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<title>C.11 Doesn't neo-liberalism in Chile prove that the free market benefits everyone? 
</title>

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<h1>C.11 Doesn't neo-liberalism in Chile prove that the free market benefits everyone?</h1>

<p>
Chile is considered by some to be one of the economic success stories 
of the modern world. It can be considered as the first laboratory for 
neo-liberal economic dogma, first under Pinochet's dictatorship and 
later when his regime had been replaced by a more democratic one. It
can be considered as the template for the economic vision later applied
by Reagan and Thatcher in the West. What happened in Chile was repeated 
(to some degree) wherever neo-liberal policies were implemented. As 
such, it makes a good case study to evaluate the benefits of free(r)
market capitalism and the claims of capitalist economics.
</p><p>
For the right, Chile was pointed to as a casebook in sound economics and
is held up as an example of the benefits of capitalism. Milton Friedman, 
for example, stated in 1982 that Military Junta <i>"has supported a fully 
free-market economy as a matter of principle. Chile is an economic miracle."</i> 
[quoted by Elton Rayack, <b>Not so Free to Choose</b>, p. 37] Then US President 
George Bush praised the Chilean economic record in December 1990 when he 
visited that country, stating Chile deserved its <i>"reputation as an 
economic model"</i> for others to follow. 
</p><p>
However, the reality of the situation is radically different. As Chilean 
expert Peter Winn argues, <i>"[w]e question whether Chile's neoliberal boom 
. . . should be regarded as a miracle. When confronted by such a claim, 
scholars and students should always ask: a miracle for <b>whom</b> -- and at what 
cost?"</i> [<i>"Introduction"</i>, Peter Winn (ed.), <b>Victims of the Chilean Miracle</b>, 
p. 12] As we will prove, Chile's "economic miracle" is <b>very</b> class dependent. 
For its working class, the neo-liberal reforms of the Pinochet regime have 
resulted in a worsening of their lives; if you are a capitalist then it 
has been a miracle. That the likes of Friedman claim the experiment as a
"miracle" shows where their sympathies lie -- and how firm a grasp they
have of reality. 
</p><p>
The reason why the Chilean people become the first test case for 
neo-liberalism is significant. They did not have a choice. General 
Pinochet was the figure-head of a military coup in 1973 against the 
democratically elected left-wing government led by President Allende. 
This coup was the culmination of years of US interference by the US in 
Chilean politics and was desired by the US <b>before</b> Allende took office 
in November 1970 (<i>"It is the firm and continuing policy that Allende be 
overthrown by a coup,"</i> as one CIA memo put it in October of that year 
[quoted by Gregory Palast, <i>"A Marxist threat to cola sales? Pepsi 
demands a US coup. Goodbye Allende. Hello Pinochet"</i>, <b>The Observer</b>, 
8/11/1998]). Then American president Richard Nixon imposed an embargo 
on Chile and began a covert plan to overturn the Allende government. 
In the words of the US ambassador to Chile, the Americas <i>"will do all 
in our power to condemn Chileans to utmost poverty."</i> [quoted by Noam
Chomsky, <b>Deterring Democracy</b>, p. 395]
</p><p>
According to notes taken by CIA director Richard Helms at a 1970 meeting 
in the Oval Office, his orders were to <i>"make the economy scream."</i> This was
called Project FUBELT and its aims were clear: <i>"The Director [of the CIA]
told the group that President Nixon had decided that an Allende regime 
in Chile was not acceptable to the United States. The President asked 
the Agency to prevent Allende from coming to power or to unseat him."</i>
[<i>"Genesis of Project FUBELT"</i> document dated September 16, 1970] Not all 
aid was cut. During 1972 and 1973 the US increased aid to the military
and increased training Chilean military personnel in the United States 
and Panama. In other words, the coup was helped by US state and various US 
corporations both directly and indirectly, by undermining the Chilean 
economy.
</p><p>
Thousands of people were murdered by the forces of "law and order" and 
Pinochet's forces <i>"are conservatively estimated to have killed over 
11,000 people in his first year in power."</i> [P. Gunson, A. Thompson, 
G. Chamberlain, <b>The Dictionary of Contemporary Politics of South 
America</b>, p. 228] Military units embarked on an operation called the 
Caravan of Death to hunt down those they considered subversives (i.e.
anyone suspected or accused of holding left-wing views or sympathies). 
Torture and rape were used extensively and when people did not just 
disappear, their mutilated bodies were jumped in plain view as a 
warning to others. While the Chilean government's official truth and 
reconciliation committee places the number of disappeared at roughly 
3,000, church and human rights groups estimate the number is far 
higher, at over 10,000. Hundreds of thousands fled into exile. Thus 
ended Allende's "democratic road to Socialism." The terror did not
end after the coup and dictatorship's record on human rights was 
rightly denounced as barbaric.
</p><p>
Friedman, of course, stressed his <i>"disagreement with the authoritarian 
political system of Chile."</i> [quoted by Rayack, <b>Op. Cit.</b>, p. 61] For 
the time being we will ignore the obvious contradiction in this 
"economic miracle", i.e. why it almost always takes authoritarian/fascistic 
states to introduce "economic liberty." Rather we will take the right at 
its word and concentrate on the economic facts of the free-market 
capitalism imposed on the Chilean people. They claim it was a free 
market and given that, for example, Friedman was leading ideologue for 
capitalism we can assume that the regime approximated the workings of 
such a system. We will discuss the illogical nature and utter hypocrisy 
of the right's position in <a href="secD11.html">section D.11</a>, where we also discuss the 
limited nature of the democratic regime which replaced Pinochet and 
the real relationship between economic and political liberty.
