Chile is falling behind in each of the factors that determine productivity.

Chile is falling behind in each of the factors that determine productivity.

In the O’Higgins region’s business meeting (ENEO 2024) held this week, Rodrigo Krell, Executive Secretary of the National Commission for Evaluation and Productivity (CNEP), presented the entity’s analysis of the decline in the factors determining productivity in Chile and underscored the critical areas that demand attention.

Friday, June 14, 2024. At the ENEO 2024 business meeting in the O’Higgins region, which brought together hundreds of participants, Rodrigo Krell, Executive Secretary of the National Commission for Evaluation and Productivity (CNEP), began by explaining that Chile’s prosperity hinges on its ability to achieve substantial improvements in critical factors influencing productivity: human capital, technology and innovation, infrastructure, institutional quality, and economic environment.

He emphasized that this effort should be seen as a long-term goal and that public policies must be formulated with this perspective in mind.

Krell contextualized that while productivity at a general level refers to the ability to enhance outcomes from resources, at a personal level, it could mean the number of tasks completed daily; at a corporate level, it varies by sector; and at a national level, it is gauged by GDP growth and is not explained solely by labor and capital utilization.

To address ways of improvement, he elaborated that “while there’s no singular solution, hundreds of well-calibrated small reforms can lead to a significant productivity leap.”

Illustrating this, he focused on critical metrics showing distinct phases. “Looking at our GDP per capita since 1960 compared to the US, three phases are evident: Until 1985, we faced volatility amid a trend of lagging growth compared to the US; from 1986 to 2013, a clear convergence occurred, with our per capita income rising from one eighth to nearly one quarter that of the US. However, since 2014, this trend has reversed, and we have regressed in this metric,” he explained.

“Why is this happening?”

To answer, he stressed how Chile is falling behind in each factor crucial to productivity.

Regarding human capital development, he noted that while expanding school education was significant, the increase in coverage did not translate into improved quality. “Human capital remains a significant bottleneck for our productivity,” he emphasized.

Internationally, assessments like the 2015 PISA test reveal that 49% of high school students fail to meet minimum math competencies, and 35% similarly lack proficiency in science. Furthermore, about 60% of adults struggle with basic tasks such as arithmetic and interpreting graphical data.

Turning to innovation, he highlighted Chile’s inadequate position in measuring a nation’s commitment to innovation. “Our expenditure on research and development amounts to only 0.36% of GDP, which includes state spending—a critical shortfall,” he pointed out.

In terms of constructing quality infrastructure, he specified that investment stagnated after 2012, citing growing regulatory complexity as a hurdle in obtaining environmental and sectoral permits necessary for projects.

Discussing institutional quality, he detailed how Chile shows a declining trend in global governance indicators from the World Bank, encompassing areas like corruption control, stability, accountability, government effectiveness, rule of law, and regulatory quality. “This deterioration in political institutions has complicated the formulation of effective public policies, particularly in addressing challenges more complex than those of 30 years ago,” he highlighted.

“What should be done?”

“There’s no ‘magic recipe’ to reverse these trends. We’re at a stage where countless well-targeted reforms, though individually incremental, collectively have the potential to boost productivity significantly,” he cautioned.

“While CNEP has proposed over 500 policy recommendations—many still pending—it’s unsurprising in a context where political hindrances obstruct many reforms. Nevertheless, our proposals have demonstrated impact. For instance, substantial legislative consensus has been achieved that is aligned with our recommendations on investment permits. Additionally, following our advice, the Ministry of Health piloted a plan resulting in a 58% increase in daily surgical procedures, now expanding across Chile’s entire hospital network,” he emphasized.

“Implementing these ‘microeconomic’ measures nationwide and across sectors makes a tangible difference in people’s quality of life. Ultimately, that’s the promise of enhanced productivity: an improved quality of life,” he concluded.