Consolidating democracy. Any populist phantoms around?
The presidential campaign has been unleashed; the games have commenced in the traditional battle for power. This is not different from any other presidential race Chile has had since the start of democratic times with Aylwin as President in 1990. It has been 25 years of transition to the democratic game, and 2 coalitions have been circling and taking posts for the Presidential seat. However, the end of a stable political cycle - with most presidential terms ruled by the center-left coalition, ex Concertación de Partidos Por la Democracia, today Nueva Mayorìa - is facing all the challenges brought about by the end of a stable cycle with the beginning of a new political era. In this new era, post-transition times, empowered middle classes press the state to tackle disparities after 25/30 years of steady growth but uneven distribution of wealth. Country Risk Chile analyzed the possible scenarios with three frontrunners for the Presidency in March 2018. This analysis considers each candidate’s risk and opportunity to bring to the political landscape against economic slowdown, productivity issues, social change, and citizen’s disaffection with political parties.
What do they bring to the opportunity side? What is their Achilles’ heel?
FULL ANALYSIS:
The Chilean miracle - prompted by high copper prices, numerous FTA's, the consequent boost in GDP from foreign direct investment, and investors’ confidence in the rule of law, so necessary in open economies - has raised the eyebrows of experts to question if this miracle has helped to narrow inequality levels or not in Chile, which has been so widespread in the Latin American region historically.
Similarly to the "cognitive leap" taken by middle classes who marched on the streets to press for changes on equal opportunity and equality, the political parties have also experienced their own "catharsis,” with fragmentations in the political spectrum to accommodate dissident voices, progressive forces, and regressive moves. First, with the defeat of incumbent Sebastián Piñera for a second term in the 2014 elections (which brought socialist Michelle Bachelet to the presidential seat for a second term), the right-wing spectrum (UDI and RN) saw the inauguration of Evopoli (dissident movement, critical of UDI's ultra-conservative views on gay movements and embraced gays' legal status in cohabitation); then came Chile Vamos, the political center-right umbrella to compete in the municipal elections. Then, key political figures from UDI and RN voiced their dissatisfaction with extremely conservative practices inside the parties. Lilly Perez, a leading female RN politician, denounced segregation and sexist practices, then Karla Rubilar, along with Pedro Browne and Joaquin Godoy, formed the theAmplitudmovement to voice their acceptance of legal status for gay couples, the necessity to reform education and their adherence to human rights as their banners. The Amplitud movement captured the center of the political spectrum and joined forces with former presidential candidate and internationally recognized writer and economist Andres Velasco on progressive views and adherence to the market.
Meanwhile, amidst dissatisfaction from the social sphere on inequality and the increasingly heated debate on education to be either a social right or a commodity, President Ms. Michelle Bachelet faced a similar dilemma with ex Concertacion, now Nueva Mayoria, to agree on structural reforms such as education, a tax reform, and a new Constitution. Center-left parties had their differences on how to proceed with those reforms; Chilean DC (Christian Democracy), socialists, and the Communist Party (with iconic figure Camila Vallejo, former student leader acting as MP in Congress) have seen their ideological foundations transit from progressive to regressive avenues to reach agreements.
Suppose we add to this picture of political force accommodation the negative external macroeconomics whereby copper prices reach a low record with the end of the commodities boom. In that case, it is fair to admit that the challenges institutions face are not minuscule. Moreover, the end of a stable 25-30-year political cycle has seen the attrition of elites, with cases of illegal campaign financing and tax fraud, which, according to Bloomberg and COFACE, are just a tiny bit compared to Brazil’s corruption cases.
As a result of a stable 25-year political cycle, social change will shape faster than the institutional response to satisfy citizens’ demands efficiently. The capacity of institutions to respond in time and well can determine the fate of governance, growth, and cohesion.
Chile is approaching the 2017 presidential elections with 3 major candidates: ex-president, businessman, and politician Sebastian Piñera (Chile Vamos center-right coalition, ex-Alianza); ex-president Ricardo Lagos (socialist, Nueva Mayoría center-left coalition, ex-Concertación) and Alejandro Guillier (journalist, no political affiliation, Nueva Mayoría coalition)
What do they bring to the elections?