</p><p>
Faced with an economic crisis, in 1975 Pinochet turned to the ideas of 
Milton Friedman and a group of Chilean economics who had been taught by him 
at the University in Chicago. A short meeting between Friedman and Pinochet
convinced the dictator to hand economic policy making to Friedman's acolytes 
(who became known as "the Chicago Boys" for obvious reasons). These were 
free-market economists, working on a belief in the efficiency and fairness 
of the free market and who desired to put the laws of supply and demand 
back to work. They set out to reduce the role of the state in terms of
regulation and social welfare as these, they argued, had restricted Chile's 
growth by reducing competition, lowering growth, artificially increasing wages, 
and leading to inflation. The ultimate goal, Pinochet once said, was to make 
Chile <i>"not a nation of proletarians, but a nation of entrepreneurs."</i> [quoted 
by Thomas E. Skidmore and Peter H. Smith, <b>Modern Latin America</b>, p. 137]
</p><p>
The role of the Chicago Boys cannot be understated. They had a close
relationship with the military from 1972, and according to one expert
had a key role in the coup:
</p><p><blockquote><i>
"In August of 1972 a group of ten economists under the leadership of
de Castro began to work on the formulation of an economic programme 
that would replace [Allende's one]. . . In fact, the existence of the 
plan was essential to any attempt on the part of the armed forces to 
overthrow Allende as the Chilean armed forces did not have any economic 
plan of their own."</i> [Silvia Borzutzky, <i>"The Chicago Boys, social security 
and welfare in Chile"</i>, <b>The Radical Right and the Welfare State</b>, Howard 
Glennerster and James Midgley (eds.), p. 88]
</blockquote></p><p>
This plan also had the backing of certain business interests. Unsurprisingly, 
immediately after the coup, many of its authors entered key Economic Ministries 
as advisers. [Rayack, <b>Op. Cit.</b>, p. 52] It is also interesting to note that 
<i>"[a]ccording to the report of the United States Senate on covert actions in 
Chile, the activities of these economists were financed by the Central 
Intelligence Agency (CIA)."</i> [Borzutzky, <b>Op. Cit.</b>, p. 89] Obviously some 
forms of state intervention were more acceptable than others.
</p><p>
April 1975 saw the Chicago Boys assume <i>"what was in effect dictatorial control 
over economic policy . . . The monetarists were now in a commanding position to 
put in place Friedman's recommendations, and they didn't hesitate."</i> The actual 
results of the free market policies introduced by the dictatorship were far 
less than the "miracle" claimed by Friedman and a host of other right-wingers. 
The initial effects of introducing free market policies was a shock-induced 
depression which resulted in GDP dropping by 12.9% year "shock treatment" was 
imposed saw the GDP fall by 12.9% (Latin America saw a 3.8% rise), real wages 
fell to 64.9% of their 1970 level and unemployment rising to 20 percent. Even 
Pinochet <i>"had to concede that the social cost of the shock treatment was 
greater than he expected."</i> [Rayack, <b>Op. Cit.</b>, p. 56, p. 41 and p. 57] For
Friedman, his <i>"only concern"</i> with the plan was <i>"whether it would be pushed
long enough and hard enough."</i> [quoted by Joseph Collins and John Lear, 
<b>Chile's Free-Market Miracle: A Second Look</b>, p. 29] Unsurprisingly, the 
<i>"rigorous imposition of the neoliberal economic model after 1975 soon 
threatened [workers] job security too"</i> and they <i>"bore the brunt"</i> of the 
changes in terms of <i>"lost jobs and raised work norms."</i> [Winn, <i>"No Miracle 
for Us,"</i> Peter Winn (ed.), <b>Op. Cit.</b>, p. 131]
</p><p>
After the depression of 1975, the economic started to grow again. This is
the source of claim of an "economic miracle." Friedman, for example, used 
1976 as his base-line, so excluding the depression year of 1975 which his 
recommended shock treatment deepened. This is dishonest as it fails to take 
into account not only the impact of neo-liberal policies but also that a 
deep recession often produces a vigorous upsurge:
</p><p><blockquote><i>
"By taking 1975, a recession year in which the Chilean economy declined
by 13 percent, as the starting point of their analysis, the Chicago 
Boys obscured the fact that their 'boom' was more a recovery from the
deep recession than a new economic expansion. From 1974 to 1981, the
Chilean economy grew at a modest 1.4 percent a year on average. Even
at the height of the 'boom' in 1980, effective unemployment was so
high -- 17 percent -- that 5 percent of the workforce were in 
government make-work programs, a confession of failure for neoliberals
who believe in the market as self-correcting and who abhor government
welfare programs. Nor did the Chicago Boys call attention to the 
extreme concentration of capital, precipitous fall in real wages and
negative redistribution of income that their policies promoted, or 
their disincentives to productive investment."</i> [Peter Winn, <i>"The 
Pinochet Era"</i>, <b>Op. Cit.</b>, pp. 28-9]
</blockquote></p><p>
Between 1975 and 1982, the regime implemented numerous economic reforms
based on the suggestions of the Chicago Boys and their intellectual gurus
Friedman and von Hayek. They privatised numerous state owned industries
and resources and, as would be expected, the privatisations were carried 
out in such a way as to profit the wealthy. <i>"The denationalisation process,"</i> 
