The Long FAQ on Liberalism
A Critique of the Chicago School of Economics:
CHILE: THE LABORATORY TEST
Many people have often wondered what it would be like to create
a nation based solely on their political and economic beliefs.
Imagine: no opposition, no political rivals, no compromise of
morals. Only a "benevolent dictator," if you will, setting
up society according to your ideals.
The Chicago School of Economics got that chance for 16 years in
Chile, under near-laboratory conditions. Between 1973 and 1989,
a government team of economists trained at the University of Chicago
dismantled or decentralized the Chilean state as far as was humanly
possible. Their program included privatizing welfare and social
programs, deregulating the market, liberalizing trade, rolling
back trade unions, and rewriting its constitution and laws. And
they did all this in the absence of the far-right's most hated
The results were exactly what liberals predicted. Chile's economy
became more unstable than any other in Latin America, alternately
experiencing deep plunges and soaring growth. Once all this erratic
behavior was averaged out, however, Chile's growth during this
16-year period was one of the slowest of any Latin American country.
Worse, income inequality grew severe. The majority of workers
actually earned less in 1989 than in 1973 (after adjusting
for inflation), while the incomes of the rich skyrocketed. In
the absence of market regulations, Chile also became one of the
most polluted countries in Latin America. And Chile's lack of
democracy was only possible by suppressing political opposition
and labor unions under a reign of terror and widespread human
Conservatives have developed an apologist literature defending
Chile as a huge success story. In 1982, Milton Friedman enthusiastically
praised General Pinochet (the Chilean dictator) because he "has
supported a fully free-market economy as a matter of principle.
Chile is an economic miracle." (1) However, the statistics
below show this to be untrue. Chile is a tragic failure of right-wing
economics, and its people are still paying the price for it today.
The history of Chile and the "Chicago boys"
Unfortunately, Chile has been the site of revolution and experimentation
for over 30 years now. From 1964 to 1970, President Eduardo Frei
led a "revolution in liberty." From 1970 to 1973, Salvadore
Allende embarked on a "Chilean road to socialism." From
1973 to 1989, General Augusto Pinochet and his military regime
conducted a "silent revolution" (so-called because the
free market quietly brought about drastic social change). After
1990, Chile has returned to democracy, but it will be a long time
recovering from its experiments.
Chile's main export to the world is copper, and the United States
has long held a keen interest in it. By the 1960s, U.S. companies
had invested so heavily in Chile's copper mines that they owned
most of them. When the conservative reformer Eduardo Frei became
president in 1964, he attempted to nationalize the copper mines,
but to no avail he met stiff resistance from the business community.
In 1970, Salvadore Allende became the first Marxist to be democratically
elected president in the Western hemisphere. In the course of
his sweeping socialist reforms, he nationalized not only the copper
mines but banks and other foreign-owned assets as well. Along
with the redistribution of land under land reform, these actions
deeply antagonized Chile's business community and right wing.
It is now a matter of historical record that the CIA helped organize
their opposition to Allende. A massive campaign of strikes, social
unrest and other political subversion followed. In September 1973,
the CIA helped General Pinochet launch a military coup in which
Allende was killed. The Pinochet government claimed he committed
suicide; his supporters claimed he was murdered.
The new government immediately began privatizing the businesses
that Allende had seized, as well as reversing his other socialist
reforms. But Pinochet did not have an economic plan of his own,
and by 1975 inflation would run as high as 341 percent. Into this
crisis stepped a group of economists known as "the Chicago
The Chicago boys were a group of 30 Chileans who had studied economics
at the University of Chicago between 1955 and 1963. During the
course of their postgraduate studies they had become disciples
of Milton Friedman, and had returned to Chile completely indoctrinated
in free market theory. By the end of 1974, they had risen to positions
of power in the Pinochet regime, controlling most of its offices
for economic planning.
