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Institutional change and development in Chilean market society
Authors:
Guillermo Wormald 1
Daniel Brieba
Introduction
This paper’s main thesis is that Chile’s developmental performance of recent
decades was underpinned by significant and systematic institutional change, and
that this change is closely related with its transformation from a state-centered
society to a market centered one.
The analysis will focus on the changing process in a set of institutions highly
relevant for economic growth and social redistribution. In this regard, our
interest is to specify the mechanisms that account for continuity and
discontinuity in institutional structure, which according to some relevant authors
is an important target of economic sociology (Nee and Swedberg, 2005).
Additionally we will also discuss the impact of these changes over socio economic
development.
The analytical importance of this case study deals with the significant
transformations in the development model and institutional framework which
took place in Chile since the military coup of 1973. During this period, as in
many other Latin American countries but probably more radically, Chile faced
the economic globalization of its economy and its growing transformation into a
market economy and a market society (Slater and Tonkiss, 2001).
Although this analysis shows the existence of forces contributing towards
institutional isomorphism, it also emphasizes the importance of considering some
historical and socio cultural specificities when looking at institutional realities
and its impact over development. These specificities reinforce the idea that
“copy is never equal to the original blue print” and also the sociological idea that
institutions are not simply a set of formal rules and/or economic incentives, but
a complex arrangement of historical and cultural values, power relations as well
as political and economic interests of different actors. All these features need to
be taken into account when evaluating their institutional presence and
organizational performance as well as their efficacy to promote economic growth
and development. Therefore, we agree with the idea that:
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“Institutions are not disembodied rules that specify the incentive structure of
social action,(..but) fundamentally they involve actors, whether as individuals
or organizations, who pursue real interests in concrete institutional structures.”
(Nee and Swedberg, Ibid: xxxix)
Under this perspective, the concept of social institution used by Portes (2008;
2009) becomes significant and constitutes a good heuristical tool for our
analytical purpose. Especially his idea that institutions embody and combine two
central dimensions: On the one hand, those cultural values which underlie formal
and informal rules and, on the other, the organizational aspects which
complement these rules and specify institutional performance. When looking at
these two realities -manifest and latent- in historical perspective, it is possible
to better understand the forces behind stability and institutional change, as well
as their contribution to development.
Most of the institutions we are dealing with in this work are state ones.
Therefore, the study of Evans and Rauch (1999) emphasizing the need to focus on
the quality of the bureaucratic administration when dealing with its impact over
economic growth and social development is relevant. The question here is
whether or not state bureaucracy is organized and performs close to the
Weberian ideal type of a rational administration which seems to have a positive
correlation with economic growth. In other words, to what extent institutions
have not been captured by particularistic interests; to what extent the
recruitment and promotion of their cadres is meritocratic and not clientelistic;
and to what extent their praxis is open to technical innovation and not defined
by routine. We will look at these features in more detail along this paper.
Considering these conceptual guidelines, the analysis focuses on the
transformation path experienced by five institutions, all of them challenged by a
new “market modernization” and the consolidation of a market society since the
90s onwards. In this regard, the Chilean case is just another example –probably
more successful- of the way in which development societies endogenized the
globalization challenge departing from their socio-cultural specificities.
However, it also shows there are some specific institutional arrangements better
suited for attaining institutional efficacy and for reinforcing their contribution to
development and democracy.
Our empirical evidence comes from the analysis of four case studies of
Chilean organizations ultimately dependent on the central government: the
National Tax Revenue Agency (Servicio de Impuestos Internos SII), The National
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Aeronautic Traffic Controller (DGAC), the National Post Office (CorreosChile) and
the public Barros Luco hospital in Santiago. Additionally, we secondarily also
considered the case of the most important stock exchange agency in the country
(Bolsa de Comercio de Santiago), which is privately owned and run. This evidence
was gathered by different Chilean researchers as part of a comparative study
conducted in five Latin American countries during 2007-2008. 2 All these cases
shared a common analytical framework and the same historical horizon (19802005). Thus, an additional aim of this paper is to compare and summarize some
of these findings.
This work has been organized in four sections, plus one of conclusion. The
first deals with the conceptual framework which allows us to define and
organizes the empirical analysis of the different institutional cases. In this
section, we will make more explicit our concept of institution and its importance
to understand a specific development path. Additionally we will also deal with
the dimensions which need to be addressed when evaluating the efficacy of
institutional performance. The next section will describe the macro forces
leading to transformation in the institutional arrangements and the main
characteristics of the so called Chilean development model. Section three
focuses on the way in which different institutions internalized this modernization
impact. Finally, in section four, the analysis will turn towards the impact of this
process of institutional transformation and modernization on development
targets. The main lessons arising from this study will be summarized in a
concluding section.
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I. Conceptual framework
1. Institutions
As it was pointed out in the introduction, Chilean developmental performance
of recent decades was underpinned by massive and systematic institutional
change. To substantiate this statement, however, we must begin by specifying
precisely what we mean by institutional change and, more basically, by
institutions. Placing our argument within the parameters of the institutional
debate in the social sciences will be the first and main task of this section. This
analysis will also provide the necessary tools for the detailed analysis of
institutional change in the following ones. The second task will be to go beyond
the recent ‘institutionalist’ literature, moving closer to development theory to
provide an evaluative framework within which to assess Chile’s development
path and what could perhaps be called its market development ‘model’.
To begin with, our first task is to specify what we mean by institutions. Even
if sociologists, economists and political scientists may all agree that ‘institutions
matter’, the ways in which they deploy the term as an explanatory variable has
been so different as to leave as much confusion as clarity on their causal role in
promoting development. Following North and the ‘institutional’ turn in
economics, a veritable array of works has tried to determine the influence of
institutions on long-term economic growth. However, the richness of empirical
and methodological debate regarding the precise nature of that influence has not
been matched by equal theoretical sophistication in specifying what institutions
actually are. This is so in spite of the fact that a central debate in this literature
has been whether ‘institutions’, as opposed to other factors like ‘international
trade’, ‘geography’ or even ‘culture’, is the ultimate (or ‘last instance’) causal
determinant of growth performance 3. For instance, a landmark study by
Acemoglu et al (2001) 4 arguing the institutionalist case in this debate limited
itself to distinguishing between ‘European’ and ‘extractive’ institutions, as the
two polar opposite types of states that Europeans set up in their colonies
depending on whether they settled in mass in them or not, respectively.
Extractive institutions were those whose “main purpose (…) was to transfer as
much of the resources of the colony to the colonizer”, and therefore these set
up “…institutions [that] did not introduce much protection for private property,
nor did they provide checks and balances against government expropriation.”
Meanwhile, in those places where Europeans did settle in mass, they “…tried to
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replicate European institutions, with strong emphasis on private property and
checks against government power.” One has to search the footnotes for a more
elaborate statement regarding the precise nature of institutions, in which we
learn that
“Government expropriation is not the only institutional feature that matters. Our view is
that there is a "cluster of institutions," including constraints on government expropriation,
independent judiciary, property rights enforcement, and institutions providing equal access to
education and ensuring civil liberties, that are important to encourage investment and growth.
Expropriation risk is related to all these institutional features”5
Institutions, therefore, are seen as a mixture of organizations, rules and
above all outcomes; the fact that it is never quite clear which is which does not
seem to constitute a theoretical problem6. A major question this approach leaves
open is if whether the authors believe that any kind of organizations and rules
will do as long as they achieve the desired outcomes- constraints on
expropriation, equal access to education, property rights enforcement and so
forth- or, as their more recent work seems to suggest, that there is only one set
of (European) ‘institutions’ that can ensure those outcomes 7. However that may
be, it is clear that for these authors institutions are not just empirically but also
conceptually visible only from the standpoint of the outcomes they produce; they
do not seem to have an independent life of their own. Even if not all
development economics is this blasé about the nature of institutions 8, we agree
that the dominant approach “…lack[s] the conceptual apparatus to discern
anything but the haziest institutional outlines…” 9, and that this prevents it from
unpacking the term and discerning “the multiple elements of social life or their
interaction” 10. Because of this, it seems better placed to statistically confirm
that indeed ‘institutions matter’, than to tell us which ones might or why.
An alternative to this approach has been proposed by A. Portes. By “recalling
key concepts and distinctions in sociological theory”, he proposes a conceptually
“thick” version of institutions to replace economists’ “thin” institutionalism. This
‘thick’ version is based on the basic sociological distinction between the symbolic
and the material elements of social life, and between the levels of causality
(from ‘deep’ to ‘visible’) that structure each. Thus, just as language and values
structure the symbolic or cultural dimension of social life, so interests and power
are the ultimate or ‘deep’ movers of its material dimension. At the visible level
of reality we find actually existing organizations, which “are what social actors
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inhabit, and they embody the most visible manifestations of the underlying
structures of power”. Their counterparts are institutions, which
“… represent the symbolic blueprint for organizations; they are the set of rules, written or
informal, governing relationships among role occupants in social organizations like the family,
schools and other major institutionally structured areas of organizational life: the polity, the
economy, religion, communications and information, and leisure”11
In this framework, then, institutions are the visible manifestation of much
deeper factors which structure social life, particularly cultural values and social
power relationships. As blueprints for organizations, institutions are clearly
distinguished from norms, which lie at a deeper, intermediate level of causality
and which represent the “rules that prescribe the “do’s” and “don’t’s” of
individual everyday conduct” 12. This distinction is important because in much of
the ‘thin’ institutionalist literature norms tend to be included in the concept of
institutions- for instance North defined these simply as “any form of constraint
that human beings devise to shape human interaction” 13. By separating norms
from institutions, we specify with much more precision the latter concept and its
relationship to norms becomes a potential matter of empirical investigation
rather than of identification through definitional fiat.
