Executive summary

Executive Summary 95 Propuestas para un Chile mejor www.95Propuestas.cl

Our country has come a long way in the past few decades. These advances offer lessons and are, in many aspects, a justified cause for national pride.

But none of that gives reason to numb the sense of urgency to go further. Achievements obtained in the past—but especially those areas that lag behind in Chile today—renew challenges and impose even greater requirements. Therefore, we Chileans must accelerate the pace and sharpen our senses to better understand the complexities of a society that, along with the improvements shown, is more demanding, expresses new aspirations and reveals lags, inequalities, contradictions, and reasons for perplexity.

The purpose of Grupo Res Publica Chile is to enhance our country’s thinking process, identifying these gaps and weaknesses in the light of a technical and political diagnosis, especially presenting proposals for reform and change for a better Chile. Our aim is to enrich the public discussion needed to drive the reforms the country needs to develop more, to be more socially inclusive, more politically stable and representative, and with happier people and communities. This book is the result of our deliberation process and raises 95 proposals related to our political, economic and social reality.

Political system, regions and the State In the first section, dealing with the political system, we propose a move towards a parliamentary system that reconciles better governance and representativeness with incentives to encourage the search for agreements, and accountability of political parties.

Parties that are transformed thanks to the demands imposed by a new state funding of their regular activities, in exchange for good practices and standards

of transparency, internal governance, representativeness, regional presence and priority of programmatic reflection, and team building. Likewise, we propose an electoral system that optimizes the balance between greater proportionality and governance, and between legitimacy of representation and legitimacy resulting from efficacy. For this we have two alternatives: a plurality system where members of Parliament are elected by simple majority in uninominal (single-member) districts, and a mixed system in which a fraction, usually half, of the members of the Congress are elected in uninominal districts and the rest according to the result obtained (percentage) nationwide by each party or list.

In this scenario, each voter would have two ballots.

It is also proposed that Chile commit to effective decentralization, driven by the election of regional authorities. Without it, the commitment loses credibility and is reduced to a form of devolved management but still dependent on the central authorities, discarding the gains of greater regional economic development, efficient management and greater political legitimacy. The election of authorities (in 2016) would trigger this process, make it irreversible and demand administrative and fiscal reforms that would enable an autonomous and effective management in compliance with the popular mandate.

The last proposal for the political system is to return to the State modernization agenda, giving priority to three key areas. First, we recommend the creation of an Agency for Public Policy Quality, autonomous from the Administration, that measures the impact of policies and programs promoted by the State, contrasting the objectives proposed with evidence of results, with an objective and rigorous methodology. Equally important is the modernization of labor relations in the Public

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Administration, for which we propose to amend the contract basis to include the benefits provided by the Labor Code to private sector workers (unemployment insurance, compensations and regulations set forth in the collective labor law), and adapt the norm to the observed reality, correcting anomalies and regulating collective bargaining and strikes, considering, in some cases, compulsory arbitration. The third proposal is to reform regulatory agencies’ corporate governance, establishing deliberative boards, autonomous from the government and with strengthened powers. An additional topic where there are serious lags is state documentary management, which requires a regulation that includes print and digital formats, and is guided by concepts of accessibility and preservation.

Economic development, markets and environment Section 2 of the book comprises proposals seeking higher and more sustainable economic growth through economic development reforms, with more efficient markets and more satisfied consumers, and mobilizing citizens’ engagement with a more sustainable environment. For growth, complementary measures are proposed to increase the GDP growth rate, including reforms to grow by way of both "perspiration" (greater savings, investment and labor) and "inspiration" (productivity gains). Amendments are proposed to the compulsory pension savings system, the structural balance rule and fiscal institutionality, with the aim of increasing private and public savings.

For investment, we suggest to amend the institutional assessment of public investment projects, introduce flexible mechanisms for investment in infrastructure, and tax incentives for and simplification of rules governing private investment. Finally, for productivity,

there are proposals to foster entrepreneurship, break down barriers to entry into specific markets and boost innovation, including the creation of a committee or agency to ensure productivity and competitiveness.

Achieving high growth also relies on securing sufficient energy supply at competitive prices, which is under threat as a result of strikes, cancellations and major delays in new investment in power generation.

This scenario not only results in high energy costs, but also in environmental effects more adverse than we would observe if investment was greater, due to continued use of more polluting energies. Energy challenges and the backlog of investments are of such magnitude that urgent action is needed, so we propose that the State assume a transitory role to hasten a new market configuration where the expansion technology is natural gas, as opposed to coal. This option better reconciles energy needs and environmental demands, and benefits from the recent shale gas developments. Also, a sort of land use planning for thermoelectric development is recommended, where the government collects the rents and returns it to users, so that coal will become the system’s infra-marginal option. A third proposal is the gradual development of the wind and solar potential, introducing a new policy instrument: biddings for price insurance. The last proposal in energy is to declare unambiguously the strategic nature of the large hydropower potential in the south, with the public sector as co-investor in the transmission line. These ideas should be considered jointly as a proposed "new deal" on energy policies, which by its diverse nature explicitly seeks balance between environmental aspirations and demands on the one hand, and the needs inherent in development and certain minimum efficiency standards, on the other hand.

