Constitutional basis of the economic public order in chile

• Author: Teodoro Ribera Neumann
• Position: Attorney, Bachelor in Law and Social Sciences of the Universidad de Chile (Santiago)
• Pages: 1-21

1

CONSTITUTIONAL BASIS OF THE ECONOMIC PUBLIC

ORDER IN CHILE

Teodoro Ribera Neumann

*)

Abstract

Undoubtedly, the 1980 Constitution was deeply influenced by the painful

experiences of Chile’s constitutional history in the financial field. Chile’s past

political economy was characterized by a State that stifled private initiative,

generated important arbitrary discriminations, intervened directly in economic

activities through the creation of enterprises or indirectly through discriminatory

laws, and so on.

The new economic order restricts the State activity and seeks to prevent the

implementation of an economic system based on State planning, such as the one

that existed in Chile during the 70’s.

The Constitution contains various provisions concerning the functioning of

the State, which pertain to free enterprise freedom. It can be inferred from those

provisions that the Constitution restricts State activity in order to prevent the

implementation of an economic system based on State intervention or State

planning. The existing constitutional rules are based upon the primacy of the

individual and individual rights and freedoms, as the foundations for the

constitutional system. These rules limit State power to a subsidiary role,

according to which it may act only in cases when individuals or groups of people

are unable or unwilling to act.

Keywords: constitutional basis; the economic public order;Chile; state and

the market in the 1980 Constitution

I. INTRODUCTION

Chile stands out in Latin-America because its economic growth has resulted in

a progressive decrease in poverty and marginality levels. Chile’s unique strides in

economic growth have made room for increasingly dignified lives for its people.

Along with this improvement in the standard of living, there has been a more

thorough exercise of human rights.

The normative groundwork for this successful economic model is located in the

Constitución Política de la República de 1980, the 1980 Constitution, which

contains an economic public order based on two elements – 1) the exercise of

personal liberty and 2) the subsidiary role of the State.

*)

Attorney, Bachelor in Law and Social Sciences of the Universidad de Chile (Santiago) and

Doctor Iuris Utriusque, of the Julius Maximilian Universität, Würzburg (Federal Republic of

Germany). Profesor at the Universidad Autónoma de Chile and Universidad de Ch ile. Mail:

tribera@uautonoma.cl. Article published in “Dreptul” Magazine nr. 8/2 010, p. 236-255.

2

The constitutional evolution during the 20

th

century in Chile was not

independent from the economical and political doctrine changes that occurred

worldwide. Accordingly, Chile’s constitutional evolution experimented with the

growing tendency to favor State intervention

1)

. In economic matters, the State assumed

a leading role during the 1940’s, when it strongly regulated business enterprise by

enacting restrictive and prohibitive laws. These regulations were in effect during the

1960’s and early 1970’s, at the same time that individual property rights weakened, a

change which favored the expropriation of both urban and agricultural real estate,

and permitted the “nationalization” of all major copper mines

2)

.

During the government of the Unidad Popular (Popular Union, from 1970 to

1973), Chile became a profoundly divided country because of opposing economic

and political views pertaining to its future. The liberal democratic system was

strongly questioned, and the State increased its intervention in economic matters

through both legal and administrative measures, and de facto initiatives. In 1973,

the State controlled 500 enterprises. In that year, a considerable part of the

agricultural land was expropriated and 1,500 agrarian properties were being

occupied by the Comités Campesinos (Farmers’ Committees). Moreover, the State

intervened considerably in Chile’s financial system, and private stockholders were

pressed into selling their shares to the State. Inflation climbed up to a yearly rate

of 106%, despite the more than 3,000 products, ranging from bus tickets to hot

dogs that had been held fixed in price. In an effort to bolster the national industry

and through it the national autarchy, the average tax for goods traveling through

customs rose 94%. The import of certain products was downright prohibited; and

others had import tariffs well over 200%, or required deposits equaling 10% of

their price. In 1973, the financial deficit of the State was 30% of the gross internal

product, and yearly inflation reached 606%. This was the environment during

which discussions about a new constitution were initiated, in 1973, right after a

broad institutional breakdown

3)

.

Later, in 1980, the constituent government reverted the pro-State bias in the

1925 Constitution, and did so at a time when State intervention tendencies

predominated worldwide. Although there is currently a great consensus in Chile

regarding the economical model, that consensus is due to this economic model’s

success and the benefits it has brought Chile during its practice.

1)

On this subject consult Pablo Barahona Urzúa, Desarrollo y Estabilidad, Una interpretación

histórica, in: Centro de Estudios Públicos, Revista Estudios Públicos, No. 53, Santiago, Summer

1994, p. 39 and following.

2)

Pertaining the private property right and its evolution: José María Eyzaguirre, El Derecho

de propiedad privada, in: Gonzalo Vial (editor), Análisis Crítico del Régimen Militar, colección

Universidad Finis Terrae, Impresos Universitarias, Santiago 199 8, p. 101 and following.

3)

Patricio Meller, Análisis Crítico de la Economía durante el Gobierno Militar and Pablo

Barahona, La política E conómica del Gobierno Militar, in: Gonzalo Vial (editor), Análisis crítico

del Régimen Militar, op. cit.

3

An analysis of the Chilean economy that does not consider its constitutional

foundations lacks comprehensiveness. The elements of personal liberty and the

subsidiary role of State that exists within Chile’s framework are aspects that cannot

be ignored. Undoubtedly, these aspects must be considered to fully understand

how this economical model has survived the many crises that have transpired

since its adoption, and the various governments of different political ideals that

have applied it.

