Welfare State Reform in Chile and Uruguay:
Cross-class Coalitions, Elite Ideology, and Veto Players
Rossana Castiglioni
Department of Government and International Studies
University of Notre Dame
217 O’Shaughnessy Hall
Notre Dame, IN 46556-0368
[email protected]
Abstract: This paper provides a comparative historical analysis of the emergence, consolidation,
and reform of the Chilean and Uruguayan welfare states. While until the 1970’s both countries built
strikingly similar social protection systems, they subsequently advanced divergent strategies of
reform, with Chile following the retrenchment path and Uruguay pursuing the maintenance avenue.
My objective is to explain the disparate outcomes of these two countries by taking evidence from
the analysis of two policy areas: pensions and health care. The military government that ruled Chile
(1973-1990) advanced an important reform of the welfare state through which the old universalistic
system was replaced by a set of targeted, means-tested social policies intended mainly to guarantee
the necessities of low income households. However, the Uruguayan welfare state under military
rule (1973-1985) showed a remarkable continuity. During the re-democratization period, while the
Chilean governments maintained the welfare model inherited from the previous military regime,
Uruguay started to develop a gradual and limited process of welfare reform. Yet, the Uruguayan
State continues to have a prominent role in the area of social policy provision. This paper argues
that the contrasting patterns of welfare state change seen in Chile and Uruguay are explained by the
existence/absence of broad cross-class alliances supporting welfare programs; the ideological
positions of the policy makers; and the degree of concentration of governmental authority, which in
turn affects the ability of veto players to block reform attempts.
Prepared for delivery at the 2000 Meeting of the Latin American Studies Association, Hyatt
Regency Miami, March 16-18, 2000.
Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
Welfare State Reform in Chile and Uruguay:
Cross-class Coalitions, Elite Ideology, and Veto Players1
I. Introduction
In this paper I will provide a comparative historical analysis of the emergence, consolidation,
and reform of the Chilean and Uruguayan welfare states. Chile and Uruguay shared remarkable
similarities until the 1970’s: these were the most universalistic and redistributive welfare states of the
continent, these systems were extremely costly and continue to develop even after economic
recession mounted, both countries presented significant fiscal deficits, and demographic changes
posed additional challenges to the systems of social protection. Despite these similarities, while the
military government that ruled Chile (1973-1990) carried out a deep policy of welfare retrenchment,
its Uruguayan counterpart (1973-1985) left the welfare state virtually untouched. In the redemocratization period, the Chilean governments maintained, in general terms, the welfare model
inherited from the previous military regime and Uruguay started to develop a gradual process of
welfare reform. The objective, thus, is to explain the contrasting outcomes of these two countries.
In so doing, I take evidence from the analysis of two policy areas: pensions and health care. In
pursuing my analysis, I will take insights from the power resources and institutionalist perspectives,
as well as from the area studies literature.
This paper argues that the contrasting patterns of welfare state change seen in Chile and
Uruguay are explained by the existence/absence of broad cross class alliances for welfare support,
the ideological positions of the policy makers, and the degree of concentration of governmental
authority, which in turn affects the ability of veto players to hinder reform attempts. As authors
from the power-resources perspective have asserted for the welfare state to develop right wing
political parties have to be weak, labor has to be capable of building cross-class political coalitions
(Esping Andersen and van Kersbergen 1992: 191; Esping Andersen 1990: 30), and left wing political
parties have to be represented in the government (Korpi 1989: 323; Huber et al 1993: 718). In the
cases of Chile and Uruguay, although both countries featured very similar welfare states until 1973,
they arrived at this stage through different paths. The creation of the welfare state in Chile was the
result of increasing pressures and mobilization of certain organized civil society groups, mainly
labor. The presence of class cleavages combined with a high degree of polarization hindered the
possibility of building a broad cross-class coalition necessary for maintaining a universalistic welfare
state. Conversely, in the Uruguayan case the welfare state was mainly the creation of the Colorado
party that sought to secure the electoral support of the emerging labor and middle classes by
building an anticipatory welfare state. Political parties were multi-class and ideological distance was
historically moderated. Moreover, while in Chile right wing parties have traditionally enjoyed
important levels of support, the Uruguayan right had very limited electoral salience. In this arena,
Uruguay presented minor difficulties to forge a broad cross-class alliance that supported the
universalistic welfare state. During military rule, while left wing parties were severely repressed in
the two countries, the ideological positions of the relevant policy makers were markedly different.
In Chile the transformation of the welfare state was inscribed in a comprehensive project of reform
that the country, according to the military though, needed to undertake. Such reform was inspired
by a self-proclaimed foundational mission of the Chilean military who sought to create a ‘new Chile’
by submitting “society over a long period of time to the unbridled forces of the market” (Scully
1995: 122). In contrast, in Uruguay, where the military believed that the problems the country was
I am indebted to David Altman, Andrew Gould, Scott Mainwaring, and Jacinda Swanson for their helpful comments.
Financial support from the Horowitz Foundation for Social Policy, the Kellogg Institute, the Department of
Government of Notre Dame, and the Zham Research Grant is gratefully acknowledged.
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undergoing were the result of bad leadership and ‘subversion,’ they neither blamed the system nor
had a clear project for solving the country’s problems. More importantly, they were shaped by the
profound Uruguayan statism. Under these circumstances, the Uruguayan welfare state retained its
main features.
In order to understand the radical process of reform that Chile experienced under military rule
and the striking continuity of the Uruguayan social protection system during the authoritarian
period as well as the maintenance of the model inherited from military rule during redemocratization in Chile and the gradual and limited structural changes the system of social
protection showed during re-democratization in Uruguay, we need to analyze the institutional
arrangements that promote concentration or dispersion of governmental authority. Pierson claims
that one should expect that “systems with fewer institutional veto points would be in stronger
positions to pursue an agenda of radical retrenchment (Pierson 1996: 153). Yet, he discards this
hypothesis based on the belief that “while cohesive systems concentrate authority, they also
concentrate accountability” (Pierson 1996: 153). Since the political costs of pursuing retrenchment
are higher when authority is concentrated, Pierson claims that “the theoretical basis for believing
that government cohesion facilitates retrenchment is weak” (Pierson 1996: 154). However, under
authoritarian rule concerns about political costs and accountability are less salient than under
democratic regimes. Thus, the degree of concentration/dispersion of authority can be of relevance
in explaining welfare state’s retrenchment or maintenance. Additionally, in their analysis of
industrialized democratic nations, Huber at al show that “aspects of constitutional structure that
disperse political power and offer multiple points of influence on the making and implementation
of policy are inimical to welfare state expansion” (Huber et al 1993: 722). Huber also argues that
“by the same token, though, they retard rollbacks in periods of welfare state retrenchment” (Huber
1997: 6).
Institutional arrangements promoting concentration/dispersion of power, have, in turn, a great
impact on the possibilities of veto players to block changes of the status quo. Here, I am taking
Tsebelis definition, according to which “a veto player is an individual or collective actor whose
agreement is required for a policy decision” (Tsebelis 1995: 293). I argue that during military rule
the rather personalistic Chilean government under the strong leadership of General Pinochet held a
higher degree of authority concentration than the collegiate form of government seen in Uruguay.
Since in Uruguay there were multiple non cohesive units involved in the decision making process
and governmental authority was quite disperse, the social protection system showed a remarkable
stability. Conversely, the extreme power concentration in the figure of Pinochet and the minister
of finances facilitated both the implementation of radical reforms and the neutralization of actors
opposing them, most notably chief officials from the Air Force. During the re-democratization
period, the two countries show important veto players and institutional arrangements that allow
them to block radical transformation initiatives. However, the characteristics of these veto players
and institutional arrangements are remarkably different. While in Chile right wing parties are overrepresented due to an electoral reform introduced by Pinochet, in Uruguay direct democracy
mechanisms allow interest groups to block undesired policy outcomes.
This paper is organized as follows: section two offers an historical account of the creation of
the Chilean and Uruguayan systems of social protection, from their inception until democratic
breakdown, in 1973. The third section analyses that, although the two countries developed very
similar models, the processes through which these systems developed were markedly different.
Section four discusses the radical process of welfare state retrenchment occurred in Chile under
military rule and the process of maintenance of the system of social protection under military rule
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Rossana Castiglioni
in Uruguay. The fifth section explains the main causes behind the antagonistic approaches that
both military regimes followed. Section six explains the evolution of the social protection systems
in the re-democratization period, and section seven analyzes the main reasons why the Chilean
democratic governments maintained the system inherited from military rule and their Uruguayan
counterparts pursued a gradual reform of the pensions’ system and virtually no change of the health
care system. The last section summarizes the main findings of this paper.
II. The Creation of the Welfare State in Chile and Uruguay: 1920’s - 1973
At the end of the 19th century, living conditions of the Chilean working class were extremely
poor. This situation brought about strong protests from the proletariat, especially from urban and
mining sectors. In this period, new social groups emerged: middle class, professional, industry,
mining groups, and urban proletariat. These sectors were able to organize and “pressure the state
in search for privileges and benefits” (Raczynski 1994: 5). This change in social structure was
accompanied by a rise and consolidation of new political parties: the traditional parties (Liberal and
Conservative) were joined in the 1860’s by the Radical party (secular, of professionals, employees,
and civil servants) and in the 1880’s by the Democratic party (precursor of the Socialist and
Communist parties). The increasing mobilization of the popular sectors prompted a consideration
of the “social question.”2 During the presidential campaign of Arturo Alessandri in 1919 the social
question emerged as a central issue.
Although the first social protection programs were inaugurated at the beginning of the
twentieth century, with the establishment of pension rights for State railroad workers in 1911 and
the creation of the armed forces retirement fund in 1915, it is not until the 1920’s that the system of
social protection starts to develop in a comprehensive manner. The first set of social laws, inspired
by the Bismarckian social security system of Germany, was presented to Congress during
Alessandri’s first presidency in 1921, but was not approved until 1924-25. The principal feature of
this legislation was the creation of a blue collar worker’s insurance fund with the purpose of
providing illness, disabilities, and old-age pensions, indemnification for work accidents, and free
medical attention for the insured and their dependents; the establishment of a white collar
insurance fund financed with contributions from workers and employers; and the inauguration of
insurance funds for civil servants, journalists, and the police. At this time, new funds were not
social security institutions, but a means for forcing savings. The State did not contribute to these
withholding funds unless when it was employer. Among the benefits provided were retirement and
indemnification for years of service. Social legislation introduced at this time laid the basis for the
first 1931 Labor Code through the enactment of laws that regulated work contracts, unionization,
collective bargaining, minimum wages, and indemnification for dismissals (Arellano 1985: 28-29,
Borzutzky 1990: 53-54, Mesa Lago 1978: 24-26, Raczynski 1994: 7-8).
From the 1930’s on the system expanded, covering increasing portions of the population,
widening benefits, and broadening State’s intervention. A shift from the idea of social protection
attached to a conception of charity to a notion that the welfare state should protect the whole
population began to develop. This shift, although gradual, inspired a widening of coverage,
although inclusion of diverse working categories was carried out in an uneven and fragmented way,
generally granting coverage first to these groups that were more organized (Raczynski 1994: 11).
