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<title>C.11 Doesn't neo-liberalism in Chile prove that the free market benefits everyone?
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<h1>C.11 Doesn't neo-liberalism in Chile prove that the free market benefits everyone?</h1>
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<p>
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Chile is considered by some to be one of the economic success stories
14
of the modern world. It can be considered as the first laboratory for
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neo-liberal economic dogma, first under Pinochet's dictatorship and
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later when his regime had been replaced by a more democratic one. It
17
can be considered as the template for the economic vision later applied
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by Reagan and Thatcher in the West. What happened in Chile was repeated
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(to some degree) wherever neo-liberal policies were implemented. As
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such, it makes a good case study to evaluate the benefits of free(r)
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market capitalism and the claims of capitalist economics.
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</p><p>
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For the right, Chile was pointed to as a casebook in sound economics and
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is held up as an example of the benefits of capitalism. Milton Friedman,
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for example, stated in 1982 that Military Junta <i>"has supported a fully
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free-market economy as a matter of principle. Chile is an economic miracle."</i>
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[quoted by Elton Rayack, <b>Not so Free to Choose</b>, p. 37] Then US President
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George Bush praised the Chilean economic record in December 1990 when he
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visited that country, stating Chile deserved its <i>"reputation as an
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economic model"</i> for others to follow.
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</p><p>
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However, the reality of the situation is radically different. As Chilean
33
expert Peter Winn argues, <i>"[w]e question whether Chile's neoliberal boom
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. . . should be regarded as a miracle. When confronted by such a claim,
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scholars and students should always ask: a miracle for <b>whom</b> -- and at what
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cost?"</i> [<i>"Introduction"</i>, Peter Winn (ed.), <b>Victims of the Chilean Miracle</b>,
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p. 12] As we will prove, Chile's "economic miracle" is <b>very</b> class dependent.
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For its working class, the neo-liberal reforms of the Pinochet regime have
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resulted in a worsening of their lives; if you are a capitalist then it
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has been a miracle. That the likes of Friedman claim the experiment as a
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"miracle" shows where their sympathies lie -- and how firm a grasp they
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have of reality.
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</p><p>
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The reason why the Chilean people become the first test case for
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neo-liberalism is significant. They did not have a choice. General
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Pinochet was the figure-head of a military coup in 1973 against the
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democratically elected left-wing government led by President Allende.
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This coup was the culmination of years of US interference by the US in
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Chilean politics and was desired by the US <b>before</b> Allende took office
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in November 1970 (<i>"It is the firm and continuing policy that Allende be
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overthrown by a coup,"</i> as one CIA memo put it in October of that year
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[quoted by Gregory Palast, <i>"A Marxist threat to cola sales? Pepsi
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demands a US coup. Goodbye Allende. Hello Pinochet"</i>, <b>The Observer</b>,
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8/11/1998]). Then American president Richard Nixon imposed an embargo
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on Chile and began a covert plan to overturn the Allende government.
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In the words of the US ambassador to Chile, the Americas <i>"will do all
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in our power to condemn Chileans to utmost poverty."</i> [quoted by Noam
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Chomsky, <b>Deterring Democracy</b>, p. 395]
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</p><p>
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According to notes taken by CIA director Richard Helms at a 1970 meeting
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in the Oval Office, his orders were to <i>"make the economy scream."</i> This was
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called Project FUBELT and its aims were clear: <i>"The Director [of the CIA]
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told the group that President Nixon had decided that an Allende regime
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in Chile was not acceptable to the United States. The President asked
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the Agency to prevent Allende from coming to power or to unseat him."</i>
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[<i>"Genesis of Project FUBELT"</i> document dated September 16, 1970] Not all
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aid was cut. During 1972 and 1973 the US increased aid to the military
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and increased training Chilean military personnel in the United States
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and Panama. In other words, the coup was helped by US state and various US
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corporations both directly and indirectly, by undermining the Chilean
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economy.
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</p><p>
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Thousands of people were murdered by the forces of "law and order" and
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Pinochet's forces <i>"are conservatively estimated to have killed over
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11,000 people in his first year in power."</i> [P. Gunson, A. Thompson,
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G. Chamberlain, <b>The Dictionary of Contemporary Politics of South
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America</b>, p. 228] Military units embarked on an operation called the
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Caravan of Death to hunt down those they considered subversives (i.e.
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anyone suspected or accused of holding left-wing views or sympathies).
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Torture and rape were used extensively and when people did not just
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disappear, their mutilated bodies were jumped in plain view as a
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warning to others. While the Chilean government's official truth and
83
reconciliation committee places the number of disappeared at roughly
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3,000, church and human rights groups estimate the number is far
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higher, at over 10,000. Hundreds of thousands fled into exile. Thus
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ended Allende's "democratic road to Socialism." The terror did not
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end after the coup and dictatorship's record on human rights was
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rightly denounced as barbaric.
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</p><p>
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Friedman, of course, stressed his <i>"disagreement with the authoritarian
91
political system of Chile."</i> [quoted by Rayack, <b>Op. Cit.</b>, p. 61] For
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the time being we will ignore the obvious contradiction in this
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"economic miracle", i.e. why it almost always takes authoritarian/fascistic
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states to introduce "economic liberty." Rather we will take the right at
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its word and concentrate on the economic facts of the free-market
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capitalism imposed on the Chilean people. They claim it was a free
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market and given that, for example, Friedman was leading ideologue for
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capitalism we can assume that the regime approximated the workings of
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such a system. We will discuss the illogical nature and utter hypocrisy
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of the right's position in <a href="secD11.html">section D.11</a>, where we also discuss the
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limited nature of the democratic regime which replaced Pinochet and
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the real relationship between economic and political liberty.
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</p><p>
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Faced with an economic crisis, in 1975 Pinochet turned to the ideas of
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Milton Friedman and a group of Chilean economics who had been taught by him
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at the University in Chicago. A short meeting between Friedman and Pinochet
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convinced the dictator to hand economic policy making to Friedman's acolytes
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(who became known as "the Chicago Boys" for obvious reasons). These were
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free-market economists, working on a belief in the efficiency and fairness
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of the free market and who desired to put the laws of supply and demand
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back to work. They set out to reduce the role of the state in terms of
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regulation and social welfare as these, they argued, had restricted Chile's
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growth by reducing competition, lowering growth, artificially increasing wages,
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and leading to inflation. The ultimate goal, Pinochet once said, was to make
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Chile <i>"not a nation of proletarians, but a nation of entrepreneurs."</i> [quoted
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by Thomas E. Skidmore and Peter H. Smith, <b>Modern Latin America</b>, p. 137]
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</p><p>
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The role of the Chicago Boys cannot be understated. They had a close
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relationship with the military from 1972, and according to one expert
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had a key role in the coup:
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</p><p><blockquote><i>
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"In August of 1972 a group of ten economists under the leadership of
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de Castro began to work on the formulation of an economic programme
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that would replace [Allende's one]. . . In fact, the existence of the
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plan was essential to any attempt on the part of the armed forces to
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overthrow Allende as the Chilean armed forces did not have any economic
127
plan of their own."</i> [Silvia Borzutzky, <i>"The Chicago Boys, social security
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and welfare in Chile"</i>, <b>The Radical Right and the Welfare State</b>, Howard
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Glennerster and James Midgley (eds.), p. 88]
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</blockquote></p><p>
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This plan also had the backing of certain business interests. Unsurprisingly,
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immediately after the coup, many of its authors entered key Economic Ministries
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as advisers. [Rayack, <b>Op. Cit.</b>, p. 52] It is also interesting to note that
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<i>"[a]ccording to the report of the United States Senate on covert actions in
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Chile, the activities of these economists were financed by the Central
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Intelligence Agency (CIA)."</i> [Borzutzky, <b>Op. Cit.</b>, p. 89] Obviously some
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forms of state intervention were more acceptable than others.
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</p><p>
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April 1975 saw the Chicago Boys assume <i>"what was in effect dictatorial control
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over economic policy . . . The monetarists were now in a commanding position to
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put in place Friedman's recommendations, and they didn't hesitate."</i> The actual
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results of the free market policies introduced by the dictatorship were far
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less than the "miracle" claimed by Friedman and a host of other right-wingers.