Risk and Opportunity
Sebastian Piñera: ex-President Piñera believes the structural reforms led by NM under Bachelet's government are wrong in terms of design, aim, and scope. Ex-president Piñera intends to return to power to set the path right and recapture Chile's leading edge in economic figures. During his presidency from 2010 to 2013, he coped with the 2010 major earthquake and managed to pass the royalty on transnational mining companies to obtain resources to rebuild the areas affected. During his presidency, he brought a first-world solution to a third-world situation by extracting the 33 miners trapped at 720 meters below the surface. During his presidency, the worst rallies and protests were orchestrated by students to demand an end to profit in education. Piñera is clearly remembered for saying "nothing is for free in Chile, someone always has to pay", which produced a risky disconnect with demands from students frustrated over bank loans and ruinous debt to access higher education. At the time, The Economist 2012 analyzed his limitations to successfully deal with the relentless pace with which students were protesting on the streets. the consequent violence of the marches, which affected governance. Sebastián Piñera is a strong advocate of capitalism, and he is firmly opposed to abortion. Piñera's name circulated in the international press when an 11-year-old girl became pregnant in a case of rape. Ex-president Piñera advocated the girl’s desire to keep the baby as a great gesture of the girl’s mental maturity. In an open letter, Amnesty International asked Piñera to give the girl all possible options, including abortion.
Ricardo Lagos: Chile opened its frontiers to the world's market under his government through numerous FTA, and the local entrepreneurs respected him for that. Overall, Chile witnessed a boost in GDP. It was Chile’s rush to sign countless deals with the USA, Canada, South Korea, and P4 (Singapore, Brunei Darussalam, New Zealand, and Chile), among others. Lagos had to rule with the "binominal" law, which maintained a bipartisan camera and demanded high quorums to pass legislation; therefore, right-wing UDI and RN MPs could see their re-election in the 25-year political transition (which also benefited the center-left Concertación coalition). The binomial law meant vetoes from the opposition on more aggressive reforms. These constraints blocked any social effervescence in the "tutelary democracy," avoiding legislation that might jeopardize Pinochet’s legacy. However, ex-president Lagos made considerable changes to Pinochet’s 1980 Constitution, but he was too quick to announce these reforms as a new legitimate Constitution. Only now, under Bachelet’s second government, the "binomial" law could be scrapped and reformed to allow newcomers, in recognition of a fragmented political spectrum that might be represented in Congress. Former President Lagos was characterized as having a long-term vision for the country. He used his international prestige from his early days as a defiant politician to Pinochet’s rule to leverage Chilean access to finance markets, such as the WB, which allowed the modernization of infrastructure, roads, and hospitals, to continue with the privatization of utilities. His detractors have denounced Ricardo Lagos for not doing much to curb the power of oligarchical groups controlling the economy with the consequent erosion of ethical standards in duopolies and cartels; likewise, his initiative to promote bank loans so students could access tertiary education is seen as a factor favoring inequality. Ex-president Lagos is an expert politician who can exert his stateman’s position at all levels and is resilient and efficient in the face of antagonistic political disputes. Lagos is a problem-solver and negotiator. New generations blame him for a far too neo-liberal approach and resent his good relationship with the entrepreneurs, especially today, at a time of attrition of the ruling elite with cases of duopolies and irregular campaign financing.
Alejandro Guillier: a journalist who invested his popularity in the political arena. Guillier is today a Senator for the Nueva Mayoría center-left coalition. He claims his independence from political parties allows him to connect with the people. Using highly articulated rhetoric, Alejandro Guillier proposes bottom-up policy-making to tackle pension schemes, education reform, and decentralization discontent. According to some recent polls, Sebastián Piñera leads the surveys, compared to Ricardo Lagos, but Alejandro Guillier leads in the polls if compared to Ricardo Lagos. In sum, Alejandro Guillier is fresh air, untouched by the attrition of a 25/30-year political cycle. Guillier is deemed credible in opinion polls because he looks sanitized from the omissions and the attrition of political machinery in the wake of 25 years of transition to democracy. However, Guillier will need the backing of traditional parties to run. Will he be able to exert leadership over traditional conglomerates effectively? Will he be able to display political skills despite his inexperience in the political machinery?
Political parties must go to primary elections to test their candidates’ options with the population according to new legislation to boost transparency and renovate democratic practices. Accordingly, political parties will have fewer resources to dispose of to elect candidates under reformed campaign financing. Money from firms, companies, and privates is forbidden by law due to the recent scandals involving private financing of political campaigns, which are still a matter of judicial proceedings.
In the hypothetical scenario of 3 candidates i.e., Piñera, Lagos, and Guillier, these are the risks and opportunities.
