The Chilean government this week enacted the law that increases the country’s minimum wage by 14.3%. Despite the fact that year-on-year inflation reached 10.5% in April, its Economy Minister, Nicolás Grau, defends it as “the greatest rise in real terms in the last 25 years.” But as important as the percentage are the details of a measure that, according to Grau, summarizes the spirit of the economic policy in the new Government of Gabriel Boric: SMEs that cannot face the increase will receive a state subsidy with the double objective of reducing inequality (with large companies) and increase productivity. From growing at annual rates of over 4% in the mid-1990s, productivity in Chile has stagnated in the last 15 years and in some cases has even regressed. Digitizing SMEs, improving their financial conditions and giving them priority in dealings with the Administration are other tools that Grau’s ministry plans to deploy.
But what is probably its star measure is the general reorientation of the economy towards “opportunities” of dynamism generated by the fight against climate change, as Grau himself told EL PAÍS during a videoconference interview last Tuesday. “Chile, like the rest of the world, has to make a significant effort to move towards a green economy, but we have particularities that allow us to address the climate crisis while advancing in a solution to our productivity problem,” he says. .
Some of these peculiarities are shared by other countries in the region, such as the abundance of wind and sun with a State that accompanies national suppliers to make them grow. But the truly specific condition of Chile is an economy whose main companies are already aligned with the ecological transition: the large mining companies obtain materials such as copper and lithium, essential in electrification and in the manufacture of batteries. As Grau says, Chile can be distinguished because “in other countries the main productions are incompatible with the objective of reaching neutrality in [emisiones] of carbon”.
The obvious question is how this reorientation is financed after a pandemic that raised the 2021 fiscal deficit to 7.6% of GDP and in a global inflationary context where capital flees towards a dollar that once again offers attractive rates. Part of the answer is the creation of a national development bank. Although it is not expected to start with many funds, Grau hopes that it will work as a signal for private investors to coordinate their efforts later. The problem is that the export of green hydrogen or improvements in productivity are not things that can be achieved in the short term and Boric was elected president after the social protests of 2019 and 2020, when Chileans took to the streets demanding better education, pensions and health, among other claims that are difficult to finance.
“Developing a modern industrial policy takes time, and that is what has to happen to reverse 15 years of stagnant productivity,” says Grau. “But we are also developing a set of policies for short-term problems, with the increase in the minimum wage as the clearest example, or the structural conditions that we are generating for smaller companies, such as favoring them in public purchases and forcing big companies to get paid on time.” Without a majority in any of the legislative chambers, the government managed to raise the minimum wage through a process that Grau describes as involving a lot of dialogue, in which the country’s main trade union center and the employers’ association of small and medium-sized companies also participated. According to him, consensus was achieved when they agreed to introduce subsidies for SMEs. “One of the main arguments for not raising it was that smaller companies were not going to be able to afford it,” he says.
The previous government, explains Grau, subsidized low-wage citizens by granting them a guaranteed minimum income. A measure that seems equivalent, but is not the same. Not only because it ends up becoming an indirect subsidy for larger companies, but because of “the dignity of work.” “The minimum wage is not only a matter of distributing resources, it also has to do with the value of work.”
He knows in depth all the sides of the coin.
It is possible that the approval of the tax reform that your Government intends to undertake will not be so easy to achieve. Among other measures, the plan contemplates a less regressive fiscal structure where a wealth tax is introduced (equivalent to the Spanish wealth tax), tax exemptions are eliminated and royalties are increased for large mining projects.
Grau does not see it as difficult. “There are broad sectors of the population, including people from the center-right world, who understand that Chile needs to expand social rights and that this expansion has to be financed in a sustainable way,” he says. “That requires growth and productivity, which is the part that touches us in the Economy, but it also requires a State that collects more.” The data confirms the low tax pressure of the Chilean State, with taxes that represent around 21% of GDP (compared to 27% in Argentina or 35% in Spain). Boric aspires to turn Chile into something more similar to Germany than Venezuela, according to the magazine The Economist in reference to the plans of the new Government to increase taxes, develop industry and favor green investments. “It is doubtful that something like this can happen quickly in Chile,” the British weekly responded to itself.
“European welfare states were formed after World War II, when their GDP per capita it was lower than that of Chile,” he says. “We believe that productivity must be increased at the same time that more is collected to finance these social rights. Also, these things feed off each other. For an economy, it is not irrelevant that the population has a good health and education system, or that there is a good care system that allows both women and men to work formally”, she concludes.
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