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The initial effects of introducing free market policies was a shock-induced
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depression which resulted in GDP dropping by 12.9% year "shock treatment" was
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imposed saw the GDP fall by 12.9% (Latin America saw a 3.8% rise), real wages
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fell to 64.9% of their 1970 level and unemployment rising to 20 percent. Even
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Pinochet <i>"had to concede that the social cost of the shock treatment was
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greater than he expected."</i> [Rayack, <b>Op. Cit.</b>, p. 56, p. 41 and p. 57] For
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Friedman, his <i>"only concern"</i> with the plan was <i>"whether it would be pushed
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long enough and hard enough."</i> [quoted by Joseph Collins and John Lear,
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<b>Chile's Free-Market Miracle: A Second Look</b>, p. 29] Unsurprisingly, the
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<i>"rigorous imposition of the neoliberal economic model after 1975 soon
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threatened [workers] job security too"</i> and they <i>"bore the brunt"</i> of the
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changes in terms of <i>"lost jobs and raised work norms."</i> [Winn, <i>"No Miracle
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for Us,"</i> Peter Winn (ed.), <b>Op. Cit.</b>, p. 131]
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</p><p>
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After the depression of 1975, the economic started to grow again. This is
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the source of claim of an "economic miracle." Friedman, for example, used
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1976 as his base-line, so excluding the depression year of 1975 which his
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recommended shock treatment deepened. This is dishonest as it fails to take
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into account not only the impact of neo-liberal policies but also that a
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deep recession often produces a vigorous upsurge:
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</p><p><blockquote><i>
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"By taking 1975, a recession year in which the Chilean economy declined
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by 13 percent, as the starting point of their analysis, the Chicago
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Boys obscured the fact that their 'boom' was more a recovery from the
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deep recession than a new economic expansion. From 1974 to 1981, the
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Chilean economy grew at a modest 1.4 percent a year on average. Even
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at the height of the 'boom' in 1980, effective unemployment was so
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high -- 17 percent -- that 5 percent of the workforce were in
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government make-work programs, a confession of failure for neoliberals
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who believe in the market as self-correcting and who abhor government
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welfare programs. Nor did the Chicago Boys call attention to the
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extreme concentration of capital, precipitous fall in real wages and
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negative redistribution of income that their policies promoted, or
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their disincentives to productive investment."</i> [Peter Winn, <i>"The
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Pinochet Era"</i>, <b>Op. Cit.</b>, pp. 28-9]
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</blockquote></p><p>
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Between 1975 and 1982, the regime implemented numerous economic reforms
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based on the suggestions of the Chicago Boys and their intellectual gurus
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Friedman and von Hayek. They privatised numerous state owned industries
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and resources and, as would be expected, the privatisations were carried
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out in such a way as to profit the wealthy. <i>"The denationalisation process,"</i>
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notes Rayack, <i>"was carried out under conditions that were extremely
186
advantageous for the new owners . . . the enterprises were sold at sharply
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undervalues prices."</i> Only large conglomerates could afford them, so capital
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became even more concentrated. [<b>Op. Cit.</b>, p. 67] When it privatised its
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interests in the forestry processing plants in the country the government
190
followed the privatisation of other areas of the economy and they <i>"were
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sold at a discount, according to one estimate, at least 20 per cent below
192
their value."</i> Thus <i>"the privatisations were bargain sell-offs of public
193
assets,"</i> which amounted to a <i>"subsidy from the national treasury to the
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buyers of 27 to 69 percent"</i> and so <i>"[c]ontrol of the common wealth of the
195
entire nation passed to a handful of national and foreign interests that
196
captured most of the subsidy implicit in the rock bottom prices."</i> [Joseph
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Collins and John Lear, <b>Chile's Free-Market Miracle: A Second Look</b>,
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p. 206, p. 54 and p. 59]
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</p><p>
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By 1978, the Chicago Boys <i>"were pressing for new laws that would bring labour
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relations in line with the neoliberal economic model in which the market, not
202
the state, would regulate factors of production."</i> [Winn, <i>"The Pinochet Era"</i>,
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Winn (ed.), <b>Op. Cit.</b>, p. 31] According to Pinochet's Minister of Labour
204
(1978-81), the Labour relations had been <i>"modernised"</i> and that <i>"politicised"</i>
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labour leaders and their <i>"privileged fiefdoms"</i> had been eliminated, with
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workers no longer having <i>"monopolies"</i> on job positions. Rather than government
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intervention, negotiation between capital and labour was now left to <i>"individual
208
responsibility and the discipline of the market."</i> The stated aim was to
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<i>"introduce democracy into the world of Chilean unions and resolve problems
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that for decades had been obstacles for the progress of workers."</i> [quoted
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by Joseph Collins and John Lear, <i>"Working in Chile's Free Market"</i>, pp. 10-29,
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<b>Latin American Perspectives</b>, vol. 22, No. 1, pp. 10-11 and p. 16] The
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hypocrisy of a technocratic bureaucrat appointed by a military dictatorship
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talking about introducing democracy into unions is obvious. The price of
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labour, it was claimed, now found its correct level as set by the "free"
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market.
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</p><p>
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All of which explains Friedman's 1991 comment that the <i>"real miracle of Chile"</i>
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was that Pinochet <i>"support[ed] a free market regime designed by principled
220
believers in a free market."</i> [<b>Economic Freedom, Human Freedom, Political
221
Freedom</b>] As to be expected with Friedman, the actual experience of
222
implementing his dogmas refuted both them and his assertions on capitalism.
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Moreover, working class paid the price.
224
</p><p>
225
The advent of the "free market" led to reduced barriers to imports
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<i>"on the ground the quotas and tariffs protected inefficient industries
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and kept prices artificially high. The result was that many local firms
228
lost out to multinational corporations. The Chilean business community,
229
which strongly supported the coup in 1973, was badly affected."</i> [Skidmore
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and Smith, <b>Op. Cit.</b>, p. 138] The decline of domestic industry cost
231
thousands of better-paying jobs. Looking at the textile sector, firms
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survived because of <i>"lowered labour costs and increased productivity."</i>
233
The sector has <i>"low real wages, which dramatically altered"</i> its
234
international competitiveness. In other words, the Chilean textile
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industry <i>"had restructured itself on the back of its workers."</i> [Peter
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Winn, <i>"No Miracle for Us"</i>, Winn (ed.), <b>Op. Cit.</b>, p. 130] The mines
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were <i>"enormously profitable after 1973 because of increased labour
238
discipline, the reduction in costs due to the contraction of real
239
wages, and an increase in production based on expansion programs
240
initiated during the late 1960s."</i> [Thomas Miller Klubock, <i>"Class,
241
Community, and Neoliberalism in Chile"</i>, <b>Op. Cit.</b>, p. 241] This was
242
the <b>real</b> basis of the 1976 to 1981 "economic miracle" Friedman
243
praised in 1982.
244
</p><p>
245
As with most neo-liberal experiments, the post-1975 "miracle" was built
246
on sand. It was <i>"a speculative bubble that was hailed as an 'economic
247
miracle' until it burst in the 1981-82 bank crash that brought the
248
deregulated Chilean economy down in its wake."</i> It was <i>"largely short-term
249
speculative capital . . . producing a bubble in stock market and real
250
estate values"</i> and <i>"by 1982 the economy was in shambles and Chile in
251
the throes of its worse economic crisis since the depression of the
252
1930s. A year later, massive social protests defied Pinochet's security
253
forces."</i> [Winn, <b>Op. Cit.</b>, p. 38] Thus <i>"the bottom fell out of the
254
economy"</i> and Chile's GDP fell 14% in one year. In the textile industry
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alone, an estimated 35 to 45% of companies failed. [Collins and Lear,
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<b>Op. Cit.</b>, p. 15]
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</p><p>
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So after 7 years of free(r) market capitalism, Chile faced yet another
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economic crisis which, in terms of unemployment and falling GDP was
260
even greater than that experienced during the terrible shock treatment
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of 1975. Real wages dropped sharply, falling in 1983 to 14% below what
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they had been in 1970. Bankruptcies skyrocketed, as did foreign debt
263
and unemployment. [Rayack, <b>Op. Cit.</b>, p. 69] Chile's GNP <i>"fell by more
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than 15 percent, while its real disposable GNP declined by 19 percent.
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The industrial sector contracted by more than 21 percent and
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construction by more than 23 percent. Bankruptcies tripled . . . It
267
was a crisis comparable to the Great Depression of the 1930s, which
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affected Chile more severely than any other country in the world."</i>
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The same can be said of this crisis, for while GNP in Chile feel
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14% during 1982-3, the rest of Latin America experienced 3.5% drop
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as whole. [Winn, <b>Op. Cit.</b>, p. 41 and p. 66] By 1983, the Chilean
272
economy was devastated and it was only by the end of 1986 that
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Gross Domestic Product per capita (barely) equalled that of 1970.
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Unemployment (including those on government make-work programmes)
275
had risen to a third of the labour force by mid-1983. By 1986, per
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capita consumption was actually 11% lower than the 1970 level.
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[Skidmore and Smith, <b>Op. Cit.</b>, p. 138]
278
</p><p>
279
Faced with this massive economic collapse (a collapse that somehow
280
slipped Friedman's mind when he was evaluating the Chilean experiment
281
in 1991), the regime organised a massive bailout. The "Chicago Boys"
282
resisted this measure, arguing with dogmatic arrogance that there
283
was no need for government intervention or policy changes because
284
they believed in the self-correcting mechanisms of the market would
285
resolve any economic problem. However, they were applying a simplistic
286
textbook version of the economy to a complex reality which was
287
spectacularly different from their assumptions. When that reality
288
refused to respond in the way predicted by their ideological musing,
289
the state stepped in simply because the situation had become so
290
critical it could not avoid it.
