Friday, September 24, 2004

Euroschlerosis: Coming To An America Near You,

Here is something interesting from Daniel Gross (Slate)- how 'free market' ideology is turning America into a euroschelrotic country.

In the roaring 1920s, when other highly profitable companies began to emulate Ford, welfare capitalism began in earnest. Companies built cafeterias and health clinics, sponsored baseball and bowling leagues, and granted days off for the opening of deer season. Corning Glass Works began providing health insurance in 1923. The same year, U.S. Steel slashed its workday from 12 hours to eight. In 1927, International Harvester began offering two-week paid vacations. All this was all done without government mandates and largely without the influence of unions.

Welfare capitalism proved a phenomenal success—socially, economically, and politically. America's industrial complex was ultimately unionized, but with relatively little upheaval. Even with the rise of the welfare state in the '30s, corporations continued to assume responsibility for the well-being of their employees. It was part of a grand bargain between labor, capital, and government that allowed for remarkable growth, innovation, and rising standards of living for decades. It also served as a bulwark against socialism. By endowing labor with dignity, welfare capitalists made industrial work a ticket to the middle class.

But just as the New Deal Coalition started to fray in the 1960s, so too did welfare capitalism. American businesses—and workers—increasingly began to face competition from all over. They began to have difficulty competing with companies from countries where more robust welfare states bore the burden of providing pensions and health insurance (like Germany and Japan). They began to have difficulty competing with low-wage competitors in countries where welfare capitalism had yet to take hold, like Mexico, China, and India. And they began to face competition from newer domestic companies that never bought into the ideas of welfare capitalism.

In the 1920s, competitive pressures led companies to become more paternalistic to unskilled workers. But now, the pressure is all in the other direction. With each passing year, more and more retailers have to compete with Wal-Mart, and more and more manufacturers have to compete with China. Even enlightened employers like Starbucks can't ever hope to offer the sort of programs that International Harvester and Ford did back in the 1920s. And so welfare capitalism is slipping away. Health care insurance has increasingly become decoupled from work. According to this Kaiser Family Foundation study, 61 percent of workers are covered by employers' health insurance, down from 65 percent in 2001. And pension plans, which guaranteed a retirement income to employees, are being replaced by 401(Ks), which offer no such certainties.

Most free marketeers would argue that this is simply the price of progress. Now that we're competing in global markets, welfare capitalism as practiced in the mid-20th century is simply untenable. And companies that aren't burdened with expensive benefit programs can be more agile and thus more profitable. But it isn't just the workers of Lucent and US Airways who are going to pay for the long goodbye of welfare capitalism. We all will.

When companies decide they no longer want to—or can't—meet the promises they made to employees, they push them wherever possible onto the federal government. The Pension Benefit Guaranty Corp. has been remarkably busy taking over the pensions of bankrupt textile, steel, and other manufacturers. The PBGC closed last year in its worst shape ever, with an $11.2 billion deficit, and will doubtless require a large taxpayer bailout. The establishment of the new drug program entitlement for Medicare will similarly relieve many older companies of meeting the obligations they made—and impose massive costs on the rest of us. And as companies providing health care become the minority, the Fords and General Motors of the world may increasingly agitate for a larger federal role in health insurance.

The more welfare capitalism declines, the more the federal government will have to fill the gap, and the more America will look like Europe.[emphasis added]

This is one of the reasons why I oppose the current Administration. Free markets will bring us nationalized and socialized corporations - and who the heck wants socialism?

Note: As one final note, I would like to clarify something - from some reader's responses it seems that there is some sort of confusion about what I wrote. First I would like to note that in 2000, many Republicans were helping out Nader and working behind the scenes in Florida. That you should meet someone who was involved in some way with those operations, and should feel some personal responsibility for helping Bush come to power shouldn't be a surprise to you.