II. THE STATE AND THE MARKET IN THE 1980 CONSTITUTION

1. General principles of the Constitution. While the 1925 Constitution did not

contain an explicit definition of principles and norms regarding the economic

public order, the 1980 Constitucion Política de la República de Chile abandoned

this axiological neutrality, and incorporated Natural Law values and principles. At

the same time, this new Constitution made room for a sturdy political and

economical structure, in order to guarantee a free market economy. The 1st and 5th

articles of the Constitution point out, among other aspects, that 1) men are born

free and equal in dignity and rights, 2) that the State recognizes and wards the

intermediate groups, guaranteeing an adequate autonomy for them to accomplish

their own ends vis-à-vis the subsidiary principle, 3) that the State is at the service of

its people and that its mission is to promote the common good by creating social

conditions that would allow each and every member of the national community

the most complete spiritual and material fulfillment that is possible, while

respecting Constitutional law, and 4) that the State’s sovereignty is restricted by the

rights inherent to each human being, and that it is the State’s duty to respect and

promote such rights.

The Tribunal Constitucional (Constitutional Court), together with recognizing

that “the institutional order structured by the 1980 Constitution, was built upon a

set of basic values and principles”

4)

, maintained that those constitutional precepts

“are not merely declarative, but are express provisions that obligate governors and

the governed alike, and as such are vital guiding stipulations that help in clarifying

the true sense of the rest of the Constitutional provisions”

5)

.

It is important to clarify that in our Constitutional order, the State does not

have a guiding role in the life of individuals, nor does it exercise control over

social life. Instead, its function is subsidiary to the decisions and acts of individuals

and their intermediate groups. Its expressed role was to promote the common

good in general and to assume certain specific duties in particular. It can be

concluded from our constitutional structure, therefore, that it is not a State function

to decide, or to deliver, a determined or single view regarding “spiritual and material

4)

Constitution al Court of Chile, Case Law No. 46, Subs ection 19, to be cited as STC 46/19.

5)

STC 46/21. See also Teodoro Ribera Neumann, El Tribunal Constitucion al y su ap orte al

desarrollo del Derecho, in Revista Estudios Públicos, No. 34, Centro de Estudios Públicos,

Santiago, 1989, p. 213 and following.

4

fulfillment.” Rather, the State functioned to create a setting in which each person or

group might achieve such a goal on its own volition. Under this arrangement,

spiritual and material fulfillment becomes an individual or group issue, and the

State only assumes a tutelary and guarantor role.

2. Main principles of the Economic Public Order. Given the political and

economical situation during the first years of the 1970’s, the Comisión Constituyente

or Constituent Commission that elaborated the new constitutional text, recognized

the necessity of a new economic public order able to guarantee the development of

a free society

6)

. However, during its first stages, the Commission was deeply

inclined in favour of a mixed economic doctrine

7)

. Such a doctrine claimed the

coexistence of private enterprise – with economic areas owned and managed by the

State, to whom it ascribed a planning and orienting mission with respect to the

economy. Only after the government teams liberalized the economy, did the

Commission modify its position to favour free private initiatives and to institute

the subsidiary role of the State.

The Constituent Commission debated the idea of incorporating a special chapter

dedicated to the founding principles of the economic public order into the

Constitution, which was abandoned in favour of disperse provisions from which

the principle would be naturally inferred as a “constitutional doctrine”

8)

. In 1974, the

384

th

session was counseled by the economic team of the Military Government

9)

and

the commission agreed to consider the following principles on the Fundamental

Law.

a) Economic liberty, including production, commerce and work liberties. The

Constitution also determined that the restrictions to productive or professional

activities could only be enforced through a law, and that syndicate and guild

affiliation was always voluntary and never compulsory.

b) The strengthening of private property pertaining to production and

consumption, so that the expropriation could only be made through a specific law

and only in cases previously specified in the Constitution. The indemnity paid to

6)

This necessity was due to the fact that the 1925 Constitution did not had an explicit stance

in matters of economic principles. T hat allowed the fraudulent interpretation and application of the

Constitution through exegetical loopholes. Jo sé Luis Cea Egaña, Tratado de la Constitución de

1980, Características Generales y Garantías Constitucionales, Editorial Jurídica de Chile, Santiago,

1988, p. 156.

7)

One issue that arises in the official records of the Constitutional Commission are references

to the constitutional reform project called “the three areas of the econo my”. This proyect, started in

October 1971, recognized the existence of a State area, one mixed and o ne private.

8)

Comisión de Estudio de la Nueva Constitución Política de la República, “Actas Oficiales

de la Comisión”, Talleres Gráficos de Gendarmería, Santiago 1982, Session 388, p. 2907.

9)

See also: Roberto Guerrero del Río and E nrique Navarro Beltrán, Algunos antecedentes

sobre la historia fidedigna de las normas de orden público económico establecidas en la

Constitución de 1980, in Revista de Derecho de la Universidad Finis Terrae, año I, N° 1, Santiago,

1997, p. 117 y and follwing.

5

the expropriated had to be fair, which meant that it had to be consistent with the

commercial value of the expropriated goods, and paid in ready money. Any form of

requisition or confiscation system, such as confiscatory or disproportionate taxes,

was prohibited.

c) Legal equality in economic matters, in order to guarantee a free economic

system, and to avoid the possibility that some economic enterprises could be

arbitrarily benefited or disadvantaged by a given decision of the authority.

d) A subsidiary State, whereby the creation of public services and State-owned

enterprises, and the holding of any major or minor share of private enterprise by

the State, was allowed only if an express law permitted it.

e) The control on public expenditure, which orders that the disbursement of

resources acquired by the State through taxes, tariffs or debts should be authorized

and regulated only by law.

f) The creation of an independent monetary and exchange authority,

controlled and directed by immovable authorities, whose fundamental function

was the control of public economic and exchange guidelines. Moreover, such an

entity could give neither direct nor indirect credit to the State or its dependants, in

order to fully contribute to the monetary stability of the country.

III. CONCRETION OF THESE GUIDING PRINCIPLES ON THE

CONSTITUTION

1.0. Economic liberty as an extension of the individual liberty. The

Constitution of 1980 incorporated economic liberty as an extension of individual

liberty. That is because the entire structure of the Constitution is based on two

principles: 1) that individuals are born free and equal in dignity and rights, and 2)

that the role of the State is to be “at the service of the human being, as a mean or

instrument in the temporal order, for his complete fulfilment, a service that is

concretized through the promotion of the societal common good”

10)

.