Until the 1950’s expansion in coverage did not come due to governmental initiative but to social
pressure, and reflected, especially, the victories of unionized workers. Between the 1950’s and
1960’s the emphasis was placed on homogenizing the system and improving working class benefits.
2
At that time the “social question” was a term for social assistance related issues.
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Rossana Castiglioni
Reforms brought about new privileges (especially survivors’ pensions and maternity subsidies) and
improved existing services (disability and old age pensions, subsidies for illness, and expansion of
health services for workers’ entire family). By 1960 the main pension funds were subdivided in
various social security sub-systems that dedicated the core of their resources to pensions, family
allowances, health coverage, and maternity subsidies (Borzutzky 1990: 55).
In the area of health care, where Chile was certainly a pioneer in the region, the bases of the
system were set with the creation of the Ministry of Heath in 1924 and through the establishment
of a mandatory health insurance in the same year. Although the different mandatory health
insurance programs were unified for white collar workers (who after the approval of the Preventive
Medicine Law of 1934 received curative and preventive medical attention for tuberculosis, venereal,
and cardiovascular sicknesses) the health care system does not evidence a clear centralization
process until the foundation of the National Heath Service (SNS) in 1952. With the creation of the
SNS, which initially assisted blue collar workers, the system expanded coverage to the indigent
population. The role of the State in administering and financing the SNS was salient. It provided
free of charge medical attention for workers, workers’ spouses, and kids younger than 15 and it
covered around 60% of the Chilean population (Arellano 1985: 31-32; Cifuentes 1993: 62-63).
From the 1960’s to 1973 the government promoted structural reforms that curtailed property
rights (i.e. agricultural expropriations, statization), protected labor, incorporated new urban and
rural sectors into the social safety network, improved real salaries, and developed housing programs.
The expansion of the system, especially under the administration of Salvador Allende (1970-1973),
occurred alongside economic recession and marked inflation. This situation coexisted with a
process of social mobilization and political conflicts that culminated with the military coup of
September, 1973. By the 1970’s, as Mesa-Lago points out,
Chilean social security was one of the most advanced in the Western hemisphere: it covered all contingencies,
reached virtually the entire population [...] and offered generous benefits. But it was extremely fragmented and
legally complex and stratified (it comprised 100 independent pension programs plus many others covering
different contingencies); it also lacked effective coordination, allowed unjustified privileges and significant
inequalities, constituted a heavy economic burden [...] suffered financial and actuarial disequilibrium, and required
substantial state subsidies (Mesa Lago 1994: 115)
In the case of Uruguay, at the beginning of the twentieth century the traditional two-party
system that characterized the political system up to the 1970’s had been in place for several decades.
A civil war ended in 1904 with the triumph of the Colorado party (which represented urban, liberal,
secular sectors) over the Blanco party (which represented rural, conservative sectors).3 The
outcome of the civil war gave the Colorado party the possibility of controlling the State while
(conservative) Blancos were weakened by their defeat in the civil war. Even so, in order to maintain
peace both parties had no other option than to “co-participate,” that is to divide the administration
of the State among them. The agreement granted Blanco hegemony in important portions of the
countryside and Colorado control of the national government (Mancebo 1991: 36). In this context,
the Colorado Party, advocate of the ‘social question,’ had minor obstacles to include social welfare
as a central aspect of its platform. Under the Colorado administration, especially during the
presidencies of José Batlle y Ordóñez (1903-1907 and 1911-1915), social legislation was introduced.
The first relevant social protection law, the so called Ley Ciganda, created a School Fund that
offered old age, disability, and survivability pensions for teachers in 1896. The foundational stage,
which extended into the 1930’s, included the creation of a the retirement fund for public servants in
1904 (that was expanded in 1919 to those employed in the industrial, commercial, and service
3
These urban-rural and liberal-conservative cleavages tended to fade (and virtually disappeared) as time went by.
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Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
sectors), the establishment of retirement pensions for military personnel in 1911, and the institution
of old age, disability, survivability, and non contributory indigence pensions. In 1933, with the
creation of the Uruguayan Institute of Pensions, the system was reorganized through the unification
of the different social security institutions already created (that is, the pension funds of civil and
public servants, school teachers, and indigents). In 1934, with the approval of a new Constitution,
the existent social rights gained constitutional rank4 (Ermida Uriarte and Grezetich 1991: 76-77;
Saldain 1990: 250-251).
In the area of health, although the Ministry of Public Health was set up in 1934, the first health
care institutes were inaugurated in the mid 1830’s, with the creation of the Sanitary Junta, that
carried our sanitary controls of boats, and the Public Hygiene Junta, in charge of vaccination,
controlling the Charity Hospital and other charitable institutions, and implementing diverse
epidemiological measures. Until the 1950’s Uruguayan health care is based on a system of voluntary
insurance offered by different mutual aid societies. The Uruguayan “mutual system,” that remains
in place until today, was created by diverse worker’s organizations, especially those of immigrants,
and coexisted with numerous public hospitals that offered health care for low income sectors
(Haretche et al 1994: 69-73).
From the 1940’s to the mid 1950’s high export earnings allowed the financing of further
expansion of the welfare state. The most important policies introduced during this period were the
institution of family allowances (which achieved universal coverage in the 1950’s) and the creation
of wage councils formed by workers, employers, and the State. A broadening of unemployment
insurance coverage also took place at this time. From the mid 1950’s until 1973 the Uruguayan
economic situation deteriorated. However, the welfare state continued to expand and the number
of public employees increased significantly. The 1967 Constitution created the Social Security Bank
as the administrative organ for pensions and retirements. Its aim was to unify the independent
funds, although it did not achieve this goal universally, and to centralize the pay as you go system
(Filgueira and Filgueira 1997: 13).
In the area of health care the approval of the Legal Statute of the Mutual System in 1943
granted the State clear surveillance mechanism over mutual aid societies. In 1955 health insurance
became mandatory for private and public employees, however this process was carried out by
gradually incorporating different working categories. Employees’ health insurance was provided by
mutual aid societies and was financed by contributions from the workers (deducted from their
salaries), employers, and the State (Ferreira 1991: 429-435). In this way, two coexisting heath care
systems become consolidated in Uruguay: on the one hand, the system administered by the Ministry
of Public Health provided free of charge medical attention for low income sectors, on the other,
the mutual aid system covered mainly dependent workers and middle and high income earners.
Concurrently, while real wages dropped and inflation rose, civil society, especially the middle
class and the urban proletariat, pressed the State for social improvements. In this context, a
growing wave of social unrest and repression of mobilized sectors, especially unions, took place.
This stage of social and economic instability reached its climax with the 1973 coup. As Mesa Lago
asserts, by 1973 Uruguay,
In this regard, Ermida Uriarte and Grezetich remark that the 1934 Constitution contained a quite relevant disposition
in the article 67, which included the right of attaining “adequate retirements” subsidies or pensions in case of
“accidents, sickness, invalidity, or forced unemployment,” old age or death, contingencies that would be covered by
way of pensions and social insurance” (Ermida Uriarte and Grezetich 1991: 76).
4
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Rossana Castiglioni
the prototypical welfare state in the Western hemisphere, [had not only] the most developed and generous social
security system in Latin America and the Caribbean but also the most stratified and costly. The system’s heavy
burden (15 percent of GDP, 62 percent of fiscal expenditure, and 65 percent of the wage tax) contributed to the
economic stagnation suffered by Uruguay (Mesa Lago 1994: 155)
This brief historical account points to striking similarities of the evolution of the Chilean and
Uruguayan welfare states. Both reached the 1970’s as the most developed and generous welfare
states in the region, in both cases the social protection systems presented profound financial
problems, and both countries suffered a collapse of their democratic regimes in the same period.
However, I will argue that the process of creation of the welfare state in both countries as well as
the way in which state-society relations were defined were different in both countries. This, as I will
discuss later, had deep consequences in terms of the reform of the welfare state that developed
from 1970’s onward.
III. Similar Outcomes, Different Paths: the Politics of Welfare State Creation
In terms of their social protection systems, Chile and Uruguay shared remarkably similar traits
until the 1970’s, but in both countries welfare states were developed through different paths. I will
argue that there are some crucial aspects in which Chile and Uruguay were strikingly different (a
summary of the main findings of this section is provided in Chart 1 below). First, while in Chile the
creation of the welfare state constituted a response to increasing pressure of certain organized social
groups, most notably the labor, in Uruguay the Colorado party, which launched the first sets of
social policies, sought to anticipate social pressures and to secure the electoral support of urban
sectors by the development of the welfare state. While class cleavages permeated the Chilean party
system and the mobilization level was salient both for left and right wing sectors, Uruguayan
political parties were multi-class from the outset. As Esping Andersen asserts “it is a historical fact
that the welfare state construction has depended on political coalition building. The structure of
class coalitions is much more decisive than are the power resources of any single class” (Esping
Andersen 1990: 30-31) Without broad coalitions the welfare state tends to be residual and dualist.
A greater level of polarization in Chile and the high levels of mobilization from the right and the
left, undermined the existence of the class-coalition needed for consolidating a universalistic welfare
state. In turn, in Uruguay the anticipatory character of the welfare state, the lesser level of
polarization, and the low relevance of class cleavages facilitated the formation of such a coalition,
which managed to survive democratic breakdown.
The rise of the welfare state in Chile was associated with an increasing mobilization of popular
sectors: in the 1890’s around 200 strikes were registered, in 1903 40 workers died in a strike in
Valparaiso, and in 1905, during the so-called “Red Week,” many workers lost their lives while
rioting to protest rising cost of living in Santiago. As Scully remarks, “this cycle of mounting labor
militancy and state repression reached its climax in 1907: more than a thousand men, women, and
children, striking nitrate miners and their families, were machine gunned in an Iquique school yard”
(Scully 1995: 106). The first social policies passed in Chile were a response to increasing
mobilization. In other words, the basis for the creation of the first social policies in Chile,
constituted an attempt of the political elites to appease escalating unrest. As Scully points out, from
1920 to 1932 “political elites sought to mitigate the most conspicuous aspects of working-class
exploitation in order to remove the conditions for recurrent social protest.” (Scully 1995: 106-107).
In Uruguay, on the other hand, after the civil war the winning Colorado party, under the strong
leadership of Batlle, had as a central objective to construct an interventionist state that would set
the basis for social justice. However, the development of the Uruguayan welfare state is also
associated with an attempt to secure working class electoral support for the Colorado party, a
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Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
strategy that proved to be quite successful.5 Batlle envisioned that urban sectors “could be made
the backbone of the electoral strength of the Colorado party. He was particularly interested in
attracting the loyalty of Montevideo’s rapidly expanding labor force [...]. After his electoral victory
[...] Batlle began to flesh out his vision of an activist state that would promote the social and
economic welfare of their citizens” (Weinstein 1988: 23). In spite of the fact that Batllism never
aspired to control unions,6 there is evidence to suggest that Batlle’s administration established a
“cordial” relationship with the working class: working class strikers marched to the presidential
residence to cheer Batlle’s government, Batlle’s administration allowed and promoted the entrance
in Uruguay of anarchist immigrant workers expelled from Argentina, and from his own newspaper
Batlle regularly wrote editorials on the right to strike, the relevance of the eight hours law, and the
welfare state.7 A central aspect to stress here is, thus, that the welfare state was not created as a
response to popular pressures, as in Chile, but was built due to the initiative of the political elite.8
In other words,
rather than reacting to demands for social justice, the state attempted to mold the groups that could formulate
such demands. Herein lies a trait peculiar to the Batllist state’s social program. Its desire for social progress,
influenced by democratic radicalism and a dose of socialist doctrine, was structured by a political logic that sought
to craft a modern urban and industrial society by empowering and expanding the emerging middle classes and the
small urban proletariat (Filgueira 1995: 9).
