Chile’s center-left Concertación coalition has controlled La Moneda presidential palace for 20 years. Naturally, then, fatigue is one explanation for the first-round victory of center-right presidential candidate Sebastián Piñera in Chile’s Dec. 13 election.

It also may explain why the former senator and billionaire tycoon is favored to win the Jan. 17 run-off against former president and Concertación candidate Eduardo Frei.

Yet lurking just beneath the surface there may be other more powerful factors at work, not the least of which is Chile’s declining productivity under four successive Concertación governments, and a growing sense that for the first time in 20 years, economically speaking, life for Chileans is no longer getting better. Mr. Piñera, who got 44% of the vote to Mr. Frei’s 30% in the first round, has promised to reverse these trends.

This matters to all of Latin America. Chile is the region’s poster child for success through openness, competition, sound money, limits to government and equality under the law. Should the model begin to produce mediocre results, enemies of liberty will use it to discredit freedom.

Concertación, which is a coalition of Socialists and Christian Democrats (CD), first won the presidency in 1990. The election ended 17 years of rule by Gen. Augusto Pinochet, who had taken power in a military coup against Socialist President Salvador Allende.

Allende had made a mess of things, but Pinochet did not opt to return the country to the status quo. Instead he brought on board a band of young, free-market economists—many of them trained in the U.S.—to implement deep structural reforms. Prices were freed, markets opened and property rights restored. Most nationalizations were reversed, and fiscal accountability in government became a priority.

One of the most dramatic changes was the privatization of the pension system. Another key reform gave the central bank independence, ending the curse of hyperinflation.

It is often said that the modernization of the Chilean economy under Pinochet was so successful that even the left, once in power, didn’t dare undo it. That was perhaps true during the government of CD President Patricio Aylwin, the first Concertación president of post-Pinochet Chile, and of Mr. Frei, also a CD, who was president from 1994-2000.

But it was not true for Socialist President Ricardo Lagos, who was elected on the Concertación ticket in 2000 and his successor, Socialist President Michelle Bachelet. Both, for example, chipped away at labor-market flexibility as a favor to union constituencies.

Some argue that Mr. Frei’s distant second place finish in the first round should be blamed on his uninspiring nature. Indeed, if there had been a primary, it is unlikely he would have won.

This highlights troubles within the coalition, which is deteriorating. CDs are becoming more populist and the Socialists are leaning further to the left; the coalition’s only common purpose is power. It lost a meaningful number of voters to a third-party candidate in the first round. Meanwhile, those on the other side of the aisle have worked to unify in recent years.

Yet the first round also may have revealed an increased national preference for what the center-right has traditionally offered in the way of greater freedom. Chile is an open economy and this seems to have changed the way people think.

In an August 2009 poll conducted by Pontificia Universidad Católica and the polling firm Adimark, 73% of respondents said personal initiative and hard work are the way out of poverty. Only 26% said the state is responsible. The same survey found that 77% of respondents believe small businesses are perfectly capable of becoming successful enterprises.

What has the Bachelet government been doing to capitalize on this entrepreneurial spirit? Regrettably, less than nothing: It has made things worse.

In the World Bank’s 2010 “Doing Business” survey, which ranks the tax and regulatory environment for business in 183 countries, Chile fell 14 places year on year in the category measuring the ease of “starting a business.” It fell five places in “employing workers,” and three places in “paying taxes.” In “closing a business” it stayed even, coming in at 114th in the world. Overall in the survey, Chile’s rank dropped nine places.

This is reflected in Chile’s falling productivity. During Mr. Lagos’s tenure (then a six-year term), productivity grew a measly 0.12%. Things got even worse under Ms. Bachelet. In 2008, productivity fell 2.4%. In 2009 it is forecast to fall another 2.7%, which will take the drop over her four-year term to -1.57%.

Mr. Piñera’s victory in the run-off is no sure thing. Nor is it clear that as president he would take the necessary political risks to champion a free-market revival by cutting government red tape and starving the many middle-men who now live off of the regulatory process. What is certain is that if Chile continues to emphasize the politics of redistribution over entrepreneurship, it will lose its edge.

Source: Wall Street Journal