The importance of liberty constantly manifests itself in most of the precepts of

the Constitution, such as the right to choose public or private systems in various

areas including health care, social security, teaching and education, associations and

syndicate unions, etc.

In our area of interest, the Constitution recognizes the right to choose to

undertake any economic activity under article No. 19, in the following terms:

“The Constitution ensures to all persons:

The right to undertake any economic activity that is not contrary to morality,

public order or national security, providing that activity respects legal and regulatory

norms.

10)

E duard o S oto Klos s, La actividad Económica en la Constitución Política de la

República de Chile, in: Escuela de Derecho, Universidad Santo Tomás, Revista Ius Publicum N°2,

Santiago 1999, p. 119.

6

The State and its agencies will be able to undertake enterprising activities or

participate in them only after a law of qualified quorum authorizes it. In such case,

these activities shall be regulated by the same legislation applied to private

individuals, subject to the exceptions that, with justified motives, are established

by the law, which shall be of qualified quorum as well”

11)

.

The Constitution bestows ample recognition to the right to undertake private

economic activities, because it provides for “a ny economical activity”, the only

two limitations being 1) that such activity could not be “contrary to morality,

public order or national security”, and 2) any activity would have to respect “the

legal norms that regulate it” . With these terms, the constituent established the

limitations to this right, thereby prohibiting legislators from to creating other

restrictions.

This last constraint signifies that limitations can only be established or

introduced through norms that emanate from legislator, and not from the

administrator. The legislator possesses restricted attribution, because he can only

“regulate” an activity. The legislator can neither restrict nor impede activities in

any way that may affect their overall guarantee of the essence of the right, prescribed

by Article 19 No. 26 of Fundamental Law. The Constitutional Court has stated

that: “to regulate an activity means to establish the form or norms through which

such activity has to be carried out, but in any case may be that under the pretext of

regulation it comes to impede the exercise of an activity”

12)

.

The Court has declared that this right “is an expression of the philosophic and

juridical contents of chapter I of the Constitution, and that it constitutes a

consequence of the subsidiary principle as well as the duty of the State to safeguard

the right to equal participation in national enterprise”

13)

. It has also stated that the

right to develop any economic activity “is of paramount importance for

individuals, because such a right enhances and nurtures the spirit of initiative and

creativity within each person”

14)

.

The second paragraph of Article 19 No. 24 of the Constitution restricts

State-owned enterprises from hindering private enterprise.

Alongside this recognition of the right to develop any economic activity, the

Constitution strengthened the right to choose in various aspects. Individual liberty

is supported by the right to choose freely either to affiliate with an association or

not, which renders any kind of association a free choice (Article 19 No. 15).

Likewise, the Constitution grants the right to choose freely either to affiliate with

a syndicate or guild or not; and no law nor mandate from the authority can demand

11)

See also : Luz Búlnes Aldunate, E l derecho a desarrollar cualquier actividad económica,

in: Facultad de Derecho, Universidad de Chi le, Revista de D erecho Públ ico, Nº 37-38, p. 149

and following.

12)

STC 146/9.

13)

STC 146/8.

14)

STC 226/4 1 and following.

7

either an affiliation with an organization or entity as a requisite to develop any

labour, or the disaffiliation in order to maintain one (Article 19 No. 19). In

practical terms, this provision meant that syndicates, guilds and professional

collegiums lost their age-old compulsory sponsorship over individuals who

worked in certain kinds of trades or professions. The provision strongly

emphasizes working and hiring liberties, by providing that no type of work can be

forbidden, except those prohibited due to conflicts with public morality, security,

healthiness, or national interests, previously established as such by a written law

(Article 19 No. 16). On a final note, the Constitution recognizes the right of

individuals to choose among public or private health institutions (Article 19 No. 9),

and the right to open, organize and maintain educational institutions (Article 19

No. 11) etc.

2.0. The strengthening of private property rights. During the 1925

Constitution, property rights were strongly weakened in spite of distribution

policies instituted to satisfy social demands, which included the expropriation

and nationalization of real estate. During 1963, the Constitution was modified in

order to allow for the expropriation of certain agricultural real estate, by paying a

10% down payment and the rest during a 15-year term

15)

. In 1967, the Constitution

was amended again to promote a new, more extensive agrarian reform, allowing

that regulation of payment of such loans could be determined through an ordinary

law. Such “payment” could be made in part as cash, with the remainder to be paid

over 30 years

16)

. During 1971, the Constitution was modified again in order to

allow for the nationalization of large copper mines in exchange for payment of an

“adequate indemnity”. In practical terms, foreign enterprises lacked property

rights over copper mines without any indemnity, through the discount of “excess

profits” earned by companies

17)

.

Aware of the advances that property rights had experienced in Chile, the

1980 Constitution incorporated broad recognition and protection of those rights

and the additional right to acquire property, while at the same time limiting the

15)

Law No. 15,295 dated October 8, 1963. This reform allowed the expropriation of abandoned

agricultural land or manifestly ill run, in accordance with the characteristics of the region on which

they were located.

16)

Law No. 16,615 dated January 29, 1967. This law re moved the property right of the

Constitution and noted the State’s right to legislate for itself the exclusive domain of natural resources,

production or other goods that were declared as of pre-eminent importance for the economic, social or

cultural life. In the case of rural real estates, the compensation could be paid within 30 years to the

individual.

17)

See also: J osé María Eyza guirre, El Derecho de propiedad privada, in: Go nzalo Vial

(editor), Análisis crítico del régimen militar, op. cit., p. 101 and following. See also: Enriq ue

Evans de la Cuad ra, La controversia política y el derecho de propiedad, in: Universidad Gabriela

Mistral, Revista Temas de Derecho”, Año III, N° 2, Santiago 1998. Pertaining the last reforms of

the 1925 Constitution, consult: Enri que Evan s de la C uadra, Chile hacia una Constitución

Contemporánea, Editorial Jurídica de Chile, Santiago, 1973.

