This week, Project Syndicate catches up with Andrés Velasco, a former finance minister of Chile who is now Dean of the School of Public Policy at the London School of Economics and Political Science.
Project Syndicate: As Chile’s former finance minister, what do you think of the government’s economic-recovery strategy, which includes plans to issue up to $8.7 billion of bonds next year – $3.3 billion in foreign currencies – to fund higher government spending? Are there lessons that other emerging economies can learn from the fact that Chile is able to pursue such a strategy at a time of social upheaval?
Andrés Velasco: Since 2000, Chile has maintained rigorous fiscal discipline. By saving in good times, the government has made it possible to spend in times of crisis, such as after the 2008 global financial crisis and during today’s mass – often violent – protests. Indeed, with today’s social upheaval and political uncertainty undermining growth, providing some fiscal stimulus is the right thing to do.
But two caveats are in order. First, if consumption and investment – and, thus, economic growth – are to recover, violence and looting must end. Second, accumulated savings can be used only to cover temporary fiscal shortfalls. If the government is planning to increase fiscal outlays permanently (as I believe it should), it will have to raise taxes.
PS: In examining Chile’s upheaval, you highlighted the link between mass street protests and increased access to higher education following prolonged periods of peace and prosperity. “Education attunes you to injustice,” you wrote, “and prosperity means that protesting does not jeopardize your livelihood.” Education also raises people’s expectations, which, as Alexis de Tocqueville famously argued, is precisely when revolutions happen. How might developing economies manage education and expectations to avoid this outcome?
AV: There is no easy solution to this conundrum. Expanded access to higher education is a wonderful thing, for both students and society. But unless the economy and demand for higher-level skills are growing quickly, the relative wages of university graduates will decline, and the generation that experiences the transition will be left disappointed and angry.
We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Velasco's picks:
by Jonathan Haidt
by Francis Fukuyama
by Enrique Krauze
From the PS Archive
Velasco defends political centrism as a coherent philosophy emphasizing liberty, patriotism, and openness. Read the commentary.
Velasco calls for reforms that would permit developing countries to borrow from abroad without risking disaster. Read the commentary.
Around the web
In a 2019 interview, Velasco explores the state of democracy, immigration, trade wars, and the Indian economy. Read the discussion.
In a Spanish-language interview on CNN Chile, Velasco discusses populism in Chile and the world and affirms that the only group with the conceptual tools to defeat populism is the center. Watch the video.