The Miracle of Chile: A Case Study of Neoliberalism
DISCLAIMER: This article in no way justifies the political actions surrounding General Pinochet, in particular the alleged widespread human rights violations and state-sanctioned repression that took place under his rule. Much like Friedman himself, the libertarian views of this website are diametrically opposed to the virulent breaches of individual freedom that took place during these years.
Prior to the ‘neoliberal revolution’ of the 1980s, spearheaded by the distinctive laissez-faire shift at the centre of Reaganomics and Thatcherism, a dogmatically pro-market experiment took place in Latin America.
In the backdrop of a 1973 coup d'état, staged at the behest of the right-leaning Chilean Congress and supported by the United States, the democratically-elected and staunchly Marxist leader Salvador Allende was ousted and replaced by Army General Augusto Pinochet. After growing civil unrest within Chile and US concern of Salvador’s closeness to Cuba and the Soviet Union, the coup was decided upon.
Almost immediately following the ascension of General Pinochet’s command over Chile, he began dismantling the state’s control over the economy. While the government controlled 14.2% of the economy in 1965, by 1973 this increased to 39% - and what remained of the private market was subjected to severe price controls. A group of financial ministers and economists educated by the leading scholars of neoliberalism at the University of Chicago during the 20th century, the so-called ‘Chicago Boys’, were appointed leading positions within the Pinochet government. Under their instruction, the Economic Freedom ranking of the Chilean economy expanded at an unprecedented level, from 3.5 in 1975, to 6.7 by 1990. This characterises the far-reaching policies of ‘rolling back the frontiers of the state’ within the Chilean economy and allowing market forces to rule, through rapid policies of denationalisation of key sectors such as utilities and banking.
The Chilean experiment is of particular interest for those enthusiastic about the century-old debate between economic ideologies, through their distinctive break from the centralised consensus within Latin America during such a time. With this in mind, it’s crucial to compare the recent economic history of Chile compared to the nations surrounding it who took a different approach, through use of popular economic metrics.
- Chilean life expectancy increased 14 years since 1975
- Compared to the centrally-controlled neighbouring Venezuela, Chilean life expectancy has increased from around 1 year less on average in 1975, to now 5 years greater.
- Chilean infant mortality has fallen almost 90% since 1975
- A newly-born Chilean is now four times more likely to see their first birthday today than a baby born in Venezuela
Human Development Index (HDI):
- Since 1980, HDI within Chile has increased from 0.64 to 0.84
- In Venezuela, HDI has increased at a rate less than half of that in Chile
- In 1980, Chilean average incomes were less than half of that in Argentina, however by 2008 incomes within Chile were slightly greater
- Since 1975, real GDP per capita within Chile has quadrupled
- In Venezuela over the similar period, it has fallen by more than half
The legacy of neoliberalism within Chile overwhelmingly suggests the success of market-forces in alleviating poverty. However, in recent years, many within Chile have began to question the extent of this. Following the near constant protests over the past two years against the centre-right government led by Sebastian Pinera, there have been a number of polls that rank the Communist candidate, Daniel Jadue, as the likely favourite heading into the November 2021 election. While critics are right to point to the growth of inequality within Chile following the neoliberal reforms undertaken – it is simply misleading to suggest there is a zero-sum game regarding the condition of Chileans – as even the poorest in Chile today would be considered to have a life of prosperity when compared to neighbouring countries and the nation it use to be. Further from this point, the ‘softening’ economic reforms that have been made following the restoration of social democracy within Chile – notably the universal and sustainable provision of education – is only possible through the position of great wealth created during the neoliberal experiment.
The controversy surrounding the seventeen-year rule of Pinochet’s military junta results from the severe repression of opposition that occurred during his rule - as upwards of 250 000 people were imprisoned, and over 3000 were killed as part of the state-mandated reign of terror. The alleged connections between Milton Friedman and Pinochet’s Chile through the ‘Chicago Boys’ have long casted a shadow over his legacy as an economist. Despite his persistent public denunciation of the Chilean Dictator due to his strong libertarian views - as well as his refusal of honorary degrees from Chilean universities – Friedman has been vilified in recent years by those with a vested interest in discrediting his contribution to political thought. Still to this day, Milton Friedman is the only recipient of a Nobel Prize to be heckled during their acceptance speech – with someone exclaiming while he received his 1976 award ‘Down with capitalism, freedom for Chile’.
So how does the story of Chile help us today? Simply, it reinforces the theory that embracing capitalism is the golden ticket for a nation to break from their condemnation of cyclical poverty. This understanding has shaped in many ways the response to the global poverty crisis by the World Bank and IMF through the emerging ‘Washington Consensus’, a set of ten strongly market-orientated economic policies considered to constitute the textbook reform program a developing nation should undertake. The success of this shift is found through considering how 80% of global poverty levels have been eradicated compared to forty years ago, as well as a growing middle-class in all corners of the world that have embraced such thinking. All the while, the few remaining centrally-controlled economies have continued to subdue their population to severe levels of suffering through their continued persistence that utopia is only a few short years away.