8

power of State expropriation. In an economy firmly rooted in the principle of

individual freedom, the implementation of those freedoms would be inconsequential

if the efforts and risks involved in their exercise prohibited the right to acquire

property, or the right to use, enjoy, or dispose of such assets.

2.1. The right to acquire property. Whereas the 1925 Constitution allowed the

State to reserve for itself the exclusive domain over natural resources, productive

assets, and other goods declared by law as having pre-eminent importance for

economic, social or cultural development, Article 19 No. 23 of the Constitution

states that it guarantees all persons:

“The freedom to acquire ownership of all goods, except those which nature has

made common to all men or that belong to the entire nation and have been

declared as such by law. The above is notwithstanding the requirements established

on other provisions of this Constitution.

A qualified quorum law, i f required for national interest, may establish limits

or requirements for the acquisition of certain kinds of assets.”

The purpose of this provision is to ensure the right to incorporate any property

title into the private domain, whether movable or immovable, tangible or intangible.

In general this also stipulates that all things can be incorporated into a private

patrimony, thus protecting people from any legislative or administrative act that

may try to exclude individuals from the free access of any category of goods

18)

.

In an economy based on liberty and the legitimate right to choose to profit,

freedom plays an important role in the acquisition and ownership of all goods.

Therefore, the only goods over which the individual property is restricted include

1) those which nature has made common to all men, such as the moon, air,

atmosphere, sea, etc., and 2) those that belong to the entire nation, and are also

declared as such by law, as is the case for public goods and infrastructure such as

streets, squares, territorial sea, and so on, and 3) goods that Constitution has declared

specifically restricted, as it is the case for mines and hydrocarbons, which are the

exclusive domain of the State.

A law passed by the majority of deputies and senators may establish new

limits or requirements for acquiring ownership of certain property, when national

interest calls for it. Such is the case for restrictions placed on foreigners buying

real estate near border areas, based on the principle of reciprocity. These limitations

concern both specific assets, and the requirements that individuals must meet on

certain cases, in order to acquire the ownership of the property.

The final paragraph states that the limits may only be applied to “some”

property, which underscores the principle that it is absolutely forbidden for the

State to reserve for itself, and consequently to prohibit individuals, the acquisition

of an entire category of tangible or intangible goods. I f such a provision were

18)

Mario V erdugo, Derech o Constitucional, Editorial Jurídica de Chile, Santiago, 1997,

Volume I, p. 302.

9

dismissed, then the rights inherent in the Constitution would not have any force.

On the contrary, restrictions are only permitted for exceptional, specific, and

precisely identified goods, keeping all other assets of equal rank available to

individuals for acquisition, by virtue of any lawful title.

2.1. Private property rights. Meanwhile, Article 19 No. 24 of the Constitution

provides very comprehensive protection for private property rights, both pertaining

to general property and property in which mines are located

19)

. Article 19 No. 24

guarantees all persons:

“The property rights in various categories, over all sorts of tangible or

intangible assets.

Only the law can set the mode of acquiring property, or of using, enjoying,

and disposing of it and establish the restrictions and obligations that derive from

its social function. These restrictions include anything required for general national

interest, national security, ut ilit y, public health and environmental heritage

conservation.

No one can under any circumstances be deprived of his property right, the

goods associated with it, or any one of the essential attributes or powers of the

right, except by general or special laws authorizing expropriation for public benefit

or national interest, qualified as such by the legislator. The expropriated may make

claims against acts of expropriation in ordinary courts, and will always be entitled

to compensation for property damages incurred. The amount of those damages

will be fixed by mutual agreement or by a ruling dictated in accordance to the laws

within such courts.

If no agreement occurs, compensation will be immediately paid in cash.

Transference of expropriated property shall take place after full payment of

compensation, which, i f no agreement occurs, shall be determined provisionally

by experts and in a manner dictated by law. When there are complaints about the

merits of expropriation, the judge may, considering the merit of the records invoked,

order a suspension of the transference.”

The Constitution stipulates broad recognition for property rights, upholding

those rights as essential attributes. The Constitution explicitly states that this

warranty covers “The property rights in various categories, over all sorts of tangible

or intangible assets.” Given that this is an inviolable right, no one can be deprived

of one of the essential domain attributes or powers except in a manner specified

by law. The second paragraph states that only the law can set a mode for acquiring,

using, enjoying and disposing of one’s own property. Regarding the power to

limit property rights, the Constitution states that only the law can empower or

allow an authority to impose restrictions to private property rights, thereby imposing

an explicit prohibition to lower rank officials. The Constitution acknowledges that

19)

Article 19, No. 24, paragraph 6 and following of the Constitution refer to the property right

over mines and their particular regulation is explained by the high relevance of mines in Chile.

10

any property may be subject to restrictions and obligations in order to fulfill its

social function, to the extent that such restrictions do not affect the essential right to

ownership. In the present Constitution, the concept of “social function” for

property was limited “if required by the general national interest, national security,

utility and public health and environmental heritage conservation.” This constraint

prevented parliament from granting unrestricted authority concerning such

limitations.

The Constitutional Court has ruled that “the Constitution of 1980 reduces the

area in which the law may impose limitations or obligations to a domain. This is

appropriated only in specific situations wherein the legislature seeks to address the

general interests of the nation, i.e. when national security, utility, public health, or

environmental heritage conservation are at stake. All other legal rights, regardless of

significance, are considered indispensable, and, as such, may be safeguarded by

legal provisions granting State agencies the power of surveillance, control, and

punishment. But the Constitution only accepts admissibility of limitations or

obligations for the very specific expression of the social function of the domain

that it expressly anticipated. Any other restriction is unconstitutional“

20)

.