By clearly delimiting the concept of institutions, the relationship of these to
development appears under a new light. Development can now be seen
concretely “as a process of organizational change” 14 rather than as the
mechanical product of certain desirable policy outcomes (such as the stable and
effective protection of property rights) or as the inexorable consequence of past
distributions of power 15. This allows us to shift our focus from these broad
contours of social life to the observation of real-world organizations. It is these,
after all, that through the fulfillment of their institutional functions contribute
to the reproduction of social order and the generation of economic wealth. Of
course, not all organizations matter equally for development. Both in the
economic and in the political realm some organizations are strategically located
in places crucial for system-wide performance. Within the public sector, for
instance, key agencies controlling public finances, collecting taxes, facilitating
and protecting national and international flows of people and documents or
delivering central public goods such as justice, education and health are clearly
at the apex of importance for generating developmental outcomes. Likewise, in
the market sector large corporations in strategic sectors of the economy such as
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finance or – in the case of Chile- copper, are incommensurably more important
for outcomes than the average firm in, say, the retail sector.
Following this line of thought, this paper is based on the results of an
investigation into the actual operation of five key Chilean organizations and their
evolution since 1980 to the present. The investigation was part of a larger
comparative research project into Latin American institutions guided by the same
understanding of institutions outlined above and coordinated by a unified
methodology across institutions and countries 16. The project sought to clarify,
first, whether and how organizations were fulfilling their prescribed institutional
roles; second, whether by doing so they were actually contributing to the
development process; and third, to evaluate which of six possible organizational
characteristics (or combination them) were either necessary or sufficient
conditions for producing effective organizations- this is, organizations fulfilling
their institutional function and contributing to development. The six
characteristics, inspired by prior research within the field of sociology of
development and assembled by Portes, are divided into ‘internal’ and ‘external’
theoretically desirable characteristics of organizations:
a. Meritocratic (as opposed to clientelistic) recruitment and promotion
b. Immunity to corruption and to capture by special interests
c. Absence of internal ‘islands of power’ capable of subverting organizational
ends to their own purposes
d. Proactivity or the capacity of an organization to connect efficiently with
its clients, users and other relevant actors in its environment
e. Technological flexibility and openness to innovations
f. Proactivity of external alliances, within state or society, so as to prevent
capture by particularist interests within the class structure 17
Naturally, the first three are the internal and the last three the external
characteristics. We will return to them when discussing the particular
organizations studied; however, taking our cue from the comparative results
obtained from this research project, we will prioritize the first four
characteristics. Moreover, since the focus of this chapter is not on comparison
but rather on institutional change, we will specifically look at the way each
organization evolved along these lines during the time period considered. We
believe such changes are a key input for understanding the larger process of
institutional transformation Chilean society underwent in the same period.
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Having defined institutions and explained the way in which this chapter will
understand the relationship of institutions to development, we still need to
clarify how we will relate this understanding of development as a process of
organizational change to the broader- if vaguer- conception of institutions
prevalent in development economics and, to a degree, in comparative political
science and political economy. For by precisely specifying the concept of
institutions, Portes’ definition has also shifted the unit of analysis from the
institutional outcomes discussed above- and, in particular, from the governance
structures that are supposed to underlie them- to the study of concrete
organizations. Even assuming, as we do, that Portes’ definition of institutions is
analytically superior, this still leaves us with the open question of what to do
with that hazy cluster of mainly political variables that is the most frequent
empirical concern of institutional economists 18. Indeed, it is probably fair to say
that when economists and political scientists refer to institutions and
institutional change, particularly in the area of development, they are usually
referring to the rules operating at the macro level of society rather than at an
organizational level. True cross-disciplinary collaboration thus advises us to
attempt to relate both levels of explanation. An effort to go beyond (without
forgetting) organizations is also justified by the need to provide a coherent
framework for our analysis of the Chilean case, in which major changes in the
power structure of society as a consequence of the military coup of 1973 were
used by the same military to undertake a major reorganization of all aspects of
social life through the full and unrestrained use of the state and its
infrastructures. We think these larger changes in state-society relations, such as
a new Constitution and a host of new laws that either created or deeply
reformed major sectors of the Chilean economy, provide the key contextual
explanatory factor for understanding the institutional transformations and
organizational modernization undergone by Chilean institutions during the last
three decades.
Thus, although we follow Portes’ definition of institutions as blueprints for the
relationships between roles within organizations, we must relate this focus on
concrete organizations to the wider array of formal and informal rules that
specify the relationships between institutions and with their wider political,
economic and social environment. We propose to do this in a simple way. If
institutions are, as we saw, “the set of rules, written or informal governing
relationships among role occupants in social organizations”, then we can define
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institutional arrangements as the set of rules, written or informal, governing
relationships between social organizations. Just as institutions prescribe a set of
rules that really-existing organizations may only partially follow, so the rules
prescribed by these institutional arrangements may or may not be followed by
organizations in engaging with each other.
It is perhaps arguable whether this distinction between institutions and
institutional arrangements is truly necessary; after all, relationships between
organizations are actually conducted by persons embodying their institutional
roles. Therefore, it could be argued that institutional roles already include and
prescribe the rules of engagement with other institutions. This would be just
another function particular roles within an institution must perform.
Nevertheless, we think the distinction is analytically useful. In the first place,
unlike organizations which mostly set their own goals and internal rules, rules for
inter-organizational engagement are usually externally created and enforced.
Individual organizations cannot unilaterally change them, and therefore
observable behavioral outcomes will have ‘general equilibrium’ properties that
are not reducible to the internal logic of any organization. In this sense, most
organizations are ‘rule-takers’ when it comes to dealing with their environment,
and it makes sense to treat these rules as exogenous to them. Moreover, the
source of most of these rules- at least the formal ones- is the political system.
Laws and bureaucratic directives are the usual culprits, but at a higher order
Constitutions specify the institutions and the institutional relations of the
political system itself. Key institutional relationships for a country’s policy
environment, for its ability to provide public goods and for specific institutional
outcomes (such as private property rights protection) depend to an important
degree on these ultimate sources of de jure power. Institutions and their
interrelationships produce an emergent reality that is not reducible to either
individual institutions or (even less) to the underlying power distribution that
originally gave rise to them. Thus, inasmuch as there is some degree of
institutional autonomy 19, looking at this complex and crucial system of rules for
its effects not just on political performance but on development as such surely
requires a direct focus on them instead of a mediated one through their impact
on individual institutions. Lastly, we should note that just as Portes highlights
that his definition of institutions “is in close agreement with everyday uses of the
term”, the somewhat more unwieldy concept of institutional arrangements
points to another dimension of the usage of the term “institutions”, as when one
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says that a certain rule or relationship has been “institutionalized”. In doing so
we do not mean it has created a (or become part of an) organization, but simply
that mutual expectations of behavior regarding the issue have been stabilized
through some formal rule or mechanism.
A major advantage of the distinction between institutions and institutional
arrangements is that it allows us to connect this study with the interests of other
fields in the social sciences. We have already seen that economists, although
they mostly care for (policy/institutional) outcomes, have tried to conceptualize
institutions along political lines. Naturally, comparative political science has
done so as well; for instance, by inquiring about the effect of political
institutions- understood as formal and informal rules governing elections, the
party system, government-opposition relations and the structure of governments
(such as federalism, unicameralism, etc.) on policy performance 20. In political
economy, the veto-player approach 21 has formalized this concern and
distinguished between constitutional and partisan veto players, both of which
depend on the number of actors needed to pass a law or approve a decision,
according to the political rules in place. Most recently, the policy-making
process (PMP) approach pioneered by Spiller, Stein and Tommassi has tried to
understand how different institutions and rules affect the stability, flexibility,
coherence and other features of a country’s policies important for development.
Interestingly, they argue that
“…the behavior of political actors in the policymaking process- as shaped by their roles,
incentives and constraints- will depend, in turn, on the workings of political institutions (such
as congress, the party system or the judiciary) and on more basic institutional rules (such as
electoral rules and constitutional rules) that determine the roles of each of the players, as well
as the rules of engagement among them”22
This formulation is somewhat close to our own, but lacking the simultaneous
distinction and interrelation between institutions and organizations, it
misclassifies party systems as institutions (which they cannot be since they do
not have an organizational correlate) and lacks a theoretical connection with the
meso level of institutional change represented by organizations. Moreover, Stein
(et al) concept of “institutional rules” lumps the ‘roles of each player’ and the
‘rules of engagement among them’, which in our definition correspond to a basic
feature of an institution (its mission) and to the definition of institutional
arrangements, respectively. Finally, our definition is not limited to politics and
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can be used to examine institutional change in other key developmental areas,
such as economic or third-sector organizations.