291
</p><p>
292
The regime did do some things to help the unemployed, with 14% of the
293
labour force enrolled in two government make-work programs that paid
294
less than the minimum wage by October 1983. However, aid for the
295
capitalist class was far more substantial. The IMF offered loans to
296
Chile to help it out of mess its economic policies had helped
297
create, but under strict conditions (such as making the Chilean
298
public responsible for paying the billions in foreign loans
299
contracted by <b>private</b> banks and firms). The total bailout cost 3%
300
of Chile's GNP for three years, a cost which was passed on to the
301
population (this <i>"socialisation of private debts were both striking
302
and unequal"</i>). This follows the usual pattern of "free market"
303
capitalism -- market discipline for the working class, state aid
304
for the elite. During the "miracle," the economic gains had been
305
privatised; during the crash the burden for repayment was socialised.
306
In fact, the regime's intervention into the economy was so extensive
307
that, <i>"[w]ith understandable irony, critics lampooned the 'Chicago
308
road to socialism.'"</i> [Winn, <b>Op. Cit.</b>, p. 66 and p. 40]
309
</p><p>
310
Significantly, of the 19 banks that the government had privatised,
311
all but five failed. These along with the other bankrupt firms
312
fell back into government hands, a fact the regime sought to downplay
313
by failing to classify them as public companies. Once the debts had
314
been <i>"assumed by the public,"</i> their <i>"assets were sold to private
315
interests."</i> Significantly, the <i>"one bank that had not been privatised
316
and the other publicly owned companies survived the crisis in
317
relatively good shape"</i> and almost all of them were <i>"turning a profit,
318
generating for the government in profits and taxes 25 percent of its
319
total revenues . . . Thus the public companies that had escaped the
320
Chicago Boy's privatisations . . . enabled a financially strapped
321
government to resuscitate the failed private banks and companies."</i>
322
[Collins and Lear, <b>Chile's Free-Market Miracle: A Second Look</b>,
323
pp. 51-2]
324
</p><p>
325
Needless to say, the recovery (like the illusionary boom) was paid for
326
by the working class. The 1982 crash meant that <i>"something had to give,
327
and the Chicago Boys decided that it would be wages. Wages, they explained,
328
should be allowed to find their natural level."</i> An 1982 decree <i>"transferred
329
much of the burden of recovery and profitability to workers and became
330
central to Chile's economic recovery throughout the rest of the decade."</i>
331
[Collins and Lear, <b>Op. Cit.</b>, p. 20 and p. 19] For the miners, between late
332
1973 and May 1983, real average wages dropped by 32.6% and workers' benefits
333
were reduced (for example, the free medical attention and health care that
334
had been won in the 1920s were dropped). [Thomas Miller Klubock, <i>"Class,
335
Community, and Neoliberalism in Chile,"</i> Winn (ed.), <b>Op. Cit.</b>, p. 217]
336
As Peter Winn summarises:
337
</p><p><blockquote><i>
338
"Chile's workers, who had paid the social costs of the illusory
339
neoliberal 'miracle,' now paid as well the highest price for the
340
errors of their nation's military rulers and Chicago Boy technocrats
341
and the imprudence of their country's capitalists. Plant closing and
342
layoffs drove the effective unemployment rate above 30 percent,
343
while real wages for those lucky enough to retain their jobs fell
344
by nearly 11 percent in 1979-82 and by some 20 percent during the
345
1980s. In addition, inflation jumped to over 20 percent in both
346
1982 and 1983, and the budget surplus gave way to a deficit equal to
347
3 percent of the GNP by 1983. By then, Chile's foreign debt was
348
13 percent higher than its GNP . . . Chile's economy contracted
349
400 percent more in 1982-83 than the rest of Latin America."</i> [<i>"The
350
Pinochet Era"</i>, Winn (ed.), <b>Op. Cit.</b>, pp. 41-2]
351
</blockquote></p><p>
352
Unsurprisingly, for the capitalist class things were somewhat different.
353
Private banks <i>"were bailed out by the government, which spent $6
354
billion in subsidies during 1983-85 (equal to 30 percent of the GNP!)
355
but were made subject to strict government regulation designed to
356
assure their solvency. Controls were also placed on flows of foreign
357
capital."</i> [Winn, <b>Op. Cit.</b>, p. 42] The government also raised tariffs
358
from 10% to between 20 and 35% and the peso was drastically devalued.
359
[Collins and Lear, <b>Op. Cit.</b>, p. 15] Pinochet's state took a more
360
active role in promoting economic activity. For example, it developed
361
new export industries which <i>"benefited from a series of subsidies,
362
privatisations, and deregulations that allowed for unrestricted
363
exploitation of natural resources of limited renewability. Equally
364
important were low wages, great flexibility of employers vis-�-vis
365
workers, and high levels of unemployment."</i> [Collins and Lear,
366
<b>Op. Cit.</b>, p. 20] The forestry sector was marked by government
367
hand-outs to the already rich. Joseph Collins and John Lear argue
368
that the neoliberals' <i>"stated goals were to curtail sharply the
369
direct role of government in forestry and to let market mechanisms
370
determine the prices and direct the use of resources. Yet government
371
intervention and subsidies were in fact central to reorienting the
372
benefits of forestry production away from the rural population towards
373
a handful of national and foreign companies."</i> [<b>Op. Cit.</b>, p. 205]
374
</p><p>
375
By 1986, the economy had stabilised and the crisis was over. However,
376
the recovery was paid for by the working class as <i>"wages stayed low"</i>
377
even as the economy began to recover. Low wages were key to the
378
celebrated 'miracle' recovery. From 1984 to 1989 the gross national
379
product grew an average of 6 percent annually. By 1987 Chile had
380
recovered the production levels of 1981, and by 1989 production
381
levels exceeded 1981 levels by 10 percent. The average wage, by
382
contrast, was 5 percent lower at the end of the decade than it had
383
been in 1981 -- almost 10 percent lower than the average 1970 wage.
384
The drop in the minimum wage <i>"was even more drastic."</i> Public unrest
385
during the economic crisis made it politically difficult to eliminate,
386
so it <i>"was allowed to erode steadily in the face of inflation. By 1988,
387
it was 40 percent lower in real terms than it had been in 1981 . . .
388
In that year 32 percent of the workers in Santiago earned the minimum
389
wage or less."</i> Thus, <i>"recovery and expansion after 1985 depended on
390
two ingredients that are unsustainable over the long term and in a
391
democratic society,"</i> namely <i>"an intensified exploitation of the labour
392
force"</i> and <i>"the unregulated exploitation of nonrenewable natural
393
resources such as native forests and fishing areas, which amounted
394
to a one-time subsidy to domestic conglomerates and multinationals."</i>
395
[Collins and Lear, <b>Op. Cit.</b>, <b>Op. Cit.</b>, p. 83, p. 84 and p. 35]
396
</p><p>
397
In summary, <i>"the experiment has been an economic disaster."</i> [Rayack,
398
<b>Op. Cit.</b>, p. 72]
399
</p>
400
401
<h2><a name="secc111">C.11.1 Who benefited from Chile's "economic miracle"?</a></h2>
402
403
<p>
404
Given that Chile was hardly an "economic miracle," the question arises
405
why it was termed so by people like Friedman. To answer that question,
406
we need to ask who actually benefited from the neo-liberalism Pinochet
407
imposed. To do this we need to recognise that capitalism is a class
408
system and these classes have different interests. We would expect any
409
policies which benefit the ruling elite to be classed as an "economic
410
miracle" regardless of how adversely they affect the general population
411
(and vice versa). In the case of Chile, this is precisely what happened.
412
</p><p>
413
Rather than benefit everyone, neo-liberalism harmed the majority. Overall,
414
by far the hardest group hit was the working class, particularly the
415
urban working class. By 1976, the third year of Junta rule, real wages
416
had fallen to 35% below their 1970 level. It was only by 1981 that they
417
has risen to 97.3% of the 1970 level, only to fall again to 86.7% by 1983.
418
Unemployment, excluding those on state make-work programmes, was 14.8%
419
in 1976, falling to 11.8% by 1980 (this is still double the average 1960s
420
level) only to rise to 20.3% by 1982. [Rayack, <b>Op. Cit.</b>, p. 65] Between
421
1980 and 1988, the real value of wages grew only 1.2 percent while the
422
real value of the minimum wage declined by 28.5 percent. During this
423
period, urban unemployment averaged 15.3 percent per year. [Silvia Borzutzky,
424
<b>Op. Cit.</b>, p. 96] Even by 1989 the unemployment rate was still at 10% (the
425
rate in 1970 was 5.7%) and the real wage was still 8% lower than in 1970.