notes Rayack, <i>"was carried out under conditions that were extremely 
advantageous for the new owners . . . the enterprises were sold at sharply 
undervalues prices."</i> Only large conglomerates could afford them, so capital 
became even more concentrated. [<b>Op. Cit.</b>, p. 67]  When it privatised its 
interests in the forestry processing plants in the country the government 
followed the privatisation of other areas of the economy and they <i>"were 
sold at a discount, according to one estimate, at least 20 per cent below 
their value."</i> Thus <i>"the privatisations were bargain sell-offs of public
assets,"</i> which amounted to a <i>"subsidy from the national treasury to the
buyers of 27 to 69 percent"</i> and so <i>"[c]ontrol of the common wealth of the 
entire nation passed to a handful of national and foreign interests that 
captured most of the subsidy implicit in the rock bottom prices."</i> [Joseph 
Collins and John Lear, <b>Chile's Free-Market Miracle: A Second Look</b>, 
p. 206, p. 54 and p. 59] 
</p><p>
By 1978, the Chicago Boys <i>"were pressing for new laws that would bring labour 
relations in line with the neoliberal economic model in which the market, not 
the state, would regulate factors of production."</i> [Winn, <i>"The Pinochet Era"</i>,
Winn (ed.), <b>Op. Cit.</b>, p. 31] According to Pinochet's Minister of Labour 
(1978-81), the Labour relations had been <i>"modernised"</i> and that <i>"politicised"</i> 
labour leaders and their <i>"privileged fiefdoms"</i> had been eliminated, with 
workers no longer having <i>"monopolies"</i> on job positions. Rather than government
intervention, negotiation between capital and labour was now left to <i>"individual 
responsibility and the discipline of the market."</i> The stated aim was to 
<i>"introduce democracy into the world of Chilean unions and resolve problems 
that for decades had been obstacles for the progress of workers."</i> [quoted
by Joseph Collins and John Lear, <i>"Working in Chile's Free Market"</i>, pp. 10-29, 
<b>Latin American Perspectives</b>, vol. 22, No. 1, pp. 10-11 and p. 16] The 
hypocrisy of a technocratic bureaucrat appointed by a military dictatorship 
talking about introducing democracy into unions is obvious. The price of 
labour, it was claimed, now found its correct level as set by the "free"
market. 
</p><p>
All of which explains Friedman's 1991 comment that the <i>"real miracle of Chile"</i> 
was that Pinochet <i>"support[ed] a free market regime designed by principled 
believers in a free market."</i> [<b>Economic Freedom, Human Freedom, Political 
Freedom</b>] As to be expected with Friedman, the actual experience of 
implementing his dogmas refuted both them and his assertions on capitalism.
Moreover, working class paid the price.
</p><p>
The advent of the "free market" led to reduced barriers to imports 
<i>"on the ground the quotas and tariffs protected inefficient industries 
and kept prices artificially high. The result was that many local firms 
lost out to multinational corporations. The Chilean business community, 
which strongly supported the coup in 1973, was badly affected."</i> [Skidmore 
and Smith, <b>Op. Cit.</b>, p. 138] The decline of domestic industry cost 
thousands of better-paying jobs. Looking at the textile sector, firms 
survived because of <i>"lowered labour costs and increased productivity."</i> 
The sector has <i>"low real wages, which dramatically altered"</i> its 
international competitiveness. In other words, the Chilean textile 
industry <i>"had restructured itself on the back of its workers."</i> [Peter 
Winn, <i>"No Miracle for Us"</i>, Winn (ed.), <b>Op. Cit.</b>, p. 130] The mines 
were <i>"enormously profitable after 1973 because of increased labour 
discipline, the reduction in costs due to the contraction of real 
wages, and an increase in production based on expansion programs
initiated during the late 1960s."</i> [Thomas Miller Klubock, <i>"Class, 
Community, and Neoliberalism in Chile"</i>, <b>Op. Cit.</b>, p. 241] This was 
the <b>real</b> basis of the 1976 to 1981 "economic miracle" Friedman 
praised in 1982.
</p><p>
As with most neo-liberal experiments, the post-1975 "miracle" was built
on sand. It was <i>"a speculative bubble that was hailed as an 'economic 
miracle' until it burst in the 1981-82 bank crash that brought the 
deregulated Chilean economy down in its wake."</i> It was <i>"largely short-term 
speculative capital . . . producing a bubble in stock market and real 
estate values"</i> and <i>"by 1982 the economy was in shambles and Chile in 
the throes of its worse economic crisis since the depression of the 
1930s. A year later, massive social protests defied Pinochet's security 
forces."</i> [Winn, <b>Op. Cit.</b>, p. 38] Thus <i>"the bottom fell out of the 
economy"</i> and Chile's GDP fell 14% in one year. In the textile industry 
alone, an estimated 35 to 45% of companies failed. [Collins and Lear,
<b>Op. Cit.</b>, p. 15] 
</p><p>
So after 7 years of free(r) market capitalism, Chile faced yet another 
economic crisis which, in terms of unemployment and falling GDP was 
even greater than that experienced during the terrible shock treatment 
of 1975. Real wages dropped sharply, falling in 1983 to 14% below what 
they had been in 1970. Bankruptcies skyrocketed, as did foreign debt 
and unemployment. [Rayack, <b>Op. Cit.</b>, p. 69] Chile's GNP <i>"fell by more 
than 15 percent, while its real disposable GNP declined by 19 percent. 