Another remarkable difference between Chile and Uruguay can be seen in the party system. In
Chile, at the beginning of the twentieth century class cleavages began to shape the party system.
The inability of traditional parties to encompass new social sectors, especially the working class, led
to the creation of new political parties. In this regard, “the eventual failure of traditional party
leaders to incorporate the working classes within existent parties led to the emergence of workingclass parties ‘from below’” (Scully 1995: 107). With the increasing mobilization of the popular
sector the strategy of the traditional parties’ elites was to control labor and to respond with social
policies in order to overcome mobilization. Hence, “party elites in Chile enacted legal mechanisms
to control labor at the workplace, rather than seeking to mobilize working-class support within the
traditional party system. This outcome had the effect of reinforcing elements within labor that
sought to organize their own working class parties” (Scully 1995: 107). On the other hand, the
Uruguayan party system was not structured by class cleavages. On the contrary, in Uruguay “parties
have been multiclass-based form the beginning, and their followers present a relatively wide
ideological spectrum, especially during this century” (González 1993: 141). In contrast to Chile,
ideological polarization has been historically moderated. As Mainwaring and Scully have pointed
out, “Uruguay, which until 1973 had strong democratic traditions, also had a party system with
5 As Rama has shown, hundreds of union leaders, socialist, and especially anarchist militants would eventually become
supporters of Batlle. When reviewing the names of the most prominent left wing intellectuals of the beginning of the
century, it is evident that ten years later almost all of them become political activists and Batllistas leaders (Carlos
Rama quoted in Barrán and Nahum 1985: 46).
6 As Caetano and Rilla argue, although there was a strong loyalty between unions and Batllismo, Batllismo never sought
to control (cooptar) union leaders or to sponsor official unions, as occurred in other countries of the region (Caetano y
Rilla 1994: 116-117).
7 For example, in one of his editorials Batlle wrote that the state as an economic organization should “enter industry
when competition is not practicable, when control by private interests vests in them authority inconsistent with the
welfare state, when a fiscal monopoly may serve as a great source of income to meet tax problems, when the continued
export of national wealth is considered undesirable. State socialism makes it possible to use for the general good that
portion of the results of labor which is not paid to labor” (El Día, September 3, 1919, quoted in Weinstein, 1988: 25).
8 Although the Colorado Party was, unquestionably, the architect of the welfare state, it is important to point out that
the Blanco Party promoted the definition of certain social policies and was vital for the creation of state enterprises and
the subsequent expansion of the public sector.
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Rossana Castiglioni
limited polarization until shortly before the breakdown of democracy. Chile (1932-1973) is the only
Latin American democracy that lasted for a generation despite significant polarization, and
polarization eventually contributed to the breakdown of democracy” (Mainwaring and Scully 1995:
32). A multi-class party system and a limited polarization facilitated, in turn, a process of consensus
building in Uruguay.
Even the urban-rural and liberal-conservative traditional distinctions of Uruguayan parties
become blurred as time went by. In the long run, support for the welfare state or the aim for
expanding the system of social protection, became a matter of state policy and political culture,
rather than a matter of specific partisan or class interests. Moreover, the emergence of the welfare
state shaped the relationships between the state and civil society. The creation of the welfare state
was followed by “the formation of a statist political culture, in which it was believed that the state
should protect their citizens and their rights. This design [...] molded the relations between the
state and civil society. The formation of pressure groups that represented subordinate sectors was
conditioned by these state-society relations” (Filgueira 1995: 20). The Uruguayan welfare state
prompted the emergence of an extended middle sector, and greatly benefited the working class:
both groups were critical for promoting the formation of a coalition that backed the consolidation
of the welfare state. Thus, in Uruguay the welfare state set from the beginning, the basis for its own
support.
Finally, both countries showed differences on electoral participation. In Uruguay the right to
vote was extended to all literate men in 1916. Young men between 18 and 21 and illiterate men
were enfranchised in 1918, and women in 1934. In contrast, in Chile women were enfranchised in
1952 while young citizens between 18 and 21 and illiterates were only enfranchised in 1970
(González 1993: 14). As a result, the level of electoral participation was different in both countries:
“the registered population in Chile was 18 per cent in 1957 (the highest until then), and it reached
20.4 per cent in 1958. [...] By 1958 the Uruguayan figure already was 57.1 per cent” (González 1995:
500). Nowadays, Uruguay has one of the highest turnout levels in the world.
In sum, in Chile the creation of the welfare state was associated with the mobilization of certain
organized groups, especially from the working class, that pressured party elites in order to secure
their incorporation into the political system. The salience of class cleavages and a setting of
increasing polarization made difficult the development of a broad cross-class coalition necessary for
the maintenance of the welfare state. In addition, the deterioration or even absence of a broad
coalition that supported the Chilean welfare state is one of the key elements to understand the
subsequent reform it underwent. On the other hand, in Uruguay the first sets of social policies
were created, in part, to avoid social pressures and to achieve the electoral support of the urban
sector. So, in contrast to Chile, the Uruguayan welfare state was in its genesis anticipatory.
Moreover, the multi-class character of Uruguayan political parties and the absence of clear-cut
cleavages in a rather homogeneous society that had, and continues to have, a large middle class,
facilitated broad support for the welfare state. As a result, the welfare state was backed by a broad
cross-class alliance of working and middle classes.
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Chart 1: Paths to the Welfare State
Chile until 1973
Welfare Promoters
Uruguay until 1973
Organized civil society (strong
pressures mainly from labor),
responsive policies.
Political elite (mainly Colorado Party),
anticipatory policies.
Presence of Left and Yes, strong left and right wing
Right Wing Parties parties, parties based on class
cleavages.
No, catch all, multi-class based
parties. Conservative sectors defeated
in civil war.
Degree of
Polarization
Strong
Moderate, but increased right before
coup d'état
Cross-Class
Coalitions
Absent
Present (labor and middle sector).
OUTCOME
UNIVERSALISTIC WELFARE
STATE
UNIVERSALISTIC WELFARE
STATE
IV. Reform in Chile Under the Military Regime
In this section I will review the transformation of the welfare state under military rule. The
Chilean military government (1973-1990) believed it had a foundational task and purported to
produce deep changes in the Chilean economic, social, and political spheres. Under the military
regime, the Chilean welfare state suffered a remarkable shift: “in contrast to the objectives of
financing and allocating resources the goals of controlling inflation and economic growth took
precedence over redistributive and social objectives” (Raczynski 1994: 52). In this regard, the State
now was to assume a subsidiary role, in which social policy was to be transferred to the private
sector and decentralized agencies. The State also began to center on seeking to benefit only poor
households in the attention of their most basic needs. In other words, social policies became
targeted and means-tested.
A dramatic reform of the social security system occurred in November 1980, with the dictation
of the Decree Law 3.500, which included the core of the new system. Additional revisions were
included by the decrees 3.501, 3.502, and 101, which established the creation of the
Superintendence of Administrators of Pensions Funds, among other measures.9 The State, by way
of the newly created Instituto de Normalización Previsional (INP), remained in charge of the
administration of the pension benefits for those who were not incorporated into the new system.
A prior measure of relevance advanced by the Pinochet government was taken in February 1979, when the Decree
Law 2.448 was approved. This decree introduced two main changes. On the one hand, while it made uniform the
minimum retirement age (65 for men, 60 for women) it allowed workers close to retirement age to do so under the old
requirements. On the other, it established a new mechanism of pension’s indexation. Hitherto, in Chile there was not
automatic mechanism of pensions adjustment related to inflation so adjustments were enacted by ad hoc legal devices.
By this new decree adjustments would be granted to all retired workers whenever the cumulative inflation rate reached
15%. This decree also eliminated pensions based on years of service (Larraín 1993: 27, Piñera 1995: 59-61).
9
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The new model substituted the former pay as you go scheme for a private capitalization model
based on the compulsory individual savings of at least 10% of taxable income into personal
accounts were the employer no longer contributes. While affiliation is mandatory for all dependent
workers entering the social security system after May 1981 it is optional for self-employed workers.
Individual savings are administered by for profit private funds called Administrators of Pension
Funds (AFP), whose operations are monitored by the State through the AFP’s Superintendence. In
this way, AFPs replaced the former retirement funds with the exception of those belonging to the
armed forces and the police. In turn, AFPs charge workers a commission to administrate their
savings. The worker can freely chose to put his or her savings among the different AFPs and have
the possibility to change from one to another at any time as well as to select among the three
available retirement options, namely: immediate life-span rent (renta vitalicia inmediata), temporal rent
with deferred life-span rent (renta temporal con renta vitalicia diferida) or programmed retirement (retiro
programado).10 All workers joining the new system who had contributed to any retirement fund for
at least five consecutive years prior to the reform were granted a recognition bonus (bono de
reconocimiento), that is, a monetary compensation acknowledging their previous contributions to the
social security system (Mitchell and Ataliba Barreto 1997: 5, Valdez and Bernedo Alvarado 1997:
15). It was also determined that the State should grant a minimum pension to all workers in the
social security system, so that in case a worker reaching the retirement age does not attain such a
minimum pension level with his or her individual savings, the state should complete the difference
(Borzutzky 1990: 63). Furthermore, a worker who did not reach the minimum retirement age can
request an anticipated retirement if the accumulated funds allow him or her to receive a pension of
at least 110% of the minimum pension level and if these funds represent at least 50% of the
worker’s mean taxable income for the past ten years.
The new system provides old age, disability, and survivability pensions. Old age is covered both
with the accumulation of the 10% of the worker’s taxable income contributions during his or her
entire life and with the profit generated by the investments of the AFP. Disability and survivability
pensions are financed by way of a compulsory insurance for which contributions represent about
3.5% of taxable income and by the funds the worker has accumulated until invalidity or death of the
insured occurred (Larraín 1993: 35). A prior decree of 1975, Decree Law 869, established a non
contributory assistance pension for individuals older than 65 and for the physically disabled older
than 18 who have no other means to sustain themselves; in 1987 this benefit was expanded to the
mentally ill. While at the beginning this benefit was granted by the INP, after 1987 it is dispensed
by the municipal governments (MIDEPLAN 1996: 238).
