It is customary among neoliberal economists to praise Pinochet’s Chile and consider it an economic model to aspire to, however they have it all wrong.
By José Luís Fiori
Published on Open Democracy, Aug 26, 019
It is customary among neoliberal economists to praise Chile and consider it an economic model to aspire to. Moreover, in Bolsonaro’s Brazil, it is increasingly common to hear praise of the dictatorship of General Augusto Pinochet (1973-1990), who granted almost absolute power to a group of young economists – led by finance minister Sergio de Castro – to apply, already in the 1970s, the world’s first major “neoliberal shock”.
Chile became a veritable laboratory for the neoliberal policy reforms advocated by the Chicago School, and its model was then exported elsewhere. However, in Brazil, the true story of this Chilean economic experience is often falsified, to induce a comparison that is entirely spurious, and a deception that is entirely ideological.
We will review, albeit very quickly, some important data from this period of history, starting with some elementary information that is nonetheless indispensable for those who intend to make comparisons between economies and between countries.
On the day of the coup d’état that toppled President Salvador Allende – September 11, 1973 – Chile had only 10 million inhabitants, about 1/21 of the Brazilian population; and it had a GDP of $ 16.85 billion, a mere 1/130 of the current Brazilian GDP. Chile had neither oil nor energy autonomy, it was far from food sufficient, it had no heavy industry, nor did it have a relevant state productive sector other than the copper industry.
The Chilean economy was almost entirely dependent on copper production; apart from copper, it only exported wood, fruits, fish and wine. That is, it depended entirely on imports of petroleum and derivatives, chemicals, electrical and telecommunications materials, industrial machinery, vehicles, natural gas and food, almost everything that was essential for the maintenance of Chilean society.
Finally, Chile was an isolated country, perhaps the most isolated in the world, with no military or geopolitical relevance other than to Argentina, on account of Patagonia, and to Bolivia and Peru, on account of the Atacama region.
It was in this small country, with these simple economic, demographic and geopolitical characteristics, that reforms became the basis for a mantra repeated by neoliberal governments around the world: flexibility and precariousness of the job market; privatization of the state productive sector; liberalization and deregulation of all markets, and in particular, alterations of the financial market such as radical trade openness and the end of all protectionism, privatization of social services on health, education and social security, and finally, privatization of even the most elementary utilities, such as water, sewage, and the supply of energy and gas.
Despite the opinions of Brazil’s current minister for the economy Paulo Guedes and his cheerleaders in the conservative press, the economic results of Pinochet’s neoliberal reforms were absolutely mediocre, and the social consequences were catastrophic.
In Chile’s case, this program was implemented during the 17 years of military dictatorship, without any political or parliamentary opposition, and with the full support of a dictator who murdered 3,200 opponents, arrested and tortured 38,000 people, and forced more than one hundred thousand into exile. Not to mention the fact that, from 1973 to 1985, the military government imposed a daily curfew from 10pm to 6am, for all Chileans, not just a few bearers of electronic ankle tags.
That is, for 12 years, the entire Chilean population was forced to stay in their homes every night as if they were being held in a concentration camp, and, if someone was caught on the street past curfew, they could be arrested without right of appeal, or shot. Despite all this, and despite the opinions of Brazil’s current minister for the economy Paulo Guedes and his cheerleaders in the conservative press, the economic results of Pinochet’s neoliberal reforms were absolutely mediocre, and the social consequences were catastrophic.
Before getting into the numbers, it is crucial that readers separate the history of dictatorship between 1973 and 1990 from what happened after the end of dictatorship. Moreover, within the economic history of the dictatorship, it is necessary to distinguish two major periods: the first from 1973 to 1982, and the second from 1982 to 1990.
It was in the first of these two economic periods of dictatorship that Pinochet’s Chicago Boys delivered their great neoliberal shock, which culminated in a catastrophic crisis in 1982. It forced the military government to nationalize the Chilean banking system, dismiss the minister of finance, and reverse many of its reforms (for example, regulations were reintroduced in the financial sector and there was a return to the exchange rate policy that had previously been practiced by the Central Bank of Chile).
In 1982, Chilean GDP fell by 13.4%, unemployment reached 19.6%, and 30% of the Chilean population became dependent on social assistance programs that were created ad hoc to deal with the crisis. And yet, four years later, as early as 1986, Chilean GDP per capita was still only $1,525, below the level it had reached in 1973.
