Will Boricnomics Deliver on its Promises?

Not all plain sailing: Chilean President Gabriel Boric has faced difficulties in implementing his economic agenda. Image: Government of Chile / Wikimedia Commons / CC BY 3.0 CL

Chile’s president, the left-wing Gabriel Boric, faces an uphill battle to reinvigorate his state-centred economic programme without suffocating opportunities for growth. The botched announcement of a new lithium extraction strategy and Boric’s recent loss of the popular vote in a constitutional council election put him in a bad spot.

Governments often need to explain to their voters why things don’t go as expected. Mexican President Andrés Manuel Lopez Obrador uses his daily press conference – known as the mañaneras – to announce changes in policy, sometimes in unexpected fashion. In Venezuela, Nicolás Maduro blames it on the opposition via Con Maduro+, his third television and radio show commenting on current affairs. His predecessor, the late Hugo Chávez, spoke for hours in Aló Presidente, pointing fingers at his adversaries. It was a big surprise when the government of Chile – a country with quite different standards on freedom of speech and government accountability – introduced Gobierno Informa, an in-person and live-streamed panel where ministers and heads of public services discuss the government’s latest – and usually most criticised – policies, from educational reform to urban violence.

In a recent episode, the finance minister, Mario Marcel – a former Central Bank governor and respected left-wing economist – stepped up to the plate to endorse the recently launched and much commented-on Lithium National Strategy. Marcel pushed the official line, arguing that since the mineral was declared a strategic asset in the late 1970s, the government couldn’t give it away through concessions, thus painting references to the ‘nationalisation’ of the industry as a conceptual error everyone else made, not the government.

The market didn’t buy it, and international press heavyweights such as the Wall Street Journal, the Economist and the Financial Times hammered home the idea that the state would take a majority role in all new lithium processing operations proposed by government. As noted by Juan Pablo Toro, the executive director of AthenaLab – a Chilean think tank – private investors are now seriously questioning whether the Boric administration will be able to deliver on new industrialisation, especially after the botched announcement. The government raised even more eyebrows recently when it was publicised that the flagship ‘gas at a fair price’ policy cost the state-owned oil company Empresa Nacional del Petroleo 10 times more than the market price for each cylinder.

Boric’s self-inflicted wounds are piling up, and a change in course is needed. In this year’s annual speech to Congress, he is expected to attempt to reassure allies and convince opponents that he is heading in the right direction. He has done well in standing up to authoritarians in the region to demand democratisation and respect for human rights. At a recent meeting of regional leaders in Brasilia, Boric confronted its host Lula da Silva’s defence of the Maduro regime in Venezuela. It is time for Boric to capitalise on his foreign policy strength by making progress on the economy.

Enter the Economists

Since arriving in La Moneda, the past 15 months have taught Boric that Chile’s neoliberal track-record can’t be washed away overnight, and that his promise of a new and more benevolent economic system will require navigating rough waters. ‘There is no growth without social cohesion, and it is not possible to grow in a socially fractured society’, Boric told the business sector during his campaign. Corporate leaders have since expressed concerns about placing the state at the centre of economic expansion.

Boricnomics presents a model of hard left-wing policies meant to push the commodity-rich country to the brink of a new socio-political fault line. Ideologically, it seeks less privatisation, more regulation, more power for the working class, and more taxes for businesses and the rich. In practice, it aims to eliminate the private pensions system, increase the minimum wage, reduce working hours, write off student loan debt, and replace private healthcare. However, an inclusive society will come at a greater cost to the state purse.

Boric's administration needs a dose of realpolitik, listening to those at the bottom and winning more friends to back its contentious policies

Boricnomics may be explained by socially empowered tenets, but what lies at its heart are the administration’s close intellectual relationships with economists such as Mariana Mazzucato, the UCL professor who is considered among left-wing decision-makers as one of the most representative voices of a new form of capitalism, where the state can transform problems of low productivity and natural resource dependence by innovating and generating new forms of wealth. The new left-wing thinkers, as put by The Guardian, are ‘transforming economics’, seeking in the long term the redistribution of economic power, or a democratic economy where individuals and communities play a role by taking ownership of services and markets for the benefit of everyone.

