THE FALL OF CHILE.

• Author: Kaiser, Axel

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.

--Milton Friedman (1991)

The neoliberal experiment--in Chile--is completely dead. It is likely to be replaced by a welfare state that will attempt to follow the Nordic countries.

--Sebastian Edwards (2019)

The "Economic Miracle" of the Chicago Boys

Following the failed Marxist experiment of Chilean President Salvador Allende, a free-market revolution led by the so-called Chicago Boys in the 1970s and 1980s created the conditions necessary for the country to experience an "economic miracle" that captured worldwide attention. (1) As Nobel laureate economist Gary Becker (1997) put it, Chile became "an economic role model for the whole underdeveloped world." This performance, said Becker, "became still more impressive when the government was transformed into a democracy." Along the same lines, Nobel laureate economist Paul Krugman argued that the reforms introduced by the Chicago Boys "proved highly successful and were preserved intact when Chile finally returned to democracy in 1989" (Krugman 2008: 31). Indeed, from 1990 to 2010 a left-wing coalition called "Concertacion" came to power. Despite having been comprised of opponents to the military dictatorship and by many former members of Salvador Allende's government, Concertacion kept in place the foundations of the free-market system. A pragmatic view prevailed, leading to the recognition and adoption of the economic legacy of the Pinochet years. As Alejandro Foxley, the first finance minister of the democratic period explained:

The mature countries are countries that don't always start from scratch. We had to recognize that in the previous government, the foundations had been established for a more modern market economy, and we would start from there, restoring a balance between economic development and social development. And that's what we did [Foxley 2001],

For conservatives in the west, Chile's economic reforms were a symbolic victory in the fight against socialism and progressivism. As historian Niall Ferguson (2008: 216) has pointed out, the "backlash against welfare started in Chile." Moreover, according to Ferguson, the Chilean economic reforms such as the privatization of its social security system were "far more radical than anything that has been attempted in the United States, the heartland of free market economics. ... Thatcher and Reagan came later" (ibid.). Along the same lines William Ratliff and Robert Packenham (2007) have argued that Chile was the first country in the world to make "that momentous break with the past away from socialism and extreme state capitalism" preceding "Margaret Thatcher's Britain and Ronald Reagan's United States." For Marxist intellectual David Harvey (2005: 7-8), "the first experiment of neoliberal state formation occurred in Chile after Pinochet's coup" providing "helpful evidence to support the subsequent turn to neoliberalism in both Britain (under Thatcher) and the US (under Reagan)."

George H. W. Bush's visit to Chile in 1990 affirmed the symbolism of the Chicago Boys' success story. On his arrival in Santiago, Bush (1990) declared that "Chile's peaceful return to the ranks of the world's democracies" was cause for "pride and celebration." He went on to emphasize the importance of the free-market revolution that had taken place under the military government of General Pinochet: "Chile's record of economic accomplishment is a lesson for Latin America on the power of the free market. Nowhere among the nations of this continent has the pace of free-market reform gone farther, faster than right here in Chile." Along the same lines, former British Prime Minister Margaret Thatcher (1999) declared that Pinochet's regime had turned Chile "from chaotic collectivism into the model economy of Latin America."

The available data overwhelmingly support these views. Chronic inflation, which had peaked at over 500 percent in 1973, fell below 10 percent by the 1990s and under 5 percent by the 2000s (World Bank 2019). Between 1975 and 2015 per capita income in Chile quadrupled to $23,000, the highest rate in Latin America (CNP 2016). As a result, from the early 1980s to 2014 poverty fell from 45 percent to 8 percent (CNP 2016). Several indicators show that this "economic miracle" benefited the majority of the population. For example, in 1982 only 27 percent of Chileans had a TV set. By 2014, 97 percent did (CNP 2016). The same is true for refrigerators (from 49 percent to 96 percent), washing machines (from 35 percent to 93 percent), cars (from 18 percent to 48 percent), and other items. More importantly, life expectancy rose from 69 to 79 years in the same time period and housing overcrowding fell from 56 percent to 17 percent. The middle class as defined by the World Bank, grew from 23.7 percent of the population in 1990 to 64.3 percent in 2015 and extreme poverty fell from 34.5 percent to 2.5 percent (Libertad y Desarrollo 2017: 3). On average, access to higher education grew by a factor of five in the same time period mostly benefiting the bottom quintile, which saw its access to higher education increase by eight times (PNUD 2017: 20). This is consistent with the growth of income in the different socioeconomic groups. While between 1990 and 2015 the income of the richest 10 percent grew a total of 30 percent, the income of the poorest 10 percent saw an increase of 145 percent (PNUD 2017: 21). In turn, the Gini index fell from 52.1 in 1990 to 47.6 in 2015 (PNUD 2017: 37). If income inequality is measured within the different generations the reduction is even greater (Sapelli 2014). Other measures of inequality also show a narrowing of the gap between the rich and the rest of the population. The Palma index, which measures the income inequality of the richest 10 percent relative to the bottom 40 percent, fell from 3.58 to 2.78 in the same time period while the ratio between the incomes of the bottom and the top quintiles decreased from 14.8 to 10.8 (PNUD 2017: 21) In addition to this decline in income inequality, a 2017 OECD report showed that Chile had more social mobility than all other OECD countries (2018). (2) Chile also held the highest position among Latin American nations in the 2019 UN Human Development Index (PNUD 2019).

In short, thanks to the free-market reforms introduced by the Chicago Boys and maintained by the democratic regimes that came later, Chile became the most prosperous country in Latin America, which mostly benefitted the poorest members of the population.

Explaining Chile's "Paradox"

To many, the enonnous economic and social progress that Chile has achieved in the last four decades seems to be in full contradiction with the crisis that broke out in October 2019, characterized by mass demonstrations, coordinated violence by small groups, and demands by the political left and others to abandon Chile's free-market model. The crisis upended Chilean politics and society, leading to a planned referendum on writing a new constitution. (3) Some have described Chile's current situation as a "paradox" (Edwards 2019). Indeed, it seems paradoxical that a country that has achieved so much prosperity has bitterly turned against the very institutions that made that prosperity possible.

Part of the explanation for the rage showed by the Chilean population has to do...