In the last few decades, Chile has been the Cristiano Ronaldo of Latin America: it was
the country with the highest growth, had the most success, and, sticking with our metaphor
here, “scored the most goals.”
Also for many classical liberals, Chile has been the benchmark for years.
We could say they considered the Chilean model some sort of dream in a world full of dark
nightmares.
And it was true, there were good reasons for celebration:
Chile, which once was the poorest Spanish
colony in Latin America became the richest in the region.
It became the country with the highest life expectancy and the country with the best social
services in the entire region.
It is true that inequality is very high in
Chile, but the entire population of Chile has benefited from the prosperity the country
has achieved over the past few decades.
For the past 25 years, the income of the poorest people in the country has increased far more
than the income of the wealthiest people - and their purchasing power has grown six times
larger.
All of this compares very favourable to other Latin-American nations…
As an example: in 1950, the average Chilean income was around a third of a Venezuelan
income.
In a manner of speaking, Venezuelans were three times richer.
A lot has changed since then and, today, Chileans
are much richer than Venezuelans.
They also have a longer life expectancy.
A Chilean lives an average of eight years more than a person born in Venezuela.
Now, comparing Chile to Venezuela, or to Argentina, sure makes Chile look good.
But when the comparison is made with other, more distant, countries, like those in Asia
for example, the figures aren't nearly so nice and, further, it seems as if the country
has stopped growing, which is worse...
(THE CHILEAN SLOWDOWN)
In the last few years, the optimism and success has come to an end.
In Santiago, the capital of the country, the
displays of wealth and prosperity have left, making room instead for demonstrations and
protests.
Anger and despair have taken over, and it's
only logical...
Economic growth has fallen for the last few years, and in 2016, unemployment increased,
while salaries remain frozen.
Further the youth can't find jobs and both investment and exports have fallen.
And the thing is that things aren’t looking like they are going to get any better any
time soon.
(“In 2016, the Chilean economy grew by 1.5%.
The Central Bank estimations for 2017 are no better, they go from 1 to 2%”.
El Mercurio.)
And despite all the growth of the last decades, 3 out of 4 Chileans make less than $700 a
month.
So now you can probably understand the anger - these are salaries that don´t belong to
a rich country.
In other words, the Chilean model seems to
be failing, and there is someone responsible for this slowdown: Michelle Bachelet, the
current president of Chile.
(THE REVOLUTION OF BACHELET)
Michelle Bachelet was the president of Chile from March 2006 to March 2010.
But here, in Chile, a president can’t be elected to two consecutive terms.
So Michelle had to wait for 4 years before she could run again for “La Moneda” - the
name of the Presidential Palace in Chile.
Well, after gaining the support of almost all the left-wing parties, including the Socialist
Party and the Communist Party, Bachelet won the elections in November 2013 and a few months
later, in March 2014 she became the President of the Republic of Chile, again.
In this second term, Bachelet decided to go through with reforms which were much more
aggressive than the ones she came up with her first time around.
Her first decision was to increase taxation
on companies by almost 40%.
Quite the dramatic move…
She did it by raising the rates on profits and, also, eliminating a bonus which meant
companies could reduce taxation if the profits were reinvested in Chile.
If you think about it, that rule about reinvestment was actually a really reasonable incentive…
A country like Chile which is far from being rich needs factories, machines, businesses,
technology, and investment.
And this incentive encouraged the growth of all of these things…
So, what’s the point of punishing companies providing this much needed investment?
And in addition to all this, taxation on companies wasn’t exactly low to begin with.
Take a look at how things are now, after Bachelet punished these companies:
“Chile is the second country with the highest taxation on companies, relatively speaking,
only surpassed by Japan, a much richer country with more consolidated companies”.
OECD)
Would you like to know the consequences of this measure?
Well, investment has fallen by 30% since Bachelet came back to La Moneda.
And, of course, less investment means less jobs, less growth and, therefore, less tax
revenue.
In other words, they decided to eat the cake before they could even bake it, and, well,
that rarely works.
That is why there has been a clear international tendency to reduce taxation on companies over
the last few years.
