Abstract and Keywords
Chile has experienced dramatically different models of development over the past century, ranging from early efforts at inclusion to accommodate people moving to cities, to import substitution following the Great Depression and export-led growth during two decades of dictatorship. Yet the period since the return to democracy in 1990 has been the most fruitful, with dramatically reduced poverty, increased income, and expanded access to education and health. These achievements are tied to an effort to break through old political impasses and establish a new coalition based on a model of development that balances the roles of state, market, and society to achieve both economic and social outcomes. The philosophy of the coalition and some of its policies are described. Looking forward, development has come full circle, with a new need to confront inequality and ensure that high income results in a more egalitarian society.
Chile has a long and solid tradition of democracy, and has shared in the social and economic development experienced by the countries of the southern cone of South America. In the midst of the Cold War, Chileans elected a socialist president despite strong opposition at home and abroad. The nation was dramatically divided and faced difficulties in both economic growth and social development. Democracy was interrupted by a military coup in September 1973, and a dictatorship ruled the country until March 1990. The economic policies of the Pinochet régime were shaped by students of Milton Friedman from the Chicago School of neo-liberal thinking on development. A plebiscite in 1988 rejected the Pinochet leadership, leading the way for presidential and parliamentary elections. In returning to democratic rule, Chileans had to change their former political alliances, breaking through old roadblocks to form a new majority coalition known as Concertación por la Democracia. This coalition defeated the Pinochet leadership at the ballot box, but then needed to offer the country a new model of development built around a vision that balanced economic outcomes with social development.
By and large, Latin America is a middle-income continent whose self-image, particularly in Chile, has often been defined by the idea of being “backward.”1 Chileans regard themselves as similar to Europeans, at least prior to the financial crisis, except that they were at an earlier point on the development path and seemingly destined to remain behind. Overall, Chileans see themselves in the middle of, not at the head of nor last in, the class, occupying a diffuse space between the world's poorest nations and the reality of the developed countries.
Chile is a country of mixed ethnic heritage, defined by international organizations as upper middle income; however, because of unequal income distribution, a higher proportion of its population lives in conditions of poverty than would be expected at this income level. But it is also a country that for centuries has struggled to emerge from its backwardness and has eagerly sought a path leading to development. In its two centuries as an independent nation, Chile has explored different paths, but beyond short-lived prosperity brought about by certain cycles of the economy, the country has not been able definitively to overcome its backward status, and sustained development has remained elusive.
(p.684) “Development” is not only a concept but a particular relationship between state, market, and society. It is also, ultimately, a set of measurable results in economic, political, and social variables. This chapter analyzes Chile in terms of the concept, process, and results of development. At times, the concept of development has been synonymous with economic growth, measured in per capita GDP. Yet a society can also be considered developed when its people experience well-being. As Amartya Sen (1999) has suggested, having a place in society means that even those with low income can lead a decent life and enjoy opportunities to shape their future. One can describe an evolution in thinking about development as Chile, perhaps more than any other Latin American country, experienced dramatically different models of development within the space of a few decades, with varying effects on the country's economic, political, and social life.
Development Prior to the Coup
After the 1929 global economic crisis, a decrease in world trade inspired Chile and several other Latin American countries to pursue a development model based on import substitution. This was a model of inward industrialization that sought to grow domestic industry through a combination of protection from foreign competition and incentives for local private investment. At the time, there was a collapse in the supply of goods and services coming in from abroad. High tariffs and the low cost of local credit attempted to foster a domestic business class, while the state invested directly in industries seen to be of strategic importance, such as electrical utilities and steel manufacturing.
By the 1950s, a group of intellectuals led by Raúl Prebisch,2 under the auspices of the UN Economic Commission for Latin America and the Caribbean (ECLAC), elaborated theories about the causes of underdevelopment and the requirements for a transition to development. Analyses based on the center–periphery axes3 and dependency theory argued that development required countries to foster domestic industrial production capable of absorbing technical progress. It is worth noting that the location of ECLAC's headquarters, in the capital of Santiago, meant that a number of Chilean intellectuals contributed, and were very sensitive, to ECLAC's thinking and theories over time (see Adebajo, this volume).