Second of all, it is not hard to build up influence. I call it the "free sample" theory. The first step is to build up a network of contacts. If you want to influence somebody important, you find a contact who knows them but is not important themselves. You then develop timely, accurate, precise, and highly valuable information sources and analysis. This is something I more or less do by being awake.

You then provide this information, sporadically, gratis to the people who you have cultivated. This information, because it is valuable, percolates. Lather, rinse, repeat. After you've built up a reputation as a valuable source, you then begin feeding information - never disinformation - but timely, unexpected, and important information to your consumers that they were not aware of but at crucial points will tip their judgement one way or another.

Furthermore you trade in information, and you begin fixing for people. You offer, spontaneously, to fix a problem they complain about. You offer to hook them up with someone who can fix it for them. You become known as a "go to" kind of person. You become known as someone who is in the know, and who will reward information.

Once you've established yourself as that kind of person, and it can be done through second hand informal social networks you then begin extending your scale and type of operations. There are two basic rules: "There is no limit to what a person can accomplish as long as they let the credit go to someone else." and "Money is always the last thing people ask for."

Information, access, and influence can be had - if you are simply willing to help other people discover the truth and help them out with their problems. It's probably stunning to consider this as a possibility, but as a matter of fact simply by being informative and friendly I've developed networks that stretch throughout the world. Call it a six-degrees of freedom kind of thing, but it works.

People are trained in this culture to be consumers and employees. This is a very limiting perceptual set. What I have outlined from above is within the grasp of every person reading this blog, if they are willing to step outside the paradigm that getting money is the important thing and that interacting with people through business-market consumerism is the way to reach and influence them. I have had people agree to do incredible things for me, out of simple "backscratching" or service barter. What's better is that it can operate completely under the radar of people who think Bank accounts and credit transfers are how people convince other people to do things.

Is money important to me? Sure. But I am constantly amazed at how individual people limit their potential influence by constraining themselves to a consumerized and employee mentality. Each person here has potentially valuable information or services that they could barter for access or influence or return services, but you simply don't fully capitalize upon your intrinsic assets.

Sales fundamentally are about relationships. Learn to relate to people, and then learn how to deliver for them, and you will be amazed at what doors and opportunities open up for you.


At September 24, 2004 at 5:24 PM, Blogger paperwight said...

Oddly enough, this is a pretty good description of the way that the entire Silicon Valley startup economy works.

At September 24, 2004 at 6:33 PM, Anonymous Anonymous said...

"Most free marketeers would argue that this is simply the price of progress. Now that we're competing in global markets, welfare capitalism as practiced in the mid-20th century is simply untenable."

So, why compete in global markets? The US is cruising for protectionism with this stupidity.

That aside: the later advice is some of the smartest advice I've ever read and has put a sour smile on my face.


At September 24, 2004 at 8:45 PM, Anonymous Anonymous said...

I don't think the Euro problem is that they let the government handle more of the welfare state; it's that, given that choice, they still protect existing jobs. Logically, the United States should be more protectionist of jobs than Europe because the consequences of unemployment are more grave, but this is not the case. So I could see a transition from corporate to government welfare in America as a good thing, except I think it won't happen much, at least under Repugs and maybe under Dems. The money will be hard to acquire, and Americans are easy to distract with side issues and malarky.

The personal networking advice is very true.

- Martin Bento

At September 24, 2004 at 9:00 PM, Anonymous Anonymous said...

Oldman, have you seen this?

Inflection point in the reporting bubble?



At September 24, 2004 at 10:37 PM, Anonymous Anonymous said...

Tarkin, who do you think wrote that article eight months ago? Since you consider it as such an anomaly, I'm curious how you piece together its origins. Hint: PIMCO

At September 25, 2004 at 1:23 AM, Anonymous Anonymous said...

Oldman this is one of the best reads I've seen on networking and getting ahead. I wish I knew this stuff a decade ago.