In late 2022, Mazzucato visited Santiago, Buenos Aires and Bogota to propose the adoption of new narratives to beat underdevelopment. During a meeting with Boric, Marcel and Economic Minister Nicolás Grau, Mazzucato offered advice on Chile’s economic challenges and opportunities, including on what would later become key policies, including lithium extraction and the creation of new markets for green hydrogen. Mazzucato was joined at the meeting by Nobel Prize awardee Joseph Stiglitz and Jose Miguel Benavente, head of Chile’s economic development agency (CORFO), who is currently leading efforts both to convince current investors to stay and to attract foreign funds to capitalise on the lithium industry. Days before, Mazzucato had published a syndicated column in which she called for strategic clarity in Latin America. ‘By positioning a natural resource like lithium at the centre of a specific mission – to decarbonize the economy, for example – policymakers can reshape the incentive system. Instead of encouraging mindless exploitation of natural resources, they can ensure that rents are reinvested in more innovative and rewarding activities’, the economist argued.

Following such advice, Boric’s lithium strategy called for public-private associations as the optimal model for non-renewable exploitation. ‘[Joint ventures] are set up for different minerals or in oil, and it is not a particularly new way to incorporate the private sector, and beyond what a news outlet can say, it is absolutely legitimate’, said Marcel during his Gobierno Informa appearance.

Liberal economist Branko Milanovic, whose research on inequalities has shaped debates around the failures of capitalism, presents a subtler, different point of view. If capitalism has done so much wrong, it has at least redeemed itself by delivering prosperity, often in risky but fixable ways. Using Boricnomics to correct the errors of capitalism surely requires a level of subtlety if new stakeholder relationships are to be cultivated. Boric does not need a pat on the back from economists. On the contrary, his administration needs a dose of realpolitik, listening to those at the bottom and winning more friends to back its contentious policies.

The Consejo de Pueblos Atacameños, a middle-sized indigenous council in the region of Antofagasta, for example, rejected Boric’s lithium strategy, saying it would damage the environment. They also criticised CORFO’s ongoing partnerships with SQM – the world’s biggest lithium producer – and with the US company Albemarle, which currently produces lithium carbonate from solutions extracted from the Salar de Atacama, where 90% of Chile’s ‘white gold’ reserves are found. In 2022, lithium became the country’s main export after copper, generating over $5 billion in state revenue. The lithium triangle, composed of bordering areas of Bolivia, Argentina and Chile, holds 53% of the world’s lithium ore reserves.

Progressives versus Conservatives

Boricnomics worked quite well for securing him the presidency, as it became an effective weapon worldwide for left-wingers to defeat right-wingers by calling out their corporate agendas. But other anxieties, especially crime and immigration, have shown that left-wing economics is not the answer to more pressing complaints.

Public expectations of Boricnomics focus on whether he will be able to deliver efficiently without suffocating opportunities for growth

The post-Covid environment in Chile created opportunities for both ends of the political spectrum. For progressives, the experience of the pandemic was used to justify the idea that inequality is fought against with taxes to take care of the vulnerable. For the country’s conservatives, it provided time to regroup and wait for their opponents’ mistakes. Now, public expectations of Boricnomics focus on whether he will be able to deliver efficiently without suffocating opportunities for growth. But he is dealing with too many battlefronts at the same time. The copper industry is lobbying against a proposed 48% royalty, which it believes hurts competitiveness against other markets such as Peru and Australia. The royalty adjustment is one of Boric’s ways of funding his campaign promises.

Boric suffered another wake-up call this month when a majority of Chileans voted against the government’s candidates in the election for members of the new constitutional council. Last year’s constitutional draft (which was produced by a majority of left-leaning councillors) was turned down by 62% of the population, inflicting a serious blow to Boric’s political project. José Antonio Kast, the leader of the party that achieved the most votes – the hard-right Republicanos – lost to Boric in the 2021 elections. Kast has high hopes of winning the presidency in 2026 and will continue to capitalise on the left’s mistakes.

Chileans who opted for Boric before may no longer believe his progressive model is the way forward. As Toro from AthenaLab said to me, ‘Chileans are not estatistas (pro-state) in comparison to Mexicans or Argentineans’. The shares market responded positively to the results of the constitutional council election. Corporate leaders from the mining sector, which represents around 10% of the country’s GDP, did too. Many believe that the second round of constitutional drafting should emphasise long-term economic stability through moderate changes.

We may be heading for a Gobierno Informa episode in which Boric himself sits down to explain his revised economic direction. He may have to clarify why tax reform didn’t work, or why redistribution was taken too far. We don’t know yet, but another lithium-like nightmare may cause Boricnomics to run out of ideas. For now, he should move away from economic populism and the reckless left-wing models that have tempted many other Latin American countries.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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Dr Carlos Solar

Senior Research Fellow, Latin American Security

International Security

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