Within the Latin American context, Chile experienced an early rise in the proportion of its population living in urban centers, a feature it shared with the other southern cone countries. This means that the process of migration from the countryside to the city happened earlier than in other developing countries, leading to public policy that attempted to integrate this new population into the daily life of the city. For example, a National Health Service, modeled after the United Kingdom system, was established in the 1950s, and a policy for social housing and integration of the urban poor was developed in the 1960s. The country also experienced a high and growing rate of primary school enrollment. In this sense, Chile was an early adopter of policies and mechanisms for social inclusion. This economic and social development placed Chile among the most advanced countries on the continent. Even when growth was slow, wealth was concentrated, and levels of inequality and social exclusion ran high, Chile compared relatively well with many of its neighbors in the region. However, in the 1960s, tax revenues derived from the growth of the economy were insufficient to support this social spending, while marginal urban sectors and excluded farm workers pressed for greater inclusion.
(p.685) The Chilean political system was composed of various parties that, one way or another, tended to split popular support three ways, creating persistent blocks occupying the right, center, and left of the political spectrum. None of the three could obtain a clear majority, resulting in a continuous impasse. With separate elections for the president and a proportional parliament, the candidate chosen to lead the country at any given time could count on support from only one-third of the legislature. The 1960s were years of reform and revolution: the Cuban revolution was beginning, the Cold War was in full swing, and students were rioting in the streets of Europe and the United States. In this context, there was no culture of forming political coalitions, leading each third of the political spectrum to become progressively more ideologically polarized and making the effectiveness of such minority governments increasingly precarious.
The election in 1970 of Salvador Allende, a socialist leader with democratic convictions, marked a contradiction. In the highly polarized society of the time, the political system had become completely ineffective, with falling tax revenues and increasing demands for social spending. Allende's government was trapped by a model of growth and development that no longer worked. On September 11, 1973, a military coup overthrew the government and ushered in seventeen years of military dictatorship.
Development during Dictatorship
The military government violently wiped out democracy and introduced a radical change in the country's model of development. Import substitution or inward development was quickly dismantled and replaced by a model of economic opening to the outside world, with complete dominance of self-regulated markets and an almost complete withdrawal of the state from its previous role in the economy. Unlike the experience in other countries, from day one the Chilean dictatorship sought advice from a select team of young economists trained in Chicago under Milton Friedman. The perspective these “Chicago boys” brought to economic and development policy resonated with what would later become known as the Washington Consensus. In a sense, Chile was the first Latin American country to open its economy to international competition, structuring an export-based production system.
Though this shift gave Chile new advantages in world trade, it came at an extremely high social cost, forced through under the military. Union leaders were persecuted, political parties were banned, freedom of expression and of assembly were circumscribed, and human rights were systematically violated. Unsurprisingly, poverty and inequality rose precipitously. The elements of protection and redistributive policy that had existed in Chile, while modest compared to the European model, were seen as an obstacle to development, to be replaced with the concept and practice of a “subsidiary” state. Under this approach, all goods were to be produced by the private sector and purchased through the market. This opened the way for the privatization of education, health, and pensions, creating a new social divide between those who could pay to get better quality goods, and those who could not and were forced to rely on scaled-back state provision of increasingly inferior quality goods through a much reduced “public” system. This had devastating effects on social cohesion and national identity.
The civil elite who ruled together with the military blindly believed in the benefits of this model of development, advocating an orthodox view of self-regulated markets as the only (p.686) way to grow the economy. Social welfare and equality would come later as a complement to such growth. In the 1980s, the idea of growth as the sole means of achieving development was gaining traction, inspiring the belief that, as Ronald Reagan put it, “the state [was] the problem, not the solution,”4 or that, as Margaret Thatcher stated, “there [was] no such thing as society”5 and that the market could organize social life and find the necessary balances. This way of thinking, of imagining the future, dominated the spirit of development under the military dictatorship. The economic creed of the Chilean military dictatorship is well described by Krugman (2007), who wrote that the “history of economic thought in the twentieth century is a bit like the history of Christianity in the sixteenth century … completely dominated by free-market orthodoxy. Heresies would occasionally pop up, but they were always suppressed … classical economics said that the answer to almost all problems was to let the forces of supply and demand do their job.”