426
Between 1975 and 1989, unemployment averaged 16.7%. In other words, after
427
nearly 15 years of free market capitalism, real wages had still not
428
exceeded their 1970 levels and unemployment was still higher. As would
429
be expected in such circumstances the share of wages in national income
430
fell from 42.7% in 1970 to 33.9% in 1993. Given that high unemployment
431
is often attributed by the right to strong unions and other labour market
432
"imperfections," these figures are doubly significant as the Chilean regime,
433
as noted above, reformed the labour market to improve its "competitiveness."
434
</p><p>
435
After 1982, <i>"stagnant wages and the unequal distribution of income severely
436
curtailed buying power for most Chileans, who would not recover 1970
437
consumption levels until 1989."</i> [Collins and Lear, <b>Op. Cit.</b>, p. 25] By 1988,
438
<i>"the average real wage had returned to 1980 levels, but it was still well
439
below 1970 levels. Moreover, in 1986, some 37 percent of the labour force
440
worked in the informal sector, where wages were lower and benefits often
441
nonexistent. Many worked for minimum wage which in 1988 provided only half
442
of what an average family required to live decently -- and a fifth of the
443
workers didn't even earn that. A survey . . . concluded that nearly half
444
of Chileans lived in poverty."</i> [Winn, <i>"The Pinochet Era"</i>, <b>Op. Cit.</b>, p. 48]
445
This was far more in absolute and relative terms than at any time in the
446
in the preceding three decades. [Collins and Lear, <i>"Working in Chile's
447
Free Market"</i>, <b>Op. Cit.</b>, p. 26]
448
</p><p>
449
Per capita consumption fell by 23% from 1972-87. The proportion of the
450
population below the poverty line (the minimum income required for basic
451
food and housing) increased from 20% to 44.4% between 1970 and 1987.
452
Per capita health care spending was more than halved from 1973 to 1985,
453
setting off explosive growth in poverty-related diseases such as typhoid,
454
diabetes and viral hepatitis. On the other hand, while consumption for the
455
poorest 20% of the population of Santiago dropped by 30%, it rose by
456
15% for the richest 20%. [Noam Chomsky, <b>Year 501</b>, pp. 190-191] The
457
percentage of Chileans without adequate housing increased from 27 to
458
40 percent between 1972 and 1988, despite the claims of the government
459
that it would solve homelessness via market friendly policies.
460
</p><p>
461
So after two decades of neoliberalism, the Chilean worker can look forward
462
to <i>"a job that offers little stability and low wages, usually a temporary
463
one or one in the informal economy . . . Much of the growth in jobs after
464
the 1982-1983 crash came in economic sectors characterised by seasonal
465
employment . . . [and are] notorious for their low pay, long hours, and
466
high turnover."</i> In 1989, over 30% of jobs were in the formal sector in the
467
Santiago metropolitan area with incomes less than half the average of
468
those in the formal sector. For those with jobs, <i>"the work pace intensified
469
and the work day lengthened . . . Many Chileans worked far longer than the
470
legal maximum work week of 48 hours without being paid for the extra
471
hours. Even free-market celebrants . . . admit that extra unpaid hours
472
remain a serious problem"</i> in 1989. In fact, it is <i>"commonly assumed that
473
employees work overtime without pay or else"</i> and, unsurprisingly, the
474
<i>"pattern resembles the European production systems of the mid-19th century."</i>
475
[Collins and Lear, <b>Op. Cit.</b>, p. 22 pp. 22-3, p. 23, p. 24 and p. 25]
476
Unsurprisingly, as in neo-liberal America, wages have become divorced
477
from productivity growth. Even in the 1990s, <i>"there is evidence that
478
productivity growth outpaced real wage growth by as much as a ratio 3:1
479
in 1993 and 5:1 in 1997."</i> [Volker Frank, <i>"Politics without Policy"</i>,
480
<b>Op. Cit.</b>, p. 73]
481
</p><p>
482
Similar comments are possible in regards to the privatised pension system,
483
regarded by many right-wingers as a success and a model for other countries.
484
However, on closer inspection this system shows its weaknesses -- indeed,
485
it can be argued that the system is only a success for those companies
486
making extensive profits from it (administration costs of the Chilean
487
system are almost 30% of revenues, compared to 1% for the U.S. Social
488
Security system [Doug Henwood, <b>Wall Street</b>, p. 305]). For working people,
489
it is a disaster. According to SAFP, the government agency which regulates
490
the system, 96% of the known workforce were enrolled in February 1995, but
491
43.4% of these were not adding to their funds. Perhaps as many as 60% do
492
not contribute regularly (given the nature of the labour market, this is
493
unsurprising). Unfortunately, regular contributions are required to
494
receive full benefits. Critics argue that only 20% of contributors
495
will actually receive good pensions.
496
</p><p>
497
Workers need to find money for health care as their <i>"remuneration has been
498
reduced to the wage, ending most benefits that workers had gained over the
499
years [before the coup]. Moreover, the privatisation of such social services
500
as health care and retirement security . . . [has meant] the costs were now
501
taken entirely from employee earnings."</i> Unsurprisingly, <i>"[l]onger work days
502
and a stepped-up pace of work increased the likelihood of accidents and
503
illness. From 1982 to 1985 the number of reported workplace accident
504
almost doubled. Public health experts estimate, however, that over
505
three-quarters of workplace accidents went unreported, in part because
506
over half of the workforce is without any kind of accident insurance."</i>
507
[Collins and Lear, <b>Op. Cit.</b>, p. 20 and p. 25]
508
</p><p>
509
It is interesting to note that when this programme was introduced, the
510
armed forces and police were allowed to keep their own generous public
511
plans. If the plans <b>were</b> are as good as their supporters claim, you
512
would think that those introducing them would have joined them.
513
Obviously what was good enough for the masses were not suitable
514
for the rulers and the holders of the guns they depended upon. Given
515
the subsequent fate of that scheme, it is understandable that the
516
ruling elite and its minions did not want middle-men to make money
517
off their savings and did not trust their pensions to the fluctuations
518
of the stock market. Their subjects, however, were less lucky. All
519
in all, Chile's privatised social security system <i>"transferred worker
520
savings in the form of social security contributions from the public
521
to the private sector, making them available to the country's economic
522
groups for investment. Given the oligopic concentration of wealth and
523
corporate control under Pinochet, this meant handing the forced
524
savings of workers over to Chile's most powerful capitalists."</i> That
525
is, <i>"to shore up capital markets through its transfer of worker
526
savings to Chile's business elites."</i> [Winn, <i>"The Pinochet Era"</i>,
527
<b>Op. Cit.</b>, p. 64 and p. 31]
528
</p><p>
529
The same applies to the health system, with the armed forces and
530
national police and their dependants having their own public health
531
care system. This means that they avoid the privatised health system
532
which the wealthy use and the run-down public system which the
533
majority have access to. The market ensures that for most people,
534
<i>"the actual determining factor is not 'choice,' but one's ability
535
to pay."</i> By 1990, only 15% of Chileans were in the private
536
system (of these, nearly 75% are form the top 30% of the
537
population by income). This means that there are three medical
538
systems in Chile. The well-funded public one for armed forces and
539
police, a good to excellent private system for the elite few and
540
a <i>"grossly under-funded, rundown, over-burdened"</i> one <i>"for some
541
70% of Chileans."</i> Most <i>"pay more and receive less."</i> [Collins and
542
Lear, <b>Op. Cit.</b>, p. 99 and p. 246]
543
</p><p>
544
The impact on individuals extended beyond purely financial considerations,
545
with the Chilean labour force <i>"once accustomed to secure, unionised jobs
546
[before Pinochet] . . . [being turned] into a nation of anxious individualists
547
. . . [with] over half of all visits to Chile's public health system
548
involv[ing] psychological ailments, mainly depression. 'The repression
549
isn't physical any more, it's economic - feeding your family, educating
550
your child,' says Maria Pena, who works in a fishmeal factory in Concepcion.
551
'I feel real anxiety about the future', she adds, 'They can chuck us out
552
at any time. You can't think five years ahead. If you've got money you can
553
get an education and health care; money is everything here now.'"</i> Little
554
wonder, then, that <i>"adjustment has created an atomised society, where
555
increased stress and individualism have damaged its traditionally strong
556
and caring community life. . . suicides have increased threefold between
557
1970 and 1991 and the number of alcoholics has quadrupled in the last 30
558
years . . . [and] family breakdowns are increasing, while opinion polls
559
show the current crime wave to be the most widely condemned aspect of
560
life in the new Chile. 'Relationships are changing,' says Betty Bizamar, a
561
26-year-old trade union leader. 'People use each other, spend less time
562
with their family. All they talk about is money, things. True friendship
563
is difficult now.'"</i> [Duncan Green, <b>Op. Cit.</b>, p. 96 and p. 166]
564
</p><p>
565
The experiment with free market capitalism also had serious impacts for
566
Chile's environment. The capital city of Santiago became one of the most
567
polluted cities in the world due the free reign of market forces. With
568
no environmental regulation there is general environmental ruin and water
569
supplies have severe pollution problems. [Noam Chomsky, <b>Year 501</b>, p. 190]
570
With the bulk of the country's experts being based on the extraction and
571
low processing of natural resources, eco-systems and the environment have
572
been plundered in the name of profit and property. The depletion of natural
573
resources, particularly in forestry and fishing, is accelerating due to the
574
self-interested behaviour of a few large firms looking for short term
575
profit.