The arrangement was a new one in the history of governments. Although
Pinochet was a dictator, he turned the economy over to the Chicago
boys, and his only role was to suppress political and labor opposition
to their policies. This arrangement was presented to the Chilean
people as the removal of politicians and politics from the nation's
affairs. Instead, technocrats with Ph.D.'s would run the economy
according to the best theory available. Those theories, of course,
were the "neoliberal" theories of Milton Friedman. Rational
science would decide policy not political slogans and muddled
In March 1975, the Chicago boys held an economic seminar that
received national media attention. Here they proposed a radical
austerity program "shock treatment," they called
it to solve Chile's economic woes. They invited some of the
world's top economists to speak at the conference, among them
Chicago professors Milton Friedman and Arnold Harberger. Unsurprisingly,
they gave the proposal their highest praise. The plan called for
a drastic reduction in the money supply and government spending,
the privatization of government services, massive deregulation
of the market, and the liberalization of international trade.
This was not solely the Chicago boys' plan. It was also formulated
by the International Monetary Fund and the World Bank, who made
the program a precondition for future loans to Chile. The IMF
and World Bank would make similar conditions of other developing
nations around the world, but none would implement their program
as thoroughly and completely as Chile. Interestingly, the World
Bank now holds Chile up as an example to be emulated by the rest
of the Third World. Considering Chile's huge debt and interest
payments to the World Bank, it is not difficult to see why. The
debt, devastation, inequality and exploitation that the IMF and
World Bank bring to Third World countries in the name of "neoliberal
development" is another story in itself. Brazil and Peru
are two other notable examples but Chile remains the worst.
Shortly after the 1975 conference, the Chilean government initiated
the Economic Recovery Program (ERP). The first phase of shock
therapy was reducing the money supply and government spending,
which succeeded in cutting inflation to acceptable levels. However,
it also caused unemployment to rise from 9.1 to 18.7 percent between
1974 and 1975, a figure on par with the U.S. Great Depression.
Output fell 12.9 percent making this Chile's worst recession
since the 1930s. (2)
Meanwhile, to prevent the political consequences of such a shock,
the Pinochet regime began cracking down on potential opposition
leaders. Many just "disappeared." The human rights violations
of the Pinochet regime will be reviewed below, but, suffice to
say, workers "accepted" this austerity program at gunpoint.
By mid-1976, the economy began recovering, and from 1978 to 1981
it achieved what the Chicago boys called the "Economic Miracle."
During this period the economy grew 6.6 percent a year. (By comparison,
the U.S. economy usually grows 2.5 percent a year.) The Chicago
boys lifted nearly all restrictions on foreign direct investment,
creating an "almost irresistible package of guarantees for
the foreign investor" with "extraordinarily permissive"
treatment. (3) Foreign investment and loans came pouring into
Chile, with loans alone tripling between 1977 and 1981. (4) Of
the 507 state enterprises set up before or during Allende's presidency,
the Chicago boys would eliminate or privatize all but 27. (5)
Defenders of the Chile experiment point to the "Economic
Miracle" as proof that it worked. But here we should remember
an important economic rule of thumb: the deeper the recession,
the steeper the recovery. Quite often the recovery only gets an
economy back to where it was before. Perhaps the clearest example
of this is the U.S. Great Depression. Note the giant loss and
Changes in U.S. Gross National Product, by President
|Year||% Change in GNP||President|
The economy grew an astonishing 14 percent in 1936 the strongest
peacetime year in U.S. history. But does that mean that people
were enjoying champagne and caviar during the Great Depression? Of
course not. The economy was simply making up lost ground. Likewise,
the U.S. recessions of 1980-82 were the worst since the Great
Depression, and these were followed by an unusually strong seven-year
boom: the so-called "Reagan years."