We conclude, therefore, by reaffirming the theoretical usefulness of adding to
Portes’ definition of institutions the concept of institutional arrangements as an
additional layer specifying the rules that govern relations between organizations.
We will use this distinction in the next section as one of the guiding principles to
understand Chile’s major shift in development model since the end of the 1970’s
and the systematic project of institutional transformation that was an integral
part of this shift.
2. Institutional change
Having specified the meaning of institutions, we can discuss the closely
related concept of institutional change with sufficient precision. Following the
conceptual framework sketched above, we will first discuss this change at the
level of institutions and organizations, and then, more briefly, the concept of
change in institutional arrangements.
At the level of institutions, institutional change is naturally the process of
change in the institutional blueprints governing the interaction of organizational
roles. Since we saw that organizations are the material, existing correlates of
institutions, institutional change can only be examined by looking at real
organizations and their actual praxis. A fundamental distinction is that between
changes in the organization’s blueprint- formal, stated changes in what the
organization seeks to accomplish or in the ways it will operate- and changes in
the way the organization actually behaves in the conduction of its business.
Distance between the two is indicative of formal blueprints which are resisted,
ignored or circumvented by role occupants within an organization. Since major
processes of organizational reform are more likely to generate such resistances,
it is important to keep blueprints and actual practices distinct from each other
when examining the significant processes of modernization undergone by Chilean
institutions in the period under consideration. On the other hand, to exam
‘blueprints’ directly is a tricky business. Given the multiplicity of roles and their
complex interrelationships in even a single organization, fruitfully examining
institutional change over time suggests a different approach. In fact, we can see
the six criteria used for examining organizational efficacy presented beforehand
as internal performance criteria of organizations: whether they manage to
recruit meritocratically or not, whether they are immune to corruption or
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capture, whether they avoid internal islands of power-and so forth- are useful
standards by which to judge whether institutional blueprints are actually being
followed. Similarly, change in the degree to which a given organization fulfils
these performance criteria over time is a key indicator of organizational change.
Therefore, describing the evolution of our four organizations along these six
performance criteria is a concrete way to give a theoretically-grounded
description of institutional change.
If these six performance criteria provide a description of institutional change,
we also need a conceptual framework to explain it. In this chapter, we will
follow the model of institutional change proposed by Portes, which has the virtue
of integrating different theories of change within the single, theoreticallyinformed model presented above. Portes criticizes the literature on institutional
change for, first, lacking a proper definition of institutions and thus shooting at
“an elusive target”; and second, for relying mostly on some version of either
path dependency or diffusion, which are causal forces operating at rather
superficial levels of social reality. Because at this level “change tends to be
gradual with patterned ways of going things largely determining the future
course of events, and transformations in roles and institutional blueprints
occurring almost imperceptibly”, these theories tend to mostly predict “either
evolution or ‘punctuated evolution’” 23 in institutions.
More drastic change tends to come from deeper forces in the social structure
or the value system of society, and Portes suggests three such forces. At the
deepest level of cultural causality, charismatic and religious prophecies can
radically change society “because they impinge directly on the value system”,
thus “providing the impetus necessary to dismantle the existing social order and
rebuild it on a new basis” 24. Calvinism, current evangelicalism in the United
States and radical Islam are all examples of the importance and potency of this
source of institutional change. A similarly deep factor, operating this time
through the social structure, is the struggle for power either between classes or
through inter-elite competition. Revolutions are classical examples of such
conflicts, and provide a graphic illustration of a radical change in the distribution
of power in society. Such changes, affecting also the class structure and the
social status hierarchies, can thus imply major institutional change.
At an intermediate level of causality, scientific or technological
breakthroughs “can affect, in a very short time, the skills repertoires, and
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hence, the roles of large numbers of social actors” 25. These changes can
potentially be very significant in the case of “epoch-making inventions”, and also
in the case of an economically peripheral country like Chile deliberately open to
global cultural diffusion. This is the fourth causal force, already at a ‘visible’
level of causality in the model, but nonetheless one that can affect many levels
of culture in the recipient country: skills repertoires (through imported
inventions), norms (such as patterns of consumption), roles and institutions
themselves can all be learnt, copied or adapted from outside. Finally, the last
and most superficial source of change is the path dependency of organizational
blueprints and organizational practice on what has gone on before. Path
dependency is responsible for “producing evolutionary change at the more visible
institutional level”, even if it can sometimes be “punctuated” by sudden,
exceptional moments of faster or more drastic change. Eventually path
dependency may also play a routine reinforcing role within existing institutions
thus specifying their modernization route.
These five potential causes of institutional change, located at particular and
differing levels of causality within social life, provide the hypotheses needed to
examine the major transformations in Chilean institutions. Not all of these
potential causes of change, however, are equally interesting in the context we
will be examining; religious prophecies or major transformations in the deepest
levels of the value system have surely been absent. And as explained above,
endogenous technological change has played no important role, even as major
technological modernization has occurred through processes of diffusion. This
last cause will be particularly interesting to examine as it stands in partial
tension with path dependency explanations at the level of institutional change.
In fact, we will see how the process of organizational modernization has implied
a mixture between continuity and slow evolution, on the one hand, and imported
technological and organization innovations, on the other. Fleshing out this
tension will be one of the tasks of section 3. Lastly, we will see in the next
coming section how the sudden change in the distribution of political power
caused by the military coup in 1973 was the key factor in initiating broad and
deep processes of social and institutional change.
A final issue is how to examine changes at the level not of institutions but at
the level of institutional arrangements. We believe the model sketched out
above is also sufficient for this task. After all, institutional arrangements are
dependent on the existence and form of institutions themselves, and as such are
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simply the next link in the causal chain. Any and all changes at deeper levels of
causality must also affect these arrangements. Nonetheless, inasmuch as
institutional arrangements (this is, the blueprints of how institutions relate to
each other) are more directly dependent on formal laws governing institutional
interaction, the role of political power become particularly important.
II. Institutional arrangement and development model
In this section the analysis we will analyze major changes in the institutional
arrangements which underlay the transformation process undergone by most
state and private institutions since the military coup of 1973. From then
onwards, Chilean society reorganized its socioeconomic foundations. The deep
nature of this process becomes apparent when looking at the change in the rules
of the game condensed in a new constitutional arrangement and the closely
related change in its historical development model.
As regards institutional arrangements, a first crucial transformation consisted
in restoring as fundamental principles of the new social order private property
rights and individual entrepreneurial freedom. Both were embodied in the new
constitutional order imposed by the military regime in 1980 and carried to an
extent not previously present in the Chilean legal tradition.
Additionally, the new military government cancelled Cepal’s classic model of
import substitution and adopted a model of growth and development oriented
towards export diversification and integration to global market and competition.
This meant a growing importance of private capital as the agent of growth and of
the market as the mechanism that regulated the allocation of resources,
economic coordination and social integration.
From an analytical point of view, this new model recognizes two crucial
moments: one of an authoritarian nature with a strong neo liberal emphasis; and
a second one of a democratic nature oriented towards the development of a
social market economy with a greater emphasis on social protection and
redistribution. Nevertheless, what is important is that this new market model is
the result of a long process that starts with the military coup of 1973 and that
with different adjustments continues till today. In O. Muñoz ‘s words:
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“La Concertación de Partidos por la Democracia, al llegar al gobierno en 1990, asumió de
lleno la economía de mercado como el mecanismo fundamental de organización económica. Pero
atenta al compromiso con la transición democrática decidió imponerle un sello social que había
carecido” (2007:2)
In this way, both moments share a common aspect which is essential in order
to understand the sense and the different forms of the institutional
transformation: the gradual and sustained consensus of the political and
entrepreneurial elite that it is necessary to enhance economic growth through
the development of a market economy open to global competition. 26 This is the
fundamental economic pillar of the new model and the basis of societal reorganization around it.
The initial stage (1973-1990) was characterized by a drastic change of the
rules of the game from “top to bottom”. 27 In practice this meant a partial
dismantling of the previous institutional arrangement and the previous state’s
centered model. In its place was assumed the development of an increasingly
open economy integrated to global markets.
Additionally, a series of economic measures coherent with this new strategic
objective were implemented. The first one was the acceleration of the process
of privatization of the economic activities. Since 1974 most enterprises that had
been previously taken by the state were returned to private hands, state
enterprises linked to public utility (water, gas, telephone, electricity) were
privatized, and from 1981 onwards, a system of mixed provision was created in
the areas of health, education and social security. New regulations and
incentives were created for the development of goods and services markets (Ej:
transport sector). There was a deregulation of the labor market (through the
labor plan of 1979) and the development of the stock market. Finally, in 1979,
import tax was reduced to only a 10% thus leaving the economy open to global
competition and global trade.
