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24
It was against this background that the newly elected government of Patricio
Aylwin came into office in 1990. The new government immediately put the fight
against poverty at the top of the agenda. Chile’s new “ growth with equity” develop-
ment strategy was based on growth strategy balanced by aggressive social policies;
the strategy continued through the decade. Between 1990 and 2000, poverty was re-
duced from 40 percent of the population to 20 percent. The pro-growth strategy in-
cluded:
• Opening the economy to world trade
• Conservative fiscal policy pursuing simultaneously a budget surplus and re-
duction of public debt
• Expanding of the domestic capital market
• Reform of labor and tax policies, including a tax increase that allowed the
government to expand social expenditures by more than 200 percent
through the 1990s
The strategy enabled the Chilean economy to grow by 6 percent per year dur-
ing the decade. The combination of high growth and active redistributive policies re-
duced by nearly one-half the extreme income disparity between the top 20 percent
and the lowest 20 percent of the population.
An empirical study comparing social policies in the 1980s and 1990s shows
that about 60 percent of Chile’s poverty eradication in the 1990s can be attributed to
economic growth and 40 percent to social policies. The “ easy” first phase represents
a combination of high growth, increased wages and expansion in income-support
schemes for low-income families, and improved minimum pensions with an immedi-
ate impact on poverty reduction.
The shift from income-support schemes towards social investment aimed at up-
grading education, skills, and access to health services produced a much more grad-
ual effect on the incidence of poverty. The initial expansion in funding for public
health and education had an impact, as schools and new hospitals were built. Teach-
ers, doctors, and health care workers received better pay, and coverage slowly ex-
panded.
The slowdown in the second half of the 1990s had to do with decreasing returns
to large expenditures in public health and education. After basic coverage problems
were solved. Rigid, highly centralized, bureaucratic institutional arrangements in
public hospitals, combined with active resistance from doctors and public health
workers, resulted in great inefficiency. Though government expenditures in public
health increased by 250 percent, output of healthcare services grew only by 22 per-
cent.
A similar outcome was observed in education. Following a tripling of public
resources, learning scores initially surged, but did not continue to improve. A signifi-
cant part of this disappointing result has to do with the poor quality of teaching in the
classroom. The National Teachers Unions succeeded in preventing performance
evaluations of teachers or school administrators for 12 years. The lessons are that
money does not guarantee effectiveness and that more attention should be paid to the
political economy of institutional changes required to ensure cost-effective provision
of basic health and education services.
24
It was against this background that the newly elected government of Patricio
Aylwin came into office in 1990. The new government immediately put the fight
against poverty at the top of the agenda. Chile’s new “growth with equity” develop-
ment strategy was based on growth strategy balanced by aggressive social policies;
the strategy continued through the decade. Between 1990 and 2000, poverty was re-
duced from 40 percent of the population to 20 percent. The pro-growth strategy in-
cluded:
• Opening the economy to world trade
• Conservative fiscal policy pursuing simultaneously a budget surplus and re-
duction of public debt
• Expanding of the domestic capital market
• Reform of labor and tax policies, including a tax increase that allowed the
government to expand social expenditures by more than 200 percent
through the 1990s
The strategy enabled the Chilean economy to grow by 6 percent per year dur-
ing the decade. The combination of high growth and active redistributive policies re-
duced by nearly one-half the extreme income disparity between the top 20 percent
and the lowest 20 percent of the population.
An empirical study comparing social policies in the 1980s and 1990s shows
that about 60 percent of Chile’s poverty eradication in the 1990s can be attributed to
economic growth and 40 percent to social policies. The “easy” first phase represents
a combination of high growth, increased wages and expansion in income-support
schemes for low-income families, and improved minimum pensions with an immedi-
ate impact on poverty reduction.
The shift from income-support schemes towards social investment aimed at up-
grading education, skills, and access to health services produced a much more grad-
ual effect on the incidence of poverty. The initial expansion in funding for public
health and education had an impact, as schools and new hospitals were built. Teach-
ers, doctors, and health care workers received better pay, and coverage slowly ex-
panded.
The slowdown in the second half of the 1990s had to do with decreasing returns
to large expenditures in public health and education. After basic coverage problems
were solved. Rigid, highly centralized, bureaucratic institutional arrangements in
public hospitals, combined with active resistance from doctors and public health
workers, resulted in great inefficiency. Though government expenditures in public
health increased by 250 percent, output of healthcare services grew only by 22 per-
cent.
A similar outcome was observed in education. Following a tripling of public
resources, learning scores initially surged, but did not continue to improve. A signifi-
cant part of this disappointing result has to do with the poor quality of teaching in the
classroom. The National Teachers Unions succeeded in preventing performance
evaluations of teachers or school administrators for 12 years. The lessons are that
money does not guarantee effectiveness and that more attention should be paid to the
political economy of institutional changes required to ensure cost-effective provision
of basic health and education services.
