The global economic system seems at the cusp of change

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The global economic system seems at the cusp of change

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• The year 2020: Everyone agrees by now that Covid-19 changed the game thoroughly in 2020, but were there some trends already set in motion before that, which were missed? The pandemic may have speeded up those changes.
• Biden's healing: The new American President Joe Biden has promised "healing", and economic policy will be the starting point. But a good example is that of Chile, something everyone can learn from.
• Chile's history: The 2020 referendum saw 78% voting for a new constitution, by dumping the existing one (in force since 40 years) that was made by the brutal dictator Augusto Pinochet. He was brought to power by US support, toppling a democratically-elected dictator.
• Pinochet's regime: He killed thousands, jailed many more, and enforced a puppet constitution that survived till date. Chileans kept protesting for years, and got minor changes made. It was only recently that major protests (over metro fare hikes!) led to the referendum.
• Multiple concerns: Chileans were upset with widening income inequality, poor healthcare, bad education, and low wages and pensions. The citizens wanted a new constitution with a new economic policy. And that is where the first change to prevailing global economic model will begin. Interestingly, Chile was South America's best performing nation on GDP growth, but the model was the one popularised by Milton Friedman (the Chicago School).
• The Friedman model: It focused on monetarism, free markets and stronger private sector. The masses today feel that it favoured just the rich. The many Chilean economists trained by Friedman at Chicago occupied top positions, all while Friedman kept advising dictator Pinochet himself.
• What happened: The Friedman model led to rising per capita GDP and more foreign capital inflows. But the widening income inequality ruined it all. Estimates suggest that 25% of total income goes to just 1% of Chileans. Most citizens are heavily in debt now. And the industry is not happy with the new referendum!
• What next: Chile is now trying to ensure a radical left turn is avoided! Fitch Ratings has downgraded Chile's ratings. The Chilean economy may retain many of the key institutional elements, and work towards equitable distribution of income. It may work to avoid wealth concentration in the name of laissez faire.
• US and Chile: So two American nations are bound to see major economic changes in near future. Will this be the big change in global economy's direction too? The 1980s saw the neoliberal economics take hold, with Margaret Thatcher in UK and Ronald Reagan in US. It may be time for change, as the global financial crisis 2008 amply proved.

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