The third clause protects property in a broad manner. It encompasses not only

the powers usually conferred by property rights as a whole, but also by the

specific attributes of those rights, vis-a-vis its implication that the breakdown of

any of them involves an attack against the domain as a whole

21)

. Any attempt to

deprive property rights wholly, or partially, violates this constitutional guarantee,

and would only be lawful through expropriation proceedings. On this matter, the

Constitutional Court has stated that: “The protection granted by the Constitution

to property law is so broad that it encompasses not only the powers usually conferred

to property, such as use, enjoyment and disposition, but also those given to its

attributes. This distinction is made in order to assert that if any of them is breached,

such an act would involve an attack against the domain (Review of Law and

Jurisprudence, Volume LXXXVI, Section 5, Part Two, pp. 222)”

22)

. On the other

hand, the Court has stated that “the deprivation of property occurs not only when its

owner is completely stripped from it or from one of its essential attributes or

powers, but also occurs when he is partially deprived from it, or when regulations

20)

STC 334 /23. Quoting Evans de la Cuadra in STC 334/24, the Co nstitutional Court stated

that: “The concept of gen eral interests of the nation cannot be transformed into a bottomless pit

with room for all th e restr ictions that th e legis lature w ants to impos e on the property. ‘The

general interests of the nation’ ex press a legal asset that is directly related to the nation as a

whole, and never, however important, with a sector thereof, and they can be basically translated

into the greater benefit of the political society considered as a whole, without any reference to

categories or social groups, economical groups or of other nature.”

21)

Supre me Cou rt Case La w, No vember 13, 1989, “Revista de Derecho y Jurisprude ncia”,

Volume 86, section 5th, p. 222.

22)

STC 334/12 .

11

prevent him from exercising his comprehensive rights, or one of the aforementioned

attributes”

23)

.

The Constitution devotes special attention to the regulation of the

expropriation procedure as well as to its implementation, in order to prevent the

legislative power from reverting to the situation experienced under the 1925

Constitution. A lawful, appropriate expropriation requires a general or special law

for approval. Such a law should be motivated by either national interest or by a

specific public purpose, qualified as such by the parliament. This qualification can

be petitioned and questioned in the courts, because the Constitution did not

required an expropriation law to merely assert the existence of certain conditions,

but also to strictly adhere to them and their formal statements

24)

. The reasons for,

the purposes of, the facts regarding, and the objectives of any action, serve as

conditions in order to determine a particular expropriation. Such background

information is required at the time that an expropriation occurs, without

consideration given to any supervening event that may affect its legal

effectiveness

25)

.

The 1980 Constitution recognizes two fundamental rights to the expropriated.

The first is that one may question the legality of the expropriation to the courts,

specifically the resolution ordering the expropriation. Thus, one can object to the

administrative decision, issued by the law, by questioning its assumptions. The

second is the right to receive compensation for property damages effectively caused

by the expropriation. Such damage has to be a direct and immediate consequence of

the procedure, and excludes damages defined as “emotional harm.” The

Constitution contains the phrase “effectively”, in order to clarify that it does not

include any circumstantial damage it may cause.

The Fundamental Law states that in the absence of two-party agreement

regarding the amount of compensation, the latter shall be determined by the courts

and not by the administrative authority. In addition, payment must be made in

cash, thus avoiding the possibility that the State pay in futures or bonds, as occurred

during the term of the 1925 Constitution.

The same is true regarding the physical transference of expropriated property.

If there is agreement between the parties, transference shall proceed after total

payment of the compensation. But i f there is no agreement, or if there is a pending

claim, the agency who ordered the expropriation must provisionally deposit the

sum indicated by an expert, in order to take physical possession of the property.

However, when the claim affects the validity of the expropriation, the judge,

considering the merit of the records invoked, may order the suspension of the

transference.

23)

STC 334/19 .

24)

Supreme Cour t Case Law, November 8, 1973, “Revista fa llos del Mes” No. 187 , p. 84.

25)

Supreme Cour t Case Law, December 14, 1987, “Gaceta J urídica” No. 90, p. 17 .

12

3.0. Equal opportunities and non-arbitrary discrimination in economic

matters. In Article 1, the constituent commanded the State to “ensure the right of

individuals to participate with equal opportunity in national life.” Article 19 No.

22. of the Constitution prohibits arbitrary discrimination in the activities of the

State and its agencies in economic matters as follows:

“Article 19: The Constitution guarantees all persons:

22°.- The non-arbitrary discrimination in the treatment given by the State and

its agencies in economic matters.

Only by virtue of a law, provided that does not cause such discrimination,

may certain direct or indirect benefits for any sector, activity, or geographic area, be

authorized. The same condition exists for the establishment of special charges

relating to any such entity. In the case of franchises or indirect benefits, the estimated

cost of these charges should be included annually in the Budget Law”.

This provision is new in the Chilean constitutional law. Its purpose is to

explicitly reaffirm “the principle of equality” in economic matters, located in

Article 19 No. 2, given the long history of arbitrary discriminations between the

State and private economic agents in Chile. An expression of the above is that,

previously, there were various tax benefits for some sectors and burdens against

others due to their capacity to invoke political pressure. The State and its agencies

have to ensure that equal treatment is given to individuals in the economic sector.

The Constitutional Court has ruled that “what the constituent rejects is arbitrary

discrimination, and for this Court, that discrimination amounts to an irrational and

dissimilar application of the law, by being both as a product of caprice, and also

contrary to the common good”

26)

.

The second paragraph provides an exception to the above, indicating that

direct or indirect benefits may be authorized, or special charges to a specific branch,

activity, or geographic area may be established, only by a law, and only if this

does not lead to arbitrary discrimination. This rule was designed to prevent the

establishment of benefits or burdens by a regulatory authority, essentially by

demanding that such actions have a rational basis and are authorized by law.

For a reason of transparency, the Constitution requires that, in the case of

franchises or indirect benefits, the cost of such exceptions has to be considered annually

in budgetary law. The designation, “the State and its agencies,” includes both the

executive and legislative bodies, and the central and decentralized administration

27)

.

Finally, given that State taxes are an effective tool to arbitrarily break through

society, Article 19 No. 20 guarantees equal distribution of taxes in proportion to

income, progression, or other forms required by law, and also guarantees equal

distribution of all other public charges. While the constitutional provision allows

proportional, progressive, or other kinds of taxes to be determined by law, it notes

26)

ST C 3 12/ 37.

27)

Verdugo, op. cit., p. 300.