As for the prediction that our country will go the way of Old Europe, I don't think so. The New Deal is dead and its carcass is rapidly being carved up the Neocon/Neoliberal GOP. The Democrats don't dare save it since the bulk of populace is so radicalized. All they can is slow down the destruction.

IMO what may occur is Argentinization of the U.S. where the middle-class almost goes extinct and we're left in a two class society - the rich and the poor. Because this is what the rich and powerful are trying to do. They want to regress back pre-FDR days where everything was permissible for business.

They'll get it too. Of course I'd hate to see it happen since our nation will become a dangerous wasteland with a handful guarded enclaves where the super rich live.


At September 25, 2004 at 7:24 PM, Anonymous Anonymous said...

Good article and thank you for pointing it out. America already lost a lot of ground on social issues. Hence the current (read: decade long) emphasis on "work/life balance". People know that something is wrong, but they are powerless to fight it.

I read your outline on gaining influence, and thus power, with great interest. Quite Machiavelian. Very good.


At September 26, 2004 at 6:35 AM, Anonymous Anonymous said...

The 20's was full of new technology manufacturing, You would have to compare that to the high tech era beginning in the what? late 70's early 80's???

In the last 30 years, many 3rd world countries became 2nd world countries. These countries are now compeating with America in larger numbers and with more capital than in the past.

Between 1921 and 1929 the import tariffs into America went from 29% in 1921 to 40% in 1929. In 1932 they hit 58%. Around 1949 they droped down to 12%. From 1966 till now they droped to about 5%.

These three factors are not mentioned in the article. But they sure had a tremendus effect on what happened in the past and in the pressent. I am not yet sure if the answer lies in high tariffs but we deffinetly need to consider what part they played in the past.

My data came from The Myth of Free Trade By Ravi Batra.

Jim Coomes

At September 26, 2004 at 6:52 AM, Anonymous Anonymous said...

Oldman, I don't think it is right that I post this whole article on the comment sheet, but I do think that this is a good place to bring the subject up in maybe a "click on".

My point is, that there are answers. Many of these answers I have figured out for myself, then found that they are being implimented in other countries and places. The more people that see these answers inplimented then the more open it will be for discussion and eventualy implimentation.

Jim Coomes

Sender: Activists Mailing List ACTIV-L@MIZZOU1.MISSOURI.EDU
Subject: NACLA: Chile's Free-Market Social Reforms
/** 264.0 **/
** Topic: Chile's Free-Market Social Reforms by Pilar Vergara: May/June **
** Written 12:17 PM Jun 19, 1996 by nacla in **
Reprinted from the May/June 1996 issue of NACLA Report on the Americas.
For subscription information, E-Mail to


In Pursuit of "Growth with Equity": The Limits of Chile's Free-Market Social Reforms
By Pilar Vergara, NACLA Report on the Americas,
May/June, 1996
Pilar Vergara is senior researcher at the Latin American Faculty of Social Sciences (FLACSO) in Santiago, Chile.

The 1990 inauguration of President Patricio Aylwin, head of the Concertacion of Parties for Democracy, a coalition of center and left-wing political parties, marked the end of 17 years of harsh military rule and the beginning of Chile's transition to democracy. The principal motto of the Aylwin administration was "growth with equity"--a notable counterpoint to the neoliberal model implemented by the previous military regime, which maintained that income redistribution could only come from economic growth. While the dictatorship had succeeded in achieving high economic- growth rates--8% annually by the end of the 1980s--income inequalities actually worsened. The number of poor Chileans doubled during the Pinochet regime, and by 1990, 44% of Chileans lived in poverty. The Aylwin government argued that economic growth was a necessary--but not sufficient-- condition for achieving greater equality in Chile. This emphasis on equity was not based only on an ethical concern for social justice, however. The Aylwin administration also sensed that the equity issue was key to the consolidation of Chile's newborn democracy.