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Economic growth also depends on the proper functioning of markets, with strong competition and effective protection of consumers’ rights. For this reason we propose to increase penalties for breaches of free competition, and more transparency in the criteria and behaviors of authorities on the subject. We also recommend calling competitive biddings for assignment of rights over natural resources owned by the State, in order to avoid allocation by grandfathering or simply by arbitrary decisions. Proposals on consumer protection cover four areas: consumer education, generation of independent and quality information, effective enforcement of consumer rights and personal data protection.

This section also presents a first tax reform proposal. The proposed changes increase the systems efficiency by improving the integration of first- and second-category income taxes (on capital and other income); replacing special income tax regimes for companies with a single and universal exemption; changing the tax base of individuals from income to consumption, with a (limited) deduction of health and education expenses of the individual tax base. We also propose a single law on donations, an increase in excise taxes on tobacco, alcohol and fuels, and the abolition of import tariffs. To contribute to the horizontal and/or vertical equity of the tax system, we propose a symmetrical tax treatment accorded to dependent and independent labor income, increase the maximum marginal rate of real estate tax, and extend the IRS control on three specific dimensions: inter vivos transfers of real and financial assets, inter vivos transfers of shares in partnerships and investment companies, and personal expenses charged to partnerships and investment companies.

Economic development should not sidestep sustainability and cleaning of the physical environment. A sustainable and clean environment is a public good, so its care requires the commitment of the entire society. Selectively, we identify some areas neglected by public policies and citizens, but susceptible of intervention. We propose a novel idea to develop the recycling of waste goods and materials, based on a system of specific taxes on production and tradable credits to recycling, supplemented by incentives to

the development of habits of trash and waste separation at source, and the extension of collection sites (green points). Another proposal is to expand urban green areas with socio-economic and regional equity criteria through a new national institutionality to manage a national fund for the development of urban green areas. Last, but not least, in order to reinforce citizen engagement with the environment, strengthening also social capital and integration, we recommend the provision of a public counterpart to private volunteerism, the development of a Voluntary Youth Service and the adoption of a single law on private donations with tax benefits.

The last chapter in this section addresses the reality of private and public urban transportation in Chile.

To increase its efficiency and effectiveness we suggest advancing in three complementary dimensions: increasing the costs of private transportation use, improving quality and efficiency of public transportation, and encouraging the use of bicycles. For the first, we propose an instrument package (road rate-fixing, increased fuel taxes, differentiated charges on vehicle circulation permits and vehicle registrations, and restrictions differentiated by types of cars or specific pollution situations). Improvement of public transportation, in turn, involves institutional reforms and investments that should be financed with an efficient use of the subsidy on Transantiago and the mirror subsidy in regions. These proposals lean largely on two broader institutional proposals: the creation of the concept of saturated transportation area and the establishment of a Public Transportation Committee to assist in policy implementation and evaluation.

Social development and inequality The third section of the book contains proposals to move toward a more just and equitable Chile. It aims to the promotion of government actions that reduce inequality and protect families from the risk of falling into poverty, but in a way that stimulates both productivity and economic efficiency. The proposal emphasizes state transfers in those areas that supplement labor income, especially of young people and women, strongly increasing resources and coverage of these pro-

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grams. This should be supplemented by a redesign of the training and job placement public system, in order to facilitate finding employment and raise productivity of workers and employers, and in this way attaining an increase in salaries.

The rules governing labor relations are also determinants of productivity and wage levels. Along that line, we propose a comprehensive reform of the Labor Code that emphasizes collective bargaining, expanding negotiation matters, increasing both the capacity of parties to negotiate working conditions within a company and interest in dialogue. At the same time, we propose amendments to the definition of company for employment purposes and the processes of union formation and membership admission (with an intermediate proposal between automatic and voluntary membership). The productivity improvements and political viability of this labor reform lie in the set of proposals and not on each separately, as it is the package of measures that adds value to the society by providing more room for negotiation, greater flexibility and better benefits for all.

The second tax reform proposal in this book assumes that income inequality in Chile is mainly due to the upper part of the distribution; thus, we put forward a reform of the tax system to make it more progressive by way of taxing accrued profits rather than distributed profits, unifying taxation for small businesses and exempting from tax normal returns on savings.

Although this greater progressivity is expected to reduce income concentration, the proposal is based not only on social equity grounds, but also on economic efficiency. Indeed, the proposed changes represent a more equal tax treatment for people of similar condition and a broadening of the tax base, all of which will have positive effects on the allocation of resources.