What's going on here? Two economic concepts are useful to understand
this phenomenon. The first is that the economy grows in the long
run, as both the population expands and each worker produces more
per hour, thanks to improving technology and efficiency. This
long-term growth experiences mild swings in the form of recessions
and recoveries, of course. But if the economy grows in the long
run, then deep recessions are going to be followed by even steeper
The second concept is the distinction between actual productivity
and potential productivity. "Potential" is a
somewhat misleading term, since it implies something imaginary,
but this productivity does indeed exist. Potential productivity
reflects our nation's productive capacity (in the form of our
workers, factories, etc.). Actual productivity reflects how much
of that capacity is actually being used. For example, a factory
may have the potential to turn out 3,000 cars a month. During
a recession, however, its actual productivity may fall to only
1,500 cars a month. Actual growth would occur if the factory
returned to a full capacity of 3,000 cars. Potential growth
would occur only if a second factory were built.
During a recession, actual productivity drops as millions of workers
are laid off and factories sit idle. But all the potential productivity
is still there. During a recovery, actual productivity climbs
closer to its potential, as millions of laid-off workers return
to empty factories. This gives the appearance of growth and
we should note that this type of growth is relatively quick and
easy to achieve. But what happens when all the workers have returned?
Then any further growth will have to involve potential growth
that is, the construction of factories and the birth of new
workers. As you might imagine, this type of growth is considerably
more difficult to achieve.
So this is all that happened that during Chile's "Economic
Miracle" laid-off workers returned to their old jobs.
When you take both the recession and recovery into account, Chile
actually had the second worst rate of growth in Latin America
between 1975 and 1980. Only Argentina did worse. (6)
And even then, much of Chile's growth was artificial or fictitious.
Between 1977 and 1981, 80 percent of Chile's growth was in the
unproductive sectors of the economy, like marketing and financial
services. Much of this was speculation attracted to Chile's phenomenally
high interest rates, which, at 51 percent in 1977, were the highest
in the world. (7)
Chile's integration into the world market would leave it vulnerable
to world market forces. The international recession that struck
in 1982 hit Chile especially hard, harder than any other Latin
American country. Not only did foreign capital and markets dry
up, but Chile had to pay out stratospheric interest rates on its
orgy of loans. Most analysts attribute the disaster both to external
shocks and Chile's own deeply flawed economic policies. By 1983,
Chile's economy was devastated, with unemployment soaring at one
point to 34.6 percent far worse than the U.S. Great Depression.
Manufacturing production plunged 28 percent. (8) The country's
biggest financial groups were in free fall, and would have collapsed
completely without a massive bail-out by the state. (9) The Chicago
boys resisted this measure until the situation became so critical
they could not possibly avoid it.
The IMF offered loans to help Chile out of its desperate situation,
but on strict conditions. Chile had to guarantee her entire foreign
debt an astounding sum of US$7.7 billion. The total bailout
would cost 3 percent of Chile's GNP for each of three years. These
costs were passed on to the taxpayers. It is interesting to note
that when the economy was booming, profitable firms were privatized;
when those firms failed, the costs of bailing them were socialized.
In both cases, the rich were served. (10)
After the IMF loans came through, the Chilean economy began recovering
in 1984. Again, it saw exceptionally high growth, averaging about
7.7 percent a year between 1986 and 1989. (11) But like the previous
cycle, this was mostly due to actual growth, not potential growth.
By 1989, the GDP per capita was still 6.1 percent below
its 1981 level. (12)
So what was the record for the entire Pinochet regime? Between
1972 and 1987, the GNP per capita fell 6.4 percent. (13)
In constant 1993 dollars, Chile's per capita GDP was over $3,600
in 1973. Even as late as 1993, however, this had recovered to
only $3,170. (14) Only five Latin American countries did worse
in per capita GDP during the Pinochet era (1974-1989). (15) And
defenders of the Chicago plan call this an "economic miracle!"
Aggregate statistics are somewhat better. Between 1970 and 1989,
Chile's total GDP grew a lackluster 1.8 to 2.0 percent a year.
