The Chile Project

I really liked this book! I found it helpful for understanding economics, the history of Chile, and the neoliberal mindset.

The core story of the book is that when neoliberalism was implemented without opposition by Pinochet after the anti-socialist coup, the country went through 8 economically difficult years of a transition to capitalism, a banking crisis, and then a gradual reaping of the economic fruits of the neoliberal reform. In particular, neoliberalism is seen to have won the war of ideas after the end of the dictatorship, with the centrist/center-left governments continuing and in some ways deepening the neoliberal reforms. These reforms led to the economic success of Chile but also increased inequality and dissatisfaction in non-economic parts of life, ultimately leading to the revolt in 2019, which was a surprised to members of the elite that considered economic markers to be sufficient for understanding the mood of the population.

“When Chile is compared with the other Latin American countries in the OECD sample (admittedly a small sample that, besides Chile, includes Brazil, Colombia, and Mexico), the picture that emerges is checkered and ambiguous. Chile is ranked first among the Latin American countries in only four out of the eleven indicators; and in the “Civil engagement” category it is dead last within the forty countries in the complete sample. In contrast, when traditional and purely economic metrics are used, Chile is always ranked first among these Latin American countries, often by a wide margin. Take, for instance, income per capita and the Gini coefficient: In 2018, Chile’s gross domestic product per capita (purchasing power parity) stood at US$23,000, Mexico’s at US$18,000, Brazil’s at US$14,500, and Colombia’s at US$13,600. Regarding the Gini coefficient, Chile had the lowest degree of inequality in this (small) sample; according to the United Nations Economic Commission for Latin America and the Caribbean, in 2017 the Gini coefficient was 0.43 in Chile; it was 0.54 in Brazil, 0.51 in Colombia, and 0.50 in Mexico. The above discussion shows that when one moves to broader measures of horizontal inequality, the view of Chile as Latin America’s “paradise” or an “oasis” becomes blurred.”

UNOPPOSED, PURE NEOLIBERALISM

I appreciated learning what happens under neoliberalism when there is no opposition, when we get it in its purest form.

“The sheer length of the dictatorship (almost seventeen years) allowed them to experiment, to make mistakes and correct errors, to try one thing and then another, and to enact markets on an increasing number of fronts.”

On the positive side, we get economic development. It appears uncontroversial that Chile’s economy grew quickly and average standards of living rose. So by all traditional markers of an economy, neoliberal politics are a huge success.

On the negative side, we see protracted pain from the “shock-and-awe” treatment given (which Milton Friedman said would last a few months, but instead lasted almost a decade). This culminated in currency and banking crisis, which “gave the Chicago Boys an opportunity to push privatization further.” I’d say we can consider any banking crisis that happens today intentional.

We see some implementation of policies they’d usually be the first to reject, including capital controls and planned prices: “According to The Brick [(important document outlining the economic plan)], capital movements had to be regulated and restricted in order to avoid “capital flight” and speculation.”

“In 1975, and based on Harberger’s ideas, the Chicago Boys estimated “shadow” or “social” prices for the most important components of investment projects: capital, labor, and foreign exchange. These social prices considered a myriad of distortions in the Chilean economy and were used by the Office of Planning, Odeplán, to evaluate whether specific projects were worthwhile and socially beneficial. With time, as the distortions were lifted or eliminated, the need of using social prices was reduced. Harberger’s role was not restricted to assisting his former students on how to evaluate a particularly complex investment project. He was consulted about a variety of issues related to both macropolicy and social policy.”

We see ideological blindness to monopolistic behaviour:
 “The Chicago Boys did not worry about the increasing concentration of economic power. .. Government economists repeatedly stated that according to the “law of one price,” domestic prices could not exceed international prices plus transportation costs and the very low 10 percent uniform tariff. … What they missed was that many of the large firms created trading subsidiaries that had exclusivity contracts with foreign brands for selling those products in Chile. As a result, the main or only producer of white goods in Chile was the main importer of refrigerators and washing machines from Asia, Europe, or the United States.”

We see cronyism as part of the privatization during the dictatorship: Total revenue from these operations added up to almost US$2 billion, a figure that even then was considered to be low. In the years to come, the military, Hernán Büchi, and the rest of the economic team were accused of practically giving the companies away to relatives and friends. … In the process leading up to the 2019 revolt, one of the most common complaints by demonstrators was that the military and its civilian “accomplices” had plundered Chile by selling valuable companies with very bright potentials for very little.

We see political capture after the dictatorship: Little by little the cases of abuse, collusion, price rigging, use of inside information, tax evasion, artificially inflated balance sheets, bribery, and corruption added to the notion among some groups (and especially among young university students) that things were not quite right and that the narrative of transparency, competition in a leveled playing field, and meritocracy was mostly an illusion. Many suspected that the problem involved not only the business elite but also left-of-center politicians from the Concertación coalition—politicians who despite their prodistribution and equity rhetoric had been captured by the private sector and the corporate world. It is not clear whether captured is the right term, but what is true is that many former cabinet members and senior officials in the Aylwin, Frei, Lagos, and Bachelet administrations joined the boards of the largest corporations and conglomerates—boards with high pay from an international comparative perspective, and with numerous perks. From those positions they lobbied in favor of corporations and the large conglomerates and tended to play down the plight of consumers and workers.

We see class-based justice: “But the main issue raised by the critics was that despite the investigation proving beyond any doubt that there had been collusion, not a single executive involved in planning and executing the schemes served any prison time. This, they pointed out, contrasted sharply with the type of sentencing—usually jail time—received by petty thieves and by those who broke laws that protect private property.”

THE SOCIAL IDEOLOGY OF NEOLIBERALISM

I also found fascinating to see where the explicit cultural and societal ambitions of neoliberalism came through. And just how amateurish they are from a sociological perspective, ideas about culture built by economists who never once were trained in understanding that their lived experience is not common and that the values they believe in are dependent on the bubble they live in. It bears to mention at this point that not a single woman shows up in the entire book.

“The launching of the Seven Modernizations marked a turning point in Pinochet’s regime. The goal was no longer to reform the economy, making it more competitive and efficient; the objective now was to expand market relations everywhere in order to change Chile’s values and character. It is not an exaggeration to say that this was the moment when Chile adopted a transformational neoliberal perspective.”

The speech was written by Piñera, referencing Mao’s Four Modernizations through its title.

“[In 2015], Rolf Lüders, who was appointed minister of finance and economics by Pinochet in 1982, told the interviewer: “I really don’t care about inequality … the problem with income distribution is that it’s an envy problem.… Do you understand me?””

To think that economic inequality does not engender an inequality of power, that the only thing people care about or experience is the quality of their consumption, is bizarre.

“Cash transfers were avoided, as it was thought that recipients would spend the money unwisely.”

The Chicago boys had so much contempt for poor people that in their conviction that they are simply less competent humans than the rich they managed to even shove one of economic’s fundamental insights aside, that cash transfers are always better than in-kind transfers.

The author himself also represents some of this view, often mentioning Nobel prize for economics as an indicator of the stature of economists or praising the “elegance” of models or the “clarity” of prose, like he’s stuck in a world where politics is a gentleman’s endeavour to be discussed over port in a parlour room, with great men guiding us with their ideas.