Initially this implied a productive rationalization that brought about a process
of massive bankruptcy of small and medium sized enterprises. On the other hand,
this process of adjustment was a painful learning process of the new conditions
of competition and implied a heavy social cost for those with a smaller amount of
human, social and cultural capital who could not take advantage of the new
market opportunities. To a large extent this social cost could be imposed due to
the authoritarian character of the new government and the dismantling of the
previous sociopolitical network. This structural adjustment, with its “bright and
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dark” sides, has been largely analyzed in different works. (CEP, 200; Sabatini and
Wormald, 2005; Muñoz, 2007; among others)
Nevertheless, beyond its political and social costs, the legacy of these two
first decades was the firm implantation of a market economy as the axis of
economic functioning. As regards state policy, a great emphasis was put in what
was called the regulation of macroeconomics equilibriums. This was reinforced
by a decree that gave total autonomy to the Central Bank for regulating interest
rates and money supply. (Muñoz, Ibid: 16-18). Additionally, a process of
rationalization within state administration was conducted in accordance with the
dominant idea of the development of a subsidiary state.
At the beginning of the 90s, the new political elite faced the challenge of
balancing the social costs that the adjustment to the new model had brought
about with the social distribution of the benefits of the economic growth it had
encouraged. To a large extent this new challenge has to do with the redemocratizing turn of Chilean society and the need to correct the great social
unbalances produced by the neoliberal attempt to introduce market selfregulation. As Polanyi (2003) pointed out the historical attempt to impose market
self regulation in the development experience of some capitalist European
societies proved to be a failure, precisely due to the growing social inequality it
produced. Thus the centrality of market economy should necessarily be
counterbalanced by society through state regulations to protect those unable to
integrate to market benefits.
This new political aim in this new phase marks the beginning of the second
moment or phase in the implementation of the new market model. During this
new phase, it partly lost its neo-liberal stamp and assumed a more social
democratic orientation. The new democratic governments (1990-2010) have
taken advantage of the country’s market potential to attract private
investments, develop innovation and entrepreneurship, but under new
regulations oriented towards the achievement of greater social efficacy. In this
last regard, the ‘proper’ role of the state changed. It began to assume a central
role in redistribution and social protection so as to guarantee a “minimum”
access to social welfare promoting better opportunities in housing, health and
education for low income groups.
However, during this second phase, the market model became consolidated.
From an economic point of view the successive democratic governments
17
reinforced the bases of the market economy as well as its exposure to
international trade and competence. Indeed, since 1990 the successive Chilean
governments have signed a series of free trade agreements reinforcing economic
globalization and competition. 28 They have also deepened policies aimed at
sustaining macroeconomic equilibriums and developing good market practices,
leading to the recent incorporation of the country as full member of the OECD.
This time, however, an important extra force behind market development has
been a “bottom-up” realignment process. Apart from the political decision to
sustain market development, increasingly it began to expand its way of
functioning as it started gaining social legitimacy. 29
In the context of a global market economy, the Chilean case has been
successful in terms of economic growth. Between 1985 and 1990, GNP grew at an
average annual rate of 6.4%, and at 5.1% between 1990 and 2009. In turn, per
capita GNP tripled during this last period. 30 On the other hand, poverty rate
decreased from a 38.7% in 1987 to 13.7% in 2006 (Casen, 2006). This sustained
growth process opened new life chances in terms of income, employment and
consumption, especially for those middle class sectors who have had access to
education opportunities. Actually, during these decades, Chilean society
experienced an important process of social mobility and became a urban middle
class society to a large extent not dependent on state employment provision
(Torche y Wormald; 2004).
As regards welfare opportunities (education, health and social security)
Chilean society has evolved towards a mixed supply model. In this sense, state
provision still plays an important role, especially in favor of low income groups
who are the great majority of the population. This situation, however,
introduced a new cleavage in favor of middle class and high income groups who
have access to welfare through market provision. In general, they are better off
in terms of service quality, and this tends to reinforce the idea that market
private provision is superior.
Closely linked to these positive changes in ‘life chances’, the market model
has slowly spread new market values which have increasingly started to be
meaningful for individuals and have thus contributed to market system
legitimacy. This subjective dimension is highly relevant since it refers to personal
experiences where identities, valuations and expectation of material and social
conditions interweave.
18
For instance, a recent national survey conducted in a representative sample
of individuals 18 years old and over shows that 65% percent agreed that work,
personal effort and initiative are the main resources for improved life conditions.
Additionally, 68% think that these are the main resources to overcome poverty.
The great majority (60%) also agreed that economic success depends on personal
effort and that remuneration should be tied to productivity (68%). Similarly,
since 2006 and up to now, there is a sustained optimistic view about the
country’s economic development and social mobility opportunities. Thus, in the
recent survey, 62% per cent trust that Chile will become a developed country in
the next 10 years (Encuesta Bicentenario, 2009). 31
These data seems to suggest that the expansion and relative success of the
market economy increasingly became legitimated trough the expansion of market
values and the development of a market society (Slater and Tonkiss, 2001). That
is to say, for a growing segment of middle class people progress in life is closely
related to market opportunities, personal initiative and hard work. Probably this
social change is behind the recent electoral success of a new right wing coalition
which has come into government for the next presidential period (2010-2014).
Undoubtedly, this political change will reinforce the modernization market
model.
Over the last two decades, the moderate social opposition against this new
market model has been another important political factor for its expansion and
social consolidation. During the initial neo liberal period, the military dismantled
social organization and used repression to control social movements and limit
trade union representation. Thus fear of repression was an effective formula to
impose the new market rules. However with the coming up of democracy,
political repression was replaced by market social fragmentation. The new
market economy actively promoted a growing differentiation in working
conditions. To the traditional formal/informal cleavage, global market
competition accelerated an important differentiation within both these sectors.
(Sabatini y Wormald, op.cit:256-257). Additionally, the already de-regulated
labor code was only slightly reformulated. Therefore, trade unions and workers’
organization also fragmented and lost representation, the same as their capacity
to develop a common project. However, under the new democratic rule, trade
unions within the state bureaucracy recovered some internal negotiating power.
As a matter of fact state workers represent an important fraction of the national
workers association (CUT).
19
Clearly enough, the development of this market model has not been free of
social contradictions. Income inequality, ecological unbalance, capital
centralization and concentration, social vulnerability and the reproduction of
precarious labor conditions, are some of the most significant. However, they do
not represent a threat to market economy reproduction. The current critics of
the market goes against market self regulation more than against market model
itself (Muñoz, op cit:17).
In sum, in the Chilean case, the institutional changes which has taken place
for more than three decades have to do with the reproduction of a new market
model which has the following salient features:
• A coherent and strategic economic orientation of the ruling (political and
economic) elite sustained for more than 35 years
• This new political and economic orientation was initially imposed from the
top –using military power- and afterward has become legitimated by its own
functioning and relative economic success
• Additionally, it came from outside the traditional institutional order. Here
globalization has played a central role.
• Finally, the economic impact of this new model has been wider and also
affected culture and society.
Within this change in the rules of the game and institutional arrangement,
different institutions had to face their own transformation process. This was
especially true in the case of state organizations. In this regard, their main
challenge has been how to deal with the modernization imperative coming out
from new market economy and the growing citizenship demands of the new
democratic society.
III. State modernization: the institutional internal response
1. State modernization as strategic aim.
The change towards a market economy produced a strong impact over the
previous state institutional reality. During the first neo liberal phase, the state
reduced its size, redefined some of its functions and started a process of
modernization of the public administration mainly oriented at introducing
20
technical improvements and management innovation within some services. (eg
the National Tax Service or SII).
From 1990 onwards, the democratic governments promoted many different
modernization policies to improve state performance. 32 Actually, this target has
turned to be a strategic aim of most of the new administrations. A first reason
has to do with the new demands for efficiency and efficacy imposed by the
development of the new market economy open to global competition. The state
needs to improve its performance as a way to promote economic growth and
legitimate its role in front of big capital worldwide.
Additionally, it has to respond better to social demand. In the new democratic
market society, people have begun to demand transparence to state institutions
and more efficiency in their performance as a way to respond to their
citizenships rights. The traditional “clientelistic” view is now condemned as
corruption. State institutions must be efficient in resolving people demands.
A third reason is related with the gradual change in some international
institutions (notably the World Bank) that up to that time had been committed
to the guidelines of the so called “Washington Consensus”. During the mid 90s,
the Bank itself abandoned the idea of a “minimum state” and replaced it with
the idea of an “effective state”. (World Bank, 1997) Thus, the present
international guidelines are not for state reduction, but for state effectiveness.
This new orientation -greatly influenced by the works of the Nobel prizes of
economy D. North and J. Stiglitz- take for granted that markets are not abstract
entities. Their actual functioning operates in specific historical and social
conditions. In every society there are institutional frames that determine the
incentives and the restrictions that economic agents face, either for reasons
linked to market efficiency or social considerations. Therefore, according to this
view what is important is the quality of the institutions that regulate markets.
Economic growth and development potentiality depend on them.
During the presidency of Ricardo Lagos (2001-2005), as a result of a political
crisis set around issues linked to corruption, a new set of state modernization
policies was agreed with the opposition. This agenda incorporates various
initiatives towards improvement of transparency in the administrative processes
and the introduction of organizational controls to avoid corruption. (Waissbluth,
21
2005:56). All the modernization agenda has continued, with some ups and downs,
up to know.
