A Better State for Chile

Chile is a much-changed country from 20 years ago. Not only has the economy grown in leaps and bounds as the country has become integrated with global markets, but its public institutions have become more efficient, more transparent and better managed.

This has been reflected in Chile’s competitiveness ranking — it placed 33rd out of 144 countries in the World Economic Forum’s 2012-2013 Global Competitiveness Index, making it the highest ranked country in Latin America.

But there is still work to do. Despite progress made in recent decades, including a more professionalized civil service and the incorporation of e-government into areas such as tax collection and public services, Chile’s institutions are failing to meet the needs of its citizens.

The problem is not just social unrest when expectations are not met — expressed, recently, in the form of student protests and environmental opposition to new energy projects — but the very real risk to Chile’s competitiveness.

“The problem is not the size but rather the quality of the State,” said President Sebastián Piñera in his May 21 speech last year. “Chile’s State was designed in the 19th century and patched up in the 20th century, but it does not meet the needs of the 21st century.”

But the government has not been complacent. In fact, President Piñera has taken the bull by the horns, making modernization of the State one of the seven pillars of his platform to make Chile a developed country by the end of the decade.

The government’s modernization agenda is based on the 750-page report A Better State for Chile, published by the Consortium for State Reform, a group of Chilean think tanks and universities formed by the previous government in 2008, with support from the Inter-American Development Bank (IDB).

According to the report, if Chile’s institutions performed at the average level of institutions of the Organisation for Economic Cooperation and Development (OECD), it would already be a developed country with Gross Domestic Product per capita of at least US$20,000.

“Better management by the State has a direct impact on equality, on overcoming poverty and on social welfare. State reform is urgently needed for our goal of greater development,” wrote Claudio Seebach who edited the report and is now head of the Interministerial Coordination Division at the Ministry of Policy Coordination.

To coordinate the government’s broad agenda for modernization, covering multiple initiatives in different ministries and institutions, a new Modernization and e-Government Unit was created as part of the Ministry of Policy Coordination. The Unit’s main objective, explains Rafael Ariztía who heads the Unit, is to make public services more accessible to Chileans.

“Modernization of the state is not unique to this government, it is an on-going process,” he says. “But President Piñera has prioritized this aspect.”

The Unit has divided its initiatives into three main areas: transparency, accessibility, and efficiency. A report published in September lists the advances to date in each of these areas and Ariztía points out that, as part of the emphasis on transparency, the results are available online to the public.

Chile at your service

According to Ariztía, the area where the government has made the most progress is in accessibility – Chileans can now do many transactions online without leaving their home or place of work, thereby reducing the time and cost involved.

The focus of these efforts is ChileAtiende, a one-stop electronic portal operating since January 2012, which allows Chileans to do more than 2,000 transactions online, from getting a birth certificate to paying a traffic fine. There are also 149 offices throughout the country and a call center.

“This is a horizontal platform that allows public agencies that used to provide only one service to now provide many different services, it’s much more efficient,” explains Ariztía.

Another program – Chile sin papeleo (Chile without paper) – aims to increase the proportion of transactions handled online from 25% currently to 60% by the end of 2013. Of course, Chile is not the first country to go paperless. Service Canada was used as a model for ChileAtiende, as well as South Korea and Singapore, says Ariztía.

But, unlike in Chile, Singapore started with digital services and then realized the need to provide personalized attention as well. “We are the opposite, we are starting with public offices and encouraging people to migrate online,” says Ariztía.

But Chile has made good progress. According to the United Nations 2012 E-Government Survey, Chile ranked 39th in the world, making it the third best provider in the Americas — behind the United States and Canada — and topping the list of governments in Latin American.

“We couldn’t develop ChileAtiende without e-government,” points out Ariztía. “But there are other countries advancing quicker than us.” One of those is Colombia. Although Chile moved ahead in the 2012 UN ranking (Colombia was 43rd), Colombia has made bigger strides than Chile in recent years.

For both countries, e-government is an engine of development by delivering public services that are responsive and socially inclusive, but can also improve the efficiency of back-office processes by allowing public institutions to share information and avoid duplicate transactions.

In this regard, Ariztía’s Unit is implementing a platform for the interoperability of services and transactions (PISEE in Spanish), which interconnects institutions electronically. Today, there are more than 40 institutions participating in the platform, performing more than 2 million transactions a month.

“The aim of interoperability is to make the State invisible to the public,” says Ariztía. Chile still needs centralized servers to manage data more efficiently, but Ariztía stresses the importance of not focusing too much on the technology.

“E-Government is a tool, it’s not an objective in itself,” he said. In other words, how institutions share the information is less important than the quality of the service provided.

Innovation and entrepreneurship

Businesses do not develop in a vacuum and the cost of complying with regulations and fulfilling administrative requirements is a key indicator of a country’s competitiveness.

In this regard, Chile has made a dramatic improvement in recent years. This is especially notable in the ease of starting a new business, with Chile rising from 69th in the 2010 World Bank Doing Business ranking, to 27th in the 2012 ranking.

That’s mainly the result of the Economy Ministry’s efforts to reduce to seven days from 27 days the time to start a business, with a proposed bill that would cut this further to one day at zero cost.

A bill to facilitate winding up a business is also before Congress, and the Ministry’s innovation agenda, Impulso Competitivo, includes a list of other measures to promote entrepreneurship. 

