Neoliberalism in Chile has a long history of failed promises, repressive policies, and authoritarian ideologies that cost the lives of thousands of Chilean citizens. Chile was praised for its new reforms and adoption of neoliberalism that promised more equality for everyone. In reality, an oppressive regime was born on the back of these promises that terrorized the people of Chile for seventeen years. Neoliberalism was born in Chile in 1973 and it died the same day, when human rights and human dignity were sacrificed in the name of economy and for the ideas of a few people that decided to overlook the terrorizing situation in Chile, just to prove a point about their economic thoughts. There is no miracle in Chile, and the thousands that died and suffered in Chile are the proof.
The Downfall of Salvador Allende
On September 4, 1970, presidential elections were held in Chile. Salvador Allende, the candidate of the Popular Unity coalition won with 36.2% of the votes. Upon assuming the presidency, Allende carried on a socialist platform that aimed to nationalize large-scale businesses in Chile, such as copper mining, telecommunications, and banking. Besides that, Allende wanted to drastically improve the socio-economic situation of the poorest people of Chile by implementing new policies to support socio-economic welfare, provide employment in new public work projects or the newly nationalized industries. Salvador Allende served as the President of Chile from 1970 until the military coup d’etat in 1973. He was the first Marxist elected President in a liberal democracy in Latin America. He was described by his friend Fernando Alegria as a tireless fighter and a bold president that was defeated by a two-headed enemy: The United States of America and local military saboteurs (Alegria, 1994).
The local military saboteurs were under the command of Augusto Pinochet. Augusto Pinochet was the Commander-in-Chief of the Chilean Armed forces. On September 11, 1973, he overthrew the democratically elected President Salvador Allende. The presidential palace was shelled while Allende was in it. It is believed that Salvador Allende committed suicide. Pinochet was the lead plotter of the coup while his position as Commander-in-Chief allowed him to coordinate with both the military and the national police. Following the coup, a military junta, with the help of the U.S was established that exercised both legislative and executive power in the new government of Chile. The constitution and the Congress of the country were suspended, all political parties and activities were banned and a curfew and strict censorship were imposed. Augusto Pinochet self-declared himself as the President of the Republic, becoming de facto dictator of Chile until 1990. The U.S backed military coup and Pinochet’s seventeen-year dictatorship, are seen as aberrations in Chile’s twentieth-century history of multiparty democracy and institutional stability, two parameters that were very unusual in Latin America (Joseph & Grandin, 2010, pp.121-122).
The Implementation of Neoliberalism
The new military junta under the influence of foreign third parties and individuals implemented a new economic liberalization. Chile was the first country where its citizens were forcefully subjected to a new economic system that was called neoliberalism. Neoliberalism was first mentioned by the Austrian-British economist Friedrich Hayek. Hayek’s ideas were divided into two parts. In the first part, Hayek suggested that the concept of free markets responds to the needs of every individual. As a result, markets had to be operated freely, while the government would be limited to allow order to arise spontaneously in society. In the second part, which is depicted in his book The Road to Serfdom (1944), Hayek suggested that central planning of an economy does not respond to the needs of the individual. The two parts are interconnected and result in only one possibility according to Hayek. A totalitarian regime. Hayek believed that the government should have its limitations. He promoted the idea that the central role of the government should be to maintain the rule of law with as little intervention as possible. It must be projected as a civil association that provides a framework for every individual to follow their own projects (Hayek, 1960).
Friedrich Hayek’s remarks and ideas were highly influential for politicians like the President of the United States of America, Ronald Reagan, and the Prime Minister of the United Kingdom, Margaret Thatcher. Thatcher, in particular, based the ideology of the British Conservative Party on the ideas of Friedrich Hayek. She championed the ideas of unfettered free markets, the idea of shrinking the government and cutting taxes alongside state-provided services. However, the ideas of Friedrich Hayek about the implementation of free markets and his opposition towards totalitarian regimes made him a controversial figure. Naomi Klein, a Canadian author, and journalist describes his ideas as a shock doctrine, where people are forced to accept a new reality for their own good either through economic hardship or brutal government policies (Klein, 2007). His free-market ideology is associated directly with the totalitarian regime of Augusto Pinochet, since he was one of the key economic advisors, together with Milton Friedman that was close to Augusto Pinochet. He always thought that no one is qualified to have unlimited power, yet he was standing behind a dictator. While he is championed by many right-wing politicians as a defender of liberty, he is despised by many left-wing politicians who see him as a hypocrite that stood behind a murderous dictator whose forced economic implementations brought misery and pain to thousands of Chilean citizens.
The Involvement of the United States of America
It is important to remember that the situation in Chile did not happen without the help of the U.S. The involvement of the U.S in Chile happened for two reasons. To implement the idea of the domino theory and to protect the interests of U.S companies in Chile. The domino theory was the predominant Cold War theory for the U.S. It suggested that if one country in a region would eventually become communist, then the surrounding countries and regions would follow up in a domino effect. The first time that the domino theory was mentioned was back in 1954 in a press conference when the U.S President Dwight D. Eisenhower referred to communism in Indochina.