576
</p><p>
577
So, in summary, Chile's workers <i>"were central target's of [Pinochet's]
578
political repression and suffered greatly from his state terror. They
579
also paid a disproportionate share of the costs of his regime's regressive
580
social policies. Workers and their organisations were also the primary
581
targets of Pinochet's labour laws and among the biggest losers from his
582
policies of privatisation and deindustrialisation."</i> [Winn, <i>"Introduction"</i>,
583
<b>Op. Cit.</b>, p. 10]
584
</p><p>
585
Given that the majority of Chile's people where harmed by the economic
586
policies of the regime, how can it be termed a "miracle"? The answer
587
can be found in another consequence of Pinochet's neo-classical monetarist
588
policies, namely <i>"a contraction of demand, since workers and their families
589
could afford to purchase fewer goods. The reduction in the market further
590
threatened the business community, which started producing more goods for
591
export and less for local consumption. This posed yet another obstacle to
592
economic growth and led to increased concentration of income and wealth
593
in the hands of a small elite."</i> [Skidmore and Smith, <b>Op. Cit.</b>, p. 138]
594
</p><p>
595
It is the increased wealth of the elite that we see the true "miracle"
596
of Chile. When the leader of the Christian Democratic Party returned
597
from exile in 1989 he said that economic growth that benefited the
598
top 10% of the population had been achieved (Pinochet's official
599
institutions agreed). [Noam Chomsky, <b>Deterring Democracy</b>, p. 231]
600
This is more than confirmed by other sources. According to one expert
601
in the Latin American neo-liberal revolutions, the elite <i>"had become
602
massively wealthy under Pinochet."</i> [Duncan Green, <b>The Silent Revolution</b>,
603
p. 216] In 1980, the richest 10% of the population took 36.5% of the
604
national income. By 1989, this had risen to 46.8%. By contrast, the
605
bottom 50% of income earners saw their share fall from 20.4% to
606
16.8% over the same period. Household consumption followed the same
607
pattern. In 1970, the top 20% of households had 44.5% of consumption.
608
This rose to 51% in 1980 and to 54.6% in 1989. Between 1970 and 1989,
609
the share going to the other 80% fell. The poorest 20% of households
610
saw their share fall from 7.6% in 1970 to 4.4% in 1989. The next 20%
611
saw their share fall from 11.8% to 8.2%, and middle 20% share fell
612
from 15.6% to 12.7%. The next 20% saw their share of consumption fall
613
from 20.5% to 20.1%. In other words, <i>"at least 60 percent of the
614
population was relatively, if not absolutely, worse off."</i> [James
615
Petras and Fernando Ignacio Leiva, <b>Democracy and Poverty in Chile</b>,
616
p. 39 and p. 34]
617
</p><p>
618
In summary, <i>"the distribution of income in Chile in 1988, after a decade
619
of free-market policies, was markedly regressive. Between 1978 and 1988
620
the richest 10 percent of Chileans increased their share of national
621
income from 37 to 47 percent, while the next 30 percent saw their share
622
shrink from 23 to 18%. The income share of the poorest fifth of the
623
population dropped from 5 to 4 percent."</i> [Collins and Lear, <b>Op. Cit.</b>,
624
p. 26] In the last years of Pinochet's dictatorship, the richest 10% of
625
the rural population saw their income rise by 90% between 1987 and 1990.
626
The share of the poorest 25% fell from 11% to 7%. The legacy of Pinochet's
627
social inequality could still be found in 1993, with a two-tier health
628
care system within which infant mortality is 7 per 1000 births for the
629
richest fifth of the population and 40 per 1000 for the poorest fifth.
630
[Duncan Green, <b>Op. Cit.</b>, p. 108 and p. 101] Between 1970 and 1989,
631
labour's share of the national income fell from 52.3% to 30.7% (it
632
was 62.8% in 1972). Real wages in 1987 were still 81.2% of their
633
1980-1 level. [Petras and Leiva, <b>Op. Cit.</b>, p. 34, p. 25 and p. 170]
634
</p><p>
635
Thus Chile has been a "miracle" for the capitalist class, with its
636
successes being <i>"enjoyed primarily (and in many areas, exclusively)
637
by the economic and political elites. In any society shot through
638
with enormous inequalities in wealth and income, the market . . .
639
works to concentrate wealth and income."</i> There has been <i>"a clear
640
trend toward more concentrated control over economic resources . . .
641
Economic concentration is now greater than at any other time in
642
Chile's history"</i> with multinational corporations reaping <i>"rich
643
rewards from Chile's free-market policies"</i> (<i>"not surprisingly,
644
they enthusiastically applaud the model and push to implant it
645
everywhere"</i>). Ultimately, it is <i>"unconscionable to consider any
646
economic and social project successful when the percentage of
647
those impoverished . . . more than doubled."</i> [Collins and Lear,
648
<b>Chile's Free-Market Miracle: A Second Look</b>, p. 252 and p. 253]
649
</p><p>
650
Thus the wealth created by the Chilean economy in during the Pinochet
651
years did <b>not</b> "trickle down" to the working class (as claimed would
652
happen by "free market" capitalist dogma) but instead accumulated in the
653
hands of the rich. As in the UK and the USA, with the application of
654
"trickle down economics" there was a vast skewing of income distribution
655
in favour of the already-rich. That is, there has been a 'trickle-up'
656
(or rather, a <b>flood</b> upwards). Which is hardly surprising, as exchanges
657
between the strong and weak will favour the former (which is why
658
anarchists support working class organisation and collective action
659
to make us stronger than the capitalists and why Pinochet repressed
660
them).
661
</p><p>
662
Overall, <i>"in 1972, Chile was the second most equal country in Latin
663
America; by 2002 it was the second most <b>un</b>equal country in the
664
region."</i> [Winn, <i>"The Pinochet Era"</i>, <b>Op. Cit.</b>, p. 56] Significantly,
665
this refutes Friedman's 1962 assertion that <i>"capitalism leads to
666
less inequality . . . inequality appears to be less . . . the more
667
highly capitalist the country is."</i> [<b>Capitalism and Freedom</b>, p. 169]
668
As with other countries which applied Friedman's ideas (such as the
669
UK and US), inequality soared in Chile. Ironically, in this as in so
670
many cases, implementing his ideas refuted his own assertions.
671
</p><p>
672
There are two conclusions which can be drawn. Firstly, that Chile is
673
now <b>less</b> capitalist after applying Friedman's dogmas. Secondly, that
674
Friedman did not know what he was talking about. The second option
675
Seems the most likely, although for some defenders of the faith Chile's
676
neo-liberal experiment may not have been "pure" enough. However, this
677
kind of assertion will only convince the true believer.
678
</p>
679
680
<h2><a name="secc112">C.11.2 What about Chile's economic growth and low inflation?</a></h2>
681
682
<p>
683
Given the actual results of the experiment, there are only two areas
684
left to claim an "economic miracle." These are combating inflation
685
and increasing economic growth. Neither can be said to be "miraculous."
686
</p><p>
687
As far as inflation goes, the Pinochet regime <b>did</b> reduce it, eventually.
688
At the time of the time of the CIA-backed coup it was around 500% (given
689
that the US undermined the Chilean economy -- <i>"make the economy scream"</i>,
690
Richard Helms, the director of the CIA -- high inflation would be
691
expected). By 1982 it was 10% and between 1983 to 1987, it fluctuated
692
between 20 and 31%. It took eight years for the Chicago Boys to control
693
inflation and, significantly, this involved <i>"the failure of several
694
stabilisation programmes at an elevated social cost . . . In other
695
words, the stabilisation programs they prescribed not only were
696
not miraculous -- they were not successful."</i> [Winn, <i>"The Pinochet Era"</i>,
697
<b>Op. Cit.</b>, p. 63] In reality, inflation was not controlled by means of
698
Friedman's Monetarism but rather by state repression as left-wing
699
Keynesian Nicholas Kaldor points out:
700
</p><p><blockquote><i>
701
"The rate of growth of the money supply was reduced from 570 per cent
702
in 1973 . . . to 130 per cent in 1977. But this did not succeed in moderating
703
the growth of the money GNP or of the rise in prices, because -- lo and
704
behold! -- no sooner did they succeed in moderating the growth of the money
705
supply down, than the velocity of circulation shot up, and inflation was
706
greater with a lower rate of growth of the money supply . . . they have
707
managed to bring down the rate of growth of prices . . . And how? By the
708
method well tried by Fascist dictatorships. It is a kind of incomes policy.
709
It is a prohibition of wage increases with concentration camps for those who
710
disobey and, of course, the prohibition of trade union activity and so on.