After seventeen years of dictatorship, Chile ended up with some needed modernization, with advantages of trade liberalization and steady growth, but at the cost of more poverty and inequality, a shameful record of human rights violations, and the destruction of its democratic institutions.
Development during Democracy
Chile faced two major problems with the restoration of democracy in 1990. First was the high level of poverty, which affected nearly 40 percent of the population. Second was the need to rebuild the foundations and institutions of democracy, restore citizens’ confidence in their rulers, and banish the fear and terror the dictatorship had imposed. At the same time, the government had to prove it could manage the economy, against a skeptical belief that maintained that authoritarianism was economically efficient and political parties were not (Meller 2005; Ottone and Vergara 2006; Boeninger 2007).
The relationship between the worlds of academia and politics proved vital. Not only did ideas from academia enter into policy making, but numerous individuals moved from academia into politics, becoming relevant leaders in rebuilding democracy and development (Puryear 1994). Over the years of dictatorship, many academics were forced into exile, continuing their studies in North America, Australia, Europe, and elsewhere, learning how social and economic policy was pursued in different locations and acquiring new visions of development. Many of the intellectuals who entered politics drew inspiration from the work of Aníbal Pinto (1959), perceiving the economic growth that Chile had achieved at the end of the nineteenth century as an opportunity for real development that had been frustrated by the short-sighted mentality of the oligarchy. The challenge ahead was to avoid a similar capture by the elite. Chileans were absolutely convinced that democracy and development should go hand in hand.
The vision of development that took hold included defeating poverty, rebuilding democracy, and growing the economy. This concept went beyond merely growing incomes to ensuring that social development occurred in practice, not merely assuming that it would inevitably follow from economic growth. This new concept postulated that development, in addition to achieving sustained economic growth over time, had to achieve considerable improvements in income distribution, in probity and efficiency of public spending, in fostering a diverse and active citizenry, and in consolidating a culturally pluralistic society. Such (p.687) development could not be measured by a single dimension or indicator, but required a combination of factors. Increases in annual per capita income were important, but these needed to occur alongside an increase in relative earnings in the bottom quintile, a sustained reduction in the portion of the population living in poverty, and the eradication of extreme poverty. Development would be measured not only by average figures, but by the level of dignity of the less advantaged.
Between 1990 and 2005, the Chilean government introduced major reforms in labor relations, fiscal and trade policy, infrastructure, science, education, and health. The minimum wage was increased by 70 percent in real terms, employment insurance was introduced, and welfare and minimum pensions were increased. In 2000, the government committed to maintaining a 1 percent structural surplus, which proved vitally important for establishing the confidence of international investors. Trade was enhanced through reduced import taxes and export incentives, and most of all through entry into over twenty separate free trade agreements with various countries in Latin America, North America, Europe, and East Asia. As a result, trade increased sevenfold over the course of two decades.
Chile became one of the most competitive economies in Latin America, driven by new investments in transportation. Across the country, air connections improved with investments in both new and remodeled airports, and the capacity of the Valparaiso and San Antonio seaports was expanded. Over land, a 1,500-kilometer divided highway connected La Serena to Puerto Montt, and 5,000 kilometers of improved roadways facilitated access to and among rural communities. In the capital of Santiago, expansion of the subway system and 200 kilometers of new roadways improved public transportation and eased congestion.
Meanwhile the government invested heavily in science, technology, and innovation. Following 2010, Chile aspired to invest 1.5 percent of its gross domestic product in research and development (R&D), of which half would be contributed by the private sector. However, this proved difficult to achieve, as the private sector funded roughly one-third of the country's R&D, whereas in developed countries the private sector can contribute upwards of two-thirds of R&D investment.
The educational opportunities for vulnerable families improved remarkably. In the first five years of the millennium, Chile extended compulsory education to twelve years of age and opened more than 2,800 new schools (equivalent to more than one per day). By the end of 2010, fourteen million textbooks were distributed each year free of charge, and school feeding programs had expanded to serve more than 1.4 million students each day. The number of students pursuing higher education increased fivefold between 1990 and 2010, with more than 70 percent of students being the first in their family to study at university.
