2011-04-26

Chile: Economy, income inequality growing

Chilean President Sebastián Piñera, right, receives the results of the latest report by the National Socio-Economic Levels Survey (Casen). The report states about three million Chileans live in poverty, including 500,000 who live in extreme poverty. (Courtesy of Mideplan)

Chilean President Sebastián Piñera, right, receives the results of the latest report by the National Socio-Economic Levels Survey (Casen). The report states about three million Chileans live in poverty, including 500,000 who live in extreme poverty. (Courtesy of Mideplan)

By Adrián Martínez for Infosurhoy.com—26/04/2011

SANTIAGO, Chile – Chile’s economy has been a successful model for Latin America.

But regardless of the positive perception, an international organization dedicated to economic issues has reported concerns about income inequality in Chile.

The Organization for Economic Cooperation and Development (OECD), in its latest report, rated Chile as one of the worst of its 34-member countries in terms of income distribution last year.

The report, released on April 12, based its findings on the Gini coefficient of 2006, a statistical instrument used to measure financial inequality. Chile’s score of 0.50 is far higher than the overall average (0.31) of the rest of the countries.

And that’s not all. The same indicator showed 18.9% of Chileans are poor, which almost doubles the figure of 10% for the OECD’s overall average. Chile has the third-most number of people living in poverty on the list, trailing only Israel and Mexico.

No surprises

The ranking of Chile, a nation of 17 million, comes as no surprise, said economist Hugo Fazio, director of the Centro de Estudios Nacionales de Desarrollo Alternativo (Cenda – Center for National Studies of Alternative Development).

“The OECD came about as an organization of developed countries, which later began to incorporate other nations with lower levels of development, such as Turkey, Mexico and Chile,” he said. “Clearly, in any other comparison they make, those countries are going to be at a lower level. For many years, in all the World Bank publications, which look at comparative figures of income distribution, Chile always shows up among the worst cases.”

Fazio said Chile’s income distribution will not improve on higher growth alone. The Andean nation needs to take measures to redistribute wealth, including placing higher taxes on corporations or keeping millions more in profits earned by the large copper mines operating nationwide.

Economist Rodrigo Troncoso, coordinator of the Social Program at the Instituto Libertad y Desarrollo, disagrees with Fazio regarding what steps the government should take to decrease the number of Chileans living in poverty.

“Chile is a country that’s relatively poorer than the rest of the OECD, and Chile has a large number of people living in precarious conditions,” Troncoso said. “The main concern has to be economic growth. There is a clear relationship between the level of per capita production and practically any measure of well-being.”

Troncoso said income distribution is not as relevant as economic growth.

“There is little relationship between inequality and indicators of well-being,” he said. “The goal of public policy is to improve access to opportunities, not [equal] income distribution. In fact, to equalize the income of people who had the same opportunities, but not the same performance, seems quite unfair.”

Troncoso said for that reason, the government should not raise taxes on corporations.

“We should not fall into the populism of short-term redistribution policies, sacrificing growth and development. Chile continues to be a poor country and its main objective is to grow,” Troncoso said.

Ethical Income

Felipe Kast, minister of planning, called the country’s ranking by the OECD report “shameful for its levels of inequality.”

Kast reiterated the government’s goals are quite ambitious: to take 270,000 people out of extreme poverty during the first years of President Sebastián Piñera’s administration.

“The challenge is to build by 2014 a Chile with no extreme poverty, which is not easy,” Kast said. “In December (2011), we will measure the level of poverty after two years in office.”

Piñera created Ingreso Ético Familiar (IEF – Ethical Family Income), a program that uses a series of bonds and incentives like cash vouchers for every child in a poor family who goes to school, for every child who is healthy and for every woman who enters the workforce. Families that meet the goals can have their monthly income increased to as much as $250,000 pesos (US$526). The program will benefit about 130,000 people in its first phase.

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