711
And so it was not monetarism that brought the Chilean inflation down . . .
712
[It was based on] methods which by-passed the price mechanism."</i> [<b>The
713
Economic Consequences of Mrs Thatcher</b>, p. 45]
714
</blockquote></p><p>
715
Inflation was controlled by means of state repression and high unemployment,
716
a combination of the incomes policy of Hitler and Mussolini and Karl Marx
717
(i.e., Friedman's "natural rate of unemployment" we debunked in
718
<a href="secC9.html">section C.9</a>). In other words, Monetarism and "free market" capitalism did not
719
reduce inflation (as was the case with Thatcher and Reagan was well).
720
</p><p>
721
Which leaves growth, the only line of defence possible for the claim of
722
a Chilean "Miracle." As we discussed in <a href="secC10.html">section C.10</a>,
723
the right argue that relative shares of wealth are not important, it is the absolute
724
level which counts. While the share of the economic pie may have dropped
725
for most Chileans, the right argue that the high economic growth of the
726
economy meant that they were receiving a smaller share of a bigger pie.
727
We will ignore the well documented facts that the <b>level</b> of inequality,
728
rather than absolute levels of standards of living, has most effect on
729
the health of a population and that ill-health is inversely correlated
730
with income (i.e. the poor have worse health that the rich). We will
731
also ignore other issues related to the distribution of wealth, and
732
so power, in a society (such as the free market re-enforcing and
733
increasing inequalities via "free exchange" between strong and weak
734
parties, as the terms of any exchange will be skewed in favour of the
735
stronger party, an analysis which the Chilean experience provides
736
extensive evidence for with its "competitive" and "flexible" labour
737
market). In other words, growth without equality can have damaging
738
effects which are not, and cannot be, indicated in growth figures.
739
</p><p>
740
So we will consider the claim that the Pinochet regime's record on growth
741
makes it a "miracle" (as nothing else could). However, when we look at the
742
regime's growth record we find that it is hardly a "miracle" at all -- the
743
celebrated economic growth of the 1980s must be viewed in the light of the
744
two catastrophic recessions which Chile suffered in 1975 and 1982. As Edward
745
Herman points out, this growth was <i>"regularly exaggerated by measurements
746
from inappropriate bases (like the 1982 trough)."</i> [<b>The Economics of the
747
Rich</b>]
748
</p><p>
749
This point is essential to understand the actual nature of Chile's "miracle"
750
growth. For example, supporters of the "miracle" pointed to the period 1978
751
to 1981 (when the economy grew at 6.6 percent a year) or the post 1982-84
752
recession up-swing. However, this is a case of "lies, damn lies, and
753
statistics" as it does not take into account the catching up an economy
754
goes through as it leaves a recession. During a recovery, laid-off workers
755
go back to work and the economy experiences an increase in growth due to
756
this. This means that the deeper the recession, the higher the subsequent
757
growth in the up-turn. So to see if Chile's economic growth was a miracle
758
and worth the decrease in income for the many, we need to look at whole
759
business cycle, rather than for the upturn. If we do this we find that Chile
760
had the second worse rate of growth in Latin America between 1975 and
761
1980. The average growth in GDP was 1.5% per year between 1974 and
762
1982, which was lower than the average Latin American growth rate of
763
4.3% and lower than the 4.5% of Chile in the 1960's. [Rayack, <b>Op. Cit.</b>,
764
p. 64]
765
</p><p>
766
This meant that, in per capita terms, Chile's GDP only increased by
767
1.5% per year between 1974-80. This was considerably less than the
768
2.3% achieved in the 1960's. The average growth in GDP was 1.5% per
769
year between 1974 and 1982, which was lower than the average Latin
770
American growth rate of 4.3% and lower than the 4.5% of Chile in the
771
1960s. Between 1970 and 1980, per capita GDP grew by only 8%, while
772
for Latin America as a whole, it increased by 40%. Between the years
773
1980 and 1982 during which all of Latin America was adversely affected
774
by depression conditions, per capita GDP fell by 12.9 percent, compared
775
to a fall of 4.3 percent for Latin America as a whole. [Rayack, <b>Op. Cit.</b>,
776
p. 57 and p. 64]
777
</p><p>
778
Thus, between 1970 and 1989, Chile's GDP <i>"grew at a slow pace (relative
779
to the 1960s and to other Latin American countries over the same period)
780
with an average rate of 1.8-2.0 per cent. On a per capita basis . . .
781
GDP [grew] at a rate (0.1-0.2 per cent) well below the Latin American
782
average . . . [B]y 1989 the GDP was still 6.1 per cent below the 1981
783
level, not having recovered the level reached in 1970. For the entire
784
period of military rule (1974-1989) only five Latin American countries
785
had a worse record. Some miracle!"</i> [Petras and Leiva, <b>Op. Cit.</b>, p. 32]
786
</p><p>
787
Thus the growth "miracles" refer to recoveries from depression-like
788
collapses, collapses that can be attributed in large part to the free-market
789
policies imposed on Chile! Overall, the growth "miracle" under Pinochet
790
turns out to be non-existent. The full time frame illustrates Chile's lack
791
of significant economic and social process between 1975 and 1989. Indeed,
792
the economy was characterised by instability rather than real growth.
793
The high levels of growth during the boom periods (pointed to by the
794
right as evidence of the "miracle") barely made up for the losses during
795
the bust periods.
796
</p><p>
797
All in all, the experience of Chile under Pinochet and its "economic
798
miracle" indicates that the costs involved in creating a free market
799
capitalist regime are heavy, at least for the majority. Rather than
800
being transitional, these problems have proven to be structural and
801
enduring in nature, as the social, environmental, economic and political
802
costs become embedded into society. The murky side of the Chilean
803
"miracle" is simply not reflected in the impressive macroeconomic
804
indictors used to market "free market" capitalism, indicators themselves
805
subject to manipulation as we have seen.
806
</p>
807
808
<h2><a name="secc113">C.11.3 Did neo-liberal Chile confirm capitalist economics?</a></h2>
809
810
<p>
811
No. Despite claims by the likes of Friedman, Chile's neo-liberal experiment
812
was no "economic miracle" and, in fact, refuted many of the key dogmas
813
of capitalist economics. We can show this by comparing the actual
814
performance of "economic liberty" with Friedman's predictions about it.
815
</p><p>
816
The first thing to note is that neo-liberal Chile hardly supports the
817
claim that the free market is stable. In fact, it was marked by deep
818
recessions followed by periods of high growth as the economic recovered.
819
This resulted in overall (at best) mediocre growth rates (see
820
<a href="secC11.html#secc112">last section</a>).
821
</p><p>
822
Then there is the fact that the Chilean experiment refutes key neo-classical
823
dogmas about the labour market. In <b>Capitalist and Freedom</b>, Friedman
824
was at pains to attack trade unions and the idea that they defended the
825
worker from coercion by the boss. Nonsense, he asserted, the <i>"employee is
826
protected from coercion by the employer because of other employers for
827
whom he can work."</i> [pp. 14-5] Thus collective action in the form of, say,
828
unions is both unnecessary and, in fact, harmful. The ability of workers
829
to change jobs is sufficient and the desire of capitalist economists is
830
always to make the real labour market become more like the ideal market of
831
perfect competition -- lots of atomised individuals who are price takers,
832
not price setters. While big business gets ignored, unions are demonised.
833
</p><p>
834
The problem is that such "perfect" labour markets are hard to create
835
outside of dictatorships. Pinochet's reign of terror created such a
836
market. Faced with the possibility of death and torture if they stood
837
up for their rights, the only <b>real</b> alternative most workers had was
838
that of finding a new job. So while the labour market was far from being
839
an expression of "economic liberty," Chile's dictatorship <b>did</b> produce
840
a labour market which almost perfectly reflected the neo-classical (and
841
Austrian) ideal. Workers become atomised individuals as state terror
842
forced them to eschew acting as trade unionists and seeking collective
843
solutions to their (individual and collective) problems. Workers had
844
no choice <b>but</b> to seek a new employer if they felt they were being
845
mistreated or under-valued. Terror created the preconditions for the
846
workings of an ideal capitalist labour market. Friedman's talk of
847
"economic liberty" in Chile suggests that Friedman thought that a
848
"free market" in labour would work "as if" it were subject to death
849
squads. In other words, that capitalism needs an atomised workforce
850
which is too scared to stand up for themselves. Undoubtedly, he would
851
prefer such fear to be imposed by purely "economic" means (unemployment
852
playing its usual role) but as his work on the "natural rate of
853
unemployment" suggests, he is not above appealing to the state to
854
maintain it.
855
</p><p>
856
Unfortunately for capitalist ideology, Chile refuted that notion,
857
with its workers subject to the autocratic power of the boss and
858
having to give concession after concession simply to remain in work.