During the same period, the public health budget more than doubled, expanding access to quality and timely health care through improvements in hospitals, medical equipment, training, and working conditions for medical personnel. The AUGE program (from the Spanish Acceso Universal con Garantías Explícitas, or “Universal Access with Explicit Guarantees”) introduced public financing to guarantee access to treatment for the most common illnesses, which accounted for the majority of cases of hospitalization. The program began with the five most common illnesses and was subsequently expanded to cover forty illnesses. This became the most ambitious reform in the health sector since the establishment of the National Health Service in the 1950s.
Following the return to democracy, a remarkable effort was made to break through the political impasses of the past and establish a new sense of national unity. The Chilean transition to democracy was consolidated through a new political coalition built around a vision of development that balanced economic outcomes with social development. This model was based on the interaction of five pillars: (1) reaching out to the opposition to form a new political majority, with (2) a longer-term perspective that embraced (3) globalization, (4) social justice, and (5) expanded freedoms.
Reaching Out to the Opposition
As noted above, for much of the twentieth century Chilean politics was fragmented into three blocks under which right-wing, center, and left-wing parties each commanded roughly one-third of popular support. Thus, the president was often elected with less than 40 percent of the vote, and continuously relied on a minority in parliament. Minority governments were thus the norm, with the government of President Frei Montalva (1964–70) marking an exception, enjoying the support of the political right motivated to oppose Allende. This trend to minority governments had become a serious obstacle to the country's governance.
Over the years the presidential office gradually acquired an increasing amount of power, in particular following constitutional reforms in 1925 and again during military rule after 1973. Thus the executive branch grew more influential compared to the legislative branch of government. A distinct presidential regime emerged, combined with a divided political geography, an explosive combination that made it difficult to advance policy between administrations. A party that lost the crucial presidential election would take refuge in parliament, and while it could not govern, it had enough power to block proposals and prevent the proper functioning of government. This combination of a powerful president hobbled by a polarized legislature was the antithesis of the culture of coalitions, or the construction of majorities. An openness to negotiation and concession is needed to form a coalition government, but this attitude was rather despised, as politicians on the left, center, and right all preferred to remain committed to their minority positions. The three-way division of the political spectrum appeared to be irreconcilable, with each faction offering a distinct vision for the country. In this political culture, intransigence was regarded as a sign of strength, while the search for agreement was a sign of weakness.
In the 1970 elections, two candidates proposed revolutionary visions: the Christian Democrat, Radomiro Tomic, campaigned on a platform of a non-capitalist path of development, while Salvador Allende outlined a Chilean road to socialism. When Allende won with 36 percent of the vote, the governance problems that had long plagued the country's political system reached a breaking point. The lack of governance was evident not only in Parliament but in the streets and in the homes of Chilean families, and combined with the economic model that no longer worked, contributed to conditions leading to the military coup.
The difficult task of building opposition to the Pinochet dictatorship forced previously irreconcilable rivals to seek and build political agreements to end the dictatorship and form (p.689) future governments. Building a majority was vital, through the essential acts of building agreements and forming a coalition. Collectively adopting a new attitude of negotiation was the great revolution in Chilean political culture. The product of this opposition was a political alliance of the democratic left and the progressive center, with Social Christian roots. This alliance became known as the Concertación de Partidos por la Democracia, or Coalition of Parties for Democracy. Initially formed to defeat Pinochet in the 1988 plebiscite, it intended to offer a progressive and governable future for Chile through the formation of a new social and political majority.
This was no tactical, short-term alliance forged merely to win an election: each party fundamentally evolved its positions, moving beyond a mere collection of old left and old center. Nor was it just a marriage of convenience, where each party awaited opportunities to bring out the arguments and weapons of the past and ultimately to displace its temporary partner: it was a new social space in politics, built on strong, long-term convictions shared by both parties, including beliefs in democracy, freedom, human rights, social justice, modernity, and the need for growth. Hence, the origin of Chile's development success over the last twenty years was the formation of a new political consensus.
