Summary of Productivity for Inclusive Growth

After the turn of the millennium 90% of OECD countries experienced a decline in trend labor productivity growth. This decline in productivity growth has played out against a global backdrop of rising or persistently high inequalities of income, wealth and well-being.  In 2014, Chile an OECD member-country, launched a comprehensive Productivity Agenda. The overriding aim behind this was to broaden the productive base of the economy and to generate strong and sustainable future productivity gains, whilst also ensuring that productivity growth benefits all parts of society in terms of improved living standards and opportunities.

On Friday, October 30th, the Center on Global Economic Governance (CGEG) hosted Luis Felipe Céspedes, Chile’s Minister for Economy, Development and Tourism, who discussed the main pillars of the Agenda, and how Chile is working to enhance its productivity to generate more inclusive growth. The event was hosted in conjunction with Columbia SIPA’s Program for Economic Policy Management as well as Columbia Law School’s Center for the Advancement of Public Integrity.

The Minister began his presentation by recognizing that achieving higher productivity and greater inclusive growth is a relevant, pressing topic for all countries. A key question confronting governments is how to lock in productivity gains while combatting widespread inequality.

Since its return to democracy, Chile has enjoyed significant economic growth and reduced its income per capita gap by 40% compared to the United States. Minister Céspedes outlined four pillars to the country’s Productivity Agenda: 1) quality institutions, 2) a healthy macroeconomic policy framework, 3) openness to global markets, and 4) a priority of financial stability. Each objective is an important variable to increasing the country’s productivity, which is approximately half the OECD average.

Minister Céspedes noted that even if a country’s internal policies are economically sound, external difficulties remain. For Chile, lower commodity prices—particularly for copper—have had challenging implications for the domestic economy.

Chile’s strategies to increase productivity are largely linked with its broader economic development aims. These objectives include the diversification and sophistication of the economy, prioritizing competition to spur innovation, and democratizing education, and entrepreneurship. Minister Céspedes said that despite Chile’s talent being equally dispersed throughout the country, entrepreneurs tend to originate from the same areas of the population.

The Minister noted that economic diversification does not mean abandoning the country’s natural resource base. Strategic programs should target high growth potential sectors such as mining—which accounts for 60% of Chile’s exports and 11% of employment—as well as industries such as solar energy and tourism. Harnessing technology is fundamental to increasing the productivity and efficiency of these sectors.

During the Q&A session, CGEG Director Jan Svenjar inquired how Chile had differentiated itself from other economies as an attractive FDI destination. The Minster noted that strong, stable institutions have helped attract investment while openness to trade has benefitted domestic sectors, such as the wine industry. Another question focused on why Chile’s progress seems to have decelerated relative to previous years, to which Minister Céspedes responded that as GDP per capita has increased, so have the demands and expectations of Chileans. The government must continue to address these challenges, while boosting productivity and maintaining inclusive growth.

- Kevin Gilmartin, MPA ’18