- The economic transformation of Chile :;
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- The Political Economy of Inequality at the Top in Contemporary Chile.
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I am not only interested in the situation at a point in time e. The political system moved to the left and new social groups acted as countervailing forces Pinto The redistribution of income towards the top was extraordinary—even larger than the one the USA has experienced in the last three decades.
The coup affected all the channels of economic and political concentration that we have previously discussed. First, capital concentration increased significantly, particularly as a result of the processes of privatisation. Of the companies in public hands in the early s, were transferred to a small number of players within the private sector. Second, trade unions were systematically persecuted and changes in the regulation of the labour market expanded outsourcing and free wage setting Berg The weakening of trade unions contributed to a reduction in overall wages and eliminated a significant progressive political force.
Third, the capacity of the state to redistribute income weakened. Collective pensions were replaced by individual capitalisation pensions managed by private companies. All the redistributive components of the system were eliminated and pensions became exclusively linked to the financial returns on contributions Riesco Public healthcare survived, but private providers grew significantly. At the same time, the taxes paid by high-income groups compared to those paid by the middle class decreased significantly, thus reducing the contribution of the wealthy towards redistribution.
According to calculations by Arroyo Abad and Lindert presented elsewhere in this volume, the net benefit from social spending minus taxes received by the top quintile increased from a negative number in to more than three percentage points of GDP in the mids. If we accept that top incomes have remained stable after the return of democracy—something more evident in the tax data than in household surveys—how can we explain it? In which areas has Chile experienced advances and where have things stayed the same?
In this section I review some of the channels discussed in Sect. I show that the concentration of economic power has not changed and public policy has not paid enough attention to the reduction of productivity gaps. Trade unions also remain weak and cannot act as an influential national force.
In contrast, some reforms have made social policy more redistributive and could trigger progressive political trajectories in the long run. The key unanswered question is not whether Chile is still unequal, but whether these new opportunities can truly modify the political economy of inequality in the future. Data on market concentration is patchier and does not allow us to explore changes over time systematically. Additionally, some of the best qualitative studies on business groups and economic concentration rely on data from the s, thus limiting what we can say about the last decade.
Nevertheless, there is enough empirical evidence to believe that concentration has not decreased significantly and remains high.
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Three conglomerates have been particularly prominent: Luksic, Angelini and Matte. In the late s, these three groups alone owned all Chilean publicly traded companies with market value over , million pesos. In the last decade, large family groups have succeeded in adapting to changing global conditions by creating new ties to transnational corporations, expanding into non-tradable sectors like commerce and diversifying into many different sectors Fazio ; Schneider Luksic has also created strategic alliances in other sectors, including banking, telecommunication, electricity and tourism Fazio The group Matte has built a diversified portfolio that includes the largest paper factory in South America together with participation in more than 30 firms in finance, mining, health, telecommunications energy, ports and others.
Department stores, supermarkets, home improvement stores, banking, shopping malls. Department stores, supermarket, home improvement, banking and interests in many other sectors.
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Source: www. Concentration is also high at the sectoral level. In hardware stores, two companies Easy and Sodimac have become dominant players, contributing to the disappearance of almost companies that operated in the sector in the s. The list of sectors dominated by just two or three companies—many of which are part of larger conglomerates—also includes telecommunications mobile and Internet , cable, supermarkets and electricity Ruiz and Boccardo ; Fazio Solimano also calculates an index of economic concentration for six sectors pharmaceuticals, forestry, banking, pension funds, mining and healthcare , showing an increase in four of them during the s.
Like other Latin American countries, Chile has been characterised by large productivity gaps. Data in Infante and Sunkel for finds differences in employment and productivity in two different axes: between sectors and between small and large firms. Large firms are more productive than small and medium firms in all economic sectors. Also, mining, utilities and financial services are more productive than agriculture and community services—although productivity gaps by sector are lower than by size.