Risk: Whoever wins the elections will deal with the aftermath of Chile's boost in GDP, which has produced the cognitive leap of the middle classes, who will be pressing the state to see that the inequality gaps are efficiently addressed. Reversing the trend of reforms under Bachelet's administration could trigger another wave of protests amongst students and younger voters who wish to see a limitation to privilege in education. 2016 parliamentary bills to fund fees to vulnerable, low-income students should be perfected rather than scrapped. A disconnect with social demands disables the doors securing stability. Increasing growth requires long-term vision and the convergence of elite and non-elite actors. Stability is a matter to be solved by all stakeholders, in their recognition that their fair share and fair gain is their commitment to the modernization of the market and the jobs they provide. The rule of law must prevail to reach that goal, and freedoms are secured. Local entrepreneurs should be given incentives to create added value to the export matrix and create innovative jobs for a highly paid market with high skills. Generations to come will need to be highly trained and have high levels of innovation. For that, extractive economies must adapt to the challenges. Less hierarchical and more inclusive, creating jobs for technological pools.
Opportunity: Whoever wins the elections must move toward inclusive growth policies, boost productivity, and produce synergies between the state, the private sector, and the universities to jump into a knowledge-based economy. Chile has reached such a level of development that the state could import cutting-edge technology experts, and the local market should hire those Becas Chile funding graduates who went abroad to carry out their doctorate studies. Improving educational variables is key to reaching that goal. Local entrepreneurs must be given incentives to create new jobs. The next government leader must demonstrate negotiating abilities to pass legislation in that direction and encourage the elite to commit to adding value to the productive chain, thus avoiding the ideological postures that only blur the debate. Political parties will be put to the test under the new electoral rules. The fact that newcomers such as Jorge Sharp got elected as the new mayor of Valparaiso points to young leaders outside the mainstream who are beginning to move away from the streets into the established system. That should reinvigorate politics and channel popular demands through the established institutions.
Overall, a new social contract is needed to consolidate democracy and requires the alignment of elite and non-elite actors on growth for all and access to opportunities for all. Post-transition requires new political skills to see beyond petty ambitions and personal vendettas. The new 2018 president will have to demonstrate the ability to convince when patience is needed for long-term objectives and efficiency in bridging the gap between winners and losers in the wake of growth. Post-transition requires prudence and intelligence. Whoever wins faces the populations' disaffection with politics and with institutions. Still, the elected President will have a great opportunity to prove Chile's collected brain and resilience in times of difficulty.
One major data source that political parties need to listen to is the stock market's reaction to the result of recent municipal elections in October of this year. The local IPSA index went up, and the market celebrated the overturn of NM's historical leaders by right-wing leaders and politicians. What they project is a tendency to center-right votes in the presidential elections. That has boosted shares in the last days after the municipal results in late October this year. Therefore, the market calls for business first and expects a focus on growth. The market cannot anticipate that focus on growth without gaps being addressed through efficient public policies can only be short-sighted and short-lived.
Even though the level of absenteeism in the municipal polls was around 65%, raising the fears of apathy and a surge in populist votes as the global trends nowadays, the fact is the end of Binomial law will allow newcomers to be represented in Congress. More opportunities to incorporate new faces in the political arena, similar to former student leaders such as Giorgio Jackson, Gabriel Boric, and Camila Vallejos, who joined Parliament, are necessary to lock up populist trends outside the mainstream.
OECD has called the government’s attention to move to more inclusive growth and find new ways to capture investment. Chile needs a better-paid, merit-based, and highly skilled market. Entrepreneurs can produce clusters with universities and the state to stimulate innovation and create jobs to include young scientists who can add value to the productivity chain. The greatest challenge lies in the incentives created by the state to encourage the elite to commit to a knowledge-based, innovative market. A market driven by innovation requires new strategies and investment. The money should be provided by companies. Not the state alone. If Chile wishes to keep the rewards of growth, as has been the case in the last 25 years, all actors should compromise on a technological drive to make Chile’s economy sustainable in the long run. China’s appetite for copper is history. For example, Codelco could seriously incorporate the lithium industry as a variant and develop a cluster of scientific research on manufactured products with the help of the private sector and universities.
The ethics of inclusiveness and the commitment to a diversified, innovative economic model will haunt each of the frontrunners for the presidency. And how they solve it will significantly affect either diffusing or propelling the populist sentiment in the long run.
Soledad Soza October 28, 2016