The industrial sector contracted by more than 21 percent and 
construction by more than 23 percent. Bankruptcies tripled  . . . It 
was a crisis comparable to the Great Depression of the 1930s, which 
affected Chile more severely than any other country in the world."</i> 
The same can be said of this crisis, for while GNP in Chile feel 
14% during 1982-3, the rest of Latin America experienced 3.5% drop 
as whole. [Winn, <b>Op. Cit.</b>, p. 41 and p. 66] By 1983, the Chilean 
economy was devastated and it was only by the end of 1986 that 
Gross Domestic Product per capita (barely) equalled that of 1970. 
Unemployment (including those on government make-work programmes) 
had risen to a third of the labour force by mid-1983. By 1986, per 
capita consumption was actually 11% lower than the 1970 level. 
[Skidmore and Smith, <b>Op. Cit.</b>, p. 138]
</p><p>
Faced with this massive economic collapse (a collapse that somehow 
slipped Friedman's mind when he was evaluating the Chilean experiment 
in 1991), the regime organised a massive bailout. The "Chicago Boys" 
resisted this measure, arguing with dogmatic arrogance that there 
was no need for government intervention or policy changes because 
they believed in the self-correcting mechanisms of the market would 
resolve any economic problem. However, they were applying a simplistic 
textbook version of the economy to a complex reality which was 
spectacularly different from their assumptions. When that reality 
refused to respond in the way predicted by their ideological musing, 
the state stepped in simply because the situation had become so 
critical it could not avoid it. 
</p><p>
The regime did do some things to help the unemployed, with 14% of the 
labour force enrolled in two government make-work programs that paid 
less than the minimum wage by October 1983. However, aid for the 
capitalist class was far more substantial. The IMF offered loans to 
Chile to help it out of mess its economic policies had helped 
create, but under strict conditions (such as making the Chilean 
public responsible for paying the billions in foreign loans 
contracted by <b>private</b> banks and firms). The total bailout cost 3% 
of Chile's GNP for three years, a cost which was passed on to the 
population (this <i>"socialisation of private debts were both striking 
and unequal"</i>). This follows the usual pattern of "free market" 
capitalism -- market discipline for the working class, state aid 
for the elite. During the "miracle," the economic gains had been 
privatised; during the crash the burden for repayment was socialised. 
In fact, the regime's intervention into the economy was so extensive 
that, <i>"[w]ith understandable irony, critics lampooned the 'Chicago 
road to socialism.'"</i> [Winn, <b>Op. Cit.</b>, p. 66 and p. 40]
</p><p>
Significantly, of the 19 banks that the government had privatised, 
all but five failed. These along with the other bankrupt firms 
fell back into government hands, a fact the regime sought to downplay
by failing to classify them as public companies. Once the debts had
been <i>"assumed by the public,"</i> their <i>"assets were sold to private 
interests."</i> Significantly, the <i>"one bank that had not been privatised
and the other publicly owned companies survived the crisis in 
relatively good shape"</i> and almost all of them were <i>"turning a profit,
generating for the government in profits and taxes 25 percent of its
total revenues . . . Thus the public companies that had escaped the
Chicago Boy's privatisations . . . enabled a financially strapped
government to resuscitate the failed private banks and companies."</i>
[Collins and Lear, <b>Chile's Free-Market Miracle: A Second Look</b>, 
pp. 51-2]
</p><p>
Needless to say, the recovery (like the illusionary boom) was paid for
by the working class. The 1982 crash meant that <i>"something had to give, 
and the Chicago Boys decided that it would be wages. Wages, they explained, 
should be allowed to find their natural level."</i> An 1982 decree <i>"transferred 
much of the burden of recovery and profitability to workers and became 
central to Chile's economic recovery throughout the rest of the decade."</i> 
[Collins and Lear, <b>Op. Cit.</b>, p. 20 and p. 19] For the miners, between late 
1973 and May 1983, real average wages dropped by 32.6% and workers' benefits 
were reduced (for example, the free medical attention and health care that 
had been won in the 1920s were dropped). [Thomas Miller Klubock, <i>"Class, 
Community, and Neoliberalism in Chile,"</i> Winn (ed.), <b>Op. Cit.</b>, p. 217]
As Peter Winn summarises:
</p><p><blockquote><i>
"Chile's workers, who had paid the social costs of the illusory
neoliberal 'miracle,' now paid as well the highest price for the
errors of their nation's military rulers and Chicago Boy technocrats
and the imprudence of their country's capitalists. Plant closing and
layoffs drove the effective unemployment rate above 30 percent,
while real wages for those lucky enough to retain their jobs fell
by nearly 11 percent in 1979-82 and by some 20 percent during the
1980s. In addition, inflation jumped to over 20 percent in both
1982 and 1983, and the budget surplus gave way to a deficit equal to
3 percent of the GNP by 1983. By then, Chile's foreign debt was
13 percent higher than its GNP . . . Chile's economy contracted 
400 percent more in 1982-83 than the rest of Latin America."</i> [<i>"The 
Pinochet Era"</i>, Winn (ed.), <b>Op. Cit.</b>, pp. 41-2]
</blockquote></p><p>
Unsurprisingly, for the capitalist class things were somewhat different.
