Countless theories have emerged trying to explain the social upheaval that has shaken Chile since 2019 and that led, two years later, to the convening of a new constituent assembly. Although the trigger for the protests and demonstrations was a small increase in subway fares (four cents on the dollar), it is clear that the magnitude of the protests and the changes they caused indicate that the underlying reasons were different.
Before proceeding with some hypotheses, it is important to remember that what surprised locals and foreigners alike is that these mobilizations took place in the ‘model’ country of Latin America: a country that had multiplied its per capita income by 3.4 times in the last 25 years (the region had done it 2.3 times, the same as the OECD countries), that it had reduced poverty below 10 percent and that it had practically eliminated extreme poverty.
One explanation could lie in the high levels of inequality observed in Chile. Despite economic and social progress, Chile is the third OECD country with the worst income distribution indicators, only surpassed by its peers in the region, Colombia and Costa Rica. However, the levels of inequality (and poverty) are much higher in practically all the other Latin American countries, which implies that the high levels of inequality do not seem to be the explanation behind the protests.
Although it is naive to claim that a single cause explains what happened in 2019, it is worth examining the stagnation of the Chilean economy during the previous decade, even before the arrival of covid-19.
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Our hypothesis is that Chile was a victim of its own success and its inability to reinvent itself: Based on reforms on several fronts and serious management of economic policy, Chile was able to grow rapidly until it became the country in the region with the highest per capita income. This generated high expectations in the population in terms of the quantity and quality of the provision of essential public goods, such as health, education and pensions. Unfortunately, the absence of additional reforms in the previous decade meant that Chile’s progress on these fronts fell far short of expectations.
In terms of health, Chile has two systems that have wide inequalities in terms of quality and timeliness of care. On the one hand, a private system (Isapre) that covers 22 percent of the population, usually with low risks and high incomes. On the other hand, a public system (Fonasa), which covers the vast majority of the population, the remaining 78 percent, and which is made up especially of the high-risk population and low- and medium-income households.
Added to this, out-of-pocket spending on health is 34 percent of total spending, one of the highest in OECD countries, where the average out-of-pocket expense is notably lower (20 percent). This indicates that a substantial part of the health risk falls on households.
In terms of education, Chile continues to have one of the worst results in the Pisa tests, which are also below expectations compared to the observed expenditure, which indicates that there are also problems in the efficiency of spending on education. Added to this, quality problems are more serious for the poorest households: the math score of Chilean students in the poorest 25 percent is 16 percent lower than the average score of OECD students. in the same socioeconomic condition.
Finally, in terms of the old-age protection system, although Chile was a pioneer country in introducing a defined contribution system that sought to move away from the problems associated with defined benefit systems in the context of population aging, elements such as a low mandatory contribution rate, low contribution density and high labor informality generated a system with replacement rates below 40 percent and that will fall to 30 percent according to the OECD20 percentage points below the average observed in that club of countries.
Now, why couldn’t Chile continue to strengthen the quality of education and health and old-age insurance for households? We believe that much of the explanation is due to a Absence of bold reforms that would continue to boost economic growth and reduce inequality. The Chilean elite believed, wrongly, that the country would continue to make rapid progress in its economic and social indicators without requiring new reforms. What happened, however, was an economic and social stagnation against the richest countries.
Despite social and economic progress, Chile is the third OECD country with the worst income distribution indicators, only surpassed by its peers in the region, Colombia and Costa Rica
Between 1994 and 2010, Chile managed to substantially close the gap in its per capita income in dollars, adjusted for purchasing power parity (PPP), in relation to that of Latin America and that of the OECD, going from a GDP per capita relative to the OECD average from 34 percent to one of 53 percent. At the same time, Chile surpassed the GDP per capita relative to the Latin American average, going from a level of 90 percent in 1994 to one of 134 percent in 2010. However, later a stagnation in this convergence process is observed: Gross domestic product per capita relative to the OECD was virtually unchanged over the past decade, rising from 53 percent in 2010 to just 54 percent in 2019.
This economic stagnation also translated into a stagnation in the pace of inequality reduction. Although Chile rapidly reduced its Gini coefficient – an indicator that measures inequality in income distribution on a scale of 0 to 100, with higher values indicating greater concentration in income distribution – from 54.2 in 2000 to 46.9 in 2010 (7.3 percentage points), it was barely able to reduce it to 44.4 in the following seven years (2.5 percentage points).
Although they are not indisputable proof, the stagnation in economic growth coupled with a slower rate of reduction in inequality are factors that indicate that the Chilean leadership, prey to its previous success, remained undaunted by the need for better risk insurance and greater social and productive inclusion. In the context of economic and social advances in previous decades, the unfulfilled expectations of a continuous improvement of the social contract could explain the magnitude and consequences of the social protest in Chile, which began in 2019.
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These facts leave important reflections for Colombia. The elements identified here for Chile, perhaps with the exception of those related to health, apply equally to the Colombian case. The protests that began in Colombia in 2019 and that came with more force in 2021 are a sign that should make us reflect on how far Colombia has come in recent decades, but also on the major structural problems that require reforms to improve the social contract in our country and about the risks associated with falling into complacency. In this sense, from the Foundation for Higher Education and Development (Fedesarrollo) we have made concrete proposals that we believe deserve to be discussed (‘Reforms for a post-Covid Colombia: towards a new social contract’ –2020– and ‘What to do in economic policy and social’ –2022–).
LUIS FERNANDO MEJIA
Director of Fedevelopment
For the time
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