Thus, in the Chilean case, state institutions have to confront two related
issues: On the one hand, their adaptation to the new development model and, on
the other, the governmental decision to include the modernization of public
performance as a strategic aim. In the coming section, the focus will be on the
way in which four state institutions (i.e.The National Tax Revenue Agency
(Servicio de Impuestos Internos SII), the National Aeronautic Traffic Controller
(DGAC), the National Post-Office (CorreosChile) and a public hospital Barros Luco
in Santiago) adapted to this modernization challenge. 33
2. The modernization path
A good empirical approach to evaluate the nature of this modernization
process is looking at the way in which the six ‘internal’ and ‘external’
theoretically desirable characteristics of organizations –already depicted y the
previous conceptual section- evolved during the time period considered. 34
These characteristics condense a set of good practices closely linked to
institutional efficiency and efficacy. Therefore, by looking at the changes in
these six dimensions one can understand the larger process of institutional
modernization Chilean society underwent during the last decades and also the
degree to which these organizations fulfill their institutional function- which, in
turn, is a good indicator of their contribution to development.
All our institutions responded to the previously depicted environmental
change by internalizing a set of modernization values in their organizational blue
print. Values like transparency, competence, efficiency, quality of service,
orientation to the “client” or citizen participation, among others are in their
declared missions.
This change was not cosmetic. Institutional actors have to deal with the fact
that modernization was an organizational must and also a central performance
target. The main reason was the long-lasting sociopolitical support to the new
market model and the related state commitment towards modernization already
described. Additionally, state employees did not have any power to oppose these
new formal and informal rules. On the contrary, in the initial phase, they had to
deal with continuous personnel reductions and a permanent threat of
unemployment and repression, without any union support. During the second
22
phase modernization was negotiated. And, although power relations tended to be
more even, state administrators still had an important room for maneuver to
impose modernization targets. In all institutions power was concentrated in the
hands of a technocratic elite backed by important political support.
As a result institutional modernization underwent with some intensity during
these decades. The next table summarizes the specific shape and intensity of
this process by looking at the evolution of the six previously mentioned
characteristics in each of the selected institutions. The table values result from
the application of the methodology used by Portes and Smith (2009). In short,
these values show the degree of presence or absence of the signaled institutional
characteristic where 1 is total absence and 5 is total presence according to
researchers’ expert criteria.
Table N°1
Characteristics and intensity of the modernization process underwent in four Chilean
public institutions during the 1973-2006 period.
Institutional
Characteristics
1 Meritocracy
National
Revenue
Agency
(SII)
4
National
Aeronautic
Agency
(DGAC)
3,5
National
Post Office
Correos
Chile
4
Hospital
Barros Luco
4
2 Immunity to
4
4
3
3
corruption
3,5
3
4
3
3 Absence of internal
‘islands
of power’
4 Openness to innovations
5
5
4
3,5
and technical flexibility
5 Capacity to connect
4
4
2
3
efficiently with its
clients,
6 Proactivity of external
4
3
5
3
alliances
Source: Portes, 2009; Wormald and Cárdenas, 2008 and Cereceda et.al, 2008
Average
Value
3,8
3,5
3,4
4,4
3,3
3,8
From these figures emerges a general modernization pattern irrespective of
institutional specificity. A first common issue is that all institutions, in practically
all the relevant dimensions did not reach the highest punctuation of 5. In our
view this reflects a significant fact in terms of Chilean institutional reality. The
country’s institutional frame still responds to a cultural and social reality which
does not fully support either the ideal type of a Weberian rational administration
23
or a complete democratic and citizen-based form of capitalism. Its market
development model seems to be closer to what some authors have defined as a
“hierarchical market economy” rather than the other typical forms assumed by
capitalist development elsewhere. (Schneider, 2009; Hall and Thelen, 2009;
Schneider and Soskice, 2009).
In spite of this, all of them have improved their performance and efficacy. All
institutions reached their highest value in their openness to innovation and
technical flexibility criteria. They introduced new technical innovations
(computerizing and reshaping organizational processes) and also by
professionalizing directive positions. To a large extent this was induced by the
necessity to adjust their traditional performance to the new environmental
requirements to deliver more and better services. In some cases
(eg CorreosChile) this technical modernization pressure came from a new direct
competitor. In others (DGAC), it was in response to the pressure exerted by
clients (notably the airline companies) and in others it was the government’s
necessity to rationalized the use of resources (Barros Luco hospital) to generate
state capacity by increasing tax resources through reduced evasion (SII).
To some extent, these technical innovations represent the “easy” phase of
any modernization process. The “hard” part is usually related to human
resources adaptation to these new technological procedures, institutional norms
and market stimulus. Our institutional cases show that the new technical
expertise tends to be concentrated in a technocratic elite. Moreover, data also
show that technical personnel and human capacity tend to be concentrated in
Santiago (the capital city). Therefore human resources capacities are unequally
distributed both within Santiago and between the capital and the rest of the
country. Additionally, organizational power tends to be concentrated by those
who “know”, which tends to exclude those in less qualified jobs, usually the
older employees. Furthermore, in some cases market economic stimuli tend to
distort institutional functioning. Here a paradigmatic case is the Barros Luco
hospital where some medical personnel are attracted by private practice, usually
much more profitable and also by doing business taking medical exams to some
of their hospital patients in private laboratories where they have some share in
the profits. Here there is also a claim against “economicist” criteria of
administration.
24
Nonetheless, the new technical levels reached in most institutions were
responsible for improving the meritocratic recruitment and promotion of
personnel, especially those engaged in performing the new directive
organizational tasks. Additionally, all the institutions were proactive in obtaining
external support, what in these cases implied to gain political support to go
ahead with modernization targets. In our view this is a key issue for any public
administration willing to introduce new organizational roles within a consolidated
state bureaucracy. In some of these cases this political support was reinforced by
the existence of specific laws (e.g. legal tax reform in the case of SII and legal
“AUGE” health reform in the case of Barros Luco)
This modernization pattern also improved the immunity to corruption,
although some “islands of power” still appeared threatening the capture of
organizations for particularistic interests.
In our view the reduction of
corruption has to do with the development of new organizational standards and
bureaucratic controls in order to better perform institutional functions.
Additionally it has also been related with a growing sense of citizenship
embodied in “state users” more conscious of their rights and opposed to
clientelism. Here the controlling power exerted by the mass media also played a
key role in undermining corruption and underpinning citizen rights.
Finally, the presence of particularistic groups within organizations has to do
either with the appearance of some technocratic groups “encapsulated” around
modernization targets (Ej SII) or resistance groups who feel threaten by the new
organizational blue print. One has the power to impose or convince based on a
technocratic reason, while the other the power to resist or negotiate (formal or
informal) its participation. (Ej: medical personnel against new administrative
standards; trade unions resistance within hospital or in the SII).
3. Isomophism and particularim
By looking at the modernization path of these institutions, it becomes clear
that this process has to do with two closely related dimensions: On the one hand,
those forces leading to a similar path of change (isomorphism) with other market
societies and, on the other, those which tend to reinforce more distinctive
institutional transformation (particularism). Both are crucial to understand the
way in which institutions change and also to evaluate their contribution to
development.
25
Undoubtedly the most important isomorphic forces are related with the
change in the development model previously analyzed. It introduced new market
rules, but also a common environmental challenge towards institutional
modernization; that is to say, a common necessity to improve institutional
performance (i.e. efficiency and efficacy). Organizations tend to modify
themselves increasing their compatibility with the relevant environment. In this
respect, globalization and market competition played a key role.
Both affected the relevant institutional environment in different ways. They
introduce potentially or in practice new suppliers thus raising quality standards.
This was the case of the national post office which faced the direct competence
of big international firms, such as Federal Express or Chile express. These
competitors introduced new delivery standards in terms of punctuality,
responsibility, and so forth.
However, more importantly, especially for state institutions which
monopolized some functions and services, global standards introduced new
blueprints for institutional actors. In this respect, our data show that the
traditionally outward-oriented national culture became reinforced by
globalization. The historical appraisal that developed countries usually perform
better increased with globalization. This is especially strong when dealing with
technical procedures or new technological devices. In all our institutions one of
the first step to respond to the new market challenge was the attempt to copy
some blueprints to improve their managerial performance. Similarly, they
recruited professional cadres and directives trained in good European or USA
universities into leadership roles of institutional modernization processes.
Usually, they try to reproduce what learned abroad which has an isomorphic
impact over work organization and routines. A good example has been the
modernization process of the tax revenue service (SII).
A further step towards institutional isomorphism has been the recent
successful government attempt to join the OECD. In the words of its General
Secretary:
“During the last two decades, Chile has done a good job in terms of democratic and economic
policies. The country joins an organization that work to find common solutions to global
problems and establishes global standards and common policies in areas such as education,
employment, public accountability to reinforce a solid and open global economy. Being OCDE
member means to be at the center of the design and promotion of those rules which define the
global economy and society in the future.” (Our translation) 35
26
Therefore, for many state institutions OECD standards have become a relevant
state commitment instead of just a general performance benchmark.
Notwithstanding the above, particularism also played a significant role.
Institutions react in different ways to similar stimuli. The reasons have to do with
their different functions, the relation with their relevant institutional
environment and their historical and cultural organizational specificities. Thus
while the national aeronautic agency (DGAC) respond to a military culture which
specifies its organizational performance, the Barros Luco hospital is largely
conditioned by a medical culture in many ways opposed to economic and
administrative criteria. Many times these cultural specificities underlie an
institutional gap between formal blue-print and real –and mostly informalorganizational performance.
