distorting the market. In the case of the toilet paper cartel, there were only two companies involved and one of those controlled three-quarters of the market.
Previous cases of collusion in recent years, in the poultry sector and pharmacies, also provoked outcry, but the toilet paper cartel has triggered a more vicious reaction. Part of the problem lies in the names of those involved in the price-fixing scandal. One of the two companies involved, CMPC, belongs to the Matte family, one of the wealthiest families in Chile. The Matte have been outspoken advocates of market-friendly policies, even creating the Centro de Estudios Públicos (CEP) in the 1980s, a think-tank charged with producing policy recommendations to deepen the market-friendly economic model adopted under military rule. CEP has been instrumental in proposing reforms to improve markets and promote competition in different areas, including education, health, pensions and even political campaign contributions. Though the head of the family conglomerate, Eliodoro Matte, has publicly apologized for the toilet paper cartel—and reparations to consumers are likely to be forthcoming—he ironically recently lectured President Bachelet on the need to strengthen markets by sticking to market-friendly policies and limiting government interference and regulation. Bachelet was elected for a second term in 2013 on a platform that aimed to strengthen the state and curb the insufficiently regulated markets of education, health care and pensions. The business sector has since become the strongest opponent of some of Bachelet’s reform initiatives. When CEP organized a summit between the President and Chilean business leaders to find common ground, Eliodoro Matte was the host and delivered his speech lecturing President Bachelet knowing that his company would soon be charged with cornering the market.
Since the legal system in Chile allows a company to collaborate with the prosecutors to avoid penalties—as long as the evidence provided is sufficient to penalize the other members of the cartel—CMPC will not pay a fine for the collusion. Though the legislation was devised to make it easier to identify and punish cartels, many Chileans feel that, once again, a powerful company has gotten off the hook with a slap on the wrist.
In 2011, Chilean students took to the street to denounce the high cost and low quality of tertiary education. They protested against the market mechanisms that drove access to education and that reproduced high levels of inequality. And they called for the state to have a larger role in providing education and regulating the private provision of education. In recent years, other collusion scandals have also weakened public trust in market efficiency and fairness. Calls for the state to step up its regulatory powers have become more popular. Others openly want the state to intervene in markets as a provider of goods and services or by setting prices.
Advocates of market-friendly policies point to all those areas where markets prove to be efficient. They acknowledge the need for the state to guarantee access to social services and expand opportunities and promote inclusion. Yet, when there is public outcry against price-fixing by companies and powerful businessmen seemingly above the law, advocates of free markets need to understand that the forces limiting competition from within the system are becoming the real threat to the stability and legitimacy of Chile’s market-friendly model.