In terms of health care policy Chile has also experienced important changes. The main
characteristics of the new system are the decentralization of the public provision and administration
of health care and the creation of private health insurance funds. In 1979, with the approval of the
For the first option, which can not be chosen by those who do not reach the minimum pension level, the worker
signs a contract with a life insurance company that either agrees to pay a monthly rent to the worker from the time the
contract is signed until the worker’s death or to pay survival pensions to his or her beneficiaries if applicable. Once the
contract has been signed the AFP has to transfer the capitalization funds in question to the insurance company. The
second option is quite similar to the former one. Here the worker also chooses an insurance company which will agree
to pay a monthly rent. However, the pension payment will occur starting at a future pre-established date. The insured
has to leave enough funds into his or her AFP’s account in order to allow for the payment of a temporary rent until the
date in which the pension begins to be reimbursed. Finally, the third retirement option is determined by calculating the
monthly reimbursement of the worker’s savings over his or her expected lifetime, for every given year. If the
scheduled monthly payment of a pensioner is higher than the minimum pension level determined by law he or she can
freely make use of the additional assets.
10
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Decree Law 2.763, the National System of Health Care (SNS) was substituted by the National
System of Health Services (SNSS). The SNSS was decentralized in 26 autonomous health services
that provide preventive and curative attention and are controlled by the Ministry of Health. Public
hospitals were yielded to regional health services and one year later all centers of primary attention
started to be transferred to the municipalities, transference that concluded in the mid 1980’s. Some
municipalities, in turn, have ceded the administration of these centers to private, non for profit
agents. Municipal centers provide free of charge ambulatory services for the low income
population (Cifuentes 1993: 69-70; Molina 1996: 157).
In 1981 the Decrees 3.626 and 3, established a private system of health care parallel to the
public one. The creation of private health insurance funds (ISAPREs), allowed dependent workers
to choose between making their mandatory contributions to a ISAPREs or to the National Fund of
Health (FONASA). Although contributions corresponded initially to 1.7% of the taxable income,
later this level was risen to 4%, in 1982 augmented to 6%, and from 1986 on it represents 7%, with
a maximum contribution level of around US$ 130 (MIDEPLAN 1996: 144; Valenzuela Magaña
1996: 4). The dependent worker affiliated to a ISAPRE can opt to pay additional premiums in
order to expand his or her benefits. In this way, in the private system the benefits that each worker
receives vary according to the real value of his or her 7%, to the additional premiums the worker
pays, and to his or her risk level.11
Conversely, all workers affiliated to the public system of FONASA receive the same type of
service and benefits, regardless of their sex, age, or of the net value of their contributions.
Nonetheless, in 1985 the Law No 18.469 classified those insured by FONASA according to their
income levels. Based these categories, the law established that those affiliated to FONASA, with
the exception of low income beneficiaries, should reimburse additional co-payments determined by
income level, when they make use of the system. Due to the high costs of contracting with private
health providers, the majority of the population remains in FONASA and only upper and uppermiddle sectors were able to bear the costs of private health care. As a result, by 1990 only 15% of
the population was covered by ISAPREs and in 1996 25% did. As higher income beneficiaries left
the public health care system and entered the private one, the former suffered a significant
reduction of revenues: by the late 1980’s more than 50% of the mandatory health contributions of
the country were collected by ISAPREs. Independent workers can also contract the service of any
ISAPRE and low income workers as well as uninsured poor have access to free health care trough
the public system (Celedón and Oyarzo 1998: 281-282, Raczynski 1994: 57-58; Valenzuela Magaña
1-4).
In contrast to the radical process of reform pursued by the Pinochet administration, the
Uruguayan social protection system did not suffer important transformations during military rule
(1973-1985). As Filgueira (1995) points out, the Uruguayan military sought to rationalize and
further centralize the social security system. The retirement age was increased, some of the
retirement options were eliminated, it was prohibited to be affiliated to multiple retirement plans,12
and there was a restriction of the eligibility criteria for unemployment insurance. The military also
eliminated the mechanisms of participation of representatives of the retired, active workers, and
11 As Celedón and Oyarzo remark, the price of a health care plan is determined by risks level, that in practice is
reflected in a differential rate based on age and gender (Celedón y Oyarzo 1998: 282).
12 As Mesa Lago argues, before this change was introduced it was usual that the insured were over-covered due to the
fact the they were affiliated to several retirement plans. To illustrate, he claims that by 1965 117.3% of the
economically active population was insured (Mesa Lago 1985: 336).
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Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
employers from the management of social security.13 The most important changes introduced by
the Uruguayan military government were included in the Institutional Acts (AI) 9 and 13. The AI 9,
approved in October 1979, is the key piece promoting the administrative centralization of the social
security system. The Social Security Bank (BPS) was replaced by the General Direction of Social
Security (DGSS) that centralized the majority of existing social protection programs (Saldain 1990:
255-256). With the creation of the DGSS, which was subordinated to the Ministry of Labor and
Social Security, the main retirement funds and social security programs,14 with the exception of
those of the police and the military, were coordinated by a single institution that had the
responsibility of granting benefits, administrating and collecting social security revenues, and
coordinating the activities of para-state institutions.15 In this regard, it also established that parastate retirement funds were to be administered by a director who would be appointed, controlled,
and/or removed by the executive. Therefore, as Ermida Uriarte and Grzetich point out, this
measure greatly restricted the historical autonomy enjoyed by these social security institutions
(Ermida Uriarte and Grzetich 1991: 100).
Although the AI 9 established the annual adjustment of pensions according to the variation of
the mean salary index, it also determined that the executive power could endorse different
adjustment indexes whenever it considered this necessary. Later on, the AI 13 added that the
executive could enact differential adjustments in a way “proportional to the economic possibilities
of the Republic.” As a result, the executive power enjoyed great room to maneuver, having the
possibility of adjusting pensions according to its own and contingent criteria (De los Campos and
Minetti 1986: 11-12; Papadópulos 1992: 69). It also determined new retirement ages for
contributory pensions (55 years old for women and 60 for men) and a minimum of 30 years of
work. In contrast of the Chilean social security framework, it is interesting to note that the AI 9
identifies as two of the guiding principles of the social security system the principle of solidarity and
the principle of universalism.
In the area of health care, only minor changes were introduced, inspired by the same
centralization logic. In 1975, the Decree Law 14.407 advanced a process of unification and
centralization of the existing sickness insurance programs that would later become coordinated by
the Direction of Sickness Social Insurance (DISSE), a new institution depending from the DGSS.
Additionally, a National Resources Fund (FNR), financed by the State and by a percentage from the
contributions to the mandatory and voluntary health insurance programs, was created in 1979. The
FNR was intended to finance the activities of highly specialized medical centers. This centers
provide specialized medical attention (such as kidney transplant or cardiac surgery) for those
individuals covered by the public health care system and by mutual aid societies (Haretche et al
1994: 78; Ferreira 1991: 436-437; Fortuna 1985: 10-11). Finally, in 1984 sickness benefits were
expanded, as the last working categories, rural and domestic workers, were included (Saldain 1990:
253).
Although the 1967 Constitution established that in addition to the State, the administration of the Social Security
Bank would have the participation of the aforementioned actors this law was not implemented until the redemocratization period.
14 These funds and programs included: family allowances, sickness insurance, unemployment insurance, civil and
school funds, industry and commerce funds, and the rural and domestic service funds.
15 There are three para-state funds, Caja Bancaria, Notarial, and Profesionales Universitarios, that provide social
security benefits for banking workers, notaries, and some university professionals respectively. Although the State has a
supervising role, these funds, whose management board is formed by representatives of their respective professional
associations and one representative from the executive power, enjoyed great independence from the State. As
Papadópulos remarks, these funds can be seen as private trade unions’ institutions pursuing public functions
(Papadópulos 1992: 45).
13
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In sum, the Uruguayan welfare state was maintained, in contrast to Chile, during the
dictatorship. Despite the important process of administrative centralization and a deterioration in
the quality of the social services provided, the system of social protection only suffered minor
modifications and even extended protection, such as through the aforementioned specialized
medical services. Conversely, the Chilean military government advanced a dramatic retrenchment
strategy that strengthened means tested social policy, transferred important responsibilities to the
private sector; curtailed benefits; tightened eligibility rules; and reduced significantly State’s
participation in social policy provision and administration.
V. Different Paths, Antithetical Outcomes: The Welfare State Under Military Rule
Why did the military dictatorships of Chile and Uruguay approach the welfare state so
differently? As was mentioned before, in Chile there was an important reform of the welfare state
through which the old universalistic system was transformed into a set of targeted, means-tested
social policies intended mainly to guarantee the necessities of low income households. Conversely,
in Uruguay the welfare state under military rule retained its main traits, and despite deterioration of
service quality, the system even expanded in certain areas. The two countries shared remarkable
historical similarities: both social protection systems were extremely fragmented and uncoordinated,
as well as very costly, they exhibited deep deficits, and in the two cases a right wing military regime
repressed the left, unions, and interest groups. However, the Chilean military regime turned the
welfare state upside-down, while the Uruguayan military government maintained it virtually
untouched. How can we explain the antagonistic treatment that the Chilean and Uruguayan military
gave to the social protection systems? I will argue that the ideological positions of the policy
makers and the degree of concentration of governmental authority, which in turn affects the ability
of veto players to hinder reform attempts, are crucial to understand the contrasting processes the
two countries experienced under military rule.
As it happened in the rest of the Southern Cone during the 1970’s, the ideology of the Chilean
military was inspired by the national security doctrine. However, in contrast to their regional
counterparts, the Chilean military government was preceded by a socialist administration. This, in
turn, had a great impact on the way in which the military would define their role: a foundational
mission framed in opposition to the goals traced by the preceding socialist government. With the
election of the Unidad Popular16 government, under the leadership of Salvador Allende (1970-1973),
political polarization increased, in part as a consequence of the Unidad Popular chief’s twofold
goals. On the one hand, the aim was to redistribute income among labor and the poorer groups of
society (through increasing government expenditures, wages, and taxes). On the other hand, it had
the objective of accomplishing major structural changes to prepare the country for a future
transition to socialism. In this regard, a Social Property Area was created and, as a result, several
firms were bought by the State or even expropriated.17 An agrarian reform designed during the Frei
administration (1964-1970) was enforced through the expropriation of holdings larger than 80
hectares. The result of these practices was an “enormous political polarization as well as economic
dislocation,”18 in a context in which both the left and the right were markedly mobilized19 (Stallings
16 Unidad Popular, which represented Allende’s political group, was an alliance of Socialist, Communist, and other
leftist political parties.
17 The larger cooper mines were expropriated from the US-based Kennecott and Anaconda corporations.
18 As Stallings and Brock argue, “the economic problems of the Allende government were partly the result of the
government’s own policies, partly the result of domestic and international attempts to undermine the Popular Unity,
and partly the result of an unfavorable external economic environment. As some Popular Unity officials admitted
later, the lack of attention to macroeconomic variables and the lack of coordination between economics and politics
undermined their ability to control the economy” (Stallings and Brock 1993: 80).
13
Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
and Brock 1993: 79-80). It was in this political and economic context that in September 1973 the
democratic government was overthrown by the armed forces and Allende was replaced by a military
junta that became, shortly after, controlled by army commander Augusto Pinochet.