The government did not propose either a return to the populist practices of the past--a strategy that other Latin American governments presiding over new democratic regimes had tried, with disastrous results--or a continuation of the dominant neoliberal ideology of the military government. Its proposal was based on the premise that policies promoting economic growth and stability must continue, but that they should be complemented with social policies designed to promote greater equality. The Aylwin administration's approach to equity diverged from the neoliberal model in its emphasis on promoting greater equality among Chileans through social and labor policies directed at the poorest sectors of Chilean society. Nevertheless, it remained firmly within the framework of the free-market model inherited from the military. President Eduardo Frei, also from the Concertacion, was elected to office in 1993. His administration continued the previous government's efforts to make economic growth compatible with achieving greater equity.

Over the past decade, the social reforms carried out by the Chilean military regime have been celebrated as a model for other Latin American countries anxious to overcome the endemic crises of their social-security systems. The policies introduced by the Aylwin and Frei governments to reduce poverty levels within the free-market system, and the initial success of those efforts, reinforced the belief that Chile was a viable model for other countries engaging in social reform. Little attention has been paid, however, to the way the Concertacion governments' redistributive efforts have been hampered by the new social institutions established byJthe Pinochet regime. An examination of the successes and limitations of Chile's social policy reveals how neoliberal social reforms have fundamentally restricted the scope and impact of the Concertacion's attempts to achieve "growth with equity."

Social inequalities had reached unprecedented heights during the 17 years of military rule. The deterioration of basic public services due to constant cuts in social spending under Pinochet affected not only the poorest sectors of society, but also large segments of the middle class. Pent-up social problems had given rise to great expectations of reforms under a democratic government, raising the specter of an explosion of demands that could destabilize Chile's new democracy.

The Aylwin government's capacity to implement redistributive policies, however, was seriously limited by other legacies of authoritarian rule. The military's neoliberal economic policies--including the steady lowering of tax rates and hence government revenue since 1984, the public debt contracted to rescue the financial system after the 1982-1983 crisis, and the end of revenue from the privatization of public enterprises, which were all sold off by 1989--imposed serious budget constraints on the new democratic regime. This impeded the Aylwin administration's capacity to increase social spending without creating fiscal problems.

Within this context of sharp social tensions and budgetary constraints, the government devised an overarching plan, which consisted of three basic elements, to carry out its redistributive tasks. First, the government implemented a tax reform to generate more funds to underwrite the state's social-policy programs. Together with international grants and loans, this tax reform permitted the government in its first year to increase social spending by 17% without provoking macroeconomic imbalances. Resources devoted to social spending increased from year to year. By 1993, social spending had returned to its historic level of 15% of the gross domestic product (GDP), although it remained below 1970 values in per capita terms.

The second element of the Aylwin government's program was the targeting of social spending on the poorest sectors of the population. The government believed that this strategy would help avoid the market distortions that other redistributive mechanisms, such as price controls, caused. New and innovative social programs were designed that focused on social groups such as female heads of household, youth, and indigenous communities. The government increased subsidies to low-income groups, and raised the minimum wage. Primary health care was expanded, and the government invested in new hospital equipment. A program was launched to improve the quality of basic education and to expand the school nutrition program. These programs were implemented in a decentralized manner, and emphasized the participation of the beneficiaries and the promotion of local self-help efforts. Overall, the government gave priority to social programs that represented an investment in human capital, which would promote long-term growth, as opposed to aid programs.

As part of this effort, the government established the Solidarity and Social Investment Fund (FOSIS), whose principal objective is to finance projects that promote productive employment for the poorest sectors. FOSIS does not directly implement projects. Rather, it finances projects designed and administered directly by the social organizations of the poorest communities within each region, often in coordination with non-governmental organizations (NGOs) and other decentralized agencies. The FOSIS has funded 52,000 projects in its four years of operation. These projects, which tend to be small and short-term, are focused on unemployed youth, campesinos, small-enterprise workers, and capacity-building in poor communities. FOSIS initially promised to work closely with existing government ministries, but in practice it often operated independently from them. While this permitted the FOSIS greater flexibility and helped avoid bureaucratic tangles, it also undermined the continuity of the projects.