859
Thus the <i>"total overhaul of the labour law system [which] took place
860
between 1979 and 1981 . . . aimed at creating a perfect labour market,
861
eliminating collective bargaining, allowing massive dismissal of
862
workers, increasing the daily working hours up to twelve hours and
863
eliminating the labour courts."</i> [Silvia Borzutzky, <b>Op. Cit.</b>, p. 91]
864
In reality, the Labour code simply reflected the power property owners
865
have over their wage slaves and <i>"was solidly probusiness. It was
866
intended to maximise the flexibility of management's use of labour
867
and to keep any eventual elected government from intervening on behalf
868
of labour in negotiations between employers and workers."</i> This was
869
hidden, of course, by <i>"populist rhetoric."</i> [Collins and Lear, <b>Op. Cit.</b>,
870
p. 16] In fact, the Plan Laboral <i>"was intended to definitely shift
871
the balance of power in labour relations in favour of business and
872
to weaken the workers and unions that formed the central political
873
base of the Left."</i> [Winn, <i>"The Pinochet Era"</i>, <b>Op. Cit.</b>, p. 31]
874
</p><p>
875
Unsurprisingly, <i>"workers . . . have not received a fair share of the
876
benefits from the economic growth and productivity increases that their
877
labour has produced and that they have had to bear a disproportionate
878
share of the costs of this restructuring in their wages, working
879
conditions, job quality, and labour relations."</i> [Winn, <i>"Introduction"</i>,
880
<b>Op. Cit.</b>, p. 10]
881
</p><p>
882
Chile, yet again, refuted another of Friedman's assertions about capitalism.
883
In 1975, he wrongly predicted that the unemployed caused by the Monetarist
884
recession would quickly find work, telling a Santiago audience that they
885
would <i>"be surprised how fast people would be absorbed by a growing
886
private-sector economy."</i> [quoted by Rayack, <b>Op. Cit.</b>, p. 57] Unemployment
887
reached record levels for decades, as the free market regime <i>"has been
888
slow to create jobs. During the 1960s unemployment hovered around 6
889
percent; by contrast, the unemployment level for the years 1974 to 1987
890
averaged 20 percent of the workforce. Even in the best years of the boom
891
(1980-1981) it stayed as high as 18 percent. In the years immediately
892
following the 1982 crash, unemployment -- including government emergency
893
work programs -- peaked at 35 percent of the workforce."</i> Unsurprisingly,
894
the <i>"most important rationalisation"</i> made by Chilean industry <i>"was the
895
lowering of labour costs. This was accomplished through massive layoffs,
896
intensifying the work of remaining workers, and pushing wage levels
897
well below historic levels."</i> This was aided by unemployment levels
898
which <i>"officially averaged 20 percent from 1974 to 1987. Chronic high
899
levels of unemployment afforded employers considerable leverage in setting
900
working conditions and wage levels . . . Not surprisingly, workers who
901
managed to hold onto their jobs were willing to make repeated concessions
902
to employers, and in order to get jobs employees often submitted to onerous
903
terms."</i> Between 1979 and 1982, more than a fifth of manufacturing companies
904
failed and employment in the sector fell by over a quarter. In the decade
905
before 1981, out of every 26 workers, 13 became unemployed, 5 joined the
906
urban informal sector and 8 were on a government emergency employment
907
program. It should be stressed that official statistics <i>"underestimate the
908
real level of unemployment"</i> as they exclude people who worked just one day
909
in the previous week. A respected church-sponsored institute on employment
910
found that in 1988, unemployment in Santiago was as high as 21%. [Lear and
911
Collins, <b>Op. Cit.</b>, p. 22, p. 15, p. 16, p. 15 and p. 22]
912
</p><p>
913
The standard free-market argument is that unemployment is solved by
914
subjecting the wage level to the rigours of the market. While wages
915
will be lower, more people will be employed. As we discussed in
916
<a href="secC9.html">section C.9</a>, the logic and evidence for such claims is spurious.
917
Needless to say, Friedman never revised his claims in the light of
918
the empirical evidence produced by the application of his ideas.
919
</p><p>
920
Given the fact that "labour" (i.e., an individual) is not produced for
921
the market in the first place, you can expect it to react differently
922
from other "commodities." For example, a cut in its price will generally
923
increase supply, not decrease it, simply because people have to eat,
924
pay the rent and so forth. Cutting wages will see partners and children
925
sent to work, plus the acceptance of longer hours by those who remain
926
in work. As such, the idea that unemployment is caused by wages being
927
too high has always been a specious and self-serving argument, one
928
refuted not only by logic but that bane of economics, empirical
929
evidence. This was the case with Chile's "economic miracle," where
930
declining wages forced families to seek multiple incomes in order
931
to survive: <i>"The single salary that could support a family was beyond
932
the reach of most workers; the norm, in fact, was for spouses and
933
children to take on temporary and informal jobs . . . Even with
934
multiple incomes, many families were hard-pressed to survive."</i> [Lear
935
and Collins, <b>Op. Cit.</b>, p. 23] Which, of course, refutes "free market"
936
capitalist claim that the labour market is like any other market.
937
In reality, it is not and so it is hardly surprising that a drop in
938
the price of labour <b>increased</b> supply nor that the demand for labour
939
did not increase to in response to the drop in its real wage.
940
</p><p>
941
Lastly, there is the notion that collective action in the market by
942
the state or trade unions harms the general population, particularly
943
the poor. For neo-classical and Austrian economists, labour is the
944
source of all of capitalism's problems (and any government silly
945
enough to pander to the economically illiterate masses). Pinochet's
946
regime allowed them to prove this was the case. Again Chile refuted
947
them.
948
</p><p>
949
The "Chicago Boys" had no illusions that fascism was required to
950
create free market capitalism. According to Sergio de Castro, the
951
architect of the economic programme Pinochet imposed, fascism was
952
required to introduce "economic liberty" because <i>"it provided a
953
lasting regime; it gave the authorities a degree of efficiency
954
that it was not possible to obtain in a democratic regime; and it
955
made possible the application of a model developed by experts and
956
that did not depend upon the social reactions produced by its
957
implementation."</i> [quoted by Silvia Borzutzky, <i>"The Chicago Boys,
958
social security and welfare in Chile"</i>, <b>The Radical Right and the
959
Welfare State</b>, Howard Glennerster and James Midgley (eds.), p. 90]
960
They affirmed that <i>"in a democracy we could not have done one-fifth
961
of what we did."</i> [quoted by Winn, <i>"The Pinochet Era"</i>, Winn (ed.),
962
<b>Op. Cit.</b>, p. 28]
963
</p><p>
964
Given the individualistic assumptions of neo-classical and Austrian
965
economics, it is not hard to conclude that creating a police state
966
in order to control industrial disputes, social protest, unions,
967
political associations, and so on, is what is required to introduce
968
the ground rules the capitalist market requires for its operation. As
969
socialist Brian Barry argues in relation to the Thatcher regime in
970
Britain which was also heavily influenced by the ideas of "free market"
971
capitalists like Milton Friedman and Frederick von Hayek:
972
</p><p><blockquote><i>
973
"Some observers claim to have found something paradoxical in the fact
974
that the Thatcher regime combines liberal individualist rhetoric with
975
authoritarian action. But there is no paradox at all. Even under the
976
most repressive conditions . . . people seek to act collectively in order
977
to improve things for themselves, and it requires an enormous exercise
978
of brutal power to fragment these efforts at organisation and to force
979
people to pursue their interests individually. . . left to themselves,
980
people will inevitably tend to pursue their interests through collective
981
action -- in trade unions, tenants' associations, community organisations
982
and local government. Only the pretty ruthless exercise of central power
983
can defeat these tendencies: hence the common association between
984
individualism and authoritarianism, well exemplified in the fact that
985
the countries held up as models by the free-marketers are, without
986
exception, authoritarian regimes."</i> [<i>"The Continuing Relevance of
987
Socialism"</i>, Robert Skidelsky (ed.), <b>Thatcherism</b>, p. 146]
988
</blockquote></p><p>
989
Little wonder, then, that Pinochet's regime was marked by authoritarianism,
990
terror and rule by savants. Indeed, <i>"[t]he Chicago-trained economists
991
emphasised the scientific nature of their programme and the need to replace
992
politics by economics and the politicians by economists. Thus, the decisions
993
made were not the result of the will of the authority, but they were
994
determined by their scientific knowledge. The use of the scientific
995
knowledge, in turn, would reduce the power of government since decisions
996
will be made by technocrats and by the individuals in the private sector."</i>
997
[Silvia Borzutzky, <b>Op. Cit.</b>, p. 90] However, as Winn points out:
998
</p><p><blockquote><i>
999
"Although the Chicago Boys justified their policies with a discourse
1000
of liberty, they were not troubled by the contradiction of basing
1001
the economic freedom they promoted on the most dictatorial regime in
1002
Chilean history -- or in denying workers the freedom to strike or
1003
bargain collectively. At bottom, the only freedom that they cared
1004
about was the economic liberty of those Chileans and foreigners with
1005
capital to invest and consume, and that 'freedom,' de Castro believed,
1006
was best assured by an authoritarian government and a passive labour
1007
force. In short, their notions of freedom were both selective and
1008
self-serving."</i> [<b>Op. Cit.</b>, p. 28]
1009
</blockquote></p><p>
1010
Of course, turning authority over to technocrats and private power does
1011
not change its nature -- only who has it. Pinochet's regime saw a marked
1012
shift of governmental power away from protection of individual rights to
1013
a protection of capital and property rather than an abolition of that power
1014
altogether. As would be expected, only the wealthy benefited. The working
1015
class were subjected to attempts to create a "perfect labour market" --
1016
and only terror can turn people into the atomised commodities such a
1017
market requires. Perhaps when looking over the nightmare of Pinochet's
1018
regime we should ponder these words of Bakunin in which he indicates
1019
the negative effects of running society by means of science books and
1020
"experts":
1021
</p><p><blockquote><i>
1022
"human science is always and necessarily imperfect. . . were we to force
1023
the practical life of men -- collective as well as individual -- into
1024
rigorous and exclusive conformity with the latest data of science, we
1025
would thus condemn society as well as individuals to suffer martyrdom on
1026
a Procrustean bed, which would soon dislocate and stifle them, since life
1027
is always an infinitely greater thing than science."</i> [<b>The Political
1028
Philosophy of Bakunin</b>, p. 79]
1029
</blockquote></p><p>
1030
The Chilean experience of rule by free market ideologues prove Bakunin's
1031
points beyond doubt. Chilean society was forced onto the Procrustean
1032
bed by the use of terror and life was forced to conform to the assumptions
1033
found in economics textbooks. And as we proved above, only those with power
1034
or wealth did well out of the experiment. From an anarchist perspective,
1035
the results were all too sadly predictable. The only surprising thing is
1036
that the right point to the experiment as a success story.