For the Chilean military government, the group that had the control of the State, as well as the
type of policies it developed, incarnated all the evils of Chile. The military’s “enemy” was identified,
rather than with the diffuse ghost of international communism or an anti-systemic guerrilla
movement, with the socialist government of Allende and its project, and the role of the military was
to revert Allende’s government policies by advancing a radical process of economic, political, and
social transformation. A few days after the coup, the Decree Law 77 would announce that the
mission of the new government was “to extirpate Marxism from Chile, to restitute the country
morally and materially towards economic development and social justice, and to vitalize new
institutional forms that bring about a modern democracy free from the vices that favored the
actions of its enemies” (D.L. 77, October 8, 1973, quoted by Vergara 1985: 20). The inauguration
of a “new Chile,” was inscribed in a broad and clearly defined strategy of the military. Thus, as
Huber has argued “in the Chilean case one has to regard the cuts as ideologically driven, rooted in
the neoliberal zeal of the military government’s economic team and the military’s own political
project of breaking the bases of collective action and withdrawing the state as a target of such
action” (Huber 1997: 2). The redistributional objectives of the Allende administration (that
represented a threat to private property relations) and its attempt to prepare the country for a
transition to socialism were countervailed by a profound attempt to transform the country that
went far beyond the aim of solving a ephemeral crisis.
On the other hand, the economic team of this period, the Chicago boys, provided the military
both an all encompassing diagnostic of the countries problems and a comprehensive remedy to
tackle them. Their ideas were deeply shaped by the monetarist orientation of the Department of
Economics of the University of Chicago and their objective was to provide an alternative to the
Keynesian economic framework and its counterpart structuralist approach advanced by ECLA. In
1972, Roberto Kelly, a former marine with close links to the young economists and a personal
friend of commander in chief of the Navy, José Merino, offered high rank officers from the Navy
to draft an economic plan to “solve the economic problems of Chile” (Fontaine 1988: 18, Remmer
1988: 12). While a first draft’s summary was presented to a few Navy officials in May 1973, on
September 12, 1973 (the day following the coup!) the economic plan was distributed among
prominent members of the Armed Forces. The economic development program, which came to
be known as “the brick” (El Ladrillo), contained a thorough diagnostic of the main problems
affecting the Chilean economy and offered an extensive set of policy recommendations that ought
to be follow in order to solve the Chilean dilemmas.20 According to the Chicago boys, these policy
recommendations should be followed in a rapid, centralized manner.
As Crummett remarks, “the three years of Unidad Popular rule in Chile were marked by intense political activity on
both the right and the left” [with a] “powerful ideological battle waged by the right” (Curmmett 1994: 169).
20 The diagnosis identifies six major problems, namely: low growth rates (historically short periods of growth were
followed by intervals of recession, “Marxist demagogy” presented itself as the solution to this problem but experience
has shown the “rotund failure [...] of the Marxist recipe”); exaggerated statism (State intervention- which is manifested
in the manipulation of economic variables, the development of a gigantic bureaucracy, or the State investment in low
profitable activities- generates deep distortions in the economic system); scarcity of productive employment (which has
to be tackled by reforming the educational system, by achieving high rates of economic growth, and by reducing labor
costs); high inflation (which was largely produced by attempting to improve the standards of living of low income
groups in a context of limited economic development); stagnation of agricultural production (which translated in a high
import of food that had a negative effect over the balance of payments); and extreme poverty of important portions of
the population (which prior governments tried to solve through inadequate tools- such as wage policies, the control of
19
14
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In the area of social policy reform, or “the seven modernizations”21 as the economic team
labeled it, although the general course of action was outlined in “the brick,” major changes did not
take place before 1979, in part due to the resistance of junta member Gustavo Leigh. According to
prominent members of the economic team, social policy had to be framed in agreement with
economic growth and had to be focused and means tested, with the State centering its attention on
low income sectors. As former minister of finances Hernán Buchi explains “social policies that
interfere, undermine, or hinder the process of economic development are disastrous and at the end
they do not favor those who they should favor [...] Social programs have to include some incentive
for individual effort and for persons to gradually be responsible for their own destiny. There is
nothing more pathetic than social programs that encourage social parasitism” (Buchi 1993: 127).
Additionally, in order to implement the “necessary” policy changes, governmental authority had
to be concentrated. As former finance minister Jorge Cauas, the czar of the shock treatment of
1975, asserts it was indispensable to centralize the economic decision making process and the
coordination of public administration under the exclusive umbrella of the Ministry of Finances. It
was also essential, he believed, that while in order to select any policy option the different
governmental offices involved with economic policy could participate, once a decision was taken it
had to be unquestionably implemented (personal interview with Jorge Cauas, Santiago: 5/31/99).
The sought concentration of power would be materialized with the approval of the Decree 966 of
April, 1975, which established that the finance minister would be the coordinator of the economic
system and therefore, would have command over all government offices involving economic policy
and over the majority of ministries and state agencies.22 It also granted the finance minister further
control over resource allocation, economic planning, and over the nomination and dismissal of high
government officials, with the exception of ministers, who could be nominated or dismissed only
by the Chief of State. With the approval of this decree the finance minister became a superminister and the prerogative of the junta members to veto nominations was eliminated (Cavallo
Castro et al 1990: 86-87, Fontaine 1988: 91-92, Silva 1996: 108). As a result, by mid 1970 the
process of economic decision making and policy implementation was concentrated in the economic
team that could be checked solely by General Pinochet.
The concentration of power around the figure of the minister of finances coexisted with a
process of power concentration in hands of General Pinochet. Although the Chilean military junta
resembled in many ways those of other authoritarian regimes, the extent to which governmental
authority was concentrated in a single junta member, the breadth of power Pinochet enjoyed, and
the continuos process of removing from key positions all veto players that could undermine or
challenge Pinochet’s power (most notably, as we will see later, Air Force Commander General
Leigh) was notorious. Soon after the coup, and supposedly to shatter the actions of military loyal
to Allende, the junta approved the Decrees 33 and 220, which entitled General Pinochet to
nominate and retire army officials. As Valenzuela remarks, these powers had always
been vested in the Council of Generals and the President of the Republic. Pinochet shrewdly used his new
powers to systematically neutralize and retire those officers who had engineered the coup [...] While Pinochet was
prices, family allowances, or unemployment subsidies- that never reached the sectors in need) (El Ladrillo 1992: 27-38).
The solutions “the brick” offers to the aforementioned problems consist of a set of thirteen policy prescriptions.
These recommendations served as the framework of the economic team, although different periods of the military
regime reflect that the emphasis was put in different policy areas.
21 The seven modernizations included: agriculture, decentralization, education, health care, labor, judiciary, and social
security reforms.
22 The following ministries and state offices were put under the umbrella of the finances minister: Agriculture,
Economy, CORFO, Health, Housing, Labor, Mining, Planning, Public Works, and, Transportation.
15
Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
purging the service of any potential rivals, he was also reinforcing his personal power by substantially expanding
the corps of generals [...] whose careers depended on their loyalty to Pinochet” (Valenzuela 1991: 32-33).
One year later, with the approval of the Statute of the Junta, Pinochet would manage to be
proclaimed “Supreme Chief of the Nation” (albeit a subsequent decree would label him President
of the Republic) and to excerpt from the other junta members the capacity of removing him as
chief of the executive (Arriagada 1998: 45-47, Cavallo Castro et al 1990: 65-68, Valenzuela 1991: 3537). This concentration process occurred with the preoccupation of the legal advisors of the
remaining junta members and with the fierce opposition of General Leigh, the most notorious
figure challenging the power of General Pinochet and opposing the policy recommendations of his
economic team.23 The quarrels and fights between Leigh and Pinochet escalated during the debates
over the Statute of the Junta, and they reached their climax in March 1978, when Leigh publicly
argued in favor of preparing the country for a transition to democracy. As Leigh would recognize
in an interview, he never imagined that Pinochet could harm his position within the junta, even
after he asked Leigh to resign (Marras 1988: 131-137). However, Pinochet dismissed him by using a
provision of the Statute, which established that a junta member could be removed if he were
“absolutely incapable to fulfilling his duty,” a clause meant to be applied under the event a junta
member became gravely mentally or physically ill.24 With the deposition of Leigh, together with
eighteen generals of the Air Force, Pinochet consolidated his power within the junta and the Armed
Forces and minimized the presence of relevant veto players challenging his authority.
In the case of Uruguay the military ideology, although framed by the same national security
doctrine, was quite different than in Chile. This was the case partially because the left was perceived
as representing a “lesser threat,” in part because the right never had strong electoral support, and
because institutions were not blamed for the perils of the country. Although polarization was
increasing prior to the democratic breakdown, it did not reach the Chilean proportions and the
environment in which the coup took place was different in some central aspects. As Remmer has
remarked, “in contrast to Argentina and Uruguay, where the right has never represented a discrete
and viable electoral alternative, Chilean conservatives regularly received 20 to 30 percent of the vote
before 1973 and backed the winning candidate in two of the three last presidential elections”
(Remmer 1988: 25-26). At the same time, the left in Uruguay had far less electoral support (18.3%
in the 1971 elections) than its Chilean counterpart (34.9% in 1973), and it represented a lesser
“threat” to capitalism than in Chile (Gillespie 1986: 175). In other words, the Uruguayan left never
As Leigh remarks, “I fought the Chicago boys, I discussed with many of them, because I did not accept this purely
economic system of action that disregards social problems [...] In the Council of Air Force Generals we touched upon
these issues, but what else could we do? Besides giving me their total support, what else could they say? Further, I am
sure that Pinochet was aware of all these Council’s meetings, that he directly listened from his recordings, because all
got to Pinochet. He was a receptor of secret information” (Marras 1988: 134). The perception that the actions of
Leigh posed a major obstacle for the implementation of market oriented policies were shared by prominent members
of the economic team. As Pablo Baraona, former president of the Central Bank, would argue “we always had a good
communication with [junta members] Pinochet and Merino, Mendoza generally followed, but Leigh was rather
rebellious” (personal interview with Baraona, Santiago: 6/9/99). Chicago boy Sergio de Castro, also believed that
“Leigh always created obstacles, he was a direct obstacle in that he disliked what we did, he would create constant
delays and he did not cooperate” (CIDOC, video No 25). Additionally, in the area of pensions, a reform proposal was
presented in the early days of the military government but it was not advanced due to the opposition of General Leigh.
As Roberto Kelly, Director of ODEPLAN, asserts “the first presentation that we delivered on the area of social
security [...] was probably in February or March 1974. And when it was argued that pension funds were going to be
administered by the private sector, Leigh almost jumped over the desk, he contended that the proposal was crazy [...]
So Leigh said, well we have to study this issue in depth, and this, and that, and there was no bill, no nothing” (CIDOC,
video No 25).
24 Leigh was replaced by General Fernando Matthei.
23
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Welfare State Reform in Chile and Uruguay
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had access to State control and had less electoral support than the traditional parties. The foremost
“enemy” of the military, especially in view of their national security doctrine, was the Tupamaro
guerrilla, a movement that acted totally outside of the institutional framework, a group that was not
by any means associated with the control of the State or with electoral politics. In this vein, the self
proclaimed military mission in the two countries was different. In contrast to Chile, the Uruguayan
military did not have a foundational or comprehensive mission25 and their role was defined in terms
of “eliminating subversion,” “putting the house in order,” and restraining the negative influence of
“those politicians who drove the country to a debacle.”