Finally, the government proposed a labor-reform law, which, after some modification, was accepted by labor, business and the opposition parties, and approved by parliament in 1990. The new law reestablished a series of rights and guarantees that had been denied to workers under the military regime-- including the rights to strike, to form a union, to collective bargaining within productive sectors, and to protection against arbitrary firings or lay-offs. Workers were thereby given the chance to negotiate how the benefits of growth are distributed. Chilean businesses are still allowed to adjust salaries in times of economic loss or macroeconomic changes in order to protect their ability to remain competitive with foreign companies.

This new set of policies registered quick and positive results in the context of strong economic growth. In the three years of Aylwin's administration, the minimum wage increased 24% in real terms, the purchasing power of Chilean families increased 70%, and average incomes grew almost 18%. These upward trends, coupled with the hundreds of new jobs created, led to a significant increase in the portion that household income represented within the GDP. Since 1993, these indicators have continued to improve, though at a slower rate. The crowning achievement of the Aylwin administration's new social policy was the reduction of extreme poverty: the percentage of Chileans living in extreme poverty declined from 44.6% in 1989 to 33% in 1992, and 23% in 1994.

Not all of the Aylwin government's redistributive efforts, however, enjoyed the same levels of success. The limitations of these efforts became increasingly evident during the Frei administration. While the huge inequalities of income distribution that congealed under the military regime had been reduced (though only slightly) during Aylwin's administration, by 1995 they appeared to be increasing again. For example, while the average Chilean family augmented its per capita income by 5% between 1994 and 1995, the poorest 10% saw their income fall by 4.3%. The same concentration of wealth can be seen from a different angle. For the first time since the return to democracy, the annual growth of real incomes fell from 5% in 1994 to 4% in 1995, dropping below the increase of average economic productivity (7.1%). As a result, the income share of GDP fell (34.8% to 33.4%), while the share of capital profit increased (from 38% to 44%).

While Frei has a more openly pro-business bent than his predecessor, he has also encountered a less auspicious environment for his redistributive policies. For example, the government's attempt to extend the 1990 tax reform, which was initially approved for a period of only four years, ran up against the implacable resistance of the business owners' association as well as right-wing opposition parties. Consequently, the Frei administration was stripped of an essential tool to reduce social inequalities. The government's attempt to expand the labor reforms to include non-unionized workers, who represent nearly three-quarters of the labor force, has also run up against a brick wall. After nearly two years, the government has still not obtained parliament's approval for these modifications.

The inability of the government's social policy to go beyond Aylwin's initial achievements and to reverse the widening income gap is also rooted in the way it is currently structured. State social spending has historically been the principal mechanism in Chile through which social inequalities were reduced and channels of social mobility opened. Despite the best intentions of the Aylwin and Frei administrations to overcome fiscal constraints on social spending, however, insufficient resources have been directed to social programs over the past few years, given the magnitude of the accumulated social needs. In 1990, for example, the government-mandated increase of family allowances and workers' minimum pension payments alone ate up half the total funds generated by the new tax reform.

An analysis of the overall impact on living standards of the government's economic and social policies highlights how ineffectual social policy has become as an instrument of redistribution. The reduction of poverty in the first years of the Aylwin administration can be largely attributed to economic growth, rather than the new social policy. It's important to consider that the expansion of employment, which began after 1989, took place as Chile was recovering from a severe economic recession. Growth in real wages during this period was facilitated by the 1990 labor reforms and government-mandated increases in the minimum wage. Furthermore, the drop in inflation improved the overall purchasing power of the population. Once growth rates begin to stabilize and are sustained by increases in productivity rather than the use of idle labor capacity, the benefits for the poor will start to taper off.