By the end of the dictatorship, Chile’s average real per capita GDP had grown by only 1.6% per year, a result very close to economic stagnation; 18% of the population was unemployed and 45% below the poverty line. In 1990, Chile’s average GDP per capita, calculated on the basis of purchasing power parity, was only US $4,590, lower than Brazil’s, which at that time, after the “lost decade” of the 1980s, was $6,680. To define this as a “success” is, to say the least, intellectual impudence, if not contemptuous ideological propaganda.
What is also never said by neoliberal economists is that it was only after the end of the dictatorship, in the almost 30-year period from 1990 to 2019, and in particular during the 20 years of the governments of the center-left Concertación, formed by social-democratic parties, Chilean GDP actually grew more significantly: at an average rate of 7% in the 1990s and at 4.6% throughout the rest of the democratic period.
It was during this period that the average income of Chileans increased fivefold, reaching the current level of $25,000, the highest in Latin America, while the GDP reached $455.9 billion in 2017. During this period, the governments of the Concertación promoted several tax reforms that increased the state’s social investment, with the creation of universal health insurance, unemployment insurance and the Pilar Solidario, a monthly state benefit for poor pensioners. As a result, the role of the Chilean state has grown again, especially in the development of infrastructure and the provision of social protection, health and education.
When analysts speak of a “Chilean miracle”, they refer to this democratic period, during which center-left governments managed to reduce unemployment left by the dictatorship, from 18% to 6/7% on average, decreasing the population below the poverty line, from 45 percent to 11 percent, and making Chile the highest HDI country in Latin America, and 38th in the world.
There is no doubt that the most important reversal has taken place in the field of education, particularly with regards to universities
Finally, little by little, the most dramatic legacy left by the policies and neoliberal reforms of General Pinochet’s Chicago Boys has been reversed, as has already been the case with the new labor legislation, which has at least partly restored the bargaining power that Chilean unions had lost during the military dictatorship.
In addition, center-left governments have significantly increased public spending on health by creating the “Explicit Guarantee System” to expand and universalize FONASA, the public arm of the Chilean National Health Services System.
However, there is no doubt that the most important reversal has taken place in the field of education, particularly with regards to universities. Most Brazilians, including Guedes, still do not know that, in Chile, free higher education, suspended by a decree of the military dictatorship in the early 1980s, was reintroduced by the Chilean National Congress in January 2018.
Meanwhile, Pinochet’s privatization and capitalization of Social Security, the model for Guedes’ proposed pension reform in Brazil, has become a nightmare for most Chilean pensioners. Contrary to what Guedes and his followers suggest, the average Chilean pension is now 33% of the salary received by the worker before retirement, and 91% of the retired population receives on average a measly $200 per month, which requires 60% of them to receive a state supplement, approved by the Bachelet government in 2008.
This is perhaps why Chile has one of the highest rates of elderly suicide in the world today; a 2018 poll conducted by CADEM found that 88% of the Chilean population is dissatisfied and wants to change the current system of pension fund capitalization.
Finally, for those Brazilians who dream of total privatization of state assets, it should be stressed that even during Chile’s military dictatorship, the privatization of copper and of CODELCO, the only major state-owned company and the largest copper-producing company in the world, was never considered.
- The economic results of General Pinochet’s dictatorship and his Chicago Boys were economically mediocre and socially catastrophic.
- The real “Chilean miracle” – if indeed there was one – occurred after the dictatorship in the democratic period, and in particular during the center-left governments for most of the period 1990 to 2019. It is foolish to attribute current Chilean macroeconomic stability to the bloodbath promoted by General Pinochet between 1973 and 1990.
There is still time to prevent Guedes’s ideological fanaticism from destroying 90 years of Brazilian economic history, in the interest of a small group of bankers, financiers and agro-exporters, overriding the interests of the rest of Brazilian society.
First published in Portuguese on Open Democracy, Aug 26, 2019
José Luis Fiori is Professor of International Political Economy at the Federal University of Rio de Janeiro, and a Research Fellow at the Instituto de Estudos Estratégicos de Petróleo, Gás e Biocombustíveis. He is the author and editor of numerous books, including, most recently, Sobre Guerra, published by Editora Vozes.