13

that these taxes can never be manifestly disproportionate or unjust, in order to

prevent confiscation disguised as taxation.

4.0. The subsidiary State and the limitations on State enterprises. To mediate

State intervention in social and economic life, the Constitution grants individual

freedom, and demands respect for the autonomy of intermediate bodies. The fourth

and fifth clauses of Article 1 limit the actions of the State, conferring to it a

serviceable role in favor of individuals. State obligations are aimed at promoting

the common good, for which it must create social conditions that enable each and

every member of the national community to achieve the greatest spiritual and

material state possible, while fully respecting the rights and obligations established

by the Constitution. Thus, the constituent of 1980 replaced ‘the State’ with ‘the

individual’, as the basic initiator for social development, and entrusted individuals

with the search for their own personal development.

In our Constitution, the subsidiary principle reinforced the inherent freedom of

human beings, because it limited the intrusion of the State in social life in favor of

autonomy exercised by individuals, families and intermediate groups

28)

. Under

this principle, the State may intervene in matters within the jurisdiction of secondary

societies or individuals, only when required for the common good, and only to the

extent necessary for such purpose. This ensured that such actions are as innocuous as

possible with regard to the interests and privileges of intermediary groups or

persons. Only as necessary to achieve the greater common good, can the State act to

subsidize secondary societies.

Subsidiary, in this sense, means to provide help or assistance, but never to

impersonate, replace, or remove individuals engaged in activities primarily

associated with them. It is worth remembering that the State is not an end in and

of itself. Rather, the State’s function is to be helpful with regard to the benefit of

individuals and intermediate societies

29)

.

The Constitutional Court has stated that “the principle of subsidiary is one of

the guiding principles of social order” and that “it is not a State matter to absorb

those activities that are properly developed by individuals, either personally or

amassed as intermediate groups”

30)

.

The principle of subsidiary implies a respect for property rights and the right

to acquire property, generally, and the right to freely exercise private initiative in

economy matters, in particular. The latter is a basic fundamental right and an

essential guarantee in the Constitution, because it expands the creative potential of

28)

For a critical view on the subsidiary principle, see also: Jorge Tapia V aldés, ¿Estado mínimo

o mínima ética?, in: Universidad de Concepción, Facultad de Ciencias Jurídicas y Sociales,

“Revista de Derecho”, No. 202, p. 27 and following.

29)

See also: Eduardo Soto Kloss, La actividad económica en la Constitución Política de la

República de Chile (La primacía de la persona humana), in: Revista Ius Publicum, op. cit., Santiago

1999, p. 119 and following.

30)

STC 352/4 and 5.

14

individuals, it dignifies individuals, and it favors the development and greater

societal welfare. The subsidiary also implies the right to participate with equal

opportunity in national life, making individuals agents of their own destiny, to

progress and develop as free persons. In this sense, the Constitutional Court has

stated that “the Constitution points out to the legislature that its vital work has to

be done from the perspective that the rights of people supersede the rights of the

State, and the State must respect and promote the fundamental rights guaranteed by

it according to paragraph two of article five. Therefore, any legislation that

removes or jeopardizes the enjoyment of freedoms and rights recognized by the

Constitution contains errors that undermine its authority, according to the sixth

and seventh articles”

31)

.

Therefore, it is important to reiterate that the State, in our system, has a

function that is rather subsidiary to the actions of individuals and intermediate

groups. Therefore, the State will contribute by creating the conditions necessary

for each person or group to seek its spiritual and material self-realization, creating

adequate social conditions and ensuring, most notably, freedom and equal

opportunities

32)

.

The restrictions on State enterprise that are stipulated in Article 19 No. 21,

subsection 2 of the Constitution, deserve special analysis. This subsection states that

“the State and its agencies may conduct business activities or participate in them

only if a qualified quorum law authorizes it. In this case, these activities are

subject to the ordinary rules applicable to individuals, subject to exceptions that

for justifiable reasons are established by law, which must also be of qualified

quorum.”

This provision recognizes the exceptional capacity of the State to develop or

participate in business enterprises

33)

, but requires that such activities be approved by

an absolute majority of deputies and senators. Thus, the enterprising State is an

exception in the Chilean Constitution, and its authorization always requires a high

approval quorum in the National Congress.

Moreover, in case that the State undertakes economic activities, it should

always be subject to the ordinary rules applicable to individuals, unless a law

passed by the same majority establishes exceptions on the basis of extraordinary

circumstances. Thus, the constitutional rule, in addition of being a stipulation of

the principle of subsidiary of State in economic matters, is a guarantee for a

31)

STC 198/10.

32)

S ee also: Teodoro Ribera, Tributos manifiestamente despropor cionados o injustos, in:

Facultad de Derecho, Pontificia Universidad Católica de Ch ile, Spec ial Volume 1998, p. 237

and following.

33)

These state business are mentioned in article 19, No. 24, paragraph tenth and Third

Transitional Provision of the Constitution. The only excep tion to the provisions of paragraphs 7

and 8 of Article 63 is stipulated in favor of the Central Bank.

15

free-market economy, rendered in the first paragraph of Article 19 No. 21,

preventing the statist trend suffered during the 1925 Constitution.

To ensure compliance with this precept, there is a special legal action called

“Action for Economic Shelter” whereby any person may, within six months of an

aggravating act, turn to the Court of Appeals to bear action against the State when

the State is presumed to conduct economic business outside the legal framework.

For instance, the courts banned the Military Geographic Institute from printing

services for individuals, because it was not authorized by respective constitutive

laws

34)

. On another occasion, the appeal courts also banned both the Chilean Post

Services from providing services to third parties in matters of data printing and

mechanized mail sorting and payment collection for accounts of others, and the

Metro (Santiago Subway Service) for having associated with Metro International

Publishing Group to distribute newspapers at subway stations

35)

.

Similarly Article 63, No. 9 of the Constitution requires norms of legal rank in

order to permit State enterprise, and those in which it has a share, to contract

loans, which in any case may be made by the State, its agencies or companies.