Just as minority governments were the norm throughout much of Chilean history, so were medium-term visions of development. No government could risk setting objectives beyond its own term in office; government objectives needed to be achievable within the presidential term, as there was no guarantee of either staying in office or that their successors would continue. Thus development was pursued with a view of the country that did not reach beyond five or six years at best. The incoming government team often held a political orientation contrary to that of the outgoing team. The new arrivals entered the arena convinced that those who were leaving had accomplished little, while the ones who left took refuge in Parliament to form a relentless opposition to the new government. Thus each successive government erased what had gone before and started afresh with its own vision of development. What was needed was a shared strategic objective based on the virtuous circle between growth and equity, combined to achieve the level of development to which Chile aspired.
A country is primarily a moral community. It has a past and a present, and aspires to a particular future. Having a long view and working with a strategic perspective means placing oneself within a continuous thread running through the history of the nation, setting a horizon, and advancing toward a shared vision. Advancing with a strategic sense is not simply adding good public policy to what went before, but having a clear horizon toward which these are directed. In a comparative study of the United Kingdom against other countries, Geoff Mulgan (2005), the Blair government's Director of Strategy, concluded that countries that did well “found new ways to combine open economies and political systems with high levels of capacity … they had focused on the long term and the strategic … bureaucracies whose job was to look at long-term strategy and to challenge complacency.”
Working with a strategic perspective goes hand in hand with building a social and political majority. Sharing national objectives allows a government to build on what previous (p.690) governments have achieved. An apt analogy is the construction of an apartment building: a shared idea of design is required, including the layout of apartments, lighting, windows, gardens, spaces for children, and facilities for the elderly. But the fourth floor is built on the third, and the fifth on the fourth. If the first floor is repeatedly torn down and rebuilt because of a radical disagreement over design, the second floor will never be built.
Under the previous polarization of Chilean politics, the right was concerned with growing the economy and the center-left was concerned with redistributing wealth. The former drew support from entrepreneurs, while the latter spoke for the working class and the poor. The political right felt it embodied the industrious spirit, while the political left felt that the state should provide solutions to pressing problems. This impasse had to be broken. The coalition needed to demonstrate that it could not only foster both growth and equity, but surpass the growth generated during military rule. Growth of the economy became a strategic objective of democratic governments: without growth there are no jobs, no resources for investment in equity, and no progress. There is no development without growth, but it was equally clear that growth alone was insufficient.
The emphasis on growth was based on the conviction that growth was, in the words of President Lagos,
an indispensable condition in order that a society may consistently improve the standard of living of the most disadvantaged sectors. The dilemma of growth [versus] distribution is false. Growth without distribution, or distribution without growth, inevitably leads to social and political crises, and to the loss of freedom. Distributing better as growth is achieved is the only responsible and lasting way to social progress. (Lagos 2005)
This strong will to generate economic growth is one of the least understood and most controversial aspects of the recent Chilean experience. It inspires respect and admiration in many circles, yet it also inspired rejection and distrust among those nostalgic for the political positions of the past.
This distrust stems from the political center-left adopting a goal customarily associated with the political right. Yet the twenty years of coalition governments proved to be among the strongest for the Chilean economy. When the coalition government assumed power in 1990, 40 percent of the population lived under the poverty line, yet within two decades the level of poverty had declined by nearly three-quarters to just over 11 percent of the population. During the same interval, per capita GDP increased threefold in terms of purchasing power parity, from US$4,500 to $17,000, buoyed by internal reforms and strong performance on the world stage of Chile's mining, aquaculture, wine production, and forestry sectors. The main elements in this model of development were economic growth, reducing poverty, and converting growth into social well-being. Engaging the global economy was vital, as Chile is quite distant from world markets and its relatively small population (sixteen million) means that the internal market will always be modest. In this sense, Chile stands in contrast to Brazil or Mexico, whose larger populations provide a stronger internal motor for growth. If the internal market is not large enough to support a growing economy, one must turn to external markets. In this sense, globalization was seen as a great opportunity rather than a cultural menace to national traditions.
