HOW MORE MONEY CAN BE BAD FOR YOU / THE FINANCIAL TIMES NOTEBOOK

NOTEBOOK

May 21, 2013 8:01 pm

How more money can be bad for you

By Martin Sandbu in Santiago de Chile

The richer ‘Santeguinos’ get, the more time they spend in traffic, writes Martin Sandbu

Whether being richer makes you happier is one of those interminable debates that keep the wheels of academia whirring. Personally, I don’t need cross-country statistics. For proof of the drawbacks of economic progress, I look no further than my eight month old on a recent visit to his Chilean grandparents. Santiago is not 19th-century London or Pittsburgh, or even 21st-century Beijing. But the nasty-looking lead-grey colour of what my son coughed up is eloquent testimony to the lid of smog that oppresses the Chilean capital on bad days.

Here too, air quality is a victim of economic success. Chile’s economic growth stands out even in a region that has thrived through boom and crisis on the back of high commodity prices. It has stayed well clear of the populist sandbanks on which Argentina is stranded. It has escaped Brazil’s slowdown. When President Sebastián Piñera steps down early next year, he may almost have fulfilled his promise of a 6 per cent average annual growth rate.

That growth has done wonders to reduce the worst poverty, even if the country remains shockingly unequal. And Santiago bears the marks of a boom. These range from the frenetic building of flats and shopping malls to the source of the smog – the many cars taking over the streets.

Santeguinos relish the new cars and consumer goods that the low unemployment and easy credit put within reach. Who wouldn’t? But the richer they get, the more time they spend in traffic. A sign of the times: more and more cycle to work.

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School subprime

A surfeit of cars is not the only thing that stops traffic in Santiago. Student protests do, too. Regular, frequent and large – I attended one with easily 100,000 participants – they track the school year. Apolitical Chileans (they do exist) treat them like a seasonal weather phenomenon. While they are mostly peaceful, the carnival-like marches often end in clashes with riot police.

The biggest marches were in 2006, when they were led by high school student union leaders, and in 2011, when those leaders had moved on to university. This year they are standing for Congress. God knows what they will try to run next.

The students protest against an education system some of whose practices remind one of the US banking system circa 2006. Higher education in Chile has mushroomed. In a little more than a decade, the number of students has trebled; two-thirds are the first from their family to go to university. But the quantity of places, provided by private colleges and funded by subsidised loans, has come at the cost of quality.

Subsidised universities must be notionally not-for-profit. But nothing stops founders of universities – including an education minister – from also owning for-profit property companies that rent the land and buildings at inflated prices. With these incentives, scale is all that matters. Predictably, the education on offer is often overlooked.

It is not so easy to judge the promise of a degree with high wage prospects if nobody in your family has been to university before. So poor students have forked out for what at times has proved a subprime education. They are left with student debt and a degree that doesn’t buy a job well-paid enough to service it. Some don’t even get the degree: the Universidad del Mar recently closed because of financial improprieties, its students left stranded and indebted.

It was a bit of a Lehman moment: letting a university fail like that looks terrible. More are currently under investigation. Rumours are that Mr Piñera is quite happy for this mess to land in the hands of his predecessor and likely successor, Michelle Bachelet, clearing the way for him to return in 2018 (presidents cannot serve consecutive terms).

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Where credit’s due

The government spins the protests into another cost of success: Chileans are richer and aspire to more. It’s an artful excuse and probably true. But it doesn’t help politically. Mr Piñera gave a spirited defence of his policies in his annual address to Congress on Tuesday. But despite the growth, he remains deeply unpopular.

The fact is that many Chileans feel cheated. Student debt is one thing; another is retail chain store credit – a way to get the poor to buy, but often with hidden usurious costs.

Chileans on the right used to hate the left and vice versa. Increasingly they despise both camps. It takes more than growth to be happy – at least with your government.