“You have broader considerations that might follow what you would call the “falling domino” principle. You have a row of dominoes set up, you knock over the first one, and what will happen to the last one is the certainty that it will go over very quickly. So you could have a beginning of a disintegration that would have the most profound influences”. Dwight D. Eisenhower.
The domino theory was used by various U.S administrations to justify and American intervention around the world. Richard Nixon used the same theory for his foreign policy and to justify his intervention in Chile. In 1977, he defended the U.S actions to destabilize Allende’s Chile. In an interview with British journalist David Frost, Nixon stated that a communist Chile and Cuba would create a “red sandwich” that could entrap Latin America between them (Qureshi, 2010, p.56). After Richard Nixon, Ronald Reagan followed the same rhetoric to justify the situation in Chile while he expanded in Central America and the Caribbean region.
The protection of the interests of U.S companies in Chile was the second reason why the U.S intervened in Chile and why it was supporting the Pinochet regime. Back in 1970, before the presidential elections, neither the Richard Nixon administration, nor the current Chilean government, nor U.S. companies with businesses in Chile such as the Anaconda Copper Mining Company or the International Telephone & Telegraph, wished to see an Allende presidency because of his alleged communist sympathies. Threatened by the nationalized acts of Salvador Allende, the two major U.S companies, the Anaconda Copper Mining Company and the International Telephone & Telegraph expressed their dissatisfaction for the Allende government through the Nixon administration. Henry Kissinger was the national security advisor to Richard Nixon. According to declassified files from the CIA, Kissinger met with high-level officials to discuss the future of Chile that depended on the 1970 elections. The elections represented the potential for important economic relations to collapse or continue. After the complaints of the U.S companies that had economic interests in Chile, Richard Nixon was left with two choices: political maneuvering or brute force. He chose the first option. Based on the declassified notes that were given from Richard Nixon to Richard Helms the director of CIA, there were direct orders to “make the Chilean economy scream” during the Allende presidency by conducting a campaign to create a deep inflation crisis, funding opposition leaders and encouraging the Chilean military to overthrow Allende. In the end, the U.S achieved its goal and Salvador Allende was overthrown and a more American friendly government was installed. From that point, the neoliberal policies were implemented and Chile was used as an experimental country for radical economic reforms.
The Role of the Chicago Boys
These economic reforms were imposed by a group of Chilean economists known as The Chicago Boys. They were all educated at the Department of Economics of the University of Chicago under the guidance of the neoliberal economist Milton Friedman. Friedrich Hayek was also a member of the Chicago Boys helping them implement his neoliberal ideas. After the coup in 1973, many of them returned to Chile and were appointed in high government positions by Augusto Pinochet as economic advisors. They are credited with transforming the economy of Chile into the best performing economies in Latin America and into one of the most business-friendly in the world. However, there is also a lot of criticism against them. Some economists, such as the Indian economist and philosopher Amartya Jumar Sen have argued that their policies did not provide any help to the population of Chile but were intended to serve the interests of U.S companies in Chile and Latina America.
The neoliberal reforms of the Chicago Boys can be divided into two phases. The first phase expanded from 1973 until 1982 and has been described by the author Naomi Klein as the Shock Therapy period. At this phase, most of the radical reforms were implemented. The Chicago Boys adopted a laissez-faire economic system, where transactions between private parties did not have any economic intervention from the state (regulations and subsidies). They promoted the idea of a free, neoliberal market in contrast to the centrally-planned economy and nationalization plans that were advocated by Salvador Allende. As a result, Chile was transformed into a liberal and world-integrated economy. Besides that, businesses were re-privatized, price controls were abolished and the capital flows were deregulated. Their main objective was to lower the inflation rates at the expense of a sharp recession. They met their objective as they managed to lower the inflation rate from 508.1% in 1973, to 20.7% in 1982. The economy expanded for a while from 1977 up until 1980. Milton Friedman described this reorientation of the Chilean economy as the Miracle of Chile in 1982. In an interview back in 2000, Milton Friedman said:
“The Chilean economy did very well, but more importantly, in the end, the central government, the military junta was replaced by a democratic society. So the really important thing about the Chilean business is that free markets did work their way in bringing about a free society”. Milton Friedman.
However, his remarks regarding the Chilean economy did not represent the reality of a miracle. From 1975 up until 1980, the economic growth rate was below the potential growth rate of Chile (Ffrench-Davis, 2002). In the early 1980s, Latin America was hit with a devastating debt crisis that paralyzed all the Latin American countries. Chile was hit the hardest with a GDP decline by 14% in comparison to other Latin American countries that had a GDP decline by 3.2%. This debt crisis led to a bank run which led to the devastating economic crisis of 1982. It was clear that the economic shock therapy did not work, and the miracle that Friedman was cheering for was not that real after all.