Additionally when comparing the modernization path of these different
institutions is clear that there is not just “one best modernization case” but
different roads according to institutional specificities. Again, the case of DGAC
shows that the adoption of the new modernization values -such as transparency,
flexibility, orientation to client, among others- coexist an many times clash with
some traditional military values which tend to reinforce loyalty, obedience,
discipline and no deliberation. This tension resulted in a particularity which is
not present in others institutional realities.
Interestingly enough this mix of “traditional” and “modern” values may result
in a good modernization support when looking, by example, to the adoption of
new management rules. This seems to be the case within the SII where a rather
traditional “authoritarian” form of leadership was developed by a new
technocratic and modernizing elite. Apparently this type of leadership is better
supported within a bureaucratic organization immerse in a traditional “hacendal”
type of culture. Of course, in other cases, this mixture of values may represent
an obstacle to the adoption of new, modern blueprints.
Institutions also have historical specificities which tend to reinforce the
traditional way things have been done. This is especially true within state
organizations with a definite function and a relatively stable environmental
demand and personnel. 36 These forces tend to reinforce habits and routine
behavior. As we know bureaucracy is adverse to risk and the fear of many public
officers of being charged with some procedural mistake turns into rational the
traditional way of doing the task. Additionally within accelerated process of
organizational change informal links and trust relations are important forces to
27
resist the new modern pattern. As Di Maggio and Powell (1983) stated
“…organizational blue prints tend to sustain enduring patterns of reliability and
accountability in organizational behavior”. In this respect, institutional path
dependency is an important force to take into account when leading through
modernization targets in existing institutions.
In sum, all the analyzed institutions underwent a process of change as a way
to adapt their performance to the new market model. In general they improved
their institutional performance through a modernization process which
recognizes common challenges and organizational process as well as institutional
specificities related to cultural and organizational values, power relations and
historical functions. This process has not been exempt of conflict among the
relevant actors. In the cases of the National Post Office and the Barros Luco
hospital there have been different resistances from workers and medical
personnel. However, the continuous pressure from the relevant environment,
plus governmental political decision to advance towards a more effective state,
have proved to be key factors for institutional modernization. In turn, these
institutional improvements tend to legitimate the new market model.
IV. Institutional Performance and Development
Having analyzed the modernization path and institutional changes undergone
by Chile in the last decades, it is time to evaluate the contribution of these
changes to achieving developmental outcomes. However we will also analyze the
degree to which the Chilean state can be said to have approached the ideal-type
of a modern-day ‘developmental state’ through its investment in institutional
capacity. Let us start by this second issue.
a) Is Chile’s state a developmental state?
The description of Chile as a ‘success story’ of neoliberal reform and
economic reorientation through the correct choice of policies has been
frequently told by some Chilean economists. (Larraín and Vergara, 2001)
Although institutional reform has been described in that literature at a sectorspecific level, what this study suggests is that deep, system-wide institutional
changes partly underpinned, and partly ran parallel to that policy reorientation.
Section 2 showed that this change at the level of institutional arrangements was
fundamental to change at the level of institutions themselves.
28
Additionally, what some of our case studies suggest is that this top-down
institutional reform effort was not limited to the reorganization of the economy
nor even to the mere redefinition of the frontier between the state and the
market: it was also aimed at increasing state institutional capacity itself as a
necessary ingredient of the new development model being implanted. In this
context, we can view Chilean path as a consequence of a decades-long effort at
increasing state and private capacity for economic growth and development.
How has the Chilean state performed in this regard? While we cannot here
hope to evaluate this performance over so many goods, we can start by noting
that Chile usually ranks highly on a series of governance and state performance
indicators. For instance, the World Bank Governance Indicators project ranked
Chile in the top 15% of the world distribution on the Government Effectiveness
indicator in 2008, by far the highest score in Latin America 37.This indicator is a
composite index that measures “perceptions of the quality of public services,
the quality of the civil service and the degree of its independence from political
pressures, the quality of policy formulation and implementation, and the
credibility of the government’s commitment to such policies” 38. Admittedly, this
is a very ‘dirty’ indicator of performance, lumping as it does features of the
policy-making process, the performance of public services and institutional
capabilities are well evaluated.
An index more closely focused on the state is Bertelmann’s Management
Index, and in particular its Management Performance component. This is an
average of expert scores on four dimensions of state performance: Steering
Capability, Resource Efficiency, Consensus-Building and International
Cooperation. In the 2006 ranking- for developing countries only- Chile ranked
third right behind Slovenia and Slovakia (and about ten places above Uruguay,
the next Latin American country). If we further disaggregate this index to look
only at the first two components- more directly concerned with state capacity 39-,
we find that Chile ranks second among the 119 developing countries included 40.
Rough as these indicators may be, they suggest that indeed the Chilean state has
developed significant capabilities.
With this overview in mind, we can look at the workings and performance of
the specific state organizations in our study to see whether they fit a
‘developmental’ mould. In particular, it is interesting to examine the way the
29
higher echelons of the Executive have tried (or not) to prioritize organizational
performance over other possible criteria, such as furthering clientelistic
networks within these organizations, extracting resources from them or using
them for short-term political gain.
Perhaps the most impressive evidence of a deliberate attempt at institutional
reform aimed at building state capacity comes from the SII. This is undoubtedly a
most strategic agency within the state, aimed as it is at extracting the economic
resources needed by the state to provide almost all other goods demanded of it
by society. As Wormald and Cardenas (2008) show, the founding technocratic
document of the military dictatorship already regarded the tax system as key to
preventing “excessive” concentration of wealth and looked to the tax collection
agency to make a “decided effort” in enforcing taxes 41. That these were not
mere words was showed by the radical reform the SII underwent under the hands
of a Pinochet appointee:
“Cuando llegué al Servicio había un computador viejo que no funcionaba. Había una mafia de
abogados que tenían a todos coimeados. Todo se hacía a mano. (…) Entonces se empezaron a
hacer las cosas. Se racionalizaron las compras. Se botaba la plata en tonteras. Comenzamos a
ahorrar plata para reinvertirla en mejores condiciones de trabajo. (…) De 3600 funcionarios se
redujeron a la mitad hacia mediados de los 80s. Eso permitió mejorar los sueldos y
profesionalizar la gestión. Se introdujo el pago a través de los bancos y se comenzó a fiscalizar
de veras y a meterles susto a los contribuyentes. Nadie se escapaba. Imagínate tener un servicio
eficiente que los iba a pillar. Para eso se contó con el respaldo de Hacienda y del Presidente.
Entonces empezaron todos a tomar conciencia….”42
The passage from an ineffective and captured organization to a more efficient
and feared agency described in this quote is worth noting. We can see that the
means to achieve this change were not subtle: a staff reduced to half its former
size, rationalization of resources, investment in qualified personnel and
professional management, and above all the will to enforce taxes on everyone so
that “no one got away with it”. These are all radical changes in what the agency
did and how it did it. Significantly, the support of the Finance Minister and the
President himself are explicitly recognized, thus confirming not just the topdown nature of the reform itself but also the source of the political will which
powered it.
After the return to democracy, this modernizing drive did not lose
momentum. Once again, the consistent and long-term support by two successive
30
Presidents of an outsider figure bent on radical agency modernization proved to
be effective. This time, technological modernization and organizational redesign
in order to improve user-friendliness and collection rates were the goal.
Increased user satisfaction with the SII and above all a reduction in overall tax
evasion from over 30% in 1990 to an estimated 18% in 2005 are proof of this
success 43. Overall,
“..el compromiso institucional con una mejor recaudación y fiscalización tributaria
ha sido un objetivo explícitamente asumido por los diversos gobiernos en las
últimas décadas.”44.
Improvement of performance has thus been a central goal of successive
administrations in this key state agency. Its success in lowering evasion, lowering
collection costs and increasing state revenues at a much faster rate than
economic growth (in a context of largely stable tax rates and tax bases) point to
a ‘developmental agency’ nested within a state whose very top personnel- from
the President downwards- have been its key allies.
While the radical and sustained modernization of the SII provides particularly
stark evidence of the developmental drive of the Chilean state, it is not the only
organization in our case studies to show increased performance. For instance,
the DGAC obtained in 1996 the coveted ‘category 1’ status given by the US
Federal Aviation Agency, which allows Chilean aircraft, companies and personnel
to fly without restrictions into the US.
The DGAC has also achieved one of the lowest accident rates in the world and
is highly respected by its users and clients. In recent years, it has also had its
strategic services internationally certified 45. All this was done within the context
of a rapidly expanding air traffic demand and the institutional adjustment
derived from the concession of the main airports to private companies.