1037
</p><p>
1038
Since Chile has become (mostly) a democracy (with the armed forces still
1039
holding considerable influence) the post-Pinochet governments have made
1040
minor reforms. For example, <i>"tax increases targeted for social spending
1041
for the poor"</i> allowed them to <i>"halve the 1988 45 percent poverty rate
1042
bequeathed by Pinochet."</i> In fact, the <i>"bulk of this spending"</i> was aimed
1043
at <i>"the poorest of the poor, the 25 percent of the population classified
1044
as destitute in 1988."</i> [Winn, <i>"The Pinochet Era,"</i> <b>Op. Cit.</b>, p. 50, p. 52
1045
and p. 55]
1046
</p><p>
1047
However, while this <i>"curtailed absolute poverty, they did not reduce
1048
inequality . . . From 1990 to 1996 the share of the national income of
1049
the poorest 20 percent of the population stagnated beneath 4 percent,
1050
while that of the richest 20 percent inched up from 56 percent to
1051
57 percent . . . the distribution of income was one of the most unequal
1052
in the world. In Latin America, only Brazil was worse."</i> [Paul W Drake,
1053
<i>"Foreword"</i>, Winn (ed.), <b>Op. Cit.</b>, p. xi] The new government raised
1054
the minimum wage in 1990 by 17% in real terms, with another rise of
1055
approximately 15% two years later. This had a significant on income
1056
as <i>"a substantial number of the Chilean labour force receives wages and
1057
salaries that are only slightly above the minimum wage."</i> [Volker Frank,
1058
<i>"Politics without Policy"</i>, Winn (ed.), <b>Op. Cit.</b>, p. 73 and p. 76]
1059
In stark contrast to the claims of neo-classical economics, the rise
1060
in the minimum wage did not increase unemployment. In fact, it <b>dropped</b>
1061
to 4.4%, in 1992, the lowest since the early 1970s.
1062
</p><p>
1063
Overall, increased social spending on health, education and poverty
1064
relief has occurred since the end of the dictatorship and has lifted
1065
over a million Chileans out of poverty between 1987 and 1992 (the
1066
poverty rate has dropped from 44.6% in 1987 to 23.2% in 1996, although
1067
this is still higher than in 1970). However, inequality is still a major
1068
problem as are other legacies from the Pinochet era, such as the nature
1069
of the labour market, income insecurity, family separations, alcoholism,
1070
and so on. Yet while <i>"both unemployment and poverty decreased, in part
1071
because of programs targeted at the poorest sectors of the population by
1072
centre-left governments with greater social concern than the Pinochet
1073
dictatorship,"</i> many problems remain such as <i>"a work week that was among
1074
the longest in the world."</i> [Winn, <i>"Introduction"</i>, <b>Op. Cit.</b>, p. 4]
1075
</p><p>
1076
Chile has moved away from Pinochet's "free-market" model in other
1077
ways to. In 1991, Chile introduced a range of controls over capital,
1078
including a provision for 30% of all non-equity capital entering Chile
1079
to be deposited without interest at the central bank for one year. This
1080
reserve requirement - known locally as the encaje - amounts to a tax
1081
on capital flows that is higher the shorter the term of the loan. As
1082
William Greider points out, Chile <i>"has managed in the last decade to
1083
achieve rapid economic growth by abandoning the pure free-market theory
1084
taught by American economists and emulating major elements of the Asian
1085
strategy, including forced savings and the purposeful control of capital.
1086
The Chilean government tells foreign investors where they may invest,
1087
keeps them out of certain financial assets and prohibits them from
1088
withdrawing their capital rapidly."</i> [<b>One World, Ready or Not</b>, p. 280]
1089
</p><p>
1090
Needless to say, while state aid to the working class has increased
1091
somewhat, state welfare for business is still the norm. After the
1092
1982 crash, the Chilean Economic Development Agency (CORFO) reverted
1093
to its old role in developing Chilean industry (after the coup, it did
1094
little more than just selling off state property at discount prices to
1095
the wealthy). In other words, the post-recession "miracle" of the 1980s
1096
was due, in part, to a state organisation whose remit was promoting
1097
economic development, supporting business with new technology as well
1098
as technical and financial assistance. It, in effect, promoted joint
1099
public-private sectors initiatives. One key example was its role in
1100
funding and development of new resource-sector firms, such as the
1101
forestry sector ad the fishing industry. While free-marketeers have
1102
portrayed the boom natural-resource extraction as the result of the
1103
"free market," in reality private capital lacked the initiative and
1104
foresight to develop these industries and CORFO provided aid as well
1105
as credits and subsidies to encourage it. [James M. Cypher, <i>"Is Chile
1106
a Neoliberal Success?"</i>, <b>Dollars & Sense</b>, September/October 2004]
1107
Then there is the role of Fundaci�n Chile, a public-private agency
1108
designed to develop firms in new areas where private capital will
1109
not invest. This pays for research and development before selling
1110
its stake to the private sector once a project becomes commercially
1111
viable. [Jon Jeter, <i>"A Smoother Road To Free Markets,"</i> <b>Washington
1112
Post</b>, 21/01/2004] In other words, a similar system of state
1113
intervention promoted by the East-Asian Tigers (and in a similar
1114
fashion, ignored by the ideologues of "free market" capitalism --
1115
but, then, state action for capitalists never seems to count as
1116
interfering in the market).
1117
</p><p>
1118
Thus the Chilean state has violated its "free market" credentials,
1119
in many ways, very successfully too. While it started in the 1980s,
1120
post-Pinochet has extended this to include aid to the working class.
1121
Thus the claims of free-market advocates that Chile's rapid growth
1122
in the 1990s is evidence for their model are false (just as their
1123
claims concerning South-East Asia also proved false, claims conveniently
1124
forgotten when those economies went into crisis). Needless to say, Chile
1125
is under pressure to change its ways and conform to the dictates of
1126
global finance. In 1998, Chile eased its controls, following heavy
1127
speculative pressure on its currency, the peso. That year economic
1128
growth halved and contracted 1.1% in 1999.
1129
</p><p>
1130
So even the neo-liberal jaguar has had to move away from a purely free
1131
market approach on social issues and the Chilean government has had to
1132
intervene into the economy in order to start putting back together the
1133
society ripped apart by market forces and authoritarian government.
1134
However, fear of the military has ensured that reforms have been minor
1135
and, consequently, Chile cannot be considered a genuine democracy. In
1136
other words, "economic liberty" has not produced genuine "political
1137
liberty" as Friedman (and others) claim (see <a href="secD11.html">section D.11</a>).
1138
Ultimately, for all but the tiny elite at the top, the Pinochet regime of "economic
1139
liberty" was a nightmare. Economic "liberty" only seemed to benefit one
1140
group in society, an obvious "miracle." For the vast majority, the "miracle"
1141
of economic "liberty" resulted, as it usually does, in increased
1142
inequality, exploitation, poverty, pollution, crime and social alienation.
1143
The irony is that many right-wing free-marketers point to it as a model
1144
of the benefits of capitalism.
1145
</p>
1146
1147
</body>
1148
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