That was slower than most other Latin American countries, and
slower than its own record in the 60s. (16)
With the economy booming in 1988, however, the government felt
it safe to honor a requirement of its new constitution: a yes-no
vote confirming the presidency of General Pinochet for another
eight years. But the government's confidence turned out to be
self-deluded, and Pinochet lost the vote. This called for another
set of more open elections in 1989. The fragmented opposition
united to defeat Pinochet, who was replaced by Patricio Aylwin,
a moderate candidate from the Christian Democratic party. However,
Pinochet remains as head of the military. Today democracy is restored
in Chile, but a laissez-faire culture persists, and many
social programs (like social security) remain privatized. Chile's
economic course seems to have been permanently altered.
The deterioration of labor
Chile's erratic economy and ultimately slow growth are not
the worst legacy of the Chicago boys. The standard of living for
workers crumbled under the Pinochet regime. In fact, this is a
truly horrific part of the story.
By all measures, the average worker was worse off in 1989 than
in 1970. During this period, labor's share of the national income
fell from 52.3 to 30.7 percent. (17) Even during the second boom
(1984-89), wages continued to fall. The following index shows
the decline in both average and minimum wages:
Evolution of real wages, revised index, 1980-87 (in percent) (18)
|Year||Average Wage||Minimum Wage|
By 1989, Chile's poverty rate was 41.2 percent, one-third of them
indigent or desperately poor. (19) Shanty towns known as poblaciones
grew around Santiago and other major cities, kept alive by las
comunes, or soup kitchens. In 1970, the daily diet of the
poorest 40 percent of the population contained 2,019 calories.
By 1980 this had fallen to 1,751, and by 1990 it was down to 1,629.
(20) Furthermore, the percentage of Chileans without adequate housing increased
from 27 to 40 percent between 1972 and 1988, despite the government's
boast that the new economy would solve homelessness. (21)
Meanwhile, the wealthy were raking it in. The following chart
shows how the richest 20 percent of society enlarged their share
of the pie at the everyone else's expense. (Note: the "first
quintile" represents the poorest 20 percent of society, the
"fifth quintile" the richest 20 percent. The percentage
numbers here represent the share of national goods consumed by
Consumption by Household Quintiles (percent distribution) (22)
Chile's income inequality also became the worst on the continent.
In 1980, the richest 10 percent took in 36.5 percent of the national
income. By 1989, this had risen to 46.8 percent. By contrast,
the bottom 50 percent of income earners saw their share fall from
20.4 to 16.8 percent over the same period. (23)
Income was not the only thing that concentrated in the hands of
the few; so did production. Once the Chicago boys deregulated
the market, oligopolies rapidly formed in virtually every sector.
The chart below shows how many large export firms controlled what
percentage of their industry:
Concentration in the Export Sector by Main Industry, 1988 (24)
|Industry||# of firms||Industry share|
|Wine and Beverage||2||70.2|
How did such extreme inequality come about? It was part of
an intentional policy to keep unemployment as high as possible.
(25) Widespread unemployment has the effect of driving down wages,
as unemployed workers compete for a limited number of jobs, accepting
even sub-poverty wages to get them. Many promoters of the "free
market" forget or probably exploit the fact that the
labor market is like any other market: dictated by the laws of
supply and demand. To see how this works, imagine a land where
the supply of workers perfectly matches the employers' demand
for them, and everyone gets paid $10 an hour. What happens if
we add a few more workers to this economy? Economist Paul Krugman
"The way that a freely functioning labor market ensures that
almost everyone who wants a job gets one is by allowing wages
rates to fall, if necessary, to match supply to demand
And the more unemployed workers we add to this economy, the more
wages fall. An example of this correlation can be seen in the
U.S. recession of 1982, when unemployment nearly hit 11 percent
in the fourth quarter, and real hourly wages fell nearly 50 cents
from three years before. The flip-side to this example is the
1980s "Massachusetts Miracle," when unemployment fell
to a phenomenally low 2.7 percent, and McDonald's began offering
twice the minimum wage ($7 an hour) trying to attract workers.