This provision makes those State enterprises more transparent, and impedes

borrowing from the State as a means to finance business and violate the

constitutional provision of Article 19, No. 21, section two of the Constitution.

This latter provision requires these companies to submit to the common laws

applicable to private enterprises and their business activities.

5.0. Control of public expenditure. Public expenditure control was an issue of

concern for the drafters of the Constitution. This is not a novelty in our

constitutional history. Chile tried a parliamentary regime from 1891 to 1925, and

the next presidential regime, (especially from the decade of 1940 onwards) was

accompanied by a high concentration of financial power on the part of the

President of the Republic, which occurred at the expense of the National

Congress.

This trend was strengthened in the 1980 Constitution through various

mechanisms. These mechanisms not only increased control of public expenditure

at the hands of the President of the Republic, but also generated instruments to

control it in the long term. For instance, institutions like the Central Bank were put

into place in order to prevent the President of the Republic from undermining the

confidence placed in him.

5.1. The exclusive right of the President of the Republic to initiate legislation

concerning financial administration and State budget. According to Article 65 of

the Constitution, the President of the Republic holds the sole right to initiate

34)

Santi ago Appeal Court Case Law, Dece mber 5, 1 991, in “R evista Gaceta Jurídica” No.

138, p. 59.

35)

Enrique Navarro Belt rán, El Estad o Empresario a la luz d e la Constitu ción de 1980, in:

Facultad de Derecho, Universidad d e Chile, Revista de Derecho Público, Volu me 62, Santiago,

2000, p. 44.

16

legislation relating to financial or budgetary administration, State taxes, creation

and abolition of public services of any kind, determination or modification of staff

salaries and related public sector assets, collective bargaining, social security, and

etc. The deputies and senators cannot introduce bills on these issues; and the

Congress has no legislative powers to increase, extend, or otherwise generate

provisions that may involve an increased public expenditure.

The presidential powers to initiate legislation include the borrowing or

entering into any kind of operations that could 1) compromise the credit or financial

responsibility of the State, quasi-State, and autonomous entities, regional

governments or municipalities, or 2) waive, reduce or modify obligations, financial

interests or other charges of any kind, established in favor of the Treasury, State

agencies, or entities referred to it.

On the other hand, Article 63, No. 7 of the Constitution requires that the

laws that authorize the State, its agencies and municipalities to contract loans,

must designate those resources to finance specific projects. This article effectively

prevents the State from resorting to public borrowing, in order to address current

expenditure liabilities created by the normal functioning of the State. Therefore,

each loan will require a special authorization from the legislature, thereby preventing

the administration from promulgating regulatory bodies containing general rules,

in order to avoid explicit revisions by legislators

36)

. Thus, the legislature must

review all the circumstances that may justify the loan.

However, the same constitutional provision states that a law, passed by an

absolute majority of deputies and senators, is required in order to contract loans

with an expiration date that exceeds the respective term of the president, which

according to Article 25, paragraph two of the Constitution, is limited to 4 years.

The intention of this precept is to require congressional approval vis-à-vis a qualified

quorum, for any financial burden undertaken by a governing body, other than the

one requesting the loan.

Note that these powers, granted to the President of the Republic, are not

restricted to central governmental agencies. The powers also extend to quasi-State

and autonomous entities, the regional governments in the fifteen regions of Chile,

and the over 350 municipalities. None of these entities could otherwise even afford

leasing and other obligations, which jeopardize the State financial administration,

without the authorization of the Ministry of Finance.

At the same time, Article 63, No. 8 of the Constitution clearly stipulates that the

law must authorize any class of operations in which the State, its agencies or

municipalities, may engage in direct or indirect credit, or financial responsibility.

36)

Alejandro Silva Bascuñán, Tratado de Derecho Constitucional, Editorial Jurídica de Chile,

Santiago, 2000, Volume No. V, p. 220.

17

This constitutional mandate regulates all transactions involving a financial obligation,

either directly as debtor, or indirectly, such as endorsements, guarantees etc.

37)

5.2. The right of the President of the Republic to estimate tax revenues. From

the third paragraph onward, Article 67 of the Constitution indicates that the

estimated yield of resources, comprised in budgetary law, together with other

resources comprised in other budget bills, is for the President of the Republic to

determine. This estimation shall follow a report from the respective technical

agencies, preventing Congress from exaggerating future income that would

otherwise affect the fiscal deficit. Moreover, the Congress cannot approve any

new spending of national general funds, without also indicating the source of

funding for such expenses.

The final paragraph of this article contains a profound innovation. It states

that when the resources granted by Congress are insufficient to fund new spending,

the President of the Republic shall, by constitutional mandate following technical

reports proving such a shortfall, proportionately reduce any and all expenditures, in

order to impose fiscal balance. In practical terms this exceptional power would

enact partial veto to a bill, which would result in a partial enactment of the vetoed

law. We believe that this amounts to an absolute veto, because it does not stipulate

any congressional right to insist on the presence of a qualified majority against the

decision of the President. Also, note in this case that the President’s actions become a

duty, which means that the President is performing his constitutional obligation.

Under these circumstances, it is not a presidential faculty the norm that compels

him to exercise legislative power

38)

.

6.0. The creation of a Central Bank as an autonomous technical bureau. The

Chilean Central Bank was created in 1925, but its organizational structure could

not prevent the abuse perpetrated by the government and the private entities around

it. This was due to regulatory law, which authorized the Bank to grant credits to

the government, private banks, shareholders, corporations, and even private

individuals. The exercise of regulatory law for political action triggered an

expansion of money supply and caused large, arbitrary discriminations in the

domestic financial system. These results, coupled with a fixed exchange rate and

massive issuance of currency, resulted in sky-rocketing inflation and serious

distortions in the economic process.

One of the cornerstones upon which the Chilean economic order rests, is

Article 108 of the Constitution, which creates an autonomous and technical Central

Bank. The Central Bank has its own legal entity and patrimony, qualities that were

37)

Ibid., p. 222.

