One of the most debated issues, and perhaps the biggest change the constitutional proposal makes, is to the national economic system.A little over a month before the proposal must be approved or rejected in the Exit Plebiscite on September 4, two economists debate the proposal and what they consider its advantages and weaknesses.Of the points to be considered, the experts discuss the financing of Regional Governments, their ability to issue debt and establish local taxes, the entrepreneurial State, water rights and the increase in fiscal spending due to the creation of new positions in the Condition.I believe that the proposal pulls us back.This new constitution can be an opportunity to have a more inclusive and sustainable economic growth, which is something that needs to be advanced, but I think that as it is written, it is a setback."Elisa Cabezón, an economist and member of the Pivotes network, a public policy laboratory, considers that the proposal, although it has some salvageable elements, also contains elements that introduce instability to the country and that would mean a setback for the economy.“I think the proposal pulls us back.This new constitution can be an opportunity to have a more inclusive and sustainable economic growth, which is something that needs to be advanced, but I think that as it is written it is a setback.It weakens many key elements for economic development, such as private property, water rights, fiscal sustainability, which is essential to have responsible state spending and to control inflation;it also weakens security, because a healthy economy is based on having a safe country, and I think the draft has many elements that undermine it, ”she says.Regarding the ability to issue debt, the economist assures her that it is a step closer to the Argentine model, which she does not consider to be something positive.“When you allow regions to issue debt, it produces an effect that in economics is called soft budget constraints.And that means that local governments can spend beyond their capacities, on their tax revenues, because they have the expectation that, if they cannot pay the debt, the central government will bail them out.And that bailout is financed by the tax revenue of the entire country.And that has happened in Argentina, Brazil and Spain, where local governments have been allowed to issue debt and this overspending was so high that later the bailout that the government had to do to pay that debt fiscally compromised the entire country”, it states.“There are some supporters of the proposal because they say that the Treasury is not going to be able to pay the debt of the regional governments, which is in the proposal, but in practice it is not credible that, if a regional government has a high debt, that the central government is not going to rescue him, because that would mean closing public services in the region,” warns Cabezón.Regarding the same thing, Cabezón says that there are several studies that prove that there are better ways to achieve decentralization, which she considers a desirable objective, but she questions the method that the constitutional proposal is betting on.“Academicians say that it is better not to allow the debt and if it does, that it is not advisable, that it has these restrictions to better control it.But I believe that to advance in fiscal decentralization it is not through the issuance of debt, but through a solidarity fund of the regions, where each region contributes to the fund and that fund is distributed according to the income of each region.In other words, that the fund delivers based on the needs of each one to equalize the interregional gaps.That is more recommended than allowing debt issuance,” she explains.If we are going to have an Entrepreneurial State, that competes on equal terms with the private ones".Regarding the capacity that the proposal gives to the Regional Governments to issue their own debt, independent of the Central Government, the economist believes that this can produce adverse effects to the desired ones: competition between the regions and lower tax collection.“I believe that local taxes can be advanced as long as the condition is met that the base of said tax is not a movable base.By this I mean do not place on income that can be changed from one region to another.For example, if each region has its own tax on companies, then companies will choose where to settle.And that is a mobile base, and what can happen there is that there is a competition between the regions of who has the lowest tax to see who can attract companies.And that can cause the country's tax collection to drop, because each region would like to have its corporate tax as low as possible and that will affect tax revenue.So, if the regions can put their own taxes, the first thing is that it be done on non-movable tax bases, so that it does not distort the total collection of the country, ”she says.Another of the great changes found in the proposal is that the State, be it the central or the Regional Governments, can participate in the economy through the creation of public companies.For Cabezón, this measure may bring about conflict with private companies, because the proposal does not regulate competition between these government companies and private ones, which could lead to a drop in investment.