Growth and social progress: the Chilean road

Michelle Bachelet was elected as Chile's first woman president a year ago at the head of the centre-left coalition that has ruled the country for the last 17 years.

by The McKinsey Quarterly
Last Updated: 23 Jul 2013

Chile has been something of an exception to the region's social conflicts and political swing left. While countries such as Argentina, Bolivia, Ecuador and Venezuela have seen governments overturned and a shift toward populism, in Chile there has been no major political upheaval since the return of democracy in 1990. At the same time it has reduced poverty, achieved sustained economic growth and punches far above its weight in terms of export performance.
Bachelet emphasizes democratic strengthening, improved social provision and economic continuity, rather than rupture with the free-market era as seen elsewhere in the region. In an interview with The McKinsey Quarterly, she talked about her plans and achievements so far for continuing Chile's economic success combined with social justice.

Bachelet carefully avoided criticising those governments in the region elected on a platform of opposing free trade and market liberalisation. However she said Chile was sharing its experience with other regional leaders of negotiating 54 free trade agreements that has given it access to markets of three billion people.

Chile supports regional integration, including improvements to infrastructure and cooperation on energy and education.

On the domestic economic front, Chile was developing tax incentives to encourage industry to invest more in research and development (currently 0.7% of GDP), with the goal of reducing dependence on the export of natural resources - copper, pulp and paper and fishing.

Another element of policy is assistance to small and medium-sized businesses, including simplification of the tax system, in order to raise the proportion of exports from this sector to something like European levels. Currently it stands at a paltry 3% of the total.

As to her own style of leadership, she did not emphasise gender, instead saying she favoured social dialogue. For example, on pension system reform she set up a commission of "intellectuals and practical people", those with expertise and different political perspectives. "Many people laughed and said it was because I was unable to make decisions. They were completely wrong. The same thing has been done with education and childhood reforms. In both cases there has been wonderful work that has enabled the government to make decisions based on all points of view."

Denmark was cited by Bachelet for the way it came to consensual decisions, and Norway for the separation of funding for pensions from the political and economic cycle. There is a corner of Latin America that resembles nothing so much like Scandinavia.

Her message to international investors was simple: "Trust Chile, believe in Chile, and invest here. It is a stable, fairly low-risk country and we have developed serious and responsible policies."

The McKinsey Quarterly
Review by Joe Gill

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