Chile’s Top Model

Of the many new things which Michelle Bachelet’s election seemed to augur, a new economic model was not most prominent. Yes, she did promise to deepen the country’s social protection system, but that is not much more than a continuation of the leap President Lagos took in expanding public health care. Yet looking back over the Bachelet years, one is struck by how much ink is dedicated to debates over appropriate levels of saving, how and where to spend, and Finance Minister Velasco’s efforts to fight back his boss’ rather more statist inclinations. Having withstood great political pressure from left and right, from above and from below, to spend the copper bonanza, Velasco stood his ground and, at least in this space, earned repeated plaudits. In recent weeks both the FT and the Economist have come around, dedicating articles to Chile’s wise fiscal and economic management in times of crisis, which is interesting not because Chile’s unique form of “neoliberal-social-democracy” is once again the focus of some attention, but because of its implications in Chile and abroad.

The plaudits may be less a function of what Chile has done right, than what the others have done wrong. The positive aspects of Chile’s model highlighted by the foreign press – fiscal responsibility, free trade, education vouchers and the mix of private pensions system with a state-guaranteed minimum pension – are policies touted by the developed world but not actually implemented by much of it. As for the rest of Latin America, one compares Chile to the Colombianization of Mexico, some kind of economic and/or political crisis inching closer in Argentina, and the increasing authoritarianism of Chavez. Compared to the profligacy of much of the North or the mismanagement of much of the South, Chile’s model looks pretty good.

But a closer look shows it’s not that simple. Chile spends just over 4% of GDP on public education, slightly more than Greece and Russia, slightly less than Germany and Spain. Yet the public education system has been in trouble for some time. Whereas the public expenditure of developed countries on health ranges from 5 and 8 percent of GDP, Chile spends about 3%, slightly more than Mozambique and Ethiopia. In terms of the relationship between public spending and the quality of service provided, then, Chile seems to be punching below its weight in education and above its weight in healthcare.

The debate over the Chilean model, then, is not, and should not be, about the money; it’s about universality. The story the aforementioned figures do not tell is that they do not apply to the Chilean upper middle class and higher, whose private education and health care are first rate. The debate over the state in Chile is not about making the state bigger, but about giving it a role in leveling the playing field. Some of the more significant, yet gradual, steps taken by the Bachelet government – such as in pensions – have been in this direction. In late March Bachelet will play host to half a dozen social-democratic leaders and other dignitaries from around the world, including Gordon Brown, in a summit that is bound to underscore the contributions that an active state can make – indeed, could have made – to avoiding or reducing the effects of today’s economic situation. With polls showing that well over 50% of voters also place a good deal of trust in the state, Bachelet’s own poll numbers on the rise, and an international environment that seems to have moved closer to its kind of “neoliberal-social-democracy”, the Concertación seems well placed to ride this crisis all the way to a record fifth victory in December.