“Here I have a very strong criticism of the proposal, which allows the creation of regional public companies, which seek to improve public services.I agree with that, but if these regional public companies are created, they have to be created under the principle of competitive neutrality.And that means ensuring that public and private companies compete in the market under equal conditions, without the State giving them subsidies, tax benefits, exceptions to free competition, etc.The State has many tools to benefit public companies over private ones.And if this happens, if the State creates these public companies and benefits them over the private ones, what can happen is that the private ones, the SMEs, can lose space to participate and collaborate in the development of the country and that market power concentrate on state-owned public companies.So, that principle must be included in the proposal and, as it is written, it does not include it.In fact, that principle was rejected during the debate.I find that very serious.If we are going to have an Entrepreneurial State, that competes on equal terms with private companies, that have a lot to contribute and that gives you more free competition in the market and that offers better prices”, he affirms.Regarding water rights, the economist considers that the proposal points, with good intentions, to a way of using the resource that is conceived with the environment, however, she believes that the way in which it is raised leaves many questions for companies and producers. that depend on water for their operations.“The change that the proposal makes is that water is now a common good, and what the State does is hand over the right of use, of water exploitation, to individuals.And that right of use is protected by private property.And that guarantees water users a lot of certainty and also allows it to be sold on the market, it allows for efficiency.So, the reform that is in the proposal, eliminates this private property on the rights of use.And that creates more uncertainty for individuals who use water for economic activities, it generates more uncertainty for industries that use water, such as agriculture, mining, among others, ”she says.“I would say that it is a mistake to eliminate that protection that exists on water rights.And I think that what can be improved is the proposal that we have in Pivotes, which is to maintain private property and add restrictions in the Constitution that allow protecting the use while taking care of the environment.This could be added to have a healthier use of water and better deal with water scarcity.She believes that the reform harms the certainty that it provides about economic activity and we believe that we can work on how to take care of the environment without losing it”, she proposes as an alternative.Regarding the increase in fiscal spending, with the creation of the new government positions necessary for the administration of this new state, the economist believes that it is something inevitable, due to the number of new institutions that exist in the proposal.“Only looking at the new organization of regional autonomous governments in the proposal, one sees an increase in the bureaucratic apparatus, with the creation of new government positions and public institutions (such as the regional statute, council of mayors, regional social council, public companies regions, council of governors, regional assembly).This will still increase public spending on bureaucratic administration”, she states.There could be no over-indebtedness because there is a limit to the level of debt that can be exposed, so that is a very important restriction.The economist and academic of the Faculty of Economics of the University of Chile, Ramón López, on the other hand, believes that this change of system is vital for a future Chile, because the current system, in his opinion, is too centralized;and the proposal proposes the necessary changes so that the regions can fully develop.“The mere fact of decentralization is tremendous, because not only is there a tremendous cost of efficiency, but it is also very difficult to develop the potential for regional development when you have a centralized state.You want resources to be allocated in such a way that the marginal productivities tend to be more or less similar.You don't want to have a region, like the Metropolitan, that absorbs all the resources and leaves others with so little, because that's inefficient.Because if you have a budget of 100, and you allocate 90 for Santiago, the marginal productivity of the resources in the Metropolitan Region is very low, while that 10 that is assigned to the regions, the productivity is very high because the percentage is very bass.So, if part of those resources that are destined for the center are reallocated, you improve productivity in the regions”, he affirms.Ramos has a much more optimistic view of the regional governments' ability to issue debt, since he considers that the proposal itself defines in a good way the way in which the regions can borrow.“The new Constitution itself establishes quite severe rules.Although it allows debts of the Regional Governments, these have to be subject to very important restrictions.First, there are limits to borrowing as a percentage of your annual budget.Secondly, they are prohibited from allocating the funds they can allocate for the issuance of debt for current spending, they can only be used for investments, and with limitations on the amount of debt they can issue.In addition, the debt services have to be guaranteed, they have to be subject to risk classification, like any other private entity.Prohibited to use guarantees with treasury assets.They cannot do it without respecting the rules that I have just mentioned, which gives you access to the capital market, which facilitates your own planning of the amount of resources available for investment and nothing more than investment, ”he says.Regarding the possibility of complicating his colleague, the over-indebtedness of the regions, Ramos remains more positive and distances himself from the vision of financial disorder, although he acknowledges that, as in all economic activity, there are inherent risks.