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Riot policemen arrest a student protester in Santiago, Sept. 27, 2012. Unlike other OECD countries where about 70 per cent of education is publicly funded, in Chile only about 15 per cent is.IVAN ALVARADO/Reuters

Chile has been a role model for Latin America for the past 20 years. Since the 1990 transition to democracy after Augusto Pinochet's dictatorship, the country has stood out for its rapid economic growth, social progress and political stability.

Two years ago, Sebastian Pinera, a billionaire businessman, led a centre-right alliance coalition to power, the first rightist government since Mr. Pinochet.

Lately, however, Chile's shining image has taken a battering. Although student protests have been a feature of the country since the "Penguin Revolution" of 2006, such protests have soared. Moreover, the habit seems to have caught on. Environmental protests are increasingly common too.

The discontent has caught many by surprise. Some have wondered if it is symptomatic of a citizen revolt against "the model" – a set of free-market and pro-business policies bequeathed by Mr. Pinochet and that have been carried on ever since.

The odd thing is Chile is thriving. Poverty has fallen from 40 per cent in 1990 to about 14 per cent now – a fall greater than in countries where populist leaders often proclaim themselves champions of the poor. Real wages are rising and unemployment is at a record low. In 2010, Chile joined the OECD, a group of mostly rich nations. The fast-growing economy has, so far, resisted the global slowdown.

Polls also show that Chileans are generally happy with their lot. Andres Velasco, a former finance minister from the opposition, comments: "This is hardly the stuff of a country whose development model is on the point of collapse."

Nonetheless, Chileans are unhappy – if not with themselves, then with their country. The biggest reason for this is that, despite economic growth, the country remains the most unequal in the OECD and among the most unequal in Latin America.

Indeed, on the streets of Santiago, there is a sense that while commuters trudge to work in the morning rush, most of the country's wealth remains controlled by a small clique of insiders who set the rules of the game.

Similar feelings of middle-class dissatisfaction have sprung up elsewhere, notably in the U.S. and the U.K. in the "Occupy" movements. This, then, is a global trend. In Chile, though, it is perhaps heightened by a traditional social conservatism – a legacy of the country's geographical isolation and small size. Furthermore, an ossified political system does not help foster a sense of inclusion.

Education is often held to be the answer to many of such problems. Indeed, there are now more than one million Chilean university students, compared with just 200,000 in 1990 (and 70 per cent of today's crop is the first in a generation to go to college).

The problem is that, unlike other OECD countries in which about 70 per cent of education spending is publicly funded, in Chile only about 15 per cent is. The rest is paid for privately by students and their families, many of whom are still relatively poor.

Universities typically charge about $3,400 (U.S.) a year (rising to $10,000 at the best colleges), versus an average Chilean salary of $8,500. Although the returns on education can be high, many universities are mere diploma mills of dubious quality.

Although a good education is available at top colleges, typically they charge more, potentially locking in inequality. A good education system is desirable for both social equity and efficiency.

Mr. Pinera has partially defused the student protests by increasing scholarships to those that most need financial help, cutting the interest rate on student loans and working to improve teacher quality. That may not answer more radical demands for "free education," but targeting those who are most in need is certainly fairer.

Another reason for the disquiet, is Mr. Pinera himself. The 62-year-old president is articulate, energetic and intelligent. In common with his closest regional ally, the Colombian president Juan Manuel Santos, he marries centrist policies with strong liberal instincts. Yet, unlike Mr. Santos, even Mr. Pinera's own supporters admit that he lacks a sure political touch.

An example of that came last month. The government crowed that a census showed poverty had fallen. This sense of triumph dissolved in a political dispute about the soundness of the figures and their statistical significance. The exercise backfired.

For Felipe Larrain, the finance minister, Chile's disquiet is a sign of frustrated expectations. The country, he suggests, may be "struggling to get out of the middle-income trap." This is a kind of Sargasso Sea of economic development. Over the past 50 years, only a few countries have escaped – mostly by focusing on incremental improvements, such as higher productivity and better education.

It is a hard slog. Yet, in many ways, it is also a problem of success. Over the past 20 years, Chile has vastly expanded its middle class. Now they have more sophisticated demands, and are not afraid to voice them.

Some other countries – including reformers such as Colombia, Peru, Mexico and Brazil – are bumping into similar problems too. That is reason to celebrate rather than despair.

Such concerns are certainly preferable to those, such as high inflation, that dog Venezuela and Argentina. Chile's continuing lesson for the rest of the continent, though, is that development is not so much a destination as a process. The battle is never over.

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