(p.691) One interpretation of the Chilean experience attributes such success to the legacy of policy introduced during the previous military regime. Yet this argument has been discredited by Manuel Castells, a renowned sociologist, who notes that democratic Chile represents a fundamentally different model. Castells (2005) describes the military leadership as pursuing a “model of development that excludes most of the population from the benefits of growth by means of the authoritarian and uncontrolled exercise of the power of the state, while prioritizing the market mechanisms over the values of society, without applying policies to correct inequalities and privileges of the social and economic elites.” In contrast, Castells characterizes the coalition as pursuing “a development model … that, while maintaining market mechanisms as an essential way of allocating resources, implements public policies aimed at the inclusion of the entire population to the benefits of growth.” This model includes redistribution and public policy intended to improve education, health, and housing for the least privileged members of society. This model also establishes mechanisms for consulting and negotiating with different stakeholders in society.
Another change with respect to the past is in terms of globalization. Many people tended to perceive globalization as more of a threat than an opportunity, presenting dangers to cultural identity, domestic producers, and sovereignty. Yet as a small, open economy located on the confines of the world, Chile needed to be open to the opportunities available. The only way to achieve sustained growth was to go out to foreign markets and sell Chilean products in other countries. Globalization was not only the world coming into Chile, but an opportunity for Chile to reach out to new and larger markets.
The state alone is capable of distributing the benefits of growth to the entire population through policy that provides quality public goods to those disadvantaged in the market. The state has a political role in crafting social justice and gradually building the equity that is not produced by markets. Politics guides where the benefits of growth will go. While this may seem self-evident, it has not always been so. In the long hegemony stemming from Rostow through to the Washington Consensus, Chile under military leadership was perhaps the most extreme expression of neo-liberal thought, which saw social development as an automatic complement of economic growth. The state was seen as an obstacle to such growth, a deficiency that had to be minimized.
While the market can facilitate the distribution of resources and generate incentives for investment, the market alone cannot solve the endemic problems of poverty and inequality that afflict Latin America. Chileans desired a society that did not merely reproduce the inequalities of the market. In the words of President Lagos (2005), the “market is made up of consumers, unequal in their purchasing power; society and democracy are made up of the citizens, equal in rights and duties.” Growth and distribution should happen simultaneously, not in sequence. Growth with equity became the political essence of the coalition.
Deepening Chile's integration into the world, fully embracing globalization and international trade, required that the country be united. Rekindling the rifts of the past was inconsistent with the strategic objective. Thus, the government established itself as guardian of the national interest in its deepest and democratic sense. This meant breaking the old “friend/enemy” dichotomy of past politics under which anyone who opposed prevailing views or thought differently was considered a target to be eliminated. Politics needed (p.692) to end the practice of negating the positions, interests, and needs of others. Forging and consolidating national unity required a forward-looking agenda that looked beyond a simple reorganization of fragments from the past. The country's self-image needed to look ahead to what could be, while acknowledging what had been. Some believed that the traumas of the past could be overcome by simply turning the page or whitewashing over painful memories; however, a society does not become more humane by denying the pain in its past. On the contrary, doing so only serves to deny, denigrate, and degrade any sense of national unity.
First, the country needed an honest accounting of what had occurred during the years of dictatorship, to honor the memory of those who had suffered human rights violations. This involved multiple initiatives to reveal the truth, the most prominent of which were the National Commission for Truth and Reconciliation under the Aylwin government, the Mesa de Diálogo between civilians and armed forces convened under the Frei government, and the Commission on Torture under the Lagos government. These and other efforts sought to restore the relationship between the armed forces and government leadership.
Second, government needed to repair its relationship with the business community. For decades, business leaders were seen as the natural allies of the right-wing political parties and stalwarts of the military dictatorship. The opening of new markets and business opportunities in Canada, Europe, the United States, and Asia required a sincere and efficient public–private partnership to expand the frontiers of the Chilean economy. This unity was also required to meet the internal clashes of the global economic crisis, to maintain the rules of the game in difficult situations.
Chilean history is marked by an imbalance between order and freedom. This increased exponentially during the dictatorship, with unlimited economic freedom accompanied by harsh restrictions on all other freedoms, including the right to life. Following the return to democracy, government faced a question of how to expand the horizon of freedoms and individual rights, including freedom of expression, and the right to cultural identity and historic memory. Film and press censorship were abolished, and legal reforms saw the introduction of divorce, improved juvenile justice, and reforms to the inheritance law that eliminated discrimination against children conceived outside of marriage. A new relationship, still incomplete, began to emerge between the government and Chile's indigenous peoples.
