|The Chicago boys
and the Chilean 'economic miracle'
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
By Steve Kangas
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 rights abuses.
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 boys."
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
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 growth numbers:
Changes in U.S. Gross National Product, by President
||% Change in GNP
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
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 recoveries.
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
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
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.
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
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)
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 that quintile.)
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)
||# of firms
|Wine and Beverage
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
- "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
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. (27)
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 American economy.
"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 freedom."
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.
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. (32)
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 suggests otherwise.
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
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
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.
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," 15/17.
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), statistical appendix.
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 Trabajo, 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. 123.
26. Paul Krugman, Peddling Prosperity (New York: W.W. Norton & Company, 1994)
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,
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, 1988.
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 5, 1996
39. Time, March 20, 1995.
40. Joseph Collins and John Lear, Chile's Free-Market Miracle (Food First Books,
42. Quoted in Petras, p. 22.
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