Sunday, January 4, 2015

The independent regulator goes to Chile

In work I did with Miguel A. Montoya on independent regulators in the telecommunications sector in Latin America, based on his PhD thesis and a data base he constructed, one of the paradoxes we found was that Chile, a country that is known for its institutional quality, had the lowest levels of regulatory independence. The reason was that this country committed to respect sunk private investments not through independent regulators that were immune to political or public opinion pressures, but through a very detailed legislation coupled with a political system that made legislative change very difficult. However, this commitment device was vulnerable to unforeseen contingencies, which have tended to arise as time went by. The fact is not only that unforeseen contingencies have occurred (extreme weather events, new technologies) but also that legislative change is more and more possible, as new generations demand a more open democracy than the one inherited from the Pinochet dictatorship. Hence the progress of independent institutions in microeconomic policies, like the expert panel in the electricity sector, which has been operating since 2004, or the very independently chosen Antitrust authority, where even the Central Bank has a more important role in the appointment of members than Parliament. There is a long history and tradition of independent agencies, commissions, and expert (even foreign) missions in Chile, although ultimately what will make reforms that are both efficient and equitable sustainable will be political changes that expand opportunity and at the same time promote high investment in a more diversified economy. James Robinson, one of the authors of “Why Nations Fail,” had a suggestive presentation some time ago on this interpretation of the changes that are necessary in the trajectory of Chile, to make it more similar to a country like Australia. It is to be seen whether the reforms that are being introduced as a result of the mass mobilizations in 2011 will promote such decisive changes.

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