| Abstract: |
Chile, as most Latin American countries, inherited the language, religion, and
the institutions from 16th century Spanish conquerors. Most institutions have
not changed since. This paper examines the institutional and economic
structure of the State in Chile. It concludes that in several dimensions the
current structure is incompatible with an adequate functioning of market
economies, as those intended by the economic reforms implemented during the
last three decades of the last century. The country needs to implement reforms
in the administration of the State, the working of the Judiciary system, and
the incentives and operation of regulatory agencies. Their combined negative
effects imply that the benefits of reforms, privatization and market
liberalization are partially dissipated in the form of inefficiency and rent
seeking behaviour. In turn, this suggest that it is unlikely that the Chilean
economy will reach the high growth rates necessary to overcome under
development. Our main conclusion is that, in order to implement a framework in
which the State acts mainly as regulator and competition supporter, it is
necessary to undertake profound changes in the structure of incentives in
which it currently operates. Five elements are at the center of this
far-reaching evolution away from centralism, stagnation, and inefficiency: (1)
the divestiture of state-owned enterprises, (2) the upgrade and update of
regulatory agencies and the institutional framework in which they operate, (3)
the improve of competition policy institutions, (4) the improvement of
consumer rights protection, and (5) a substantial improvement in the working
of the Judiciary system. |