Friday, May 24, 2013
Chilean economy Model : Between skepticism and doubts (I)
The model of market based policy applied in Chile (1980-2013),has been an engine for economic growth and prosperity. A key feature, was the state as complementary not a substitute of the private sector. Because of higher economic growth(an average of 5,0% between 1990-2009,and percapita gdp growth from USD6455(1981) to USD14331(2009) , tax revenues increased so, It financed higher social expenditures (Wagner law). Poverty decreased from 37% in 1990 to 14% in 2010, Half of this reduction (45%), came about because of economic growth. Health conditions improved (life expectancy, nutrition levels, child diseases coverage), and education became massive.(more than 1,1 million student are within the college educational system). There is ongoing discussion about inequality .But there are also different approaches concerning what it is within lower income bracket (whether it includes or not government bonus, subsidies , other social programs).Based on this different methodologies, Gini Coefficient in Chile, is actually between 47 -52, even though Fiscal Policy has been focused more on growth, than distribution. No matter the positive outcomes of this model , does not means that it is perfect. It must be up dated. It needs some fine tuning to be capable of matching expectations, which by its own dynamics has ignited, otherwise it will fail to cope with them. These days, there is a sense of a widening gap between what it is needed, and what people get from this model. Because of that gap anxiety and social stress are on the rise. Therefore, the questions is what to do: is it enough with some adjustment, and what are these ones?, or is it enough with the model, and it is the time to get rid of it? . The answer do not necessarily goes on the “all or nothing” solution .There is room for middle ground approaches. What are this middle ground solution ?.Let review some issues a.- The institutional setting for markets allocation of resources, must fit with the consumer rights as the driven force of market outcomes (innovation ,quality, value, post sale services). Given that the Chilean economy is an oligopoly, it is important to prevent its rents are not to be paid by consumers. Recently, has been implemented a wider scope for the law aimed to protect consumers, taking into account financial transactions. (Credit cards, Commercial cards charges consumer loans, mortgages charges).- b.- Consumer protection goes beyond goods. It also includes education, health, and services(safety, transportation, Communication, energy) .Some few examples :Education as a whole ,do not match quality expectations yet. So, the students think that in such a case, it is better to have education for free. Health programs, must still deal with inefficiency and low productivity.(In the last two years, public hospitals productivity have been 45% lower ).Besides, the State seem to underestimate the social demand for safety in the streets and at homes. (There are more private pay guards, than police man).Public transportation, do not match quality standard either. c.- It is needed to reduce centralization. The Chilean capital (Santiago) has a 44% share in the GDP, while the next two most important regions combined , do not have more than 8% share. Thus , the demand and uses of resources both private and public, concentrate , despite regional demands specially in infrastructure and services d.- Political reforms are also relevant to improve the outcome of the model. The broader the political representation, the better the political model will fit with community needs and expectations. Otherwise, the current duopoly working like an iron circle to collect the rents any duopoly provides to its beneficiaries , make them more disconnected with those they suppose are called to serve.- So, the oligopolistic nature of the model, requires to move forward to a more complex stage of development. What about the Sate and its role in this more complex model ? In the last thirty years, the State has been a complement with the private sector. It has done a good job working for Free trade agreements. It has improved the availability of public infrastructure throughout private sector participation . But it does not have yet a new image on its own to be like the reference of last resort so to speak, for private sector.The state role changed to a different status,the one which is the guarantee of the model.But is it?