But the concept of inequality goes beyond income distribution. Therefore, it is necessary to bring to the discussion issues such as dignity and social capital, often absent from the design and development of public policies. Recognizing the importance of these dimensions for public policies, we develop three proposal areas, one in the field of corporate social responsibility, another in participatory communication on public interest

issues, and the third one in the field of microcredit.

The final three chapters of this social policy section deal with sectoral issues: education, health, and housing and neighborhood. In education, a series of actions are proposed to expand the focus and include socio-affective aspects in learning. For the initial training cycle we recommend institutional reforms, increases in resources, and teacher training policies.

In school education, we suggest raising the subsidy amount, including a new public subsidy, a scheme for improvement in the allocation of the Preferential School Subsidy, and changes to public institutionality, favoring decentralization but adding value to management. Regarding higher education, we recommend to raise accreditation standards recognizing that there will be institutions providing teaching programs only. We also seek greater flexibility and mobility of students between institutions, and mechanisms for facilities that receive public resources to favor the admission of vulnerable, underprivileged students in terms of educational opportunities.

In health care, the focus is on strengthening prevention and accelerating the transition from the supply of services to the new demands arising from the new epidemiological profile, seeking to boost more cost-effective preventive and curative interventions.

The first step is to strengthen Fonasa (National Health Fund), which, with a clear legal mandate, better corporate governance, and full exercise of its "smart shopping" function, would be a fundamental contribution to cost-effectiveness. Then, facing the judicial deadlock in which the Isapre (private health insurance institutions) price system is, that threatens its viability in the long term, we propose a move towards a single universal public insurance, with voluntary private supplementary insurance. A third proposal seeks to improve problem-solving and integration of the municipal primary care system to the rest of the system.

Finally, we present geriatric care or coaching models based on the training of volunteers and their coordinated work with family health-care centers.

The last chapter of this section offers solutions to the severe problem of socio-spatial segmentation of large Chilean cities. The place where one is born or raised

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provides for access to basic public goods such as safety, education or health, and employment opportunities, factors that largely determine the potential for economic progress. Even worse, the place where one was born and lives affects the expectations with which families face challenges and opportunities, closing a die-hard vicious circle. To break this situation, we propose a set of public policies with a territorial and urban approach. For existing homes, we propose a high-intensity multisectoral intervention to transform isolated, dangerous and poor infrastructure neighborhoods into attractive places by redesigning neighborhood environments (connectivity, accessibility, public spaces, facilities and services) and improving housing quality.

For new social housing, we set out a series of measures to integrate vulnerable families in well located and connected neighborhoods, which include incentives for real estate developers and subsidy recipients, land management, integrated projects and a subsidized rent policy. Finally, the chapter addresses the pending challenge of eradicating slums, the need for a new authority with tasks and responsibilities related to urban planning and a proposal to enhance community participation in social interventions.

Crime and drugs The fourth and final section of the book addresses policies related with crime and drugs. In criminal matters— the public issue of greatest concern to Chileans—we propose reforms in four areas that are complementary: across the board institutional reforms, preventive policies, criminal prosecution policies, and convict rehabilitation policies. First, increasedcoordination and transparency is required for the operation of public institutions responsible for crime-related policies. In terms of prevention, we analyze revisions of and improvements to the preventive work of Carabineros (Uniformed Police), the inclusion of measures to prevent crime in urban design and increased citizen participation in crime prevention. To improve criminal prosecution policies, guidelines are presented for a new Criminal Code, as well as proposals for a reform to the Code

of Criminal Procedure, reforms to the National Prosecutor’s Office, and the creation of Pre-trial Services.

Finally, concerning rehabilitation and reintegration, we suggest a review of the role of the Corps of Prison Guards, an assessment of new schemes for privately operated prisons (including industry-prisons and contracts with incentives for reducing recidivism), the creation of support programs and funds addressed to the offenders’ family environment, and the introduction of a transitory subsidy to employment of ex-convicts so as to promote their integration into the labor market.

Finally, we propose a radical reform of the drug policy.

Based on the recognition that the war against illegal drugs has been lost worldwide and that many of the problems associated with drugs have more to do with the prohibition than consumption per se, we propose a drastic revision of the current policy of banning and repression of consumption, production and trade of currently illegal drugs. The proposals involve changes that can be taken unilaterally, including the formulation of a long-term national strategy and short-term legalization and regulation of a limited set of drugs, under restrictive conditions. Once the first phase is implemented, we propose, in a period of 3-10 years and under international coordination, a radical revision of international drug control treaties that will allow countries to legalize currently illegal drugs, subject to strict regulation and control of their production, trade and consumption.

Time is short. The country must take charge now of political, social and economic demands. Not all will be solved in the short term, but a virtuous policy roadmap should not ignore the systematic, urgent and sequential treatment of reforms in many of the areas that this book addresses. Avoiding changes and betting on inertia will move us away from the righteous path. We believe, then, that it is urgent to propose, discuss and implement sooner than later a set of reforms to make Chile a more just and developed country, even knowing that today's sowing will not yield all its fruits in the short term.

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