Private banks <i>"were bailed out by the government, which spent $6 
billion in subsidies during 1983-85 (equal to 30 percent of the GNP!)
but were made subject to strict government regulation designed to
assure their solvency. Controls were also placed on flows of foreign
capital."</i> [Winn, <b>Op. Cit.</b>, p. 42] The government also raised tariffs 
from 10% to between 20 and 35% and the peso was drastically devalued. 
[Collins and Lear, <b>Op. Cit.</b>, p. 15] Pinochet's state took a more 
active role in promoting economic activity. For example, it developed
new export industries which <i>"benefited from a series of subsidies, 
privatisations, and deregulations that allowed for unrestricted 
exploitation of natural resources of limited renewability. Equally 
important were low wages, great flexibility of employers vis--vis 
workers, and high levels of unemployment."</i> [Collins and Lear, 
<b>Op. Cit.</b>, p. 20] The forestry sector was marked by government 
hand-outs to the already rich. Joseph Collins and John Lear argue 
that the neoliberals' <i>"stated goals were to curtail sharply the 
direct role of government in forestry and to let market mechanisms 
determine the prices and direct the use of resources. Yet government 
intervention and subsidies were in fact central to reorienting the 
benefits of forestry production away from the rural population towards 
a handful of national and foreign companies."</i> [<b>Op. Cit.</b>, p. 205] 
</p><p>
By 1986, the economy had stabilised and the crisis was over. However,
the recovery was paid for by the working class as <i>"wages stayed low"</i> 
even as the economy began to recover. Low wages were key to the 
celebrated 'miracle' recovery. From 1984 to 1989 the gross national 
product grew an average of 6 percent annually. By 1987 Chile had 
recovered the production levels of 1981, and by 1989 production
levels exceeded 1981 levels by 10 percent. The average wage, by 
contrast, was 5 percent lower at the end of the decade than it had
been in 1981 -- almost 10 percent lower than the average 1970 wage.
The drop in the minimum wage <i>"was even more drastic."</i> Public unrest
during the economic crisis made it politically difficult to eliminate,
so it <i>"was allowed to erode steadily in the face of inflation. By 1988,
it was 40 percent lower in real terms than it had been in 1981 . . . 
In that year 32 percent of the workers in Santiago earned the minimum
wage or less."</i> Thus, <i>"recovery and expansion after 1985 depended on 
two ingredients that are unsustainable over the long term and in a 
democratic society,"</i> namely <i>"an intensified exploitation of the labour
force"</i> and <i>"the unregulated exploitation of nonrenewable natural 
resources such as native forests and fishing areas, which amounted
to a one-time subsidy to domestic conglomerates and multinationals."</i>
[Collins and Lear, <b>Op. Cit.</b>, <b>Op. Cit.</b>, p. 83, p. 84 and p. 35]
</p><p>
In summary, <i>"the experiment has been an economic disaster."</i> [Rayack,
<b>Op. Cit.</b>, p. 72]
</p> 

<h2><a name="secc111">C.11.1 Who benefited from Chile's "economic miracle"?</a></h2>

<p>
Given that Chile was hardly an "economic miracle," the question arises
why it was termed so by people like Friedman. To answer that question,
we need to ask who actually benefited from the neo-liberalism Pinochet
imposed. To do this we need to recognise that capitalism is a class 
system and these classes have different interests. We would expect any
policies which benefit the ruling elite to be classed as an "economic
miracle" regardless of how adversely they affect the general population
(and vice versa). In the case of Chile, this is precisely what happened.
</p><p>
Rather than benefit everyone, neo-liberalism harmed the majority. Overall, 
by far the hardest group hit was the working class, particularly the 
urban working class. By 1976, the third year of Junta rule, real wages 
had fallen to 35% below their 1970 level. It was only by 1981 that they 
has risen to 97.3% of the 1970 level, only to fall again to 86.7% by 1983. 
Unemployment, excluding those on state make-work programmes, was 14.8% 
in 1976, falling to 11.8% by 1980 (this is still double the average 1960s 
level) only to rise to 20.3% by 1982. [Rayack, <b>Op. Cit.</b>, p. 65] Between 
1980 and 1988, the real value of wages grew only 1.2 percent while the 
real value of the minimum wage declined by 28.5 percent. During this 
period, urban unemployment averaged 15.3 percent per year. [Silvia Borzutzky, 
<b>Op. Cit.</b>, p. 96] Even by 1989 the unemployment rate was still at 10% (the
rate in 1970 was 5.7%) and the real wage was still 8% lower than in 1970. 
Between 1975 and 1989, unemployment averaged 16.7%. In other words, after 
nearly 15 years of free market capitalism, real wages had still not 
exceeded their 1970 levels and unemployment was still higher. As would
be expected in such circumstances the share of wages in national income 
fell from 42.7% in 1970 to 33.9% in 1993. Given that high unemployment 
is often attributed by the right to strong unions and other labour market 
"imperfections," these figures are doubly significant as the Chilean regime, 
as noted above, reformed the labour market to improve its "competitiveness."