In addition, the Uruguayan military did not see the political system as the one to be blamed for
the problems the country was facing. In this regard, the military junta asserted that it was incorrect
to blame the political parties for the moral and material difficulties of the Nation, rather than the men who were
directly responsible for these problems, by trying to satisfy their hunger for power. The Armed Forces, on the
contrary, believe that it is inaccurate to blame the system for personal errors and deviations (Junta de
Comandantes en Jefe 1978: 382-383).
Politicians, not the system, were viewed as incompetent, and incapable to coping with economic
crisis and increasing unrest. Thus, to solve the perils of the country it was necessary to protect the
system from the “men who were responsible” for the country’s problems, rather than changing the
system.26 And this vision was not exclusive to the political system, it also included the social and
economic realm. As a former minister of labor during military rule asserted “in terms of
privatizations, the military did not want to innovate, they wanted things to continue the way they
were. Instead of questioning the system, they questioned people, that is, this country is doing bad
because people in charge are useless” (personal interview to José Etcheverry Stirling, Montevideo:
3/15/99).
As it also happened in Chile, some of the leading policy-makers in charge of economic policy
were market oriented. The most prominent figure during this period, economic minister Alejandro
Végh Villegas, a Harvard trained engineer who could be easily classified as a prototypical technocrat,
was appointed due to his close ties to the international banking community. However, in contrast
to his Chilean colleagues, Végh Villegas’ room to maneuver was constrained by the military junta.
As Gillespie has argued, in Uruguay “privatization was blocked by the nationalist sectors of the
armed forces, who often saw state industries as geopolitical resources [...] Végh’s power as a
minister of the economy was limited by military interference and bureaucratic resistance” (Gillespie
1991: 57-58). Although the military statism did not prevent Végh from advancing a series of market
oriented measures, such as fostering non traditional exports or freeing the currency exchange rate,
his actions were limited by the resistance of prominent military officers, such as Brigadier Jorge
Borad or General Abdón Raimúndez (Caetano and Rilla 1998: 172; Handelman 1979: 8). Végh
Villegas unsuccessfully sought to establish an economic team formed by market oriented
technocrats by urging military officials to nominate some of his closest collaborators to the ministry
of industry and to the central bank. However, the military did not want
a super minister that turned to be the one governing the country [...] General Raimúndez, who was the president
of the Bank of the Republic, [...] was a constant opponent to Végh, he would say A and Raimúndez would answer
B [...] A quite strong presence of the State was maintained throughout the military government. This statist
Yet, some authors have argued that after 1976 the military did attempt an unsuccessful foundational quest, that
failed due to the defeat a constitutional reform proposal suffered when it was plebiscited (Caetano and Rilla 1996: 37).
26 As Weistein argues, the main objective of the Uruguayan military “was to destroy all forms of subversion in order to
preserve the Uruguayan state. This required actions that went far beyond the mere destruction of the Tupamaro
guerrillas, but the destruction of the guerrillas was seen as fundamental to the preservation of the state” (Weinstein
1998: 49).
25
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Welfare State Reform in Chile and Uruguay
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tendency was maintained and was not modify. Raimúndez understood the Chicago boy type of approach of Végh,
he did not share it, and he did use his authority within the Army to oppose Végh (personal interview with José
Etcheverry Stirling, Montevideo: 3/15/99).
At the same time, governmental authority was much more decentralized in Uruguay than in
Chile. The military junta functioned as a collegiate body of government constituted by various
decision making units. On the one hand, the Juntas of General Officers were formed, for each of
the armed forces branches, by top officers (more than twenty officers) and their main functions
were to nominate public officials (i.e. the President of the Republic and members of the Supreme
Court of Justice) and to promote or retire top military officers. Rial contends that this prerogative
was often used to neutralize the charismatic leadership of prominent military figures (Rial 1986: 3031). Additionally, the Junta of Commanders in Chief was the coordinating organ of the armed
forces, the ESMACO was the organ in charge of ministerial coordination, and the State Council
carried out legislative functions (Rial 1986: 30-33). The variety of units involved in the decision
making process, which often reflected deep internal divisions within the armed forces, did not allow
for the emergence of a prominent Pinochet like figure, that concentrated governmental authority.
Finally, in the area of social policy, the traditional bureaucracy associated to the development of the
Uruguayan system of protection continued to perform its duties and was in charge of promoting
some of the changes that occurred during the military regime. The administrative centralization of
the social security system and the changes involving highly specialized medical centers were
initiatives that involved a strong participation of the traditional bureaucracy, rather than an
economic technocracy, that worked in re-organizing the system it knew.27
In sum, the Chilean military had a foundational mission that entailed a quest for a
comprehensive reform of the social, political, and economic realms. Thus, the reform of the
welfare state towards a regressive and residual model was inscribed in this broader project, that was
defined in opposition to the one the socialist government of Allende embraced. A strong
concentration of power on Pinochet and his economic team (especially trough the minister of
finances) allowed them to advance their reform agenda and to remove from key positions potential
or existing veto players. In turn, in the Uruguayan case, the military did not have a clear strategy
beyond their interest in acting accordingly to the national security doctrine, eliminating subversion,
and overcoming the alleged incapacity of Uruguayan politicians to address the crisis the country was
facing. Moreover, they were shaped by the statism of the entire society. In contrast to Chile, there
was no need to reform the State: in the military’s perception it had to be “defended from
subversion.” Additionally, the dispersion of governmental authority and the reliance on the same
traditional bureaucracy that helped build the system of social protection, provided a remarkable
stability to the system (for a summary of the main argument of this section see Chart 2 below).
VI. The Welfare State under Democratic Rule
During the re-democratization period in Uruguay (1985 on) and especially under the second
administration of President Julio María Sanguinetti (Colorado Party, 1995-2000) a transformation of
the welfare state began to take place, after multiple reform attempts failed. As we will see later, this
process has been more gradual and less profound than the Chilean one. On the other hand, reIn this regard, the former minister of labor asserted that the first thing he did, after being nominated minister, “was
to put all the people coming from the Social Security Bank to work together, they were the best technicians, the people
who new best about these issues” (personal interview with Etcheverry Stirling, 3/15/99). The director of the sickness
benefits office (ASSE) also suggested that “the great advantage we had was that we could count on the excellent
technicians of the Social Security Bank, they certainly were the starting point” (personal interview with Alfredo Baeza,
Montevideo: 3/17/99).
27
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democratization in Chile (1990) did not bring substantial changes of the economic model and the
orientation of social policies. During the first administration of President Sanguinetti (1985-1990)
there were some attempts to reform the social security system that only translated into minor
modifications. In 1985 the newly elected government re-established the Social Security Bank (BPS)
and restituted to the notaries, bank workers, and university professionals the autonomous
management of their respective para-state retirement funds. In early 1987 the executive power
introduced a bill to reform some aspects of the social security system that did not get legislative
support but gave birth to the approval of the law 15.900 in October 1987. This law introduced
some changes on the adjustment mechanisms for pensions, on the basic and maximum pension
levels, and established the creation of a housing program for pensioners (BPS 1998: 32). In 1989
the interest group of pensioners, with the support of the labor movement and the Frente Amplio,28
sought a way to constitutionally grant a mechanism of pensions’ adjustment in order to avoid a
deterioration of their benefits, as it was rightly perceived that Sanguinetti had failed to adjust
pensions adequately in order to reduce fiscal deficit. As a result, this group proposed that pension
adjustments should be equal to the variation of the national average salary index and should occur
every time the salaries of the public sector workers were adjusted. The law established that
adjustments should be financed by contributions from active workers and employers, from other
taxes established by law, and that the obtained revenues could not be used for a different purpose.
If necessary, the State should provide financial assistance. This referendum proposal was
overwhelmingly approved by 82% of the population, with a turnout of 90% (De los Campos 1997:
89; Filgueira and Moraes 1999: 12; Kay 1999: 411).
The following administration of Luis Alberto Lacalle (Blanco Party, 1990-1995) promoted,
unsuccessfully, several reform attempts. From the very beginning of his presidency, Lacalle
considered social security reform as a central topic in the agenda.29 In September 1990, the
executive sent the legislative a bill proposing some changes to the existing system, rather than
purporting at the establishment of a new model. The main measures included in this bill were to
increase the retirement age and to change the way in which retirement benefits were calculated.
This project was sent to Congress without debate and was rejected. The next year President Lacalle
changed his strategy: in order to build the necessary consensus for achieving a social security reform
he promoted the formation of two working groups that would both evaluate the state of the social
security system and elaborate a reform proposal. One of the groups, coordinated by Labor
Minister Carlos Cat first and afterwards by his successor Alvaro Carbone, was composed by
political and social leaders. Another more technical group, that was also integrated by prominent
political leaders, was coordinated by the President of the Social Security Bank, Rodolfo Saldain.
Although this group examined four different reform alternatives, at the end only two of them were
contemplated as viable reform possibilities and from these two, one was sent by the executive as a
law project of urgent consideration (Ley de Urgente Consideración),30 in April 1992. Although this
reform bill maintained the pay as you go system, it proposed a new way to calculate retirement
benefits that resembled that of the individual capitalization schemes. The bill indicated that
individual contributions would be transformed into a measurement unit. At the end his or her
active life the worker’s savings would represent a certain score that ought to be transformed into
The Frente Amplio is a coalition of nearly 20 left wing parties.
In part, social security became a central priority because, after the referendum approval, the Lacalle administration
was “faced with a time bomb. A system that was already without financial resources required even more of the state
resources if it was to meet its obligations” (Filgueira and Moraes 1999: 14).
30 An urgent consideration law project, according to the article 168/7 of the Constitution, has to be rejected within 45
days or it becomes approved by default.
28
29
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money with which the worker would buy a life-span rent (renta vitalicia). This proposal maintained
some of the main features of the old system in addition to the pay as you structure, such as the
active workers and employers contribution levels (around 13% of the nominal salary for the worker
and 16.5% for the employer), and maintained the retirement ages (Busquets 1993: 2). Again, despite
the efforts to get legislative support for this proposal, especially from Sanguinetti’s political fraction
Foro Batllista, the initiative did not receive enough votes.
Finally, Lacalle introduced into the Account Renditions Law 16.320 (Ley de Rendición de
Cuentas) of November 1st 1992 a few articles meant to produce some modifications of the existing
social security system. The main measures here were the enactment of procedures that sought to
improve the levels of tax collection, and therefore to abate social security evasion, to reduce the
administrative and investment expenditures on social security, to produce a new procedure for
calculating the basic retirement salary, and to establish new maximum pension level. However, the
approval of this project was short lived. In November, 1994 a social security plebiscite was voted.
This plebiscite proposed a constitutional reform that declared unconstitutional any modification of
social security, social insurance, or social prevision included into any Budget or Account’s Rendition
law (“leyes presupuestales o de rendición de cuentas”) approved after October 1992 (De los
Campos 1997: 90). A vote of 72% approved this constitutional amendment. Therefore, Lacalle’s
reform was derogated.
