Recognising an expanded scope for rural

It appears that at present Chile sees little real need for a rural policy. This largely reflects a definition of rural that assigns virtually all significant economic activity to urban areas, leaving rural as a collection of marginal enterprises that are only weakly connected to the market economy. The rural policy that is now in place is defined to only support the disadvantaged, albeit with the admirable goal of trying to bring as many of them as possible into a situation where their income and productivity increases. Were this to be accomplished, the presumption must be that the role of rural policy has been accomplished.

This approach, as noted at beginning of the chapter, has real costs for the economy and Chilean society. It is in many ways a particularly strong example of the old paradigm of rural development that is based on providing subsidies to the disadvantaged, not because there is any great expectation that they will be able to use the support to improve their condition, but largely out of a sense of social cohesion.

A better strategy is to recognise that rural regions are, in fact, the largest part of the national territory and contain a large number of vital firms in a wide range of industries. While sectoral policy can provide important kinds of support to firms in that industry, the problem with this approach is that it ignores the spillover effects. As was shown in the second part of the chapter, current policies for specific sectors have major unintended and adverse consequences for other sectors that in Chile today are not well recognised. A more coherent rural policy identifies these spillovers so they can be at least considered before a sectoral ministry acts.

Most importantly, defining rural as marginal effectively limits the opportunities for the large share of the national population that actually lives in rural territory, even though the government does not recognise them as rural. Urban policy has little impact on these people because they are, in fact, not urban, but rural. As a result, they may lack the basic support that Chile promises to all its citizens because they fall between the policy cracks. While this is unfortunate for them, it also means that Chile is wasting their potential to make a strong contribution to the national economy.

There is very little sub-national influence on rural policy in Chile at present. While regions have some authority in delivering aspects of policy, the majority of policy influencing rural areas is framed in the national capital. Because of its market orientation, sectoral policies in Chile that influence commercial sized rural firms have an export-oriented competitive nature. However, heist is less the case for the policies that are clearly identified as specifically “rural” since these are mainly geared to people and firms largely outside the market economy. Chile has some high-level co-ordination mechanisms that operate at the ministerial level on specific topics, but there does not seem to be a clear commitment to vertical co-operation to complement the existing national level horizontal collaborations.

The distinction between sectoral level policy for commercial scale rural firms and the current rural policy focus on semi-subsistence firms and households carries into the investment orientation. A large part of the support provided to commercial firms is of an investment nature, mainly to increase competitiveness. Conversely, improving productivity and increasing the market orientation of rural firms and households is only partially seen as an investment and partially seen as support for the disadvantaged. Like in almost all OECD countries reviewed, there is not a strong commitment to policy evaluation in Chile. As in other countries, if rural policy is largely seen as a subsidy opt transfer to the disadvantaged, the value of evaluation is limited. Evaluation only becomes crucial in an investment-oriented policy framework, and, in the case of Chile, investment support for commercial scale rural firms can be easily assessed through the growth in their exports. Finally, given the highly centralised nature of the government in Chile, there is little evidence of broad participation in the formation and delivery of rural policy.

One of the key dimensions in the NRP is the need for Chile to adopt a rural policy that is broader and integrated. Rural policy in Chile should therefore address five key dimensions or policy themes: social, economic, environmental, migration and governance.