“There could not be an over-indebtedness because there is a limit to the level of debt that can be exposed, so that is a very important restriction.In addition, they have restrictions on risk classification, just like any private company that aspires to issue debt.There are always risks that some region could be triggered, but life is like that, nothing is perfect and not all risks can be prevented.On the one hand, if we want to give autonomy to the regions, if we want to move towards decentralization, we have to take certain risks in terms of financing.But the current system is much worse, where if you want to install a traffic light in a commune, you have to wait for the approval of the central system.And that is called centralism.And this is a small step away from that,” he explains.In the same way, regarding the capacity of the Regional Governments, the academic from the House of Bello considers that there should not be a problem of coexistence because the mechanism is well defined in the Magna Carta project.“There are several clauses in the proposal that are there to prevent competition between the regions, but there is also, as in any country that has regional autonomy or a federal system, there is the possibility that there will be regional competition to attract capital by lowering taxes, and that it is an inherent risk of decentralization.But this proposal has quite important precautions to prevent or minimize that possibility.Despite all these clauses, because nothing is perfect, it may happen to some degree, but the important thing is that it does not happen in a generalized and intense way that affects the budget of the regions”.The general problem is that the Chilean State has been an observer state, with very little capacity to really program, plan public policies and carry out public enterprises".Regarding the role of the Entrepreneurial State, the economist believes that it is a measure that can bring many positive externalities and improvements to the current system, which he considers gives the State a too limited role in the economic system.“The general problem is that the Chilean State has been an observer state, with very little capacity to really program, plan public policies and carry out public enterprises, and that is an unusual limitation of the current Constitution.In practically no country in the world is the State prohibited from forming public companies.And this gives the possibility, not only to the central State, but also to the regional governments, to establish companies.There are also limitations on how they are to be set.But I think that one of the great problems of the Chilean economy has been the extreme subsidiary State that was imposed by the Pinochet Constitution”, he affirms.“There are clauses in the proposal, which I consider to be quite wise in various aspects, that have considerations to prevent as much as possible the political use of these public companies that are going to be formed.I believe that the State can be tremendously complementary to private investment.If these investments are well directed, it has to take charge of activities that involve positive, technological and other externalities;that involve activities that the private sector does not.So, I think that more than competition with the private sector, there is a high degree of complementarity.At this time, the generation of technologies in Chile has been an absolute failure in the last 40 years, because the private sector does not invest in research and development.Chile currently invests 0.34% of GDP in R&D.The logical consequence of this is that productivity has declined in the last 15 years.If we don't invest in technological development, it will be very difficult for us to get out of the economic mediocrity in which we are mired.And the only way to overcome this problem is to have a more active State, which, for example, makes agreements with regional universities to integrate research and extension in each region, which is very important.And this also allows regional governments a more active role in planning their budget instead of being merely executors”, he continues.Regarding water rights, Ramos believes that this proposal introduces major necessary reforms, since the current system lends itself mainly to speculation and misuse of water rights.“Here there has been an abuse of water rights, which are absolute, private, tradable, which in no way guarantee efficient use from a social or economic point of view.This is a fundamental change: the way of visualizing water through the regional boards where limitations are placed on private concessions and regional entities are established in each basin based on the priorities of each one, in order to be able to supply the community in the first place. place and put restrictions on the sale of water rights, put an end to speculation with water rights, which is what exists today.Companies or individuals that have access to absolute water rights that use them only for speculation, not for the productive part.There are a lot of problems in the current system that this proposal is responsible for reducing”.Similarly, compared to the Libertad y Desarrollo study that establishes that fiscal spending would increase by $13 billion pesos to support the new services and public positions that should be created with the new system, the economist considers that the amount is irrelevant in How much does it compare to the total state budget?“Let's accept the figure of $13 billion pesos, which is $14 million dollars.What is that in GDP?With a GDP of $250 billion, that's like 0.00001%.Any.It's in the statistical errors.Public spending is $70 billion dollars.In other words, we are talking about figures that, from a personal point of view, sound like a lot of money, from the point of view of the State it means an insignificant increase in public spending.You have to have perspective on this, because it may sound very impressive, but that budget, even within a regional budget, is nothing.For example, the municipality of Las Condes manages a total budget of how, and I hope I'm not mistaken, of $400 million dollars.For the country that is nothing, ”he says, to finish.© Copyright 2022© 2021 THE DYNAMO.All rights reserved.THE DYNAMO IS PART OF THE 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