The second Sanguinetti administration (1995-2000), brought, once again, the social security
issue. Right after the new president was elected in 1994 he formed a social security working group,
as this was one of the topics the new Colorado-Blanco coalition was negotiating. This group was
formed by many of the same actors drafting the bill presented in April 1992, during the Lacalle
administration. The group worked on one of the reform alternatives considered by the technical
group on the prior administration. While the Frente Amplio participated at the beginning, it
withdraw later due to its discontent with the reform proposal, that would be finally approved in
September, 1995. The social security law 16.713, which became effective in April 1996, created a
mix system with both a public and a private pillar that combines a pay as you go system with an
individual capitalization one. While the new system is mandatory for all workers younger than 40
years old, individuals older than 40 could decide whether to remain in the old system or to change
into the new one. However, neither the police, the military, or workers contributing into the parastate funds nor already acquired rights or individuals close to retire, were affected by the reform.
The public pillar is financed by state contributions extracted mainly from the value added tax
(VAT), as well as by employers’ and employees’ payroll taxes, and it is entirely administered by the
BPS.
The private pillar is managed by Administrators of Pension’s Savings Funds (Administradoras
de Fondos de Ahorro Previsional, AFAP), where the worker saves in a personal account during his
or her working life. An important difference with the Chilean system is that in Uruguay the State
owns an AFAP (AFAP República, owned by Banco República, Banco de Seguros del Estado, and
BPS), that competes with the private corporations. According to newspaper El País, the Stateowned administrative agency represents 55% of the share of the market of funds, reaches nearly
40% of the affiliations of the new social security system, and it has been the only profitable AFAP
(the remaining five private companies featured deficits of approximately 15 million dollars).31 The
new law also determined that initially 80% of the capital of these administrative agencies has to be
invested in government bonds, and this percentage will gradually decrease to a minimum of 60%
31
“Las administradoras debieron cubrir 15 millones de déficit,” El País, August 1st, 1998.
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(Mitchell and Ataliba Barreto 1997: 14-15). The activities of AFAPs are scrutinized by the Central
Bank (no Superintendence was created for monitoring purposes, as in Chile). While workers can
freely chose the AFAP of their preference those who fail to do so will be assigned one randomly by
the BPS. Under the new law workers are eligible to retire after they have reached 60 years of age
and have worked for 35 years.
There are different retirement programs for workers according to their income levels. Low
income earners (workers whose monthly taxable income is less than 5.000 pesos, around 800 US
dollars)32 contribute their entire payroll tax (that is, 15% of their nominal salary) into the public
pillar. Low wage earners have the option to contribute half of their payroll taxes (that is 7.5% of
his or her taxable income) into the public pillar and the reaming contributions into the private one.
As an incentive, those who decide to place half of their contributions into the private pillar will
receive a premium on their BPS savings, since their 50% contributions will be computed as if the
worker had contributed 75% of his or her payroll taxes into the public pillar. Middle and high
income earners (those whose monthly taxable incomes are between 5.000-15.000 pesos, around
800-2400 dollars, and those who earn more than 15.000 pesos respectively) must contribute to both
the private and the public pillar (BPS 1998: 33-34). The worker contributes the payroll taxes
corresponding to his or her taxable income of up to 5.000 pesos into the pay as you go public
system and the remaining contributions corresponding to the income of up to 15.000 go to the
individual capitalization pillar. Moreover, high income earners can choose to place additional
contributions on earnings exceeding 15.000 pesos into the private pillar.
Workers may receive pensions from both the pay as you go public pillar and from the individual
capitalization private one. The pension a worker receives from the pay as you go system is the
result of the sum of 50% of the basic pension level33 plus 0.5% for each additional year of work
after 35 years of activity, with a limit of 2.5%, and an additional 3% for each year of activity after
the worker is 60 years old, with a 30% limit. The maximum pension that can be obtained is 82.5%
of the basic pension level. In addition, workers contributing to the private pillar will obtain a
pension from the individual capitalization system. This second pension results from the
accumulation of the worker’s savings, the interests generated by these savings, and the life
expectancy of the worker. Survivability pensions oscillate between 50% and 75% of the basic
pension level, depending on the degree of kinship to the insured.34 The system also grants old age
subsidies for individuals older than 70 who have contributed for 15 or more years, a subsidy for
temporarily disabled workers, and non contributory pensions for individuals older than 70 or
individuals of any age absolutely unable to work who have no other means to sustain themselves.
In the area of health care, no important policy change was introduced in the re-democratization
period. Despite the efforts to promote a process of administrative de-concentration of the health
care system, as a de-concentration law was approved in 1987, no important steps were taken
(Heretche et al 1994: 71). In 1995, Health Care Minister Alfredo Solari presented to Congress a
health care reform bill. The main measures included in this bill were to allow workers (mainly
outside Montevideo) to chose between making their health care insurance contributions into public
Information on income levels is expressed in Uruguayan pesos of May, 1995.
The basic pension level is the average of the adjusted income generated by a given worker during the 20 years of
higher income or the average of the adjusted income generated for the last 10 years of activity as long as this last figure
is not higher than the average of the 20 years of income plus 5% (BPS 1998: 35).
34 The beneficiaries of survivability pensions are: the widow or divorcee, the single children younger than 21 years old,
the single children older than 21 years old completely incapable to work, and the parents completely incapable to work.
32
33
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Welfare State Reform in Chile and Uruguay
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or private providers and to promote means tested policies (Filgueira and Moraes 1999: 32). This
reform attempt failed as it did not get sufficient support in Congress.
In Chile, the Concertación governments35 focused their efforts on seeking to ameliorate the
value of pensions, increasing the earnings of the AFPs, and improving the attention of the insured.
However, the system as a whole has not been modified by the democratic governments, which have
maintained the pensions system established by the military regime. In terms of recuperating the
pensions value, the Alwyn administration (1990-1994) sought to adjust pensions properly, given that
due to the 1982 economic crisis the military failed to adjust the pension levels according to the
inflation variation for the year 1985. As a result, during December 1990 minimum pensions were
adjusted 10.6% and assistance pensions 20%. Later on, a 10.6% of augment was also granted to
other pensions. During the Frei administration (1994-2000) there was a raise of the minimum
contributory and assistance pension levels. In 1994, all pensions below 100.000 Chilean pesos
(around 240 US dollars) received a 10% increase which was financed by taxing gasoline and tobacco
(MIDEPLAN 1996: 206-207). Regarding the expansion of the profits of the AFPs, the government
produced a register of companies where AFPs could invest, classifying them according to their
solvency in order to reduce unsafe investment and to promote diversification of portfolios.
Additionally, in 1994 the government approved a ruling for overseas investments. Finally, the
Concertación governments have implemented a series of measures to improve the attention of the
beneficiaries by expediting the payment of recognition bonds and elevating the quality of services
provided by the INP (MIDEPLAN 1996: 207-208).
In the area of health care while some transformations were introduced but the framework and
main characteristics of the health care system have been maintained. The Alwyn government
sought to increase the resources destined to infrastructure and medical equipment for public
hospitals and to improve the salaries of health care workers. It also established new targeted health
care policies and modified existing policies, especially for women and elders (Martin 1998: 333). In
1995 the Frei government amended the Law 18.933, which created the Superintendence of
ISAPREs, a state agency in charge of supervising ISAPREs. This law enacted several measures,
including the establishment of a minimum coverage for pre-existing conditions, the devolution of
exceeding contributions to the insured,36 and the lessening of some coverage restrictions (Celedón
and Oyarzo 1998: 296; Valenzuela Magaña 1996: 4). The Concertación governments have also
furthered the decentralization of the health care system and have promoted the collaboration
between the public and private sectors, as it is believed that while the State has a central role in
assigning resources and regulating the system, it does not have to provide services (Celedón and
Oyarzo 1998: 280).
VII. The Actions of Veto Players: Organized Civil Society in Uruguay and the Right in
Chile
As we have seen the democratic governments of Uruguay have advanced reforms in the social
security system but they introduced virtually no changes in the area of health care. Yet, the State
35 In the re-democratization period, there are two main political blocks in Chile. The Concertación is a center-left
coalition formed by Christian Democrats, Socialists, the Party for Democracy, the Radical Party, and other smaller
political groups. The opposition block corresponds to the UPP (Unión Para el Progreso), a rightist coalition formed by
the UDI, RN, and other smaller right wing parties.
36 Before this law was passed, exceeding contributions were kept by the ISAPRES. In other words, when a contract
was signed between a worker and any ISAPRE, the contract would establish a certain coverage level in exchange for
the contributions made by the worker. Since contributions correspond to a percentage of the worker’s taxable income
(at least 7%), the amount of real monetary contributions could increase without improving coverage levels.
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Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
continues to have an important presence in the area of social security: the public pay as you go
system was maintained despite the establishment of a private pillar, all workers continue to
contribute into the pay as you go system, the State runs its own AFAP, more that half of the
AFAP’s portfolio has to be invested in governmental bonds, and the reform has not eliminated
employers’ contributions. Thus, as Filgueira and Moraes remark, “while this reform constitutes a
clear departure from the old system, it differs markedly from the Chilean model: it remains statist
and committed to some redistributive goals that have been neglected in other countries
experiences” (Filgueira and Moraes 1999: 19). In the case of Chile under democratization, despite
Concertación governments have emphasized their concern for promoting “growth with equity” no
mayor steps have been taken to reverse the structure of the system inherited from the military
regime.
What can explain the continuity of the inherited model in Chile and the limited changes
advanced in Uruguay? Once again, the ideological positions of policy makers, the concentration of
governmental authority, and the ability of veto players to hinder reform attempts are central for
answering the proposed question (a summary of the main findings of this section is presented in
Chart 2 below). Ideologically, the two countries present important differences. According to
Coppedge’s classification of Latin American parties, the two mayor Chilean parties of the UPP
coalition correspond to the secular right- UDI and Renovación Nacional- and within the parties
integrating the Concertación the Demócrata Cristiano party is classified as center Christian, and the
remaining Concertación parties- Socialista, PPD, and Radical- are classified as secular center left
parties (Coppedge 1997: 16). Moreover, an important actor of the re-democratization period is the
Independent Democratic Union party (UDI), a right wing party closely linked to the former
dictatorial regime. As Scully remarks, “the second major party on the right, the UDI, is a direct
political descendant of the military regime. The UDI views itself as a trustee of many tutelary
aspects of the ‘protected’ democracy set forth in the 1980 Constitution, such as the statutory
reduction of the state’s role in the economy” (Scully 1995: 129). Furthermore, in the last
congressional elections of December 11, 1997, UDI increased its electoral support.37 During the
first round for the last presidential election of December 1999, the Concertación candidate Ricardo
Lagos was virtually tied with right wing candidate Joaquín Lavín (48% of the votes for Lagos, 47.5%
for Lavín) but during the second round of January 2000 Lagos increased his poll of support to
51.3%, thus defeating Lavín who obtained 48.7% of the votes. Additionally, as Fuentes has argued,
one of the areas of fundamental consensus between the Concertación and their UPP rivals is that
Chile will continue to pursue market oriented policies and to respect private property rights. There
is also partial consensus on issues of redistribution and on policies for combating poverty, in other
words, while there is no disagreement on the contents of these policies, there are some
discrepancies on the extent these measures should have (Fuentes 1999: 198). Finally, there are
probably limited incentives for politicians to countervail market oriented economic policies as they
receive support from the electorate. In a recent public opinion poll 53% of the interviewed agreed
or strongly agreed that the State should leave economic activity to the private sector and 51%
evaluated that privatization has been beneficial for the country (Mirror of the Americas 1999).