Moreover, these results give weight to the DGAC’s official institutional ‘vision’,
in which it declares its aspiration to
“Proyectar a la DGAC como un servicio público inteligente, capaz de anticiparse a los
cambios tecnológicos, orientada hacia la excelencia en la prestación de servicios y atención a sus
usuarios, siendo líderes en el sistema aeronáutico mundial.” 46
This same combination of aims regarding permanent institutional
transformation and an explicit drive for excellence according to international
31
referents is present in even starker terms in the SII’s official institutional
‘vision’, where they declare their goal to be
“El SII será reconocido como una de las administraciones tributarias más modernas del
mundo; con altos y crecientes niveles de eficacia en su accionar; que opera bajo estándares de
calidad que constituyen un modelo para instituciones similares (…) presenta niveles de
cumplimiento tributario que son un ejemplo a nivel internacional”47
The competitive drive for international excellence present in these two
agencies, validated in both cases by the results actually achieved, suggests that
at least at the elite level of state officials and of the Executive the efficacy of
the state is a key, even overriding concern. In these two cases we see agencies
which set themselves world-class goals and achieve substantial results to back
them up. There is coherence between institution and organization along
developmental lines.
It is interesting to contrast these two agencies with the case of the Barros
Luco Hospital. As part of a public healthcare system which suffered from
disinvestment during the Pinochet years, it has recovered funds and personnel
under the democratic Concertación governments. The increase in funds,
however, has been widely perceived as not having been matched by a
corresponding increase in the quality of healthcare provision. A significant part
of the problem seems to be the inefficient management of hospitals and their
low level of productivity.
In their study, Cereceda et. al (2009) show that the Barros Luco is an
organization with significant ‘islands of power’ in its midst, willing and
frequently able to resist any changes to the status quo that go against their
interests. Doctors used to running things on purely medical decision criteria and
non-medical personnel protected in their jobs by rigid public-sector civil service
laws have both resisted reforms aimed at enhancing the power of management to
impose economic criteria and efficiency-related concerns on the functioning of
the hospital 48.
Since both doctors and non-medical personnel are part of the informal
coalition of social interests that support the Concertación, it has been difficult
for its ruling elites to confront their interests head-on. Faced with these
difficulties, but aware of the centrality of healthcare for voter approval, in 2005
32
the government passed through a major healthcare reform, the AUGE. It consists
of a system-wide reform aimed at guaranteeing access to a series of pre-defined
health services, within strict time limits, to all users affected by one of a list of
pathologies elaborated on technical, public-health criteria. This reform, imposed
from above against the resistance of doctors and non-medical health workers
alike, has put great stress on (public) health providers which are required by law
to provide those services within the specified time limits. Faced with external,
‘hard’ constraints hospitals have struggled to cope, and yet attention for the
prioritized pathologies- and user satisfaction- have decidedly improved with
AUGE.
This, then, is a case of a governing elite which, faced with political economy
constraints for improving efficiency directly, resorted instead to an indirect
means for doing so. This peculiar strategy of a state that publicly self-imposes on
itself performance criteria that the citizenry now has a right to demand from it,
can be interpreted as a different but nonetheless effective route to promoting
desired developmental outcomes under conditions of increasing democracy and
citizen empowerment.
Just as in the SII, a top-down reform imposed from above and against the
wishes of existing ‘islands of power’ within the respective organizations
nevertheless succeeded in improving organizational performance and in
promoting developmental outcomes through the provision of key public goods.
Through AUGE, a developmental elite unable to break the power of interests
within the hospitals was nevertheless able to impose on them a significant
change in their external environment and thus to bring their behavior into closer
conformity with the elite’s developmental goals.
The preceding discussion highlights the overall success of the Chilean state in
increasing its own capacities to deliver the public goods that its market friendly
development strategy requires. Three decades of continuous reform and
improvement in the strategic SII have allowed the Chilean state to massively
increase the resources at its disposal without significant increases in the tax
burden.
The quiet efficacy of the DGAC has given Chile’s aviation market a
competitive edge thanks to the enforcement of the highest safety standards that
33
allow full integration to the world economy and lower insurance costs for airline
companies using Chilean airports. Even in the (until recently) lagging public
health sector, we see a state intent on improving outcomes and willing to use its
authority to force improved performance on unions and interests groups it cannot
confront directly.
Lastly, aggregate, comparative measures of state capacity and state
performance confirm the Chilean state’s prominent position among its
comparable peers. The overall picture that emerges is that of a high-performing
state, intent on providing the goods and services it has committed to provide.
Can we speak, therefore, of Chile as a ‘developmental state’? On the one
hand, the lack of several required characteristics in the Chilean state of what
traditionally were regarded as key conditions of developmental states -an active
industrial policy, authoritarianism or equality in the distribution of resourceswould make it a partial instance at best. On the other hand, if we understand a
developmental state as a state that builds institutional capacity to maximize its
contribution to the development process, there is a good case for the Chilean
state to be considered one. It has strengthened its capacities significantly in the
last 30 years and in so doing has been a key player in the Chilean success story.
Institutional reform in the public sector appears as a significant and crucial
correlate to the well-known policy revolution that begun with the neoliberal turn
at the end of the 1970s. Without it, the success and stability of these policies is
likely to have been substantially weakened. Because of this, we suggest that the
appropriate reading of the Chilean story provides strong evidence for the current
developmental consensus, which sees states and markets as complementary 49.
Interpreting Chile’s success in purely neoliberal code misses this fact.
Finally, if we take Portes’ approach to development, one should consider
three main criteria according to which evaluate Chilean institutional
transformation and performance:
“un criterio económico de crecimiento sostenido; un criterio social de equidad en la
distribución de la riqueza, y un criterio político de presencia y respeto a los derechos
ciudadanos”50.
34
Although our cases studies offer a limited material to do a global
evaluation in the terms suggested by this definition, one could say that each of
our organizations has performed their specific function in a better way, so
contributing to improvement in at least one of these three criteria. Thus, the SII
significantly increased states resources giving financial support to state policies
in some crucial social areas, such as education, health, housing and social
protection. In turn the DGAC played a significant role in improving aeronautic
traffic and infrastructure, especially important for the development of a global
market economy. The Barros Luco hospital also contributed to guarantee a
“minimum” and universal access to social citizenship. Finally, the national Post
Office has also played an important role in connecting those areas of the country
unprofitable for private firms.
However, where Chilean development model looks less impressive is when
dealing with inequality. As everywhere, markets introduced important socioeconomic cleavages which seem to be more serious when they expand their
rationality within an already unequal social reality. As it is well known, income
distribution has been a serious unresolved problem in Chilean society. Its
substantive development model seems to produce and reproduce inequalities
while limiting its potential for moving into ‘core’ economic sectors. Up to now,
Chile had failed to diversify away from natural resources, which weakens the
potential and sustainability of its current development path.
Even if the quality of Chilean institutions and of the Chilean state has
improved along these last decades –something that the recent earthquake of the
27th of February shows still lack a way to go- its actual development path and its
structural inequality do not look very different from other developing countries.
Particularly in this regard, Chile is very much part of Latin America.
V. Conclusions
When we are talking about development, we are dealing with a normative concept
which embodied a crucial institutional dimension. In this respect, an aim of this work
has been to reinforce the already well known D. North statement that institutions
matters and they are central to understand economic dynamism. But then the
question arises about what we are going to understand by institution. In our view, the
sociological concept of institution developed by A. Portes constitutes a good and rich
tool for empirical analysis, the same as the concept of institutional arrangement
which complement this analytical perspective. Both concept are important when
35
trying to understand the process of Chilean development during the last three or four
decades.
This process started, under authoritarian rule, with a coherent bunch of neo liberal
policies oriented, to promote market economy on a global basis, as well as to
transform the ‘rules of the game’ of a previous state centered society. A second
phase, under democratic rule, reinforced market economy while developing a state
role strongly advocated to market regulation and to guarantee a “minimum” access to
social citizenship and protection, especially for those more vulnerable.
This long and sustain process of market development has triggered an important
process of institutional transformation basically related with their adaptation to the
new market rules. The important point here is that this new market oriented economy
and institutional arrangement increasingly penetrated –either in terms of values
and/or social relations- Chilean society, thus stimulating its transformation into a
market centered society.
In turn, this process of institutional transformation had some specificities related
with the historical, social and cultural nature of any particular institutional
organization. In our case, we have tackled four state institutions highly relevant for
economic
and
social
development.
Therefore,
by
looking
at
their
transformation/modernization process we approached the way in which institutions
change and also the development potentiality of the new market oriented Chilean
model.
In this regard we conclude that institutional change is the result of some isomorphic
forces closely linked to: a) globalization and market competence b) the ‘copy’ of new
institutional blue prints from those ‘better cases’ model and c) the leading role of a
new professional elite -training in good European or USA universities- who play a key
role vis-à-vis institutional modernization process. Finally, the sustained governmental
support to state modernization in line with international agencies -like OCDE- also
became an important isomorphic force.
However our cases studies also pointed out that institutional modernization path
must consider historical, social and cultural institutional specificities. Probably, in this
dimension in when the institutional frame used in this work acquires all its analytical
potential by clearly show that ‘copy is never equal to the model’ precisely due to
sociological considerations. Within organization always appear a distance between
institutional blue print and actor actual behavior. This is especially true when facing
institutional modernization processes. This distance has to do with organizational
36
power relations, trust relations among employees, informal links and bureaucratic
habits, cultural and organizational values which, at the end, define the real
institutional performance. Therefore, is by looking at the historical and social reality
of specific institutions and their relations with the institutional arrangement and
relevant environment that one could better understand development potentiality of a
given country.