  • • Social concerns include addressing differences in access to public services, particularly health and education in rural areas, the particular role of indigenous peoples in Chile, and the preservation of traditional cultural and social values embedded in the rural population.
  • • Economic concerns include making the various parts of rural Chile and rural dwellers fully productive so that they can make a stronger contribution to the national economy, addressing concerns about high rates of income inequality, improving the skills of the rural workforce, and modernising the rural economy by introducing new economic functions.
  • • Environmental concerns include addressing the negative environmental effects of resource extraction, enhancing the supply of water, protecting high-value environmental resources, but allowing them to play an important role in domestic and foreign tourism, and ensuring species survival.
  • • Migration concerns focus on the fairly rapid and persistent flow of people from rural areas to cities. This flow occurs because of perceived lack of opportunity and an inferior quality of life in rural places, but many of these rural migrants are unprepared to participate in the urban labour force because of a skill mismatch. Consequently, rural depopulation can have adverse effects on rural development by reducing the supply of labour and adverse effects in urban areas by increasing the number of residents who are dependent on transfer payments.
  • • Governance is the last key issue and it involves questions about how to achieve vertical co-ordination between national and local policy, the relative roles of different ministries in forming and delivering rural policy, the role of the government in relation to the private sector, and an appropriate definition of regions, both in terms of geography and responsibilities.

The importance of having a distinct rural policy is a function of the relative size of rural in the country. If rural is small, then the associated benefits from having a more effective rural policy may also be small and the losses from subsidizing a lagging rural population may also be small enough to be non-controversial politically. But if the rural component of the nation is large, then failure to make it fully productive will impose a significant cost on macroeconomic efficiency and the political controversy over providing subsidies to rural people and territory may be significant.

At present, Chile’s current definition is based on the belief that the rural population is small and rapidly declining. Unfortunately, this seems to be a result of the current rural definition. Thus, Chile may have assumed it could afford to pay little attention to rural policy, because doing so was seen as having few consequences. But, as Chapter 1 shows, using more common definitions of rural results in a much larger share of rural in the country, making the costs of an ineffective rural policy far greater.

The current system of planning is quite fragmented and operates largely under a wide range of sectoral priorities which are largely unconnected and operate with little co-ordination amongst them. Indeed, the existing planning process itself is flawed in that the three planning structures are not well co-ordinated and plans are often not well connected to actual conditions in regions. Without major improvements in planning systems, there will be little gain from adding a rural dimension to an already cumbersome process.

Alternatively, it may be more effective to use the national policy objectives already articulated in the existing planning process as guidance for setting broad rural strategies and then introduce a narrow rural policy that translates these broad goals into specific rural actions. In an environment where there are many other large claims on public budgets, rural policies are unlikely to receive large amounts of new funds. This means that reprogramming existing funds so they can be applied more effectively is a more realistic approach.

By definition, rural policy implementation takes place outside the national capital, Santiago, and the other major urban centres that are the focus of urban policy. The specific mechanics of rural policy and programme delivery require an understanding of the context in which they operate and the incentives that influence the behaviour of individuals and firms in these regions. The existing regional administrative structure, especially with the potential for newly directly elected regional councils to introduce “local knowledge” can provide an effective way to connect national goals, transmitted through the intendente with local conditions, as revealed by the elected councils.

At present, Chile has two forms of rural policy. There is an explicit, or narrow, rural policy that can be thought of as providing support for individuals and firms that are located in rural territory but that are weakly connected to the market economy and operate in a semi-subsistence way. But there is also an implicit, or broad, rural policy that is defined at the sectoral level and provides support to firms and individuals that are involved in industries such as agriculture, mining, forestry and fishing that are all inherently rural in their location. Many of the firms in these sectors are highly competitive in global markets and generate a large share of the export earnings of the country.

The key problem with this situation is that the two policy regimes are tightly connected even though they are seen by the government as distinct. In reality, the firms involved and the people who work in both the semi-subsistence and commercial parts of the various sectors compete for inputs and in product markets. Both small-scale and large-scale farmers compete for land and water. Similarly, while artisanal and commercial fishing enterprises have distinct fishing grounds, the fish move across the boundary and when caught by either group are sold in competing markets, despite the fact that small-scale fisherman are focused in subsistence and local markets, while industrial fishing is more export oriented. Because of this connection, current rural policy is inherently influenced by sector policy and vice versa. But since the policy formation process in each case does not take this interaction into account, the result is inefficient policy in both cases and a lower level of economic development for Chile than could be the case were policies better co-ordinated.

 
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