Important social groups have been systematically marginalized from the benefits of economic growth, at least in part because they lack the skills and training to join the workforce. This "hard core of poverty"--subsistence farmers, rural migrants to the cities, the elderly, and women and youth who lack vocational training--will only be reduced with the help of specific social policies and programs. While the government has developed social programs directed at the poorest sectors, the amount of resources directed to this sector remains meager. The FOSIS, for example, represented less than 1% of the government's social budget--far too small to have any enduring impact.

An important segment of Chile's middle class, which fell into poverty during the military regime, has also not benefited from economic growth or the government's new social policy. The impoverished middle class lacks the personal resources to pay for private services, but it has also remained largely outside the network of state benefits. The hopes that this group in particular placed in Chile's new democratic governments have been dashed, giving rise to social protests, especially among teachers and health-care professionals who work in the increasingly beleaguered public sector.

A more fundamental problem with Chile's social policy has its roots in the model of social welfare inherited from the dictatorship. Under the military, the state reduced social spending and retreated from the social sector by privatizing social services and creating new institutions guided by the laws of the market. A broad program of reforms, referred to as social "modernizations," transferred to the market and the private sector the task of providing goods and social services previously offered by the state. As a result, the state's capacity to influence the living conditions of the population through traditional social-policy measures was significantly reduced.

A brief look at the reforms of the social-security system and the health sector reveals the underlying principles that guided social-sector reform under the military regime. The privatization of these social sectors gave rise to new institutions that have fundamentally reshaped the provision of social welfare in Chile. The old public social-security system in Chile was based on combined contributions from workers, their employers and the state that were distributed by the government once the worker retired. Reforms initiated in 1981 replaced the old system with a new one based solely on workers' individual contributions, which are administered by private, profit-making entities known as the Administrators of Pension Funds (AFPs). Workers who chose the new system were given "bonds of recognition," which permitted them to transfer their contributions to the old system into the AFPs. While the traditional social-security system continued to be administered and guaranteed by the state, strong incentives--including a reduction of the payment rates from 23% to 13.5%--convinced most workers to switch to the new system. The state had to pay out the accumulated contributions of all those workers who switched to the new AFPs, resulting in the systematic transfer of state resources to the private sector. Every year, a quarter of the state's social budget goes toward these pay-outs. The impact on the old social-security system was devastating: this crucial loss of resources generated a deficit of nearly 5% of GDP within the traditional social-security system, which will last at least until the end of the decade.

Private medicine was also given a boost when the government authorized the establishment of Institutions of Provisional Health (ISAPRES). These profit-making enterprises, which resemble Health Maintenance Organizations (HMOs) in the United States, offer medical services in exchange for an obligatory contribution of 7% of affiliated workers' salaries. While the state still provides health care to the poorest, privatization has ravaged the public health sector. Huge resources that once sustained the state-run clinics and hospitals were transferred to the ISAPRES, resulting in a serious deterioration of the public health system and, consequently, of the health of the poorest who depend on that system. By the end of the 1980s, the ISAPRES were receiving about half of the health contributions of workers, as well as nearly 30% of state expenditures for the health sector, even though they provided health-care services to only 12% of the population.

The way the ISAPRES operate has also contributed to the deterioration of the public health system. Because they are profit-making enterprises, the ISAPRES have excluded elderly people, the chronically infirm, those who suffer from preexisting maladies, and individuals with large families. These groups have been pushed into a public health sector that is increasingly underfinanced, understaffed and underequipped. The majority of the ISAPRES affiliates cannot afford plans that include coverage for costly diseases or health problems. As a result, people suffering from illnesses that demand expensive treatments have little alternative but to turn to the public health system--even though many of them have paid into the ISAPRES system. The already insufficient public health budget is thus further overloaded. In addition, the ISAPRES do not engage in educational activities to promote preventive health care, nor do they cover maternity care or workers' compensation.