Canada, the UK, Ireland are some of the examples where corporate taxation has been reduced.
The new president of France, Emmanuel Macron has promised to copy those policies.
Well, Chile is headed in the opposite direction.
But wait a second, because that isn’t all.
The other two main reforms Bachelet has put through have resulted a very similar outcome.
Labour reform has made recruitment more expensive
and has given more power to trade unions.
Some might like the sound of that, but it
means more costs for companies which when added to the increase on taxation means there
is even less investment, less competition and less exports.
A whole lot of problems.
On the other hand, Michelle Bachelet tried
to pass an ambitious reform to turn the private college education system into a public, free
of charge, service.
The problem is, dear VisualPolitik viewer, that this model is very expensive and some
say the solution to the problems of education is to improve the quality of the universities
themselves instead of making them into factories printing diplomas.
Anyhow, the thing is that Bachelet couldn't pass this reform, but in her attempt to do
so, she turned the whole education system upside down.
For example, she has reduced the investment they had planned before that was set to improve
the quality of the private universities.
But, ok, now you might be wondering: Well,
what do the citizens of Chile think about all of this?
Well, look closely: “62% of Chileans consider the government
of Michelle Bachelet must put off or at least “moderate” the reforms which have been
forced in the country, especially the educational reform” TeleSur.)
It feels as if Bachelet was working towards an ideological change rather than a formula
which could actually solve national problems.
In fact, all these reforms and her hostility towards private corporations have led Chile
to suffer the worst economic period for decades.
And, do you know who is most negatively affected by this situation?
Well, that’s the poor and the working class...
After all, the wealthy already have a good standard of living.
The thing is Bachelet leaves the country with a crisis, with a growing public deficit, with
the highest public spending of the last 26 years, and with a damaged economy.
But now that you know all of this, you might be wondering: besides Bachelet, what are the
biggest weaknesses in Chile?
Well, let’s see:
(CHILE´S WEAKNESSES)
It is a fact that Chile doesn't like foreign professionals.
It is a bit strange for a country with growth like Chile, that they seem to have been incapable
of attracting foreign professionals.
Immigration is only 2%, and that is a problem;
it affects entrepreneurship, innovation and trade.
“Why won´t Chile grow?
Because it is full of Chileans!"
Ricardo Hausmann, Director of the Center for International Development of Harvard University.
Generally speaking, foreign professionals
tend be more entrepreneurial, which helps the economy to diversify.
“In Chile, the rate of entrepreneurship of immigrants multiplies by four the local´s
rate”.
A second problem is that the so-called “social ladder” is not working.
That is there are no changes in social classes: born poor, die poor, born rich, die rich.
In fact, the country is controlled by 7 families
whose wealth is equivalent to the 17% of the national GDP.
This might seem unimportant, but when the social ladder and competition don’t work,
it means the family name is more important than talent and effort.
The opportunity cost for the country is huge.
And these families usually have quite special
relationships with the power.
Consider this: “Bachelet´s son brought to justice for
a case of corruption.
Andronico Luksic, one of the most powerful men in Chile and the owner of the Bank of
Chile is also involved in the plot.”
Yep, the Bachelet has even been spoiled with corruption...
And then, there is the bureaucracy.
I am sure you have heard that Chile is a very
free economy…
well, when you take a closer look you can see it is also very bureaucratic and has all
kinds of regulations.
For instance, Chile can´t import second hand
cars, and foreign workers don’t have access to a bank account…
so…
well, it certainly could be more free!
Mark Twain said there are three kinds of lies: lies, damn lies, and statistics.
The figures in Chile probably have some of that…
The next elections in the country will take place on the 19th of November 2017, and one
thing is sure: if Chile wants to go back to the good times, they must change direction.
So, what do you think?
What is your opinion of Bachelet?
What do you think of the Chilean model?
Well, please leave your answers in the comments below and click like if you enjoyed this video!
Thanks to the Reconsider Media Podcast for
providing the voice over vocals for this video.
And don’t forget to subscribe for brand
new videos every Monday and Thursday, and as always, I’ll see you next time!