</p><p>
After 1982, <i>"stagnant wages and the unequal distribution of income severely 
curtailed buying power for most Chileans, who would not recover 1970 
consumption levels until 1989."</i> [Collins and Lear, <b>Op. Cit.</b>, p. 25] By 1988, 
<i>"the average real wage had returned to 1980 levels, but it was still well 
below 1970 levels. Moreover, in 1986, some 37 percent of the labour force 
worked in the informal sector, where wages were lower and benefits often 
nonexistent. Many worked for minimum wage which in 1988 provided only half 
of what an average family required to live decently -- and a fifth of the 
workers didn't even earn that. A survey . . . concluded that nearly half
of Chileans lived in poverty."</i> [Winn, <i>"The Pinochet Era"</i>, <b>Op. Cit.</b>, p. 48] 
This was far more in absolute and relative terms than at any time in the 
in the preceding three decades. [Collins and Lear, <i>"Working in Chile's 
Free Market"</i>, <b>Op. Cit.</b>, p. 26]
</p><p>
Per capita consumption fell by 23% from 1972-87. The proportion of the 
population below the poverty line (the minimum income required for basic 
food and housing) increased from 20% to 44.4% between 1970 and 1987. 
Per capita health care spending was more than halved from 1973 to 1985, 
setting off explosive growth in poverty-related diseases such as typhoid, 
diabetes and viral hepatitis. On the other hand, while consumption for the 
poorest 20% of the population of Santiago dropped by 30%, it rose by 
15% for the richest 20%. [Noam Chomsky, <b>Year 501</b>, pp. 190-191] The 
percentage of Chileans without adequate housing increased from 27 to 
40 percent between 1972 and 1988, despite the claims of the government 
that it would solve homelessness via market friendly policies.
</p><p>
So after two decades of neoliberalism, the Chilean worker can look forward 
to <i>"a job that offers little stability and low wages, usually a temporary 
one or one in the informal economy . . . Much of the growth in jobs after 
the 1982-1983 crash came in economic sectors characterised by seasonal 
employment . . . [and are] notorious for their low pay, long hours, and 
high turnover."</i> In 1989, over 30% of jobs were in the formal sector in the 
Santiago metropolitan area with incomes less than half the average of 
those in the formal sector. For those with jobs, <i>"the work pace intensified 
and the work day lengthened . . . Many Chileans worked far longer than the 
legal maximum work week of 48 hours without being paid for the extra
hours. Even free-market celebrants . . . admit that extra unpaid hours 
remain a serious problem"</i> in 1989. In fact, it is <i>"commonly assumed that 
employees work overtime without pay or else"</i> and, unsurprisingly, the
<i>"pattern resembles the European production systems of the mid-19th century."</i>
[Collins and Lear, <b>Op. Cit.</b>, p. 22 pp. 22-3, p. 23, p. 24 and p. 25]
Unsurprisingly, as in neo-liberal America, wages have become divorced
from productivity growth. Even in the 1990s, <i>"there is evidence that 
productivity growth outpaced real wage growth by as much as a ratio 3:1 
in 1993 and 5:1 in 1997."</i> [Volker Frank, <i>"Politics without Policy"</i>, 
<b>Op. Cit.</b>, p. 73]
</p><p>
Similar comments are possible in regards to the privatised pension system, 
regarded by many right-wingers as a success and a model for other countries. 
However, on closer inspection this system shows its weaknesses -- indeed,
it can be argued that the system is only a success for those companies
making extensive profits from it (administration costs of the Chilean
system are almost 30% of revenues, compared to 1% for the U.S. Social
Security system [Doug Henwood, <b>Wall Street</b>, p. 305]). For working people,
it is a disaster. According to SAFP, the government agency which regulates
the system, 96% of the known workforce were enrolled in February 1995, but
43.4% of these were not adding to their funds. Perhaps as many as 60% do
not contribute regularly (given the nature of the labour market, this is
unsurprising). Unfortunately, regular contributions are required to
receive full benefits. Critics argue that only 20% of contributors
will actually receive good pensions. 
</p><p>
Workers need to find money for health care as their <i>"remuneration has been 
reduced to the wage, ending most benefits that workers had gained over the 
years [before the coup]. Moreover, the privatisation of such social services 
as health care and retirement security . . . [has meant] the costs were now 
taken entirely from employee earnings."</i> Unsurprisingly, <i>"[l]onger work days 
and a stepped-up pace of work increased the likelihood of accidents and 
illness. From 1982 to 1985 the number of reported workplace accident 
almost doubled. Public health experts estimate, however, that over 
three-quarters of workplace accidents went unreported, in part because
over half of the workforce is without any kind of accident insurance."</i>
[Collins and Lear, <b>Op. Cit.</b>, p. 20 and p. 25]
</p><p>
It is interesting to note that when this programme was introduced, the
armed forces and police were allowed to keep their own generous public
plans. If the plans <b>were</b> are as good as their supporters claim, you 
would think that those introducing them would have joined them. 