This type of social-sector reform has had important implications for the process of capital accumulation. Privatizing social services--coupled with neoliberal economic reforms, including the privatization of public enterprises, tax reductions, and lower overall state spending--has resulted in a transferal of most of the country's internal savings to the private sector. The AFPs alone have accumulated funds totaling nearly 25% of the GDP. By the end of the 1980s, they had become one of the principal investment institutions in the country.

Privatizing the social sector has been good for business, but it has seriously undermined the efficacy and scope of state social policy as a redistributive tool. In effect, the privatization of the social sector created a dual welfare system, in which a private system with high-quality services for high-income groups coexists with an increasingly underfinanced state system that provides services for those who cannot afford private services.

In the end, social spending has actually benefited the poorest the least: in 1993, for example, the wealthiest fifth of the population received nearly double the amount of social spending that the poorest fifth of the population received. This distribution of resources is due less to the inefficiencies of targeting strategies than to the high percentage of the government's social budget that is transferred directly or indirectly to the privatized social- service sector.

Inefficiencies rooted in the persistence of centralization, bureaucratic inertia, and institutional fragmentation within state institutions present further barriers to an effective social policy. In fact, despite all the neoliberal hype, the archaic and inefficient state structures of the past have survived both the anti-statist revolution of the military government and the modernizing efforts of the post- dictatorship governments.

Decentralization, which was initiated during the authoritarian regime and pushed vigorously by the Concertacion governments, has moved forward, as reflected in the new targeted social programs. In practice, however, social policy continues to be designed at the level of the central government. Moreover, the heavy centralist legacy seems to reproduce itself at the local level. The absence of well-trained functionaries in local communities has conspired against effective decentralization, and has reduced the efficacy of local initiatives. The task of restructuring the state social apparatus is admittedly formidable, given its complexity as well as the existence of entrenched interests that will resist change.

Despite these fiscal and institutional constraints, the state does retain some leverage. Pinochet's social reforms reduced the state's role in social policy, but they did not wipe it out completely. While the private sector is now largely responsible for financing and directly administering social programs, the state is still responsible for regulating private-sector activities and setting standards. The state also retains the capacity to determine which elements of social policy should remain part of the public sphere and which should operate in coordination with the market.

Yet, the Concertacion governments have made little use of these powers. If the government had established stronger regulations governing private social-service enterprises, many of their most egregious discriminatory and abusive practices might have been eliminated. For example, the high operating costs of the AFPs, which cuts into the benefits paid to affiliates, could have been reduced by effective regulation. The state could have also imposed rules prohibiting the ISAPRES from refusing to treat high-risk patients and costly illnesses. Stricter controls over the transferal of state resources to social-service enterprises in the private sector would have mitigated the imbalance that Chile now has between a well-funded private social-service sector and a seriously deteriorated public one. Rules governing mergers and takeovers might have thwarted the concentration of social-service enterprises into virtual oligopolies. These harmful practices are extremely difficult to modify now that they have become entrenched--and more importantly, legally sanctioned.

The critical defect of the Concertacion governments' social policy has been their reluctance to revamp the social-sector reforms implemented under Pinochet. Neither the Aylwin nor the Frei administrations proposed modifications in the newly privatized system of social services and the dualism that underlies it. This partly reflects the widespread belief that the privatizations helped resolve the crisis that had characterized the state social-welfare system for decades. At the same time, the Concertacion governments feared that given the social cost of these reforms, Chilean society would have bristled at the prospects of undergoing new structural changes.

This continuity with the social-reform model inherited from the military regime undercuts the viability of obtaining real social equality. By subordinating social programs to the logic of the marketplace, the Concertacion governments-- despite their best intentions--are incapable countering the widening chasm between rich and poor that the neoliberal economic model itself generates. In this model, the state assumes responsibility for ensuring the subsistence of the poorest by providing them with direct subsidies, but it renounces one of the principal social functions it once fulfilled--promoting a genuine redistribution of income

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