The State and the System of Government

Patricio Aylwin Azócar, president 1990-94
Courtesy Presidency of the Republic, Department of Photography

Even prior to the 1970 election of Salvador Allende, the Chilean state was one of the most extensively structured in Latin America. By the end of the 1960s, direct public investment constituted over 50 percent of all gross investment. Government expenditures accounted for 14 percent of the gross national product ( GNP--see Glossary), and 13 percent of the economically active population worked in the public sector. From 1940 until 1952, the budget deficit of the government averaged 0.5 percent of the gross domestic product ( GDP--see Glossary). It grew to 2.4 percent between 1940 and 1952 and 4.3 percent between 1959 and 1964, a period largely conconcurrent with the administration of the conservative Jorge Alessandri.

With the growth of the state went the growth of a far-flung bureaucracy with its own dynamic and considerable independence from executive power. State expansion involved the creation of an ever larger and more bewildering array of decentralized and semiautonomous agencies, which depended only nominally on particular ministries for control. By the mid-1960s, 40 percent of all public employees in Chile worked for more than fifty such agencies, charged with implementing most of the economic and social service responsibilities of the state.

Particularly important was the Production Development Corporation (Corporación de Fomento de la Producción--Corfo), created in 1939 to develop Chilean industry in accord with an import-substitution industrialization policy. By mid-century Corfo owned shares in eighty of the country's most important enterprises and held majority shares in thirty-nine of them. Utilities, ports, steel production, and other enterprises were developed by an array of state agencies. Although public ventures, these enterprises were governed by their own boards and enjoyed substantial autonomy from ministerial and executive control. Some permitted direct representation of interest groups in a quasi-corporatist scheme. Such representation was most commonly enjoyed by business organizations, which had voting rights in agencies such as the Central Bank of Chile (Banco Central de Chile hereafter, Central Bank--see Glossary), the State Bank of Chile (Banco del Estado de Chile hereafter, State Bank), and Corfo. During the Allende years, a policy of nationalization of private industry brought close to 500 firms into state hands, including the country's giant copper companies, which had been owned by United States interests.

The expansion of the state sector was in response to a development strategy that entrusted economic growth to publicsector initiative and regulation. State expansion was also fueled by a presidential form of government that 16a7 encouraged chief executives to establish new programs as their historical legacy. Civil service laws made it difficult for incoming presidents to dismiss employees, a situation that led to the creation of new agencies to undertake new programs without dismantling old ones. In a sluggish economy, the state sector was also an important source of patronage. Political parties, particularly those that were part of the incumbent presidential coalition, became important employment centers for government agencies.

The Chilean state, however, was also notable for its general lack of corruption and its fairly efficient operation. Public employees were keenly aware that their careers could be ruined if the powerful Office of the Comptroller General caught them using funds improperly. Although tax revenues often lagged, Chile enforced tax laws with greater success than many of its neighbors. A career in public service was valued, and the Chilean state counted on many dedicated and fairly well-educated officers from Chile's middle classes. The relative efficiency and probity of the Chilean state was the result of a long history of competitive party politics, in which opposition parties and Congress kept a close watch on the conduct of public affairs.

By the 1960s, Chile's strategy of import-substitution industrialization had run its course. The country was plagued by chronic inflation as contending groups sought government subsidies or wage readjustments that would keep them ahead of their competition. The scramble for favorable state action on behalf of sectoral interests was intensified by growing polarization and confrontation in the political sphere, as increasingly mobilized social groups sought larger shares of Chile's finite resources. The system came to a breaking point during the Popular Unity government, when the authorities unabashedly used state agencies as a means of expanding political support. The Allende government swelled the rolls of government offices with regime partisans and made ample use of regulatory powers to freeze prices and increase wages, while printing unbacked money to cover an expanding government deficit. State agencies became veritable fiefdoms for the different parties, each trying to pursue its own agenda with little regard for a coordinated national policy.

Within days of toppling the Allende government, the military regime began a dramatic reduction in the size of Chile's public sector. Between 1973 and 1980, public-sector employment was reduced 20 percent, and by the latter year only forty-three firms remained in state hands. In the late 1980s, another round of privatization further reduced state control of productive enterprises. Cutbacks in state expenditures in other fields, including medical care and education, reduced deficits to the point that by the mid-1980s the state budget was in the black. Government surpluses reached 3 percent of GNP by the end of the military regime.

The civilian government of Patricio Aylwin took great pains to retain a smaller but more efficient state. By 1992 government surpluses had reached 5 percent of GNP expansions in state expenditures for social services were financed by increased revenues generated by tax reform, rather than by deficit spending. By comparison with many developed countries, Chile still retained a powerful state sector, with utilities, railroads, and the giant copper mines that produced a significant percentage of government revenues remaining under government control. At the same time, the process of state decentralization begun by the military government continued, albeit under the aegis of democracy rather than dictatorship.

Chile's system of government was patterned after that of the United States, as were those of all of the Latin American countries. The failure of the French Revolution to produce an enduring republican model left the representative model of Philadelphia as the only viable republican system of government in the early nineteenth century. Chile thus incorporated the principle of the separation of powers into its constitutional framework, even though the country rejected in its constitution of 1833 the federal system pioneered by the United States.

Much of Chile's political history can be described as an ongoing, occasionally violent struggle for advantage among the executive and legislative branches of government. In the 1920s, the Office of the Comptroller General became a virtually coequal branch of government with the others because of its great oversight powers and its virtual autonomy. With the approval of constitutional amendments in 1970 and the adoption of the 1980 constitution, the Constitutional Tribunal, Cosena, and the Central Bank became important government organs in their own right (see The Autonomous Powers , this ch.).

Data as of March 1994