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A Prescription For What's Ailing Chile

It used to be South America's shining star. But these days, things seem to be a bit rotten in the state of Chile, where corruption scandals are eroding public confidence.

A haze engulfs the sky over Santiago, Chile
A haze engulfs the sky over Santiago, Chile
Roberto Pizzaro


SANTIAGO Chile isn't doing well. The economy has lost steam, the main institutions are in crisis, businesspeople cheat, and politicians have lost credibility. And this isn't just one person's pessimistic opinion. It's what a large majority of Chileans see and feel, according to polls taken by local consultants CEP (Public Studies Center) and CERC-Mori.

Compare this country with the dynamic Chile after the transition to democracy, in the 1990s, when it was able to grow, generate jobs and reduce poverty, and when then President Ricardo Lagos was able to reassure the public, in one of his more difficult moments, to "let the institutions do their job." Today, those institutions are in crisis and unable to appease the people — except for those with power. We are starting to pay the price, it seems, for the country's acute inequalities, corruption and ultraliberal, every-man-for-himself approach.

The CEP results, released June 13, show an unusual drop in approval numbers for President Sebastián Piñera, a conservative. Half the population disapproves of the job he's doing and only 25% finds it acceptable. All his public policies receive negative ratings, compared to the 37% approval rating they earned in a CEP poll from December 2018.

Chile's productive model is largely exhausted.

While campaigning, Piñera and his allies generated great expectations that they could boost the employment and create more jobs. But now, 61% of the population feels the economy is stagnant and 15% believes it is in decline. And it's not just economics that Chileans are worried about. People are also complaining about crime, pensions and healthcare.

Structural problems

The government has spent much time blaming the center-left opposition and the preceding administration, led by Michelle Bachelet, for lagging growth. There has been a lot of emphasis on the tax system in particular, though little progress in changing it. And in this and other areas, government initiatives have not been productive as it has struggled to harmonize positions.

The reality, though, is that the reduced rhythm of economic activity is not temporary. It's a structural problem, rather: The productive frontier has narrowed, and that's not Piñera's fault. Economists and politicians on both the right and left have been reluctant to admit it, but Chile's productive model — based largely on the extraction and export of raw materials — is largely exhausted.

In other words, the development strategy, if one prefers the term, is not yielding the returns it used to. That's why Chile instead needs a diversified, knowledge-based economy, as Senator Guido Girardi, a leftist and one of the few politicians to spell it out publicly, has argued.

Pedestrians walking in busy Santiago, Chile — Mauro Mora

To spur growth and advance toward a higher developmental phase, Chile must inevitably push for a productive model that favors a greater aggregate value for our goods and services, and for that we need a substantial increase in investments in science, technology and innovation. At the same time, it's the state's job to provide the incentives that the private sector needs to commit itself to this effort. Only a diversified, knowledge-based economy can expand the productive frontier, boost growth, employment and wages, and make the country more competitive.

Trust issues

But the country's problems beyond the economy or the president's standing. We're also in trouble with regards to our politicians, the business class and the Republic's institutions.

The CERC-MORI's latest poll (May) revealed an abrupt drop in confidence in the country's key institutions, including the armed forces, the police, the judiciary and political parties. Only 6% of respondents expressed confidence in politicians in general. Political parties fared even worse (5%). Confidence in the country's business organizations is higher, but only somewhat (14%).

61% of the population feels the economy is stagnant and 15% believes it is in decline.

Never in the past three decades have our institutions and elected officials generated so little confidence, in part due to corruption. The government must be implacable, therefore, in cracking down on it, because in recent years we've seen widespread corruption among senior officers in the military and national police. We've witnessed systematic fraud against consumers, and bribes paid to legislators to impose profit-friendly laws.

Even the tax collection agency, which had enjoyed a reputation of probity, has been caught protecting politicians and crooked businessmen instead of taking them to court. Little wonder that 64% of citizens no longer identify with any political party.

The judiciary has also lost prestige for failing to help clean up the institutions. No politician associated with several high-profile corruption cases has been jailed, itself a stark sign of inequalities in Chile. Such cases show the privileges the rich and powerful enjoy compared to ordinary folks who barely make ends meet. and who do feel the weight of laws. Together the causes of this disaffection indicate an ailing country that must change.

Chile needs a new development model. It needs determination in fighting corruption, and equal justice for all. And it needs rigorous public oversight of politicians and businessmen to ensure that what they do is transparent. Otherwise, the country's general malaise is likely to continue.

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