Obviously what was good enough for the masses were not suitable 
for the rulers and the holders of the guns they depended upon. Given 
the subsequent fate of that scheme, it is understandable that the 
ruling elite and its minions did not want middle-men to make money 
off their savings and did not trust their pensions to the fluctuations 
of the stock market. Their subjects, however, were less lucky. All 
in all, Chile's privatised social security system <i>"transferred worker 
savings in the form of social security contributions from the public 
to the private sector, making them available to the country's economic 
groups for investment. Given the oligopic concentration of wealth and 
corporate control under Pinochet, this meant handing the forced 
savings of workers over to Chile's most powerful capitalists."</i> That 
is, <i>"to shore up capital markets through its transfer of worker 
savings to Chile's business elites."</i> [Winn, <i>"The Pinochet Era"</i>, 
<b>Op. Cit.</b>, p. 64 and p. 31]
</p><p>
The same applies to the health system, with the armed forces and
national police and their dependants having their own public health 
care system. This means that they avoid the privatised health system
which the wealthy use and the run-down public system which the 
majority have access to. The market ensures that for most people,
<i>"the actual determining factor is not 'choice,' but one's ability
to pay."</i> By 1990, only 15% of Chileans were in the private 
system (of these, nearly 75% are form the top 30% of the 
population by income). This means that there are three medical 
systems in Chile. The well-funded public one for armed forces and
police, a good to excellent private system for the elite few and 
a <i>"grossly under-funded, rundown, over-burdened"</i> one <i>"for some 
70% of Chileans."</i>  Most <i>"pay more and receive less."</i> [Collins and
Lear, <b>Op. Cit.</b>, p. 99 and p. 246]
</p><p>
The impact on individuals extended beyond purely financial considerations, 
with the Chilean labour force <i>"once accustomed to secure, unionised jobs
[before Pinochet] . . . [being turned] into a nation of anxious individualists
. . . [with] over half of all visits to Chile's public health system 
involv[ing] psychological ailments, mainly depression. 'The repression
isn't physical any more, it's economic - feeding your family, educating
your child,' says Maria Pena, who works in a fishmeal factory in Concepcion.
'I feel real anxiety about the future', she adds, 'They can chuck us out
at any time. You can't think five years ahead. If you've got money you can
get an education and health care; money is everything here now.'"</i> Little 
wonder, then, that <i>"adjustment has created an atomised society, where 
increased stress and individualism have damaged its traditionally strong
and caring community life. . . suicides have increased threefold between 
1970 and 1991 and the number of alcoholics has quadrupled in the last 30 
years . . . [and] family breakdowns are increasing, while opinion polls
show the current crime wave to be the most widely condemned aspect of 
life in the new Chile. 'Relationships are changing,' says Betty Bizamar, a
26-year-old trade union leader. 'People use each other, spend less time
with their family. All they talk about is money, things. True friendship
is difficult now.'"</i> [Duncan Green, <b>Op. Cit.</b>, p. 96 and p. 166]
</p><p>
The experiment with free market capitalism also had serious impacts for
Chile's environment. The capital city of Santiago became one of the most 
polluted cities in the world due the free reign of market forces. With 
no environmental regulation there is general environmental ruin and water 
supplies have severe pollution problems. [Noam Chomsky, <b>Year 501</b>, p. 190] 
With the bulk of the country's experts being based on the extraction and 
low processing of natural resources, eco-systems and the environment have 
been plundered in the name of profit and property. The depletion of natural 
resources, particularly in forestry and fishing, is accelerating due to the 
self-interested behaviour of a few large firms looking for short term 
profit.
</p><p>
So, in summary, Chile's workers <i>"were central target's of [Pinochet's] 
political repression and suffered greatly from his state terror. They 
also paid a disproportionate share of the costs of his regime's regressive 
social policies. Workers and their organisations were also the primary 
targets of Pinochet's labour laws and among the biggest losers from his
policies of privatisation and deindustrialisation."</i> [Winn, <i>"Introduction"</i>, 
<b>Op. Cit.</b>, p. 10]
</p><p>
Given that the majority of Chile's people where harmed by the economic 
policies of the regime, how can it be termed a "miracle"? The answer 
can be found in another consequence of Pinochet's neo-classical monetarist 
policies, namely <i>"a contraction of demand, since workers and their families 
could afford to purchase fewer goods. The reduction in the market further 
threatened the business community, which started producing more goods for 
export and less for local consumption. This posed yet another obstacle to 
economic growth and led to increased concentration of income and wealth 
in the hands of a small elite."</i> [Skidmore and Smith, <b>Op. Cit.</b>, p. 138]
</p><p>
It is the increased wealth of the elite that we see the true "miracle" 
of Chile. When the leader of the Christian Democratic Party returned 
from exile in 1989 he said that economic growth that benefited the 
top 10% of the population had been achieved (Pinochet's official 
institutions agreed). [Noam Chomsky, <b>Deterring Democracy</b>, p. 231]
This is more than confirmed by other sources. According to one expert 
in the Latin American neo-liberal revolutions, the elite <i>"had become 
massively wealthy under Pinochet."</i> [Duncan Green, <b>The Silent Revolution</b>, 
p. 216] In 1980, the richest 10% of the population took 36.5% of the 
national income. By 1989, this had risen to 46.8%. By contrast, the 
bottom 50% of income earners saw their share fall from 20.4% to 
16.8% over the same period. Household consumption followed the same 
pattern. In 1970, the top 20% of households had 44.5% of consumption. 