In Chile, high unemployment was part of a deliberate policy, encouraged
by the IMF and World Bank, to depress wages. During the crisis
of 1975, the unemployment rate hit 18.7 percent. But even through
the booms and busts that followed over the next ten years, the
unemployment rate still averaged 15.7 percent. This was easily
the worst in all Latin America. (28) The result of this policy
was that wages fell, companies became more profitable, and inequality
grew extreme. As might be guessed, such high unemployment also
reduces a nation's productivity, which is largely why Chile's
growth record compared so poorly to its neighbors.
How did the Chicago boys accomplish this war against workers without
the people rising up in revolt? The answer lies in Pinochet's
reign of terror.
Pinochet's crimes against humanity
From the very start of his rule, General Pinochet moved to
suppress all opposition. He banned all other political parties,
suspended labor unions, and cracked down on all dissidents to
his regime. During his 16 years in power, his repressive apparatus
executed at least 1,500 activists, exiled 15,000 others, and imprisoned,
tortured, assassinated, or caused the "disappearance"
of countless thousands more. (29) According to one human rights
group, the Pinochet regime was responsible for 11,536 human rights
violations between 1984 and 1988 alone. (30)
As time went on, however, Pinochet did a most unusual thing for
a dictator: he dissolved his own regime. Not only did he give
total control of the economy over to the Chicago boys, but he
eventually returned a growing share of political freedom to the
people as well. Once his totalitarian power was secure in the
late 70s, he legalized labor unions and political parties once
more, albeit under oppressive limitations and controls. And he
agreed to a new constitution that would eventually require a plebiscite
on his rule, and even democratic elections.
Does the fact that an oppressive military regime enabled the Chicago
boys' to carry out their experiments somehow invalidate their
results? Not according to Milton Friedman:
"I have nothing good to say about the political regime that
Pinochet imposed. It was a terrible political regime. The real
miracle of Chile is not how well it has done economically; the
real miracle of Chile is that a military junta was willing to
go against its principles and support a free-market regime designed
by principled believers in a free market. The results were spectacular.
Inflation came down sharply. After a transitory period of recession
and low output that is unavoidable in the course of reversing
a strong inflation, output started to expand, and ever since,
the Chilean economy has performed better than any other South
However, Friedman is pessimistic that Chile's economic freedom
can last under democracy. He notes elsewhere that "while
economic freedom facilitates political freedom, political freedom,
once established, has a tendency to destroy economic freedom."
By Friedman's lights, democracy should kill Chile's free-market
reforms. One gets the impression Friedman would consider the experiment
an unqualified success had the regime never existed.
"In Chile, the drive for political freedom, that was generated
by economic freedom and the resulting economic success, ultimately
resulted in a referendum that introduced political democracy.
Now, at long last, Chile has all three things: political freedom,
human freedom and economic freedom. Chile will continue to be
an interesting experiment to watch to see whether it can keep
all three or whether, now that it has political freedom, that
political freedom will tend to be used to destroy or reduce economic
It is interesting to note, however, that the anti-labor reforms
enacted by the Chicago boys would have never been tolerated in
a democracy (and in fact weren't, when the time came). The suppression
of opposition to the Chicago program thus allows us to see how
it would work in an uncompromised form.
Deregulation and pollution
Chile is a country of 15 million people, but 5 million of
them live in Santiago, its capital city. Chile's free market means
there is a distinct lack of anti-pollution laws, either for industry
or commuters. And as a result, Santiago has become desperately
polluted. In 1992, Santiago had the fifth worst air pollution
of any city in the world, with levels three to four times higher
than the upper limits recommended by the World Health Organization.
Part of Santiago's problem is that it is ringed by mountains,
so air pollution gets trapped in the city. However, that's all
the more reason why public officials should have recognized the
folly of indiscriminate polluting and passed the needed pro-environmental
laws a long time ago.
