Chile is commonly portrayed as the great exception to Latin America’s long and difficult struggle to overcome economic backwardness and instability. In 1982, conservative economist Milton Friedman of the University of Chicago pronounced the market-driven policies of Gen. Augusto Pinochet’s military dictatorship “an economic miracle.” Friedman was hardly an impartial observer. He and other Chicago economists had trained many of the dictatorship’s ultra-free-market economic advisors, a group of Chilean economists who became known as the “Chicago Boys.” Other prominent U.S. economists, however, also tout Chile’s “economic miracle.” In 2000, Harvard economist Robert Barro asserted in Business Week that Chile’s “outstanding performance derived from the free-market reforms instituted by … Pinochet.” Even Nobel laureate Joseph Stiglitz, a strong critic of the Chicago School, described Chile in his 2002 book Globalization and its Discontents as an exception to the failure of unregulated free markets and free trade policies in developing nations. Neoliberalism, a term first employed in Latin America, describes the experiment in unregulated capitalism that the Pinochet dictatorship embraced in the years following the 1973 coup that toppled the elected government of Socialist President Salvador Allende. Chile has seen three elected governments since Pinochet’s fall in 1990. None, however, including the present Socialist-led government, has broken sharply with the neoliberal economic model instituted by the dictatorship. For years, these post-Pinochet Concertación governments (a coalition of the Christian Democratic and Socialist parties) were content to administer the economic boom that had begun in the latter years of the dictatorship.
Is Chile a Neoliberal Success?
ReplyDeleteChile is often heralded as the global South’s best case for free-trade economic policies, but the facts tell a different story.
by James M. Cypher
While the Chicago School is known for its devotion to free-market policies and its hostility to government regulation, the chief target of the Chicago Boys (and other right-wing economists), along with the military dictatorship and the business class, was not state intervention in economic life, but rather the organized power of the Chilean working class.
ReplyDeleteBut the boom turned to stagnation in 1997: average per capita income rose only 0.7% per year between 1998 and 2002, while unemployment stayed above 9% through 2003. Export growth, widely viewed as the engine of the Chilean “miracle,” stagnated, with total exports barely rising from $17 billion in 1997 to $17.4 billion in 2002.
ReplyDeleteWhile both the Concertación economists and those of the far right sought to blame Chile’s woes on outside factors—the Asian crisis of 1997, the Argentine implosion of 2000, the U.S. slump of 2001, and so on—a few dissident economists had predicted all along that the boom would inevitably reach an impasse. One, economist Graciela Moguillansky of the U.N. Economic Commission for Latin America and the Caribbean, argued that the large Chilean finance/resource-processing conglomerates which dominate the economy had exhausted the easy resource-processing opportunities handed to them by the government through programs created decades ago. The “Chilean miracle” had reached its own self-imposed limits.
The Chilean economy unquestionably enjoyed a boom in the late 1980s and 1990s. Some Chileans enjoyed the boom more than others, however. Even as Chile’s average per capita income nearly doubled between 1987 and 1998, workers’ average wages increased by only 53%, and because of wage losses over the 22 years between 1970 and 1992, real wages in 1998 were only 29.5% higher than in 1970. Chile now has the third most unequal income distribution in Latin America (behind Brazil and Guate-mala). According to official government data, the top 20% received 57.5% of the national income in 2000; the top 10% received 42.5%. Tax evasion is widespread, with an estimated 23% of total income going unreported, virtually all of it flowing to the top 20%. So in reality, income distribution is even more unequal than official figures acknowledge. The skewed distribution of in-come, more unequal than it was in the 1960s, is a deliberate result of government policy. One element of the policy is to keep income taxes low—the average income tax rate on the top 10% is a mere 2.5%. Another is to keep wages low in the export sec-tors to keep them internationally competitive. But this also means that wages must be low throughout the economy.
ReplyDeleteRedistribution policies instituted by the Concertación have brought the official poverty rate from 45% in 1987 to 21% in 2000. Certainly this is a laudable accomplishment, but it fails to address the inequality and the near-poverty status of workers that re-sult from the neoliberal strategy.