Fixing the malaise in the ‘Chilean model’

chile bacheletWith business-friendly policies and largely privatized education and health care, the “Chilean model” has helped build a stable country with little unemployment or corruption, and per capita incomes nearing $20,000, the highest in Latin America, The Washington Post’s Nick Miroff reports:

But it also has given Chile some of the highest levels of inequality in the developed world. President Michelle Bachelet, who returned to the country’s top office in March after a landslide win, is tasked with fixing the model — in effect, rescuing Chilean capitalism from its excesses.

“Chile has had a successful system, but maybe it began to lose its soul a bit,” said Genaro Arriagada, a former politician and ambassador to the United States, who led the plebiscite campaign that resulted in the end of military rule and the return of democracy in 1990.

Chile can’t keep growing with the same formula it has been following, Arriagada said, but he added that it would be a mistake to think the country was making a radical departure from its model.

“I don’t think young people want socialism,” said Arriagada, a leading democracy advocate. “But they do want more affordable education and relief from their credit card debt.”

Second generation reforms

“A clear divide has emerged in Latin America between the four members of the Pacific Alliance trade group — Mexico, Colombia, Peru and Chile — and the three biggest members of Mercosur — Brazil, Argentina and Venezuela,” notes Hudson institute analyst Jaime Darenblum. “The Pacific Alliance members have liberalized their economies and signed free-trade deals with nations around the world, while the Mercosur members have remained stubbornly protectionist and statist, with much lower levels of economic freedom.”

“If Mercosur represents 21st Century socialism, the Pacific Alliance represents 21st Century capitalism,” Peterson Institute economist Barbara Kotschwar recently told the Financial Times. “It takes a pragmatic approach toward development, incorporating elements of social inclusion as well as liberal economic policies.”

Chile embarked on “second generation reforms” geared to controlling the relationship between money and politics, such as public financing for political parties, free access to the media, disclosure requirements, and quota laws to increase the political participation of women, indigenous groups and youth, according to Columbia University’s César Arias and, Christopher Sabatini, Senior Director of Policy at the Council of the Americas and a former Latin America program officer at the National Endowment for Democracy:

Economic growth combined with social investment in Chile, and generous welfare programs together with state interventionism in Costa Rica and Uruguay have been the two main policy models to curb poverty in the region. The difficult coexistence between poverty and democracy has been accompanied by a revival of political participation. When popular anxiety is channeled to institutionalized means, it deepens democracy. However, when it uses de facto avenues it opens the door to electoral manipulation, violence, and the erosion of rule of law.  

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