Greg Palast has a few thoughts on the recent deaths of Milton Friedman and his economic protegé, General August Pinochet. At least Mr. Friedman had the sense to fulminate against the folly of the drug war. I can recall no ameliorating character traits regarding the General: I only wish he had to face the war crimes tribunal he so deserved before his death.
Tinker Bell, Pinochet and The Fairy Tale Miracle of Chile Greg Palast ...In 1973, the year General Pinochet seized the government, Chile’s unemployment rate was 4.3%. In 1983, after ten years of free-market modernization, unemployment reached 22%. Real wages declined by 40% under military rule.In 1970, 20% of Chile’s population lived in poverty. By 1990, the year “President” Pinochet left office, the number of destitute had doubled to 40%. Quite a miracle.
Pinochet did not destroy Chile’s economy all alone. It took nine years of hard work by the most brilliant minds in world academia, a gaggle of Milton Friedman’s trainees, the Chicago Boys. Under the spell of their theories, the General abolished the minimum wage, outlawed trade union bargaining rights, privatized the pension system, abolished all taxes on wealth and on business profits, slashed public employment, privatized 212 state industries and 66 banks and ran a fiscal surplus.
Freed of the dead hand of bureaucracy, taxes and union rules, the country took a giant leap forward … into bankruptcy and depression. After nine years of economics Chicago style, Chile’s industry keeled over and died. In 1982 and 1983, GDP dropped 19%. The free-market experiment was kaput, the test tubes shattered. Blood and glass littered the laboratory floor. Yet, with remarkable chutzpa, the mad scientists of Chicago declared success. In the US, President Ronald Reagan’s State Department issued a report concluding, “Chile is a casebook study in sound economic management.” Milton Friedman himself coined the phrase, “The Miracle of Chile.” Friedman’s sidekick, economist Art Laffer, preened that Pinochet’s Chile was, “a showcase of what supply-side economics can do.”
It certainly was. More exactly, Chile was a showcase of de-regulation gone berserk.
The Chicago Boys persuaded the junta that removing restrictions on the nation’s banks would free them to attract foreign capital to fund industrial expansion.
Pinochet sold off the state banks - at a 40% discount from book value - and they quickly fell into the hands of two conglomerate empires controlled by speculators Javier Vial and Manuel Cruzat. From their captive banks, Vial and Cruzat siphoned cash to buy up manufacturers - then leveraged these assets with loans from foreign investors panting to get their piece of the state giveaways.
The bank’s reserves filled with hollow securities from connected enterprises. Pinochet let the good times roll for the speculators. He was persuaded that Governments should not hinder the logic of the market.
By 1982, the pyramid finance game was up. The Vial and Cruzat “Grupos” defaulted. Industry shut down, private pensions were worthless, the currency swooned. Riots and strikes by a population too hungry and desperate to fear bullets forced Pinochet to reverse course. He booted his beloved Chicago experimentalists. Reluctantly, the General restored the minimum wage and unions’ collective bargaining rights. Pinochet, who had previously decimated government ranks, authorized a program to create 500,000 jobs.
In other words, Chile was pulled from depression by dull old Keynesian remedies, all Franklin Roosevelt, zero Reagan/Thatcher.
New Deal tactics rescued Chile from the Panic of 1983, but the nation’s long-term recovery and growth since then is the result of - cover the children’s ears - a large dose of socialism.
There's more, including:
In 1998, the international finance Gang of Four - the World Bank, the IMF, the Inter-American Development Bank and the International Bank for Settlements - offered a $41.5 billion line of credit to Brazil. But before the agencies handed the drowning nation a life preserver, they demanded Brazil commit to swallow the economic medicine that nearly killed Chile. You know the list: fire-sale privatizations, flexible labor markets (i.e. union demolition) and deficit reduction through savage cuts in government services and social security.In Sao Paulo, the public was assured these cruel measures would ultimately benefit the average Brazilian. What looked like financial colonialism was sold as the cure-all tested in Chile with miraculous results.
But that miracle was in fact a hoax, a fraud, a fairy tale in which everyone did not live happily ever after.
Hello, Seth,
I looked for you earlier on, when I got the news alert from the NY Times and Washington Post. I still remember coming back from Independence Day holiday ( Brazil) and learning about the bombing of the Palace and of this monster.
We felt sad for Chileans for many years. I still feel sad for people who mistake the danger as being the "red" factor in Latin America. Unlike many in the USA, we know why Santiago had no milk or beans or sugar. It was the same in Brazil.
Today, a rare event, I went out with family. We talked about Lord of the Flies and Hotel Rwanda. I talked about how this country seems not to be able to let go of its rooted violence and move on towards ciilization and respect towards other elected governments.
Since I've never lived in Chile, it was all a little abstract to me at the time, but sounded horrible nonetheless. The IMF and Friedman's privatization "reforms" caused lots of grief around the world.