ECONOMY

This is How Unequal Chile Is

Many Chileans who don’t sympathize with the current protests and movement for more equality, feel confused and frustrated. They just want a return to normalcy. But what is normalcy in an unequal country like Chile and should it return?

Since the Santiago Metro price increase in mid-October, marches and related police intervention have become daily occurrences. As the protests continue, citizens debate how to resolve the conflict, but it has become clear that no one answer exists. The country remains divided on issues such as healthcare, pensions, education, and wealth distribution.

Still, most agree reform is necessary. To this end, many government representatives focus on inequality, which is rampant, even though many economists say Chile is one of the wealthiest and most stable countries in Latin America. 

Healthcare

Chile was one of the first countries to create public healthcare. The system was funded through a national health fund (FONASA), which still operates. Under the economic reforms the dictatorship implemented, those who could afford it, could leave the public system and choose a private insurance company. Such companies, organized as social security health institutions (ISAPRE), also still provide private care. 

But quality care is a big issue. Chile has no shortage of doctors, but most of them are drawn to more developed areas of the country, for example Santiago, where more private hospitals pay higher wages but also often refuse to attend FONASA patients. As a result, public health institutions are understaffed. For perspective, 80% of Chileans use FONASA, but not all of the remaining 20% are in the ISAPRE system, because a substantial chunk of the population also receives insurance under the armed forces scheme. So the ISAPRE system drains the public system of medical personnel.

Only few Chileans can afford high quality care. And those who can, are still subject to the profit motive, having to provide basics like aprons or gloves for personnel attending a relative in a private hospital. In the public system, long wait times, unavailability of beds, scarcity of doctors, and more, lead to many Chileans foregoing necessary care.  

More on health:

Mental health: a problem hidden behind the smile

Pensions

The current pension system, called AFP, is one of the biggest topics of the protests. This system was also implemented under the dictatorship. It was created by then-Finance Minister José Piñera, brother of the current president. 

It functions on contributions where Chileans pay 10% of their income into a fund. Pension managers then use these resources to buy stocks and invest locally or globally. The AFPs are immensely important to the economy. According to Reuters, they are filled with US$216 billion, equivalent to 80% of GDP.

However, many workers, especially single mothers and a rising number of freelancers, either cannot pay enough per month to see sufficient payouts in old age, or lose out due to bad AFP investment decisions over which they have practically no control. Workers who cannot contribute much or at all make up about 30% of the workforce. And even if an AFP could pay a decent pension, half of the population makes under CLP$440,000 (US$550) a month, which nips a decent payout in the bud.

Even higher contributions do not guarantee an adequate pension, as these investment funds include high risk. Pension researcher Kevin Skerret told news outlet Interferencia that the AFP system “only generates revenues for companies … and the loss of millions of dollars of workers’ savings is imminent.” In a study, the OECD found that in the best case contributing Chileans will only receive about 40% of their last salary as monthly pension.

That’s why so many senior citizens keep cleaning the streets or working at gas stations; they can’t afford to retire. And even citizens from the upper-middle class have to find other investments, for example real estate—which then pushes up housing prices—to supplement their retirement.

Education

Chile also has high education inequality. Poorer or lower-middle class students typically go to publicly funded schools, while parents with more money send their children to for-profit semi-private or private schools. In addition, students from richer neighborhoods score higher on average in university entrance exams and the final test every student has to take to graduate from school. 

In Chile, private schools are more prestigious for basic education but public universities provide better higher education than their private counterparts. Yet public universities also function like private institutions and have a rigorous selection process. Hence, exam scores have a direct impact on university acceptance rates. The higher the score, the higher the chance of getting into a prestigious public university and gaining a lucrative job. 

Lower income students can apply for scholarships but must reach a minimum score to do so. Of those who reach the score, only 50% receive scholarships from the state. Those scoring lower will also have to go to a smaller, often private, university. This means that these already struggling students are taking out loans, with interest rates that are quite high, to supplement their income and receive an education.

Lenders often place students in the publicly accessible DICOM debt database, especially if they miss a payment. DICOM impedes upward mobility because it insinuates individuals can’t pay up. Also, many landlords refuse to rent to those in DICOM, even if the debt was settled. And employers know that private universities accept more students, so they often have a bias against hiring such students, especially in an oversaturated graduate labor market. Bosses select professionals from institutions with higher reputation and tighter personal networks. 

Some of these processes also apply to technical degrees. Many technical professions have good salary projections. But holders of education or health degrees have relatively low monthly incomes, around CLP$520,000, just about CLP$200,000 over the current minimum wage. In addition, technical students still have to figure out financing.

According to a study, these students have mostly poorer socioeconomic backgrounds, and with lower income projections learning a profession makes less sense. In addition, the state provides even less support for these degrees, even though they take just as long to finish and sometimes cost as much as a university degree.

#MapadelaVulnerabilidad shows the staggering inequality in Chile

Wealth Distribution

While Chile is a leading economy in Latin America, the raw numbers don’t always show the whole picture.  According to the OECD, Chile has one of the worst wage inequalities in the world—65% higher than the average in OECD countries. 

Class prejudice is also rampant.  In a 2017 survey, the UN Development Program revealed that 43% of respondents believed they had suffered abuses related to their social class, 28% each due to place of residence and clothing, and 27% because of their occupation. Researchers also concluded that Chile provides scarce opportunity for upward mobility for lower-income families. 

One reason for such inequality is wage stagnation. While productivity grows, wages have largely stayed the same, except for a minority of workers, further widening the wage gap. This problem also makes it difficult for most Chileans to deal with inflation which is specifically affecting the cost of living. Recent research has shown that only 20% of Chileans earn enough to have anything left over at the end of the month after paying for necessities such as food, transportation, and housing.

This is because 50% of workers earn below a developed country’s average minimum salary while the highest incomes match those of high-income countries. As most Chileans cannot save money, job loss becomes  a devastating blow to a person’s ability to provide. The power relations that arise from that inequality then facilitate not only exploitation and abuse from employers but also public anger.

Describing the inequality situation in the country, the journalist Fernando Paulsen said, “Chile is being hijacked by 3,000 or 4,000 people.As protests continue, politicians are now forced to tackle a problem many, including socialists, previously refused to recognize. The Piñera administration has introduced some measures that point in the right direction, but whether these are enough remains uncertain.

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