John Ahn and Chase Wonderlic
Acclaimed as the economic model for Neoliberal reform in Latin America, Chile’s economy has experienced remarkable growth in the past few decades (Hojman, 73). Despite a complex international commodities market and the frequency of external shocks, the country’s long held tradition of democratic political system sets the country apart relative to the region. However, a recent report last month (January 2018) by the OECD and ECLAC argue that Chile’s stable and open economy will no longer be enough to sustain business development. Despite the country’s increased participation in global value chains and diversification of exports, a limited knowledge base and stagnating productivity concentrates economic opportunity to only a few firms and activities (UNCTAD). The organizations urge the country to leverage today’s global production revolution by transitioning beyond its mining-focused economy to renew its relationship between government, business, and society (UNCTAD).
While acknowledging Chile’s relatively high annual average growth rate and sound macroeconomic management, the organizations observe stagnating total factor productivity (TFP) since the 1990s. The unchanging productivity is primarily due to the country’s concentration in the mining sector, which has had declining TFP every year for the past 25 years and composes 55% of Chilean exports (UNCTAD). Compared to the rest of the countries in the OECD, large firms in Chile innovate considerably less and account for merely 57% of total business research and development compared to Germany, where large firms account for over 85% of business R&D (UNCTAD). Chile has one of the overall lowest rates of R&D of the OECD with the private sector’s contribution being 33%, significantly below the OECD average of 68% (UNCTAD).
Chile’s impressive economic performance is manifested in several measures but perhaps most striking is its position as the sole South American country to be a member of the Organization for Economic Co-operation and Development (OECD)–an intergovernmental organization composed of the world’s most powerful economic powers. Yet, beneath the country’s many distinctions, Chile has sustained severe inequality through extremely high income gaps between the haves and the have-nots (Atria). According to the World Bank, Chile is the 18th most unequal country globally and is by far, the most unequal economy in the OECD. The social inequities have also been persistent throughout time with a Gini coefficient of approximately 0.52 for the last 25 years. (Atal). There has been increasing literature in the past decade that attempts to disseminate the vast disparities in Chile’s income distribution, however, a consensus on how to target the country’s bottom quintile is far from being reached.
Among the measures proposed by the OECD and ECLAC for Chile is to modernize its public institutions, enable long-term financing for strategic investment, and consolidate progress made in articulating agendas for production while highlighting the need for reliable Internet connection (UNCTAD). These targeted policies will certainly enhance business development while promoting a pro-innovation mindset for Chile’s private sector—particularly during the supposed unique window of opportunity of the country’s current momentum. However, in the context of developing countries achieving economic development that reaches beyond growth, what are the possible trade-offs Chile has when considering the OECD’s report? Is Chile’s case an example of the constraints countries may have in improving human welfare in a world consumed by attaining economic growth?