Chile’s authorities find it difficult to control the situation amid massive protests, looting, arson and violent incidents from Friday 18/10/2019 where the Chilean government announced the imposition of emergency measures for the most part of country for a period of 15 days.
These measures include a curfew in the capital city of Santiago, urging citizens to stay in their homes, waking memories from the time of the Augusto Pinochet dictatorship (1973-1990).
by Thanos S. Chonthrogiannis
It is prohibited by intellectual property law or in any way illegal use of this article, with heavy civil and criminal penalties for the offender.
The cause of the riots and the economic profile of Chile
All these violent demonstrations that forced the Chilean government to enforce martial law by requesting the army’s help to enforce the order arose due to the announcement last week of rising ticket prices of public transportation. A measure that was cancelled on Saturday by the Chilean President Sebastian Pinera, but without to manage to stop the outbreak of rage on the streets of Chilean cities.
Photo by Addicted04,
In fact, the increase in prices for public transport tickets was the reason for the outbreak of the accumulated rage caused by the steady deterioration of social-economic conditions and the prevailing inequalities in the country, where health and education services have been allocated almost entirely to the private sector.
Chile’s economic profile is in good condition and as it shows an annual growth rate (GDP 1,9%, Jun 2019), inflation 2,1% Sep 2019, and unemployment at 7,1%. At the same time the ratio Government Debt/GDP moves at a low level 25,6%, 2018 (Source of Data: www.tradingeconomics.com).
Worsening social inequalities
But behind the “curtain” of this admittedly good economic profile of the country, there are great inequalities in the Chilean society. Looking at the gap between the actual minimum wage and the average annual salary in Chilean society, we find that this gap is widening (see Figure 1 below).
For the period (2010-2018) the increase in the average annual salary was 8,67% whereas for the relevant period the actual minimum annual salary was reduced by 4,70%, further expanding the economic gap between the middle-income class and of the lower income class. In addition, income inequality considering disposable income, taxes and any capital transfers measured on a scale between 0-1 reaches the level of the 0,454 (Source: OECD).
The highest rates of poverty in the population are shown in children (aged 0-17 years) with more than 21,2%, followed by pensioners (over 65 years) with 16,3%, while the poor workers make up 15% of the population.
At the same time, life expectancy reaches 82,7 and 77,1 years for women and men respectively (Source: OECD).
Policies to be implemented to reduce social inequalities
The violent riots and looting last week in Chile indicate us that social prosperity is not diffused among all its citizens, resulting in a significant proportion of Chilean society being marginalized. The policies to be implemented are as follows:
1. The Chilean government should reduce the annual expenditure of the central government in the 15% of GDP annually with 7% of GDP being the payroll costs of all civil servants.
The savings per annum should be redirected by implementing equivalent fiscal value measures that drastically reduce Sales Tax (or VAT) on all categories of basic food stuffs and public transport.
This policy will reduce indirect taxation without creating a deficit increase in the central government’s annual budget and reducing the cost of living for citizens. We must not forget that indirect taxation on food stuffs and public transport ‘melting’ daily the poor and low-income citizens.
2. The Government should implement reforms in the social security-pension system, increasing the years allowed someone to work. Retirement years should start from 65 and 67 years for women and men respectively, without changing the years that need someone in order to receive a pension in the category of the heavy and unhealthy professions which the working years that someone has possess in order to get pension should remain as they are.
This increase in age limits to receive a pension will allow to reduce the costs of social security funds for benefits to the elderly and pensioners.
3. The government’s mistake is not that health services and public transport services belong to the private sector, but that the private sector in these markets acts as an oligopoly and in specific services as a monopoly, resulting in the “disappearing” competition between services in these markets and followed by an almost identical pricing policy.
In the public transport companies participating in this market are complementary to each other and not competing. For this reason, when prices are increased on the ticket e.g. for the metro (underground) is followed by a simultaneous increase in the tickets of other types of public transport.
The price increase of metro tickets triggered the fury of Chilean people
Photo by Fernando Varas
4. The Chilean government should separate the branch of pension provision from the provision of health services of the social security funds. The pension industry should operate on private criteria so that each social security fund to be able to compete with the other social security funds by providing competitive (lower) social security contributions with aim to attract more employees as customers.
In the health care sector, pricing policy should be the same for all social security funds. In this way indirectly, the government transforms the health care service industry of all social security funds into an exclusive organization of purchasing health services with all the social security funds to be involved.
5. On the other hand, the Government should initiate investments in the creation of public sector hospitals.
These public sector hospitals will operate on private sector criteria i.e. hiring hospital directors from the market and not to become a hospital director every politician of the ruling party who failed to be elected in the elections, the doctors’ of the hospital will choose who is eligible among the candidate physicians to be hired as personnel of these public sector hospitals and not the politicians, public sector hospitals will oblige to publish annual, three years and five years balance sheets and will collaborate with pharmaceutical companies in R&D that will bring them additional income.
Investments in the construction of public sector hospitals could be financed through central government borrowing from capital markets with the issue of government bonds, e.g. a borrowing of order 3% of annual GDP by increasing the central government debt from 25.6% to 29.6% of GDP. Chile’s particularly low public debt in this case allows flexible economic maneuvers.
The aim is to create a competitive pillar of health care services supply against the private sector health care services with the aim of further increasing competition between those that will bring about and the general fall in the prices of the health care services.
At the moment, what is at present in the health care services is an increasing price increase by private sector health care providers targeting the middle and upper income classes who their social security contributions and their disposable income allow them to buy these health care services, leaving the low- income class access blocked for quality health care services.
The Chilean government should increase its subsidy policy on the provided services for children and their families who belong in the poverty category, which means better school, better family environment if it is needed, better education in order these children to obtain better future professional skills. A 3% reduction in child poverty will increase the country’s GDP by 2% in a steady annual pace in the future (in a decade period).
6. Increase of the subsidy for the improvement-training of the professional skills of 70% of the workers who do not possess university education.
If such a policy of investing in the country’s human resources is implemented, the economic situation of these workers and their families will be improved by creating the conditions as a country for Chile to magnetize more investments from abroad due to the general Increase of the professional skills of its workforce.
7. In addition, the provision of health services to elderly should be improved based on their disposable income as pensioners. In this case the cost of living for the pensioners will be further reduced take most of them out of the poverty.
Over time and always with the prism of world history, it has been proven that the long-term prosperous democracies are based on the good of social welfare.
There can be no democratic governance in practice without the existence of the good of social welfare. Everyone is involved in a democracy, and that is why everyone must participate in a form of prosperity irrespective of the level of their income.
Only in this way is democracy defended and not by the completely misguided statements of Chilean President Sebastian Pinera who said that “Democracy has an obligation to defend itself with……… traffic prohibition (implementation of martial law)”.
When a government arrives at this point of imposing such measures (martial law) it is too late for it and not for democracy because the government has implemented the wrong policies that do not allow them to see the reality. Democracy is not defended in this way, but by governments. Never involve democracy in policy failures.