In the Chilean case, we have approached here –and considering the limited
empirical evidence we have used- one could say that Chilean society underwent a
significant institutional change, leading towards a consolidation of a market economy
and a corresponding process of modernization of their state institutions. Through a
“developmental elite” that has created “political stability over the long run”, the
creation and strengthening of “a bureaucratic elite capable of administering the
system” the Chilean state fulfils to a reasonable degree as a developmental states.
While this institutional transformation process has had a positive impact over
economic growth and social citizenship, still lacking vis a vis access to equal
opportunities.
37
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Footnotes:
The author is Titular Professor in the Institute of Sociology at the Catholic University of Chile
(PUC)
1
1
The author is Associated Researcher in the Institute of Sociology at the Catholic University of
Chile (PUC)
This study,“Institutions and Development”, was conducted and coordinated by Alejandro
Portes. Partial results of this study was published in Spanish in “Las Instituciones en el Desarrollo
Latinoamericano: Un Estudio Comparado, coordinador, Alejandro Portes, Siglo XXI, México, 2009.
See also, Guillermo Wormald y Ana Cárdenas, El Servicio de Impuestos Internos en Chile: un
análisis institucional; and Luz Cereceda, Lorena Hoffmeister, Constanza Escobar,
Institucionalidad, organización y reforma de la salud en Chile. El caso del hospital Barros Luco,
Papers presented to a research meeting held in Santo Domingo in July 2008.
2
3
See, for instance, Rodrik, Subramanian and Trebbi, “Institutions Rule: The Primacy of
Institutions Over Geography and Integration in Economic Development”, Journal of Economic
Growth, 2004, Vol 9, Issue 2 pg.131
4
Acemoglu, Johnson and Robinson, “The Colonial Origins of Economic Development: An Empirical
Investigation”, The American Economic Review, 2001, Vol 91, Issue 5, pg. 1369
5
Pp. 1370-1371
6
And it seems to be even less of an empirical problem, at least as long as we believe that one
institutional outcome (in this case, risk of expropriation) is correlated with all other desirable
outcomes.
7
See Acemoglu et al, “The Consequences of Radical Reform: The French Revolution”, NBER
Working Paper available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1369681
8
In more recent work, for instance, Engerman and Sokoloff have looked at electoral institutions
as cause and consequence of persistent high inequality and low growth in Latin America, as
opposed to North America. Although this still treats institutions as mere rules and procedures,
the ‘institution’ here has been clearly separated from its outcome. See Engerman and Sokoloff,
40
“The Evolution of Suffrage Institutions in the New World”, Journal of Economic History, 2005,
65:4: 891-921.
9
Hodgson, p.234 in Portes, “Institutions and Development: A Conceptual Reanalysis”, Population
and Development Review, 2006, 32:2 p.233-262
10
ibid., p.234
ibid, p. 241
12
ibid, p. 237
13
North, in ibid., p.234
11
14
Hoff and Stiglitz in ibid, pp. 233-234
15
As it is for both Acemoglu (et al) and Engerman and Sokoloff. It is indeed ironic that
investigations aimed at showing that ‘institutions matter’ tend to emphasize the persistence of
‘institutions’ over time and the self-reinforcing quality of the underlying distribution of political
power, and yet are used as justification for immediate governance and institutional reforms
expected to yield quick results.
16
The research was part of a larger comparative research project into Latin American institutions
guided by the same understanding of institutions outlined above and coordinated by a unified
methodology across institutions and countries. See Portes (2009)
17
Pp. 9-11
18
Even if these economists usually include and accept within their definition of institutions those
restrictions on human behavior derived from cultural norms, beyond ‘controlling’ for religious or
ethnic composition of a country (and/or colonizer identity), for the most part they have not
made them the focus of their attention.
19
What Mann called ‘institutional statism’ within the context of state theory, referring to the
fact that states gain autonomy from civil society through the institutionalization of certain
decision-making procedures according to the law: “Federalism, parties, the presence or absence
of cabinet government, and many other features of what we call the “constitutions” of states
structure power relations in quite distinctive ways” (Mann, p.52)
20
For instance, see Lijphart “Patterns of democracy : government forms and performance in
thirty-six countries” New Haven, Conn. ; London : Yale University Press, 1999; and especially
Roller “The Performance of Democracies” Oxford University Press, Oxford, 2005
21
For instance, see Tsebelis (2002) “Veto players: how political institutions work” Princeton, NJ:.
Princeton University Press, 2002
22
Spiller, Stein and Tommasi (eds) “Policymaking in Latin America. How Politics Shapes Policies”,
Inter-American Development Bank and David Rockefeller Center, New York and Cambridge, 2008,
p.14 (authors’ emphasis)
23
Portes (2006), op. cit., p. 249
24
Ibid, p. 250
25
Ibid, p. 250
41
26
In this point, we are talking about market economy as a system. A good indicator of this elite
consensus had been the economic policy orientation. From the military government onwards, the
ministry of treasury had been an economist committed with macroeconomic equilibrium and the
economy exposure to global competence and markets. What started in 1979 with a radical
reduction in custom tax has been reinforced by free trade agreements in the next coming
decades and with the recent full membership of the country to OECD.
27
This new economic policy orientation was condensed in a neo liberal policy program document
–assumed by the military government- that critized the excesive ‘statism´ of the previous
democratic administrations. By contrast, the authors advocated the “…urgente necesidad de una
descentralización del poder económico y de las decisiones a todo nivel permitiendo establecer un
sistema económico moderno, eficiente que opere a través de los mercados y la competencia”. (El
Ladrillo:50)
28
In 1989 Chile had not signed any Free Trade Agreements. However, the successive democratic
governments had signed 24 of them by 2009.
Within the elite has developed a common “anti populist” view. Although Chile has never been an
example of populism compared with other Latin American countries, during import substitution
period some governments used to promote economic policies oriented to maximize state
expenditure without the adequate economic support. However the present political discussion is
how to finance the different state programs and who is going to pay some particular state
expense.
30
GNP grew from US$ 4.542 up to US$14.299 between 1990 and 2009. EL Mercurio, 18/01/2010
31
This survey is conducted yearly, since 2006, by the Institute of Sociology of the Catholic
University of Chile and the marketing enterprise ADIMARK.
32
En 1997, a new state strategic plan for the modernization of public management was
approved. This plan embodied six fundamental targets: development of a new modernization
project, strategic planning, internal performance evaluation, design and implementation of a
management control system and the voluntary organizational agreement to reach some
modernization targets. In our case the SII and the DGAC adhere to this initiative. In turn, during
2004, was created a special public agency (Sistema de Alta Dirección Pública, ADP) to recruit high
and middle range state official by merit and educational credentials. This system operates to
recruit 928 highly range state official within practically all the state apparatus; and over 70% of
this total have been filled up to the end of 2009. In the near future the system should be
extended to other state institutions and towards local government. (El Mercurio, 13/1/2010).
33
Additionally, we also considered –when relevant- the case of the most important stock
exchange agency in the country (Bolsa de Comercio de Santiago) under private rule.
34
These characteristics, introduced in the first section, inspired by prior research within the field of
sociology of development and assembled by Portes are: Meritocratic (as opposed to clientelistic)
recruitment and promotion; Immunity to corruption and to capture by special interests; Presence of
internal ‘islands of power’ capable of subverting organizational ends to their own purposes;
Technological flexibility and openness to innovations; Proactivity or the capacity of an organization
to connect efficiently with its clients, users and other relevant actors in its environment; Proactivity
of external alliances, within state or society, so as to prevent capture by particularist interests
within the class structure. Pp. 9-11
42
35
Columna de opinión, Angel Curría, Secretario General OCDE. Publishing in El
Mercurio,10/01/2010.
36
In the case of the Chilean state administration, since 1989, a law imposed what is called
“inamovilidad funcionaria” what make very difficult to dismiss any civil servant who occupied a
position “de planta”.
37
Uruguay at percentile 69 and Costa Rica at percentile 66 were second and third respectively
within Latin America.
38
Kaufmann, Kraay and Mastruzzi (2008), p.7
39
The Steering Capability indicator is itself an average of three sub-indicators: Prioritization,
Implementation and Policy learning. The Resource Efficiency indicator is also composed of three
sub-indicators: Efficiency, Coordination and Anti-Corruption. For more details and full data
access see http://bti2006.bertelsmann-transformation-index.de/11.0.html?&L=1
40
The next Latin American countries in this ranking are Brazil (16), Costa Rica (17) and Uruguay
(22).
41
Wormald and Cardenas, p.20
42
Ibid, p.20
43
Ibid., p.14 The reduction in evasion rates is also due to new laws passed with that purpose.
44
Ibid, p.13
45
Thumala (2009). Accident rates were 0 per one million flights in 2008
(http://www.aeropuertosantiago.cl/noticias-y-novedades/chile-logra-mejor-tasa-de-seguridad
aerea-que-ee.uu.-europa-y-america-latina.html)
46
http://www.dgac.cl/portal/page?_pageid=314,149638&_dad=portal&_schema=PORTAL Italics
are our own.
47
48
Wormald y Cárdenas, p.15
Cereceda et al
49
World Development Report 1997, World Bank
50
Portes, pg.8