Some 150 industries in Santiago emit 100 times the pollution recommended
by particulate norms. Only 30 percent of the city's 600,000 cars
have catalytic converters. Due to a lack of public works programs
(and an equal lack of business interest), the city has nearly
600 miles of dusty, unpaved roads. The result is a thick, purplish
smog that literally chokes the city. (33)
The cost has been horrendous, translated into unusually high mortality
and sickness rates for Latin America. Santiago hospitals are swamped
with over 2,700 infants a day brought in needing oxygen masks.
Chile's College of Physicians has the called the situation a crisis,
and authorities have set up a system of "pre-emergency"
and "emergency" alerts. In a typical pre-emergency alert,
authorities restrict traffic, physical exercise and industrial
activity. The World Bank estimates that Santiago's current pre-emergency
level is 18 percent more deadly than states of alert in Los Angeles
and Europe. But until very recently, Chile's government has been
unwilling to enact any serious pro-environmental legislation.
In 1996, Dr. Ricardo Tulane quit the College of Physician's environmental
committee in protest, accusing the government of doing too little
to meet the crisis. (34)
The Chilean journal Apsi reports:
"The liquid that emerges from the millions of faucets in
the homes and alleys of Santiago have levels of copper, iron,
magnesium and lead which exceed by many times the maximum tolerable
norms. [The lands that] supply the fruits and vegetables of the
Metropolitan Region are irrigated with waters that exceed by 1000
times the maximum quantity of coliforms acceptable. [This is why
Santiago] has levels of hepatitis, typhoid, and parasites which
are not seen in any other part of the continent." (35)
The problem is not limited to Santiago. Half the country has become
a desert under misguided industrial and environmental policies.
A study by the Central Bank of Chile estimates that by the year
2025, Chile's native forests will have disappeared at current
rates of extraction. (36) The Bank also reports that out of nine
fish stocks off the Chilean coast, only one (sardines) has increased
between 1985 and 1993. Five are in dramatic decline, having fallen
between 30 and 96 percent. (37)
Chicago economist Ronald Coase, you may recall, won a Nobel prize
for a theorem explaining how markets can resolve externalities
like pollution. Chile the Chicago boys' own experiment strongly
Chile's privatized pensions
One of the most trumpeted "successes" of Chile's
economic miracle is the privatization of its public social security
system. It's most vocal supporter is Chilean economist José
Piñera, who was once Pinochet's Minister of Labor, and
therefore one of the most hated men in Chile. Today he is an international
salesman of sorts, selling other nations on the idea of Chile's
retirement program. Journalist Fred Solowey writes:
"In his speeches and articles, Piñera credits the
Chilean pension model with producing just about everything short
of the second coming of Christ: pensions that are 40-50 percent
higher than under Social Security; security for the old; lower
costs due to the 'fact' that the private sector is much more efficient
than the public; a rate of savings rivaling that in an Asian 'tiger'
economy; and even the end of class conflict in Chile." (38)
Piñera is co-chairman of a $2 million war being waged against
U.S. Social Security by the Cato Institute. Their goal is to privatize
the program along Chilean lines. Converts to their cause include
Newt Gingerich, and, apparently, Time magazine. In a cover
story entitled "The Case for Killing Social Security,"
Time included a sidebar on "How Chile Got it Right."
(39) The operative word here is right, as in right-wing
Time's article quotes all the usual conservative think
tanks, but not a single dissenting voice.
The Chilean retirement system is only a success to those companies
who are pulling down outrageous profits from it. For the working
people of Chile, it is a disaster in the making. According to
SAFP, the government agency which regulates the private pensions,
96 percent of the known work force were enrolled in the private
pensions as of February, 1995, but 43.4 percent of the account
owners were not adding to their funds. Perhaps as many as 60 percent
do not contribute regularly. Given the rising poverty in Chile,
it is not difficult to understand why. Unfortunately, regular
contributions are necessary to receive full benefits.
