The road to eradicating poverty

Jorge Heine

A mix of market-friendly economic policies and proactive social policies that deploy the resources derived from this growth to empower the weaker sections to take charge of their own lives would be one way to reduce the number of the poor.

AT A dinner party a few days ago a columnist and former diplomat asked me, "Has Chile joined the Left-ward trend in Latin America?" I replied, "Chile has been ruled by a Centre-Left coalition for 17 years, and its current president (Michelle Bachelet) and the previous one (Ricardo Lagos) are Socialists." Far from "joining" the Left trend in Latin America, Chile has been at the forefront of it for many years.

In this period, Chile has had the best economic performance in Latin America, as well as the best of any country outside Asia. At present, the Government's biggest "problem" is what to do with a $11 billion fiscal surplus. If this runs counter to the conventional wisdom in some quarters, that the Left today is unable or unwilling to promote policies that are both growth-conducive and equity-enhancing, or that Chile's current boom is simply due to high commodity prices (which admittedly help), the latest figures on poverty reduction should be a wake-up call.

According to the recently released findings of the National Characterisation Socio-economic Survey (CASEN), undertaken since 1987 to measure poverty levels, in Chile the poverty rate fell from 18.7 per cent in 2003, to 13.7 per cent in 2006, the biggest drop since 1990 (when it was 38.6 per cent). The number of people in extreme poverty has also fallen, from 4.7 per cent in 2003 to 3.2 per cent in 2006. For the first time, the share of people under the poverty line in the rural areas (12 per cent) is lower than in the urban areas (14 per cent). The inequality of income distribution, though still high, as measured by the Gini coefficient dropped from 0.57 to 0.54. Three of Chile's 13 regions, Antofagasta, Aysén, and Magallanes, show single digit poverty rates; the way things are going, by 2010, the year of Chile's Bicentennial, the rate for the whole country could be in single digits and extreme poverty at 1 per cent.

In addition to its overall economic performance growth is projected to reach 6 per cent, exports a record $65 billion, and per capita income $9,000 Chile has also progressed on one front some regard as even more important than just growth. According to the UN Economic Commission for Latin America and the Caribbean (ECLAC), Chile has the lowest share of the population under the poverty line in the region. Besides, among seven countries surveyed (the others are Mexico, Brazil, Ecuador, El Salvador, Costa Rica, and Colombia), it has made the most progress in poverty reduction over the past six years with an average drop of 5 per cent a year.

The challenge of poverty reduction, a very significant one in India, is one that arouses strong passions among specialists. While some argue that economic growth is the only remedy, and that the trickledown effect will ultimately take care of the dispossessed, others consider redistributionist policies the only way forward. To judge from the Chilean experience, the truth, as often happens, lies somewhere in between. Without strong economic growth, there is nothing to redistribute. One of government's prime duties is to create the sort of macroeconomic environment that is business-friendly and conducive to high investment rates, which, in turn, lead to high growth and job-creation (the best help anyone can get is a job). On the other hand, this is not enough. In any country, there will be large numbers of people who, for a variety of reasons, are left behind and need assistance to find their feet again. This is where social policies come in. If overdone, or badly implemented, they can be counterproductive, and do more harm than good. If well conceptualised, designed, and applied, they can do much to lift the socially handicapped into the mainstream of society.

Since its return to democracy in 1990, Chile has done well because of its imaginative, well-crafted public policies, in areas as varied as international trade, public infrastructure, capital controls, and telecommunications. If this is true for economic policies, it is also for social ones.

During the authoritarian period under General Pinochet (1973-1990), social expenditure as a share of GDP went down, and the main thrust of social policies was to "target" them as much as possible, meaning focussing whatever social budget was left on the poorest sections of society. It is difficult to quarrel with the notion that social expenditure should be focussed on those who need it most, but a more differentiated conception of what effective social policies entail is needed.

As sociologists Dagmar Raczynski and Claudia Serrano have argued, the broad notion of "social policy" encompasses three distinct spheres: sectoral policies (education, health, social security, housing), social development policies (not as clear-cut and well-ensconced in specific Ministries as the former, but more focussed on vulnerable groups and more flexible and dynamic in their implementation), and social assistance programmes designed to provide specific subsidies to groups or individuals who need them.

The reason Chile has done so well in eradicating poverty (in fact well beyond what could be expected from sheer growth alone from 2003 to 2006 economic growth was 16.5 per cent and poverty reduction 24.9 per cent) is it has gotten the "mix" of these various components right.

A sine qua non for this was to secure enough resources so that social expenditures would not endanger fiscal stability. Tax reform was enacted in1990 raising VAT from 16 to 18 per cent, it is now at 19 per cent, and effectively establishing a corporate tax rate of 17 per cent, which, until then, as unbelievable as this may sound, did not exist. These resources, in turn, have allowed for a steady increase in social expenditures as a share of GDP, from 13 per cent in 1990 to 16 per cent today, close to 70 per cent of the fiscal budget.

Expenditure on education has tripled, and Chile today has almost universal coverage in primary education, 90 per cent coverage in secondary education, and 30 per cent in post-secondary. The housing deficit has been cut to half of what it was in 1990, and 73 per cent of all households live in their own homes. Public health expenditure has also tripled (albeit still reaching only 2.9 per cent of GDP), infant mortality has declined to 7 for every 100,000 infants born alive, and life expectancy is 73 for Chilean males and 79 for females, figures comparable to countries such as the United States.

In many ways, though, the most interesting part of Chile's social policies, and, arguably, a key reason for this enormous progress towards the eradication of poverty, has been the panoply of fine-tuned policy instruments designed to the specific needs of a variety of vulnerable groups women, youth, aboriginals, those living in squatter camps. For them particular programmes 400 at last count involving 80 institutions have been tailored and applied. They are not driven by "welfarism"; that is, the idea that monetary transfers is all people need to get out of poverty though such transfers may be part and parcel of them, at least for a time. Rather there is the recognition that their condition reflects a broader predicament to be diagnosed and acted upon, with their own active participation and involvement, not just as individuals and families but also as citizens and communities.

Housing, schooling, employment, and appropriate public spaces, in addition to matters as subjective as identity and self-esteem, are all elements of it. Chile Barrio, a programme devised in the mid-1990s, that identified all squatter camps in the country and set out to eradicate them (it is still not quite there, but it may by 2010) is a good example. Another is Chile Solidario, which identifies families in extreme poverty and appoints a social worker to work with each of them, empowering them to develop the social skills needed to get out of their condition.

One reason the Left has come to power in so many countries in Latin America over the past few years is because of the high rates of poverty that still pervade many of our societies, as well as the high inequality that marks them. Chile's path so far shows that there is hope to move forward in this regard. There is no magic wand to be waved to do away with what constitutes perhaps the key development challenge of our time. But the right mix of market-friendly economic policies and pro-active social policies that deploy the resources derived from this growth not simply as transfer payments but to empower the weaker sections of society to take charge of their own lives would seem to be one way to cut down on the number of poor.

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