Limits to reform: Neoliberal social policy in Chile (1973-1989)

Under the military government led by dictator Augusto Pinochet (1973--89), a group of Chilean economists strongly associated with the monetarist "Chicago School" tradition launched a major liberalization of what had been one of the most well-developed welfare states in Latin America. The reform resulted in a comprehensive transformation of the state's role in social policy. In pensions, a system of individual retirement accounts administered by the private sector replaced a collectivized system of publicly-administered retirement funds. In health, a private insurance market was created to provide coverage to a growing number of clients seeking an alternative to the national health service, which also underwent significant marketizing reforms. In education, a school voucher system was introduced, spurring the growth of private sector schooling and forcing publicly-administered schools to compete for scarce public resources.;From one perspective, the Chilean experience with reform represents a striking expression of the neoliberal policy goal of finding "private solutions to public problems." This study offers two additional interpretations. First, the study demonstrates that the transformation of social policy occurred along two distinct dimensions: shifting major responsibilities of provision to the private sector, thereby minimizing the state's role in direct provision, and placing new emphasis on compulsory individual protection against social risks, instead of compulsory collective protection. Second, although this is seen as a case of comprehensive neoliberal reform, the study also finds that the military government encountered limits to the reform of social policy that were not contemplated in neoliberal theory. Although markets most certainly create conditions which encourage individual protection against social risks, they are less able to provide an adequate environment for the pursuit of collective goals. Thus, the Chilean case suggests that the neoliberal state will be unable to pursue exclusively "private solutions" if it retains an interest in promoting the "public" or collective goals of social policy. Instead, the state will be forced to supplement private solutions with interventionist strategies that run counter to neoliberal prescription.