By 1988, about one fourth of Chilean workers were contributing
enough to make the program's minimum benefits: $1.25 a day! (40)
Critics charge that only 20 percent of the contributors will actually
receive good pensions.
Worse, much of the plan's supposedly higher benefits are projected
from the surging economic growth rates of the late 80s. But this
growth followed a deep economic depression in 1983, and was bound
to be high for many years following. Now that actual growth has
caught up to potential growth, the Chilean economy is slowing
down. The pensions are therefore not going to be as profitable
as their cheerleaders claim.
When the current system was created in the early 80s, the government
gave the people their choice: stay in the public program, or start
contributing to private pensions. Over 90 percent of the people
switched over to the private plan. This was carried out, however,
under a mixture of threats, coercion and short term incentives.
Many employers simply switched their employees' plans for them.
The cash-starved public also received short-term pay increases
by switching to private pensions, whereas the cost of the public
programs went up for those who stayed in them.
"With the information I now have," says Cecilia Prado,
a 17-year public employee, "I never would have switched.
Under a democratic government they never could have imposed it
on us. And if they ever passed a law allowing people to go back,
there would be a great exodus." (41)
What many defenders of Chile's current program do not reveal is
that under the old public plan, workers received not only pensions,
but health care, low-interest housing loans from pension funds,
and many other benefits. And that program covered 75 percent of
all Chileans. When the private pensions went into effect, all
these other services were dropped. As a result, Chile's "welfare
pensions" for the desperately needy quickly rose 400 percent
up to the legal limit.
It is also extremely telling that when Pinochet introduced the
program, his army and police were allowed to keep their own generous
public plans. The private plans that were suitable for the masses
apparently weren't good enough for those in charge of the country.
There are many more aspects to this unfolding disaster, but to
chronicle them all here is impossible. Suffice to say, selling Chile's "success" to America is the ultimate con job.
A common defense of the Chicago experiment is that Chile's
"prosperity [was] was born of pain." (42) However, the
pain continues even today. Although Chile's economy is growing
at a healthy pace today, it still lags behind most of Latin America.
Much of the development is environmentally unsustainable. Inequality
and poverty remain extreme. Furthermore, much of the country's
industry is now foreign-owned meaning that profits do not stay
in Chile, but are shipped to other countries. Chile continues
to have one of the highest foreign debts in the world, and therefore
continues to serve as the poster child for the IMF and World Bank.
In the U.S., Chile is on the fast track to becoming the fourth
member of NAFTA for motives one might easily guess.
Another defense of the Chicago experiment is that the conditions
were not right, thus its apparent failure. Most objectionable
is Pinochet's oppressive military regime. But it is unclear how
his political policies would have adversely affected the Chicago
boy's economic policies -- if anything, he allowed them to carry
their plans out. If unregulated capitalist markets can only be
imposed on workers by terror, then this is an argument that we
should look for other, more humane economic alternatives.
A third defense is that the experiment was not a failure at all,
but a rousing success. Usually these sort of apologetics are based
on manipulative interpretations of the business cycle. The most
common is to look to the incredible booms of the late 70s and
late 80s while ignoring the events responsible for them, namely,
the deep depressions that happened prior.
At present, democracy seems to have reversed the tide of market
tyranny, although big business still has undue influence with
the government. The restoration of public life in Chile, therefore,
will probably be a long, slow and agonizing struggle.
Next Section: All Those Nobels...
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1. Newsweek, January, 1982
2. Jose Arellano, Politicas Sociales y Desarrollo: Chile, 1924-1984
(Santiago: CIEPLAN, 1988), p. 19.
3. Business Latin America, March 30, 1977, p. 103.
4. Andres Sanfuentes, "Los Grupos Economicos: Control y Politicas,"
Coleccion Estudios CIEPLAN no. 15, (Santiago: CIEPLAN,
December 1984), p. 119.