But the government could do more to improve competitiveness, particularly in terms of modernizing Chile’s antiquated notary system, says Álvaro Bellolio, coordinator of the public policy program at think tank Libertad y Desarrollo.

For example, all official documents in Chile require a signature from a notary who charges for the service, but a bill currently before Congress would introduce a digital signature (firma electronica) to notarize documents, which would eliminate this time-consuming step.

“This would speed up bureaucratic processes significantly,” says Bellolio. But the bill has stalled due to lobbying by private interest groups, including by Chile’s association of notaries and real estate lawyers.

“There is a political consensus between left and right, but there are powerful interest groups on both sides that block certain reforms,” says Jorge Rodríguez, a public policy analyst at the Santiago think tank CIEPLAN.

Business travel is another area where Chile needs to improve. A proposed immigration reform would introduce multiple-entry visas for business, similar to those that available in the United States, as well as temporary work visas.

“If Chile wants to be a developed country and attract workers, especially for the labor-intensive mining and construction industries, it has to improve its immigration law,” argues Bellolio.

A more efficient State

Considering that the State represents around 25% of Chile’s GDP in terms of annual public spending, according to the OECD, its efficiency — or lack thereof — has an important economic impact.

In the last decade, Chile’s senior civil service system, known as the Alta Dirección Pública, has replaced thousands of political appointees through merit-based selection. But there is room to improve the productivity of the State.

Building on the Public Management Improvement Program (PMG) launched in 1998 to improve the performance of civil servants, the government has launched its own version called ChileGestiona.

By improving coordination between deputy ministers (Subsecretarios) and the heads of the institutions under their control, the program has achieved a 19% reduction in overtime paid to civil servants since 2009 and reduced time for sick leave by 18%.

“Historically, deputy ministers have had little time for the management of the institutions they oversee, but they need to coordinate better with the heads of the different services,” said Rafael Ariztía.

Another program, ChilePaga, has nearly halved the time it takes the State to pay its suppliers to an average 21 days from 38 days in 2010, which has provided a financial lifeline to small businesses.

The government has also improved the efficiency of the environmental evaluation service (Servicio de Evaluación Ambiental, SEA), although the creation of environmental tribunals scheduled for 2012 has been delayed.

But behind the marketing and promotion, many of these initiatives are based on existing programs that have simply been repackaged and rebranded, says CIEPLAN’s Rodríguez.

“There have been important advances in the last few years, but also in recent decades, so I don’t see a mega reform in terms of the State,” he says. “These are necessary adjustments but not a revolution.”

ChileAtiende and ChileGestiona, for example, are both based on programs developed under previous governments, points out Rodríguez. “These efforts are like additional floors in the same building,” he says.

Decentralization and governance

According to a list of public governance indicators published by the OECD, Chile leads in many public finance indicators but lags in a number of more structural dimensions of governance.

“There are entire areas that Chile hardly recognizes in its agenda,” says Chilean economist Mario Marcel, deputy director of the Public Governance and Territorial Development Unit at the OECD. “The current government is taking some steps to address these issues, but there is a lot more to do.”

For example, most OECD countries have a central authority  — such as Mexico’s Federal Commission on Regulatory Improvement (COFEMER) — in charge of coordinating regulatory reform and evaluating the benefits and costs. In Chile, however, regulations are issued by different regulatory bodies, which sometimes overlap or fail to adapt to the capacities of small businesses and citizens to understand and comply with them, says Marcel. 

Another stumbling block is Chile’s highly centralized system of government. In fact, Chile remains the most centralized of OECD countries since most decisions are still taken in Santiago and the transfer of decision-making power to regional authorities has been slow.

“In the past, mechanisms were created to involve regional authorities in resource allocation decisions, but after a few years you realize that these were just compromises that fail to devolve real authority to subnational governments,” says Marcel.

Over at CIEPLAN, Rodríguez agrees that greater decentralization would facilitate more equitable development, but he is not optimistic. “Politicians on both sides say they want this but in practice they are afraid of ceding power to regional governors,” he says.

As the OECD’s Marcel points out, decentralization involves taking risks and that requires strong political will. “All substantial decentralization processes – from Spain to Colombia – started with a political decision, followed by the required technical and administrative support,” he says.

For Chile, the decision is crucial because decentralization is not just a driver of more equitable development – it’s also the key to the country’s competiveness.

“Other emerging countries are making great progress in simplifying procedures, cutting red tape, becoming more transparent, listening to citizens and, of course, decentralizing,” says Marcel.

In other words, if Chile is not careful, its competitors could race ahead. This includes not only distant countries in South East Asia, but also Peru, Colombia, Panama, Brazil, as well as Eastern European countries.

As Rafael Ariztía points out, the State does not make the economy grow, rather its job is to facilitate growth by removing obstacles for entrepreneurs and providing regulatory stability. In this regard, Chile is continuing to improve.

However, it also needs more flexible institutions and greater decentralization. This requires a political consensus that may be difficult to achieve in the current political environment, especially with an election year in 2013.

But Chile cannot afford to wait. To maintain competitiveness and ensure that all Chileans share in the benefits of development, Chile needs — and deserves — a better State. As President Piñera said, it’s not a question of size but of quality.