As a result, the difference between a large mining company and a small agricultural producer is astonishing: the former is almost 40 times more productive than the latter. Most employment is located in low-productivity sectors and, as a result, is of low quality Velasco and Huneeus The dominance of market-friendly ideas made state-led interventions particularly difficult Palma Things partly changed in when a new royalty on copper, mining and other natural resources was created.
Soon after its creation, the CNIC published a White Book volume 1 , which established the economic justification for innovation policy. The document proposed selective interventions based on the promotion of clusters. The CNIC created then 11 thematic roundtables in areas like higher education and innovation culture to agree on the following steps to take.
The CNIC developed an ambitious strategy of cluster promotion and took some useful steps to accelerate economic dynamism. Nevertheless, its interventions shared at least three common problems with other industrial policy initiatives. First, the CNIC was primarily a technocratic project with weak support from the private sector and few mechanisms to force private sector cooperation.
Its initial top-down and technocratic bias continued in subsequent years.
Optimism for banking and capital markets
Yet he made no effort to embed the organisation within the private sector. The creation of more dynamic links between large firms and small and medium firms was never in the agenda either. Second, the main goal of the CNIC was to increase the innovation capacity by supporting sectors that were globally dynamic and where Chile had comparative advantages.
The aim was exclusively to accelerate GDP growth and the strategy did not pay any attention to the link between innovation, firm size and income distribution. Other industrial policies have shared a similar problem, providing insufficient support to small and medium firms. For example, a high-ranking official from the Confederation for Production and Commerce I interviewed argued that innovation policy mobilised a lot of resources but was quite inefficient. He also suggested that the private sector should drive innovation efforts and, when discussing strategic sectors, came back repeatedly to the central role of mining.
Promoting new sectors is not their priority and could lead to the emergence of threatening competition.
U.S. Policy toward Latin America | Cato Institute
They can also influence the functional distribution between wages and profits and reduce top incomes. In the case of the USA, for example, Volscho and Kelly show that a 1 percentage point increase in union membership would result in a 0. In Chile, as we mentioned before, trade unions were severely repressed after the coup. The main trade union confederation was outlawed and many of its leaders detained. All existing labour contract regulations were suspended and labour markets liberalised Berg Unionisation rates plummeted: the share of union workers in the total labour force went from With the return to democracy in , trade unions were free again to negotiate contracts and organise strikes, but they never recuperated its previous influence.
Unionisation rates stagnated and collective agreements remain sparingly used. A combination of political and economic factors explains the ongoing weakness of trade unions Donoso a ; Leiva ; Winn On the political front, the memory of the dictatorship and its terrible consequences contributed to the adoption of a moderate strategy. Union leaders were also reluctant to oppose governments led by anti-dictatorship colleagues. The dominance of liberal ideologies was also important. Successive Chilean administrations focused on growth promotion through free markets and trade liberalisation, fighting inequality exclusively through social policy Palma The business elite also opposed ferociously various attempts to reform labour laws, watering down proposals that were quite timid to start with Sehnbruch On the economic front, labour market deregulation and expansion of subcontracting arrangements constrain the opportunities for effective union organisation Berg Structural heterogeneity—particularly the dominance of small, low-productivity firms—and the growing share of services—where unionisation is significantly harder than in manufacturing—have also been problematic.
Unionisation rates and trade union size, — Source : Own elaboration with data from Departamento de Trabajo Note : The dots represent the ratio between the unionised population and all workers, while the line only considers those workers who can legally associate. It thus excludes public servants.
The OECD statistics show a similar trend although with slightly higher values e. Nevertheless, these changes should not be exaggerated: trade unions are weak and have a limited influence on income concentration. Unionisation rates are still well below the highs of the early s. Laws still discriminate against trade unions, which are not allowed to negotiate either at the business group or national levels. New unions will only revitalise the labour movement if they can ally with traditional organisations and build more productive interactions with left-wing parties—something they have so far failed to do.