5. Fernando Dahse, Mapa de la Extrema Riqueza (Santiago:
Editorial Aconcagua, 1979), pp. 175-179.
6. James Petras and Fernando Ignacio Leiva with Henry Veltmeyer,
Democracy and Poverty in Chile: The Limits to Electoral Politics
(Boulder: Westview Press, 1994), p. 27.
7. Oscar Munoz, Chile y su Industrializacion (Santiago:
CIEPLAN, 1986), p. 259.
8. Petras, p. 33.
9. Ibid., p. 29.
11. Juan Gabriel Valdes, Pinochet's Economists: The Chicago
School in Chile (Cambridge, UK: Cambridge University Press,
1995), p. 265.
12. Ricardo Ffrench-Davis, The Impact of Global Recession and
National Policies on Living Standards: Chile, 1973-87 (Santiago:
CIEPLAN, 1988), pp. 13-33.
13. Cited in Noam Chomsky, Year 501 (South End Press, 1993),
Chapter 7: "World Orders Old and New: Latin America Segment,"
14. World Bank, World Tables 1995.
17. Petras, p. 34.
18. Patricio Meller, "Revision del Proceso de Ajuste Chileno
de Decada del 80," Coleccion Estudios CIEPLAN no.
30, (Santiago: CIEPLAN, 1990), p. 44.
19. Petras, p. 34.
20. Alvaro Diaz, El Capitalismo Chileno en Los 90: Creimiento
Economico y Disigualdad Social (Santiago: Ediciones PAS, 1991),
21. Excerpt from FoodFirst by Joseph Collins and John Lear. Chile's
Free Market Miracle: A Second Look. http://www.web.net/comfront/miracle.htm.
22. Programa de Economia del Trajabo, Informe Anual (Santiago:
PET, 1990), p. 192.
23. Diaz, pp. 58-9.
24. Analisis, no. 238, August 1-7, 198, p. 31.
25. Andres Sanfuentes, "Chile: Effects of the Adjustment
Policies on the Agricultural and Forestry Sector," CEPAL
Review no. 3 (Santiago: United Nations, December 1987), p.
26. Paul Krugman, Peddling Prosperity (New York: W.W. Norton
& Company, 1994) p. 124.
27. For average hourly real wages (Total private industry, 1982
dollars), see U.S. Bureau of Labor Statistics, Series ID: eeu00500049;
for Massachusetts example, see Paul Krugman, p. 41.
28. Petras, p. 26.
29. Calculations by Chile's Commission of Human Rights, reported
in Petras, p. 20.
30. Calculations by CODEPU (Comite Nacional de Defensa de los
Derechos del Pueblo), reported in Fortin, September 23,
31. Milton Friedman, "Economic Freedom, Human Freedom, Political
Freedom," Address at the Smith Center - A Conservative
Think Tank at Cal State Hayward. November 1, 1991 http://www.sbe.csuhayward.edu/~sbesc/frlect.html.
32. WHO/UNEP (1992), World Bank (1992), other World Bank reports.
33. Andrea Mandel-Campbell, "Anger grows over Chilean capital's
smog: Respiratory ailments rise," Miami Herald, Thursday,
September 12, 1996.
35. Apsi, Chile, July 1990 (LANU, Sept. 1990).
36. Cited in Sara Larrain R., "Winning in the Global Economy:
Chile's Dark Victory," PCDForum Column #79, The People-Development
Centered Forum, June 1, 1996.
37. A copy of the Central Bank report was leaked to the Santiago
newspaper La Nacion and published in the Latin American
Weekly Report, September 12, 1996.
38. Fred J. Solowey, "Retiring the Chilean myth: Privatized
pensions bring social insecurity," Focus, November
39. Time, March 20, 1995.
40. Joseph Collins and John Lear, Chile's Free-Market Miracle
(Food First Books, 1994).
42. Quoted in Petras, p. 22.