A pluralistic and tolerant society is not devoid of soul, cohesion, or values. On the contrary, pluralism requires an understanding that in the social, political, and cultural spheres there is no single truth: democracies are built on dialogue and agreement between different views whose sole arbiter is citizenship. The state cannot be neutral or indifferent to cultural development. Cultural development is not an ornament of economic growth, it is at the core of the idea of development. It defines a country, particularly a small country that sees globalization as an opportunity to achieve the required levels of dignity for its people. The cultural products that Chileans are capable of producing express our identity: movies, theater, painting, music, and literature provide an imprint of Chile on the world.
The reduction in poverty from 40 percent to 11 percent also stemmed from a number of policies dealing with employment and salaries, as well as agreements with the trade unions (p.693) and low inflation. In particular, the “Chile Solidario” program was based on input from poor families, and addressed their specific reality in order to improve school attendance for children, as well as access to social nets such as cash transfers. Key to converting growth into social well-being was the AUGE program, which provided vulnerable populations with universal access to certain health benefits. Previously there was a two-tier health care system: one private, high-quality service accessible to one-fifth of the population, and one public, low-quality service for the rest of Chileans. The former was funded by private payments, including insurance premiums, while the latter was funded by tax revenues. People affected by a catastrophic illness faced the choice of either paying for expensive treatment in the private system or languishing on long waiting lists in the public system. In contrast, the AUGE program established a list of forty priority diseases and guaranteed prompt access to treatment for all citizens, regardless of income.
Results and Ongoing Challenges
Pritchett (2011) notes that Chile is one of only ten countries since the end of the Second World War to have achieved a combination of rapid and widespread economic growth, consolidated democracy, and a competent bureaucracy with low corruption. The twenty-year period since the return to democracy has been one of the most fruitful in Chile's history in terms of economic development, respect for freedom and human rights, social well-being, and integration into the world. During the seventeen years of military rule, the economy grew on average 2.4 percent annually, while after 1990 the growth rate more than doubled. By the end of the century, the country's GDP had doubled compared to 1989, and increased again by one-fifth by 2005. Adjusted for purchasing power parity, per capita income increased threefold. According to the Global Competitiveness Ranking, Chile ranked twenty-third in the world in 2005, ahead of all other Latin American countries. In 1989, Chile had yet to sign a single free trade agreement, yet by 2009 it had entered into twenty-four agreements, and the total value of the country's exports had risen from $8 to $53 billion dollars.
No other country on the continent experienced such a drastic fall in poverty levels. According to ECLAC figures, the rate of poverty fell from almost 40 percent to just over 11 percent of the population between 1990 and 2009. The poorest fifth of the population saw their monetary income double and their access to goods and services quadruple. The country achieved universal access to primary and secondary education, and expanded coverage of pre-school education during the Bachelet government (2006–10). In higher education, student enrollment rose fourfold in ten years, from 245,000 in 1990 to about one million in 2010. Seven out of ten new students were the first generation in their families to receive a university education.
Beyond gradual advances in many areas, the key reforms in health and social security stand out. The AUGE program under the Lagos government guaranteed free, timely, and quality care to the entire population for the most devastating illnesses. Social security reform under the Bachelet government not only increased the minimum pension amounts, but also incorporated women homemakers into the pension system. Numerous indicators in the social, housing, and infrastructure fields helped secure a high position for Chile (often first (p.694) in Latin America) in international rankings, such as the UNDP human development index and the World Bank governance indicators.
In short, the two decades following the return to democracy transformed the country, and witnessed continuity in the model of development across four presidential administrations. The face of Chile had changed, commanding the dignity of its citizens and the respect of the international community. The soundness of Chile's development was tested in the Asian crisis of 1998 and its effects on Latin America when the regional economy experienced a sharp decline. Thanks to the fiscal surplus, the Chilean economy could implement countercyclical policy that allowed it to continue growing, albeit at slower rates. The financial crisis of 2008 presented a second test, and while the economy suffered, it recovered quickly and the social effects were quite minor.
