A neoliberal country in focus: Exploring the Chilean Model

(Chile Series Part 1)

Patricio Navia

Buenos Aires Herald, September 25, 2011

 

In Chile, many people can live their entire lives without much interaction with a state institution. A middle class person can be born in a private clinic paid for her parent’s private health insurance, attend a voucher school subsidized by the government and graduate from a private university paid for with government-subsidized student loans. If the young professional joins the mining sector, she will most likely work for any of the private companies that control 70% of copper production in Chile. Her mandatory retirement contributions will be directly sent from her employer to the private retirement management funds of her choice. She will likely have a private health insurance, send her children to private school, pay her utilities to private companies, get a mortgage from a private bank and even drive in the privately operated highways in the capital city of Santiago.

 

The market-friendly model imposed by the Pinochet dictatorship in the 1970s, and deepened and consolidated under the centre-left Concertación administrations since democracy was restored in 1990, makes Chile one of the most neoliberal countries in the world. After the dictatorship, a stronger focus on alleviating poverty and earmarked social programmes were introduced to give the neoliberal model a “human face,” as Patricio Aylwin, the first democratically elected president summarized his effort to transform the economic model into a “social market economy.” Constrained by a number of constitutional provisions that gave the military a tutelary role over civilian authorities, four successive Concertación governments struggled to consolidate democracy, eliminate authoritarian enclaves and strengthen democratically elected civilian power.

 

Rapid and sustained economic growth helped Chile reduce poverty dramatically from 40 percent to about 15 percent in 20 years. The structure of opportunities expanded notably. Socioeconomic indicators improved for all income groups. Secondary education has universal coverage. Those in higher education also increased dramatically. While less than 20 percent of college-aged Chileans attended higher education institutions in 1990, more than 50 percent are currently enrolled. Seven out of 10 people in higher education are first generation college students. The national GDP almost tripled in real terms. Real wages more than tripled. Chile has experienced its best economic run since democracy was restored in 1990.

 

As a result of its success in consolidating democracy, reducing poverty and commanding a expanding economy, the centre-left Concertación coalition won four consecutive presidential elections and governed the Andean country with moderate socially oriented market-friendly policies for 20 years. In 2009, a moderate rightwing businessman, Sebastián Piñera, won on a message of change in the context of continuity. He promised to forge ahead faster and more efficiently to lead Chile into the promised land of developed country status by 2020. After Piñera led the successful rescue of 33 miners trapped for more than 60 days 800 metres below ground, his promise of efficiency materialized in a tangible reality. Piñera’s “new way of government”that successfully carried out such a difficult rescue effort could surely help lift millions of Chileans from a vulnerable low middle class status to a more comfortable real middle class status. Access to university education was correctly seen by millions of Chileans as the bridge to achieve the Chilean version of an American Dream.

 

However, the social protests and anactive student movement that have dominated streets of Chile since mid-2011 have highlighted the caveats in Chile’s successful experience of economic development and have sunk Piñera’s support levels to the lowest observed since democracy was restored. Some critics of the market-friendly model-including many supporters of leftwing governments elsewhere in Latin America-have prematurely declared the end of Chile’s social market economy. A more reasonable assessment in light of the social discontent shown by the protests points to some real problems that need to be corrected to foster social inclusion, level the playing field and expand opportunities for all.

 

Two evident problems stand out. First, the lack of regulation and insufficient government oversight of privately provided goods of public interests (such as education and health) tilt the balance in favour of providers and against consumers. Though democracy brought about citizens’ rights, the market-friendly model does not sufficiently guarantee consumers’ rights. Many of the reasons behind the university students’ protests has to do with the inability — or unwillingness — of the government to enforce existing regulation and to adopt more strict regulations that can guarantee quality education and control skyrocketing university tuition costs.

 

The second problem is the insufficient safety net. Successive centre-left governments focused on earmarking social programmes and subsidies to the lowest 40percent in the income bracket. Those above the middle class are not protected. In addition, because the safety net is insufficiently funded, expanding it to the middle class would not solve the problem. The public sector tax take is slightly over 20 percent. Without a more progressive tax reform, little progress can be made to strengthen the safety net and expand the structure of opportunities to the middle class.

 

The market-friendly economic model that has helped Chile become the most stable democracy in Latin America in the last 20 years and has produced the most prolonged period of sustained economic growth in the region needs fixing. Yet it is not broken. An overwhelming majority of Chileans favour the model-and also support immediate and significant fine tuning. If President Piñera fails to do it, the 2013 elections will be won by a candidate that offers a credible roadmap for change in a context of overall continuity.