Conversely, in Uruguay right wing parties have weak electoral support38 and the left has
increased its poll of electoral support steadily since re-democratization. According to Coppedge’s
It maintained its nine seats in the Senate and it now has twenty one deputies, that is, five more than before.
This does not mean, however, that right wing sectors do not exist at all in Uruguay. Due to the high levels of intraparty fractionalization in a context of inter-party moderated fragmentation right wing fractions were absorbed by the
traditional catch all parties.
37
38
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Welfare State Reform in Chile and Uruguay
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classification the Uruguayan Colorado and Blanco traditional parties can be classified as secular
center and secular center right respectively, the Frente Amplio can be considered secular left, and
the Nuevo Espacio secular center left. And while Colorado candidate Jorge Batlle defeated Frente
Amplio candidate Tabaré Vázquez in the last presidential runoff of November 1999, the left wing
coalition obtained the majority of seats in Congress. Finally, public support for market oriented
policies seems more limited in Uruguay than in Chile. According to a recent poll, only 29% of the
interviewed agreed or strongly agreed that privatization has been beneficial for the country39 and
34% agreed or strongly agreed that the State should leave economic activity to the private sector
(Mirror of the Americas 1999).
In terms concentration or dispersion of governmental authority Chile and Uruguay present a
substantial difference that helps understand the room to maneuver of veto players. The presence
of direct democracy devices in Uruguay constitutes a institutional mechanism that allows interest
groups to veto policy change40 (Kay 1999: 415) Moreover, the potential use of popular initiatives
allows interest groups to include their priorities in the debate41 by securing the attention of the
media and challenging political leaders. Above all, in a country where governing by decree is an
unfeasible option, the process of negotiation necessary for undertaking reforms must include
organized civil society. In the re-democratization period there were three instances in which direct
democracy devices were used in a way that directly affects social policies. As we already discussed,
in 1989 the interest group of pensioners proposed a constitutional amendment that established a
new mechanism of pensions’ adjustment and received 82% of electoral support. In November,
1994 two referendums were voted. In the first, a social security reform project presented by the
Lacalle administration was rejected. Critics to this reform objected a 55% reduction in the basic
retirement salary. A negative vote of 72% declined the proposal. In the second referendum, the
teachers’ union proposed a constitutional amendment to grant a minimum amount of the national
budget to public education, obtaining only 32% of the votes (Altman 1997). There were additional
attempts of “signature gathering” for popular initiatives that never achieved their goals. Most
notably in May 1999 the National Commission for the Defense of the Principles of Social Security42
presented signatures to the Electoral College (Corte Electoral) in order to derogate the social
security reform advanced by the Sanguinetti administration. However, the Electoral College
rejected the signatures arguing that nearly 40.000 of them were repeated. Other initiatives, such as
the education plebiscite, did not receive the necessary electoral support, but triggered an important
debate on the necessity of reforming the educational system. The important point to stress here is
that consensual politics in Uruguay, especially regarding a welfare state reform, go beyond partisan
coalition building and bargaining among the chief political actors: they imply the consideration of
organized civil society that, through direct democracy devices, becomes an additional veto point for
a reform approval. In this context, drastic non-consented reforms are quite unlikely to occur. As a
result, the path and direction of the Uruguayan welfare state reform seem to be a natural outcome.
The only way to advance the social security reform, was to respect already acquire rights, to allow
In this regard, privatization of public enterprises in Uruguay has been very limited, mainly because a popular
initiative of December 1992 opposed privatization of major publicly owned companies, after obtaining 79% of support
(Altman 1997: 15).
40 Citizen’s rights to activate direct democracy devices at the national level was granted by the 1967 Constitution, albeit
they already existed at the regional level.
41 I do not claim that civil society is a major actor for ‘setting the agenda;’ however, it might trigger a debate on certain
issues.
42 This commission was formed by national coordinator of trade unions (PIT-CNT), the pensioners interest group
(ONAJPU), and the Frente Amplio, among others.
39
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Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
important portions of the population to remain in the old system, such as workers contributing to
the para-state funds, the military and the police, and to maintain the pay as you go pillar. .
On the other hand, in Chile the electoral reform carried out under the military regime left a
clear imprint in the re-democratization period. This reform introduced the “designated senator”
figure. Of these senators, four are nominated by the National Security Council (Consejo de
Seguridad Nacional), three of these nominees must be former commanders in chief of the armed
forces, and the fourth a former chief of police. The remaining five are designated by the president
of Chile and by the Supreme Court. Ex-presidents of the republic, after a certain period of time,
become life-time senators. Thus, while this reform has secured a seat for Pinochet in the Senate, it
also grants seats for former Concertación presidents. As a result, the leaning towards favoring right
wing nominated senators will tend to fade as time goes by. Additionally, the electoral reform
advanced by the military government sought to over-represent the right and to undermine the
salience of small parties, especially Communists. As Carey argues, due to the new electoral system
“parties can win representation in Congress only if they are part of one of the two largest lists in a
given district. Those parties on the radical left that have been unwilling or unwelcome to enter the
center-left Concertación coalition have been virtually disenfranchised [...] A second important effect
of the system is that, given the distribution of electoral support in Chile, elections systematically
over-represent the coalition of the right” (Carey 1997: 93-94). As a result, the Chilean right has the
capacity of vetoing attempts to change the status quo.
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Chart 2: Patterns of Welfare Reform
Ideology of
Policy-Makers
Chile 1973-1990
Uruguay 1973-1985
Chicago School (economic
team), National Security
Doctrine (military, defined in
opposition to the Allende’s
administration goals).
Statism (military and
bureaucracy), National
Security Doctrine (military),
market oriented minister of
economics.
Power Concentration Yes, in the figure of
President of the Republic
and minister of finances.
Chile 1990-1998
Adherence to previous
market oriented economic
model, strong secular right
and center-left coalition.
No, several decision- making No (electoral system
units coexist, collegiate junta, disperses authority).
traditional bureaucracy.
Uruguay 1985-1998
Co-existence of statism and
market oriented positions,
weak right, increasing
relevance of the left.
No (direct democracy
disperses authority).
Presence of Veto
Players
No. Repression of organized No. Repression of organized
civil society, elimination of civil society.
opposition from within the
State.
Yes. Partisan: right wing
coalition (UDI and
Renovación Nacional) and
designated senators.
Yes. Non partisan: interest
groups (especially
pensioners). Partisan: left
wing coalition (Frente
Amplio).
OUTCOME
RADICAL
RETRENCHMENT
MAINTENANCE (of
private system)
MODERATE
RETRENCHMENT (but
strong presence of the State)
MAINTENANCE (of
universalism)
26
Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
VIII. Conclusions
In this final section I will summarize the main argument of this paper. In the Chilean case, as it
was said, a universalistic system was launched (from the 1920’s to the 1960’s) in order to appease
the increasing demands of the popular sector. In other words, the political elite created the welfare
state in order to ease social unrest. With a party system structured along class cleavages and
featuring marked polarization, the creation of the Chilean welfare state was not the result of a broad
class coalition, but a response from the political elite to social pressures. During the period of
greater expansion of the Chilean welfare state (1960’s-1973) the political arena changed dramatically.
The Allende administration expanded the welfare state without seeking support outside its own
political group. An alliance with the centrist Christian Democrats would have been critical to
Allende, but he failed to secure their support. As Valenzuela remarks, “Allende as a minority
president was incapable of structuring a majority coalition in the parliament to implement his
policies and yet was able to make use of ample executive authority to implement many of his
measures” (Valenzuela 1994: 210). As a result, rather than seeking support from the opposition
Allende sought to bypass it bluntly. The fact that Allende’s objectives implied the compromise of
property rights and the preparation of the country for a transition to socialism were considered
unacceptable by the opposition.
Society was also extremely divided and polarized under Allende’s government: both members of
the left and the right were greatly mobilized in the midst of a severe economic crisis. As Scully
asserts, “ideological escalation made compromise extremely unlikely” (Scully 1995: 121). In this
arena, the development of a broad cross-class coalition upholding the welfare state did not occur.
The democratic breakdown took place in an environment in which the military elite thought that
the only way to “save” the country was to create a “new Chile:” in that way the military defined a
self-proclaimed foundational mission by which the political, economic, and social realms would be
dramatically modified. The reform of the welfare state was inscribed in this broader context. As
Huber remarks “the reason of this radical approach was that the economic policies formed an
integral part of Pinochet’s political process [...]. The government sought to construct an atomized,
depoliticized society where there would be no bases for collective action and the state would no
longer be at the center of redistributional issues. Instead, the market was to determine the
allocation of resources” (Huber 1995: 19). The extreme concentration of power in the figure of
General Pinochet and the minister of finances, together with the presence of a highly cohesive
monetarist technocratic team, explains the dramatic departure from the traditional system of social
protection. In the re-democratization period a secular right aligned with the military become a
central actor of Chilean politics. This, together with the presence of designated senators, makes
changes of the current neoliberal welfare state system extremely unlikely.
On the other hand, in Uruguay the welfare state was developed by the political elite in an
anticipatory manner. As a result, it was not created to appease social unrest as in Chile but as an
attempt to secure the electoral support of urban sectors. In a country where political parties were
multi-class, representing a wide ideological spectrum from the beginning, and where strong rightwing parties did not emerge, to forge a broad cross-class coalition in support of the welfare state
was not a difficult task. The creation of a universalistic welfare state constituted a landmark in
Uruguayan history: it defined the relations between State and society and it shaped the Uruguayan
political culture. When Uruguayan democracy collapsed, the military government, deeply shaped by
this statism, did not alter the basis of the welfare state. The Uruguayan military neither had a broad
project of nation building nor defined a central objective beyond eliminating ‘subversion.’ In an
arena in which the left had a modest electoral support, it never compromised property rights or
27
Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
held control of the State, and in which the “enemy” of the military regime, the Tupamaro guerrilla,
was totally outside the institutional framework and electoral competition, Uruguay remained less
polarized than Chile. The strong dispersion of governmental authority during military rule and the
marked statism of the relevant policy actors explain the extraordinary maintenance the system
exhibited. In the re-democratization period the system of social protection started to be
transformed but its reform has been gradual, and the welfare state has retained many of its historical
traits. The weakness of right wing parties and the increasing electoral support for the left limit the
possibility of pursuing radical market oriented reforms. Moreover, the presence of direct
democracy devices not only allows veto players to include their priorities in the debate and block
undesired policy choices but also prompts consensual politics. Hence, it is extremely unlikely that
in Uruguay a radical reform will take place.
28
Welfare State Reform in Chile and Uruguay
Rossana Castiglioni
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