While the coalition parties were finally defeated in the 2010 elections, the new center-right government is largely building on rather than replacing the model of development already in place. The return to democracy may well have reached its full potential, as there is not only continuity between governments, but the promise of a “Swedish” alternation of power between parties. Chile had come to the end of a political cycle, one defined by the restoration of democracy and marked by reduced poverty and high economic growth. A remarkable effort was made to break through the political impasses of the past and establish a new sense of national unity. The Chilean transition to democracy was won peacefully, and consolidated through economic outcomes and social development.
However, there is still a long road ahead. Inequality remains a problem throughout Latin America. The distribution of labor income, before tax transfers, shows that the Gini index has increased over the past twenty years. The wealthiest 10 percent of the population still enjoys over twenty-eight times the income of the poorest 10 percent, and the gap is widening, as the growth of income per capita of the richest 10 percent was 34.6 percent and the second richest was 25.1 percent, while the second poorest was 11.4 percent and the poorest was just 0.7 percent. It will take much effort to reverse a long history of inequality that stems from the colonial era and runs through to the modern era. It will require strengthening social cohesion, the sense of belonging, for all citizens including Chile's indigenous people (6 percent of the population), respecting their diversity, and providing autonomous channels for integrating into or coexisting with the country.
Moving forward, the key challenge to be overcome is inequality in the distribution of income, wealth, well-being, and power. In other words, beyond merely achieving economic growth, the country requires an economic development that enhances equality and social cohesion, and fosters a more inclusive society. Achieving this involves renegotiating the relationships among state, market, and society, and redefining a notion of public interest based not on an arithmetic average of individual interests but on the creation and provision of public goods for the benefit of society as a whole.
Chile now faces a new cycle defined by the challenge of inequality, but equipped with a new quality in its political system and new rules regarding the relationship between the state and market. Moving forward will once again require building a new majority. As shown by recent social movements, particularly student protests, Chile's development is far from over, and while access to education may have improved, there remains the challenge of providing quality service to all. The number of students in higher education has increased fourfold since 1990, but the system is expensive, fragmented, and of varying quality. A new reality has (p.695) set in as the emerging middle class expresses new demands for equality. Toward this end, the next stage of Chile's development requires further investments in public education, health services, and pension reform, as well as in the science and technology needed to maintain growth. In this sense, Chile is already facing a dynamic that lies in the near future of many developing countries.
Achieving higher levels of equality requires a more rapid progression among those with lower income, which requires more and better jobs, a profound transformation of the educational system, and tax reform that provides permanent resources to finance public goods. Renegotiating the roles of state, market, and society does not mean discarding the advantages and virtues of markets and free competition, but does mean letting go of unrealistic expectations of what markets can deliver. If politics are the deliberations and decisions of citizens—what Sen (2005) calls “government by discussion”—then the state has an inalienable role in providing public policy and goods that embody the will of its citizens.
Chile is expected to soon reach a threshold where per capita GDP will exceed US$22,000. The unresolved question facing Chile's future is how to convert economic growth into development to ensure that high income results in a more egalitarian society where everyone lives better. This is the major challenge facing Chileans.
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(1.) See the Seventh Raúl Prebisch Memorial Lecture, delivered by historian Tulio Halperin Donghi at ECLAC, August 16, 2007 (<http://www.eclac.org/publicaciones/xml/7/33817/RVI94Halperin.pdf>, accessed February 15, 2013).
(2.) Beyond Prebisch, many others contributed to this school of thought, including Celso Furtado, Osvaldo Sunkel, Aníbal Pinto, and others. Cardoso and Faletto (1977) gave substance to the dependency theory, while José Medina Echavarría, Jorge Graciarena, and others linked these economic processes to the social and political variables.
(4.) Ronald Reagan's inaugural address on January 20, 1981, <http://www.reaganfoundation. org/pdf/Inaugural_Address_012081.pdf>.
(5.) Margaret Thatcher interview September 23, 1987, <http://www.margaretthatcher.org/speeches/displaydocument.asp?docid=106689g>.