38)

Luz Búlnes Aldunate, Visión Académica de la Constitución Económica de 1980, in:

Facultad de Derecho, Universidad de Chile, Revista de Derecho Público, Volume No. 62,

Santiago, 2000 , p. 92 and followng. See also Co misión de E studio, op. cit., Session No. 394, p .

3023 and follo wing.

18

largely inspired by the central banks of Germany, Switzerland and the United

States.

The autonomy of the Central Bank is guaranteed by the mechanism with

which its five directors are designated. Appointed by the President of the Republic

with approval from the Senate, they hold their offices for a period of ten years

39)

.

The same cannot be removed except under qualified circumstances, and only by

the President of the Republic together with the agreement of the Senate. This

autonomy favors its independence from political influences, and results in the

Central Bank operating according to technical criteria. The Bank is thus forestalled

against external pressures that may lead to economically unwise decisions

40)

. This

autonomy is especially important if the monetary authority is to be protected against

a pressure associated with political cycles, which tend to seek temporary reductions

in unemployment by utilizing an expansionary monetary policy, all of which

results in accelerating inflation

41)

.

The technical nature of the Central Bank was elucidated early on, by study

groups. It was observed that monetary and exchange rate policies needed to be

handled with technical criterion and not with political ones. In practical terms, the

professionals that comprise its board are renowned scholars coming from diverse

political orientations. This economic soundness is founded on the kind of expertise

in business knowledge required to conduct monetary and exchange rate policy,

which must acknowledge each specific economic policy, in order to adequately

achieve proposed objectives.

Article 109 of the Constitution stipulates that the Central Bank may only

carry out operations with financial institutions, whether public or private. The

Central Bank may not conduct operations with companies, nor can it either provide

its guarantee to these institutions, or acquire documents issued by the State, State

agencies, or companies. In order to justify public finance, the provision states that,

except in case of war or danger of it, “no government spending or loan may be

financed with direct or indirect loans coming from the Central Bank”. Moreover,

the fact that it cannot provide warranty or acquire documents issued by the State

or its agencies, impedes the treasury from generating an increased money supply

from a fictitious debt with the Central Bank.

The designers of the Constitution, aware of the arbitrary nature with which the

Central Bank had acted in the past, reiterated the general rule of equality in

economic matters contained in Article 19, No. 22 of the Constitution. This was

accomplished by stipulating, in the final paragraph of article 109, that “the Central

39)

See also: José Luis Cea Egaña, Autonomía Constitucional del Banco Central, in: Facultad de

Derecho, Universidad de Chile, Revista de Derecho Público, Volume No. 62, op. cit., p. 66 and

following.

40)

Verdugo, op. cit., p. 329.

41)

Vitorio Corbo and Leonardo Hernández, Ochenta años de historia del Banco Central de

Chile, in: Banco Central, Revista Economía Chilena, Volume 8, No. 3, December 2005, p. 20.

19

Bank may not take any agreement that may directly or indirectly establish different

or discriminatory standards or requirements, with regard to individuals, institutions,

or entities that undertake the same operations”.

The Constitution does not define the role of the Central Bank, instead, this

definition is provided in Article 3 of its own regulatory law and follows the

German Central Bank model. The German model stipulates that the object of the

institution is to ensure currency stability, and normal internal and external

payment operations, for which it mandates rules in order to regulate the monetary,

exchange rate, credit, and financial doctrines of the country. Money plays a

fundamental role in the adequate functioning of any economy. To preserve that

role, the monetary policy of the Central Bank must protect the value of currency

and struggle for a low and stable inflation. At the same time it must maintain the

ultimate objective of leading the national economy towards a path of sustained

growth, full employment, and general progress and welfare. The Central Bank

has protected Chile’s financial stability as well as Chile’s currency, by

substantially reducing inflation.

While the Central Bank was created as an autonomous body by the enactment of

the 1980 Constitution, the Military Government only issued its new law in

October 1989, appointing individuals linked to both government and opposition as

directors. Since then, inflation levels diminished from a yearly 30% to an annual

average of 12.1% during the period between 199 1-1995, to 4.8% between 1996–

2000, and to 2.2% between 2001–2004. It is worth noting that since 1999, the

Central Bank committed itself to promoting a national monetary policy that would

keep inflation in a range between 2-4% annually, an objective that has been

successfully accomplished.

IV. FINAL WORDS

Undoubtedly, the 1980 Constitution was deeply influenced by the painful

experiences of Chile’s constitutional history in the financial field. Chile’s past

political economy was characterized by a State that stifled private initiative,

generated important arbitrary discriminations, intervened directly in economic

activities through the creation of enterprises or indirectly through discriminatory

laws, and so on.

The new economic order restricts the State activity and seeks to prevent the

implementation of an economic system based on State planning, such as the one

that existed in Chile during the 70’s.

The Constitution contains various provisions concerning the functioning of

the State, which pertain to free enterprise freedom. It can be inferred from those

provisions that the Constitution restricts State activity in order to prevent the

implementation of an economic system based on State intervention or State

planning. The existing constitutional rules are based upon the primacy of the

individual and individual rights and freedoms, as the foundations for the

20

constitutional system. These rules limit State power to a subsidiary role, according

to which it may act only in cases when individuals or groups of people are unable or

unwilling to act.

The new economic order in Chile has brought great benefits to the country and its

people. Since its implantation, poverty levels decreased, dropping from 44% to 18.8

% between 1987 and 2003, when extreme poverty dropped from 17.1% to 4.7%

42)

.

This places Chile today as the country with the fourth lowest poverty rate, and the

second lowest extreme poverty rate in Latin America

43)

. However, significant

differences in the level of personal income still persist, attributable mainly to the

great differences in educational levels among the population.

This improvement in income levels, together with a greater respect for human

dignity and fundamental rights, was largely possible because of economic growth

that reached 8.7% between 1991 and 1997. This growth allowed for the creation of

a social doctrine based on the production of more goods and services, and not on

simple distribution.

In the case of Chile, it can be stated that an economic order based on both

private initiative and the subsidiary role of State, coupled with financial stability

and Central Bank autonomy, has led to the strengthening of individual rights, and a

marked increase in their exercise and validation.

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