Otherwise, their political influence and contribution to the erosion of top incomes in the long run will be limited. While the Chilean Government has been reluctant to adopt an interventionist stand in production and the labour market, it has gradually implemented more active policies in the social realm.
The expansion of social spending has in turn created new conflicts over taxation and could gradually consolidate a broader redistributed cross-class coalition. Overall, the system has become more redistributive from a historical perspective: since the top quintile pay more in taxes than receive in benefits Arroyo Abad and Lindert, this volume and the redistributive capacity of the state keeps improving. The AUGE plan created a universal mandate for a list of services that every health insurer is obliged to provide within explicit timelines, thus stopping the practice of private providers offering plans that omitted key procedures such as reproductive healthcare for women Ewig The plan introduced price limits on private insurance plans and created incentives to reduce age and gender discrimination Ewig and Palmucci Financial needs and electoral pressures explain why the government succeeded in passing a reform that favoured the poor and the middle class Pribble Public health spending had increased steadily during the s partly because the state covered the costs of services that the private insurance did not include.
At the same time, an expansionary reform had cross-class appeal as the middle class was increasingly using state services. The ultimate impact of the reform was constraint by the influence of the elite. Private insurance companies operating often through right-wing political parties succeeded in limiting cross-subsidies between the private and public sector Pribble The basket of required treatments has been expanded steadily based upon their cost-effectiveness in preventing death and disability Ewig and Kay This process of unification will further enhance cross-class coalitions in support of further expansions of healthcare.
New pension benefits have also been important. The reform also included a bonus for each live birth that women have, therefore acknowledging time devoted to child birth and child-rearing Ewig and Kay While the pension reforms maintained private individual accounts as the core of the pension system, they opened the door for subsequent progressive changes in the system. Upon taking office for the second time in , President Bachelet created a high-level commission to explore the sustainability of the pension system and the link between its various components.
The most important proposal on the table is the creation of a state-led insurance company a public AFP. If introduced, this reform would reduce the large commissions that the private AFPs charge and weaken private providers more generally. In recent years, secondary school and college students have repeatedly protested against the excessive costs of education and the lack of a high-quality, public education. More recent protests from college students placed the demand for free education at the centre of the agenda, and influenced the electoral campaign.
This messier and less predictable policy process can be considered as an indication of an emerging politics of redistribution that is less complacent with the elite. This is welcome news for tax policy and a demonstration of the links between social policies and taxation politics in Chile. In the last two decades, the need to expand social policy in the context of fiscal discipline has created periodic pressures to expand revenues Fairfield ; Pribble Increases focused primarily on the value-added tax, whose rate was raised as a result of the creation of AUGE and earlier education reforms Pribble VAT increases, in turn, were used to demand progressive changes in income taxes in several instances including during the discussion of the Anti-Evasion Law Fairfield Despite these improvements, the Chilean state still struggles to tax high-income groups.
These problems reflect the ability of the elite to water down various reform attempts. Thanks to its close ties to right-wing opposition parties and its resources to lobby the government, the business elite has succeeded in leaving the corporate tax and access to bank information outside of the policy agenda Fairfield The results of future struggles over taxes and social policy will depend on the capacity of the emerging cross-class redistributive coalitions to confront this persistent elite power.
Yet how sustainable is this positive trend? Is Latin America truly in a new era? To answer these questions, we should consider how much the income share of the wealthy is changing and why. Given data limitations and the importance of politics, this requires a multidisciplinary approach that combines statistics with the study of policymaking and political trajectories.
This chapter adopted this approach to explore the case of Chile—one of the Latin American countries where inequality at the top is most striking. I collected a variety of evidences to show persistent concentration of income at the top. My analysis illuminates some contradictory trends. Economically, capital income and market concentration remain high with a few business groups controlling large segments of the economy. At the same time, however, social policy has become more redistributive and may be contributing towards the creation of new progressive cross-class coalitions.