The second phase of the neoliberal reforms is described as Pragmatic Neoliberalism that expanded from 1982 up until the end of the dictatorship in 1990. With the ongoing crisis, the Chicago Boys’ radical economic rhetoric was replaced by a pragmatic approach. The new economists had to apply pragmatic measures to reverse the situation. They socialized two major Chilean banks and seven more that were at the edge of collapse. The Central bank of Chile socialized much of the foreign debt. Many critics of this policy compared these actions with the presidency of Salvador Allende. However, this pragmatic policy brought economic growth, questioning the radical methods of the Chicago Boys. The GDP growth went higher after the 1982 crisis and continued to surpass other economies in Latin America. The Chilean economist Ricardo Ffrench-Davis has a critical evaluation of the situation:
“The unnecessary radicalism of the shock therapy in the 1970s caused mass unemployment, purchasing power losses, extreme inequalities in the distribution of income, and severe socio-economic damage. The 1982 crisis as well as the success of the pragmatic economic policy after 1982, proves that the 1973–1981 radical economic policy of the Chicago boys harmed the Chilean economy” Ricardo Ffrench-Davis.
The Dark Side of Economic Liberalization
The history of neoliberalism in Chile is not just about economic reforms. Unfortunately, it is also a history of state terrorism and human rights violations by the Pinochet regime. The forced economic reforms and the intervention from the U.S allowed Augusto Pinochet to promote his state terrorism towards the people of Chile. According to a 2004 report from the National Commission on Political Imprisonment and Torture or Valech Commission, the number of victims of human rights violations accounts for around 30.000 people that were tortured while at least 2.500 were executed. Also, almost 200.000 people were forced to exile while many people experienced illegal detaining from the regime forces. Prisoners of the regime were exposed to different methods of torture, like electric shocks, waterboarding, beatings, and sexual abuse. The central instrument of terror was the disappearing subversives, where people were disappeared by the Pinochet regime. People that were considered leftists, socialists, or communists were the main target. In addition to the horrors, Pinochet was infamous for detaining people and throwing them out of helicopters. Around 1300 people disappeared, and still even today hundreds of them are yet to be found. The systematic suppression of any political ideology that went against the regime was described by historian Steve J. Stern as political genocide, as a systematic project aiming to destroy an entire way of doing and understanding politics and governance (Stern, 2010). The regime was extremely brutal to leftists and often portrayed them as the enemies of the state. The fake portrayal of leftists as dangerous revolutionaries resulted in the legitimization of the Pinochet regime. For seventeen years, Augusto Pinochet with the support of the U.S managed to use effective brainwashing propaganda to portray leftists as criminals and as the enemies of Chile. Unfortunately, Augusto Pinochet was never formally convicted for his crimes against humanity, as he died in 2006 before he was tried. Today the portraits of the victims of the brutality of Augusto Pinochet and the people that disappeared and still haven’t been found are displayed in the Museum of Memory and Human Rights, in Santiago Chile.
The Long Road of Democracy
In 1990, when the regime fell and democracy was restored, the people of Chile were promised that this time the economic reforms will benefit the people. The citizens of Chile believed their government and waited patiently for a more equal distribution of the wealth of Chile. Thirty years later, Chile is in flames, and it seems that the neoliberal model has once again failed the people of Chile. On October 18, 2019, the largest and most extensive citizen mobilizations took place in Santiago, the capital of Chile. The mobilization began when the President of Chile Sebastián Piñera, announced that the fare for a metro ticket in Santiago would rise from 800 Chilean Pesos to 830 (USD 1.15). The news hit Chilean people, and they took to the streets to protest against the decision. “This is not just about 30 pesos, it is about the last 30 years,” said an angry protester. Thousands of protests share the same view. For the last thirty years, while Chile’s GDP has grown, making the country the wealthiest in South America, people wonder why the situation in the country remains the same. In a country where the minimum wage of at least 70% of the population barely reaches USD 700 and where it is estimated that almost 36% of the population in the cities lives in poverty, people question their government and the implementation of neoliberal policies. While the wealth is growing for the large corporations and foreign companies with interests in Chile, protesters come to realize that neoliberalism was born and will die in Chile.
The history and the progress of neoliberalism in Chile is a controversial concept. Many economists praise the efforts of the Chicago Boys and follow the same rhetoric as Milton Friedman, calling for a Miracle in Chile. However, thousands of people that suffered under the regime of Augusto Pinochet, people that lost their jobs and their land due to privatization processes, people that could not feed their families, victims of the brutal state terrorism, and families that still have not found their relatives after so many years, strongly disagree with the opinions of a few privileged economists that see people as statistics and not human beings. In reality, there is no miracle in Chile. While the country is wealthy, the people are poor and social unrest is rising in the country. Neoliberalism in Chile was born on a dark October day in 1973, on the back of a ruthless dictator and bureaucratic economists, and it died on a stormy October day in 2020, filled with rage, frustration, and disappointment. The future lies in the hands of the Chilean people.