This rose to 51% in 1980 and to 54.6% in 1989. Between 1970 and 1989, 
the share going to the other 80% fell. The poorest 20% of households 
saw their share fall from 7.6% in 1970 to 4.4% in 1989. The next 20% 
saw their share fall from 11.8% to 8.2%, and middle 20% share fell 
from 15.6% to 12.7%. The next 20% saw their share of consumption fall 
from 20.5% to 20.1%. In other words, <i>"at least 60 percent of the 
population was relatively, if not absolutely, worse off."</i> [James 
Petras and Fernando Ignacio Leiva, <b>Democracy and Poverty in Chile</b>, 
p. 39 and p. 34] 
</p><p>
In summary, <i>"the distribution of income in Chile in 1988, after a decade 
of free-market policies, was markedly regressive. Between 1978 and 1988 
the richest 10 percent of Chileans increased their share of national 
income from 37 to 47 percent, while the next 30 percent saw their share 
shrink from 23 to 18%. The income share of the poorest fifth of the 
population dropped from 5 to 4 percent."</i> [Collins and Lear, <b>Op. Cit.</b>, 
p. 26] In the last years of Pinochet's dictatorship, the richest 10% of 
the rural population saw their income rise by 90% between 1987 and 1990. 
The share of the poorest 25% fell from 11% to 7%. The legacy of Pinochet's 
social inequality could still be found in 1993, with a two-tier health 
care system within which infant mortality is 7 per 1000 births for the 
richest fifth of the population and 40 per 1000 for the poorest fifth. 
[Duncan Green, <b>Op. Cit.</b>, p. 108 and p. 101] Between 1970 and 1989, 
labour's share of the national income fell from 52.3% to 30.7% (it 
was 62.8% in 1972). Real wages in 1987 were still 81.2% of their 
1980-1 level. [Petras and Leiva, <b>Op. Cit.</b>, p. 34, p. 25 and p. 170]
</p><p>
Thus Chile has been a "miracle" for the capitalist class, with its 
successes being <i>"enjoyed primarily (and in many areas, exclusively) 
by the economic and political elites. In any society shot through 
with enormous inequalities in wealth and income, the market . . . 
works to concentrate wealth and income."</i> There has been <i>"a clear
trend toward more concentrated control over economic resources . . .
Economic concentration is now greater than at any other time in 
Chile's history"</i> with multinational corporations reaping <i>"rich
rewards from Chile's free-market policies"</i> (<i>"not surprisingly, 
they enthusiastically applaud the model and push to implant it
everywhere"</i>). Ultimately, it is <i>"unconscionable to consider any 
economic and social project successful when the percentage of 
those impoverished . . . more than doubled."</i> [Collins and Lear,
<b>Chile's Free-Market Miracle: A Second Look</b>, p. 252 and p. 253]
</p><p>
Thus the wealth created by the Chilean economy in during the Pinochet 
years did <b>not</b> "trickle down" to the working class (as claimed would 
happen by "free market" capitalist dogma) but instead accumulated in the  
hands of the rich. As in the UK and the USA, with the application of 
"trickle down economics" there was a vast skewing of income distribution 
in favour of the already-rich. That is, there has been a 'trickle-up' 
(or rather, a <b>flood</b> upwards). Which is hardly surprising, as exchanges 
between the strong and weak will favour the former (which is why 
anarchists support working class organisation and collective action 
to make us stronger than the capitalists and why Pinochet repressed 
them).
</p><p>
Overall, <i>"in 1972, Chile was the second most equal country in Latin 
America; by 2002 it was the second most <b>un</b>equal country in the 
region."</i> [Winn, <i>"The Pinochet Era"</i>, <b>Op. Cit.</b>, p. 56] Significantly, 
this refutes Friedman's 1962 assertion that <i>"capitalism leads to 
less inequality . . . inequality appears to be less . . . the more
highly capitalist the country is."</i> [<b>Capitalism and Freedom</b>, p. 169]
As with other countries which applied Friedman's ideas (such as the
UK and US), inequality soared in Chile. Ironically, in this as in so
many cases, implementing his ideas refuted his own assertions.
</p><p>
There are two conclusions which can be drawn. Firstly, that Chile is 
now <b>less</b> capitalist after applying Friedman's dogmas. Secondly, that 
Friedman did not know what he was talking about. The second option 
Seems the most likely, although for some defenders of the faith Chile's
neo-liberal experiment may not have been "pure" enough. However, this
kind of assertion will only convince the true believer.
</p>

<h2><a name="secc112">C.11.2 What about Chile's economic growth and low inflation?</a></h2>

<p>
Given the actual results of the experiment, there are only two areas
left to claim an "economic miracle." These are combating inflation 
and increasing economic growth. Neither can be said to be "miraculous."
</p><p>
As far as inflation goes, the Pinochet regime <b>did</b> reduce it, eventually.
At the time of the time of the CIA-backed coup it was around 500% (given 
that the US undermined the Chilean economy -- <i>"make the economy scream"</i>, 
Richard Helms, the director of the CIA -- high inflation would be 
expected). By 1982 it was 10% and between 1983 to 1987, it fluctuated 
between 20 and 31%. It took eight years for the Chicago Boys to control 
inflation and, significantly, this involved <i>"the failure of several 
stabilisation programmes at an elevated social cost . . . In other 
words, the stabilisation programs they prescribed not only were 
not miraculous -- they were not successful."</i> [Winn, <i>"The Pinochet Era"</i>, 
<b>Op. Cit.</b>, p. 63] In reality, inflation was not controlled by means of
Friedman's Monetarism but rather by state repression as left-wing
Keynesian Nicholas Kaldor points out:
</p><p><blockquote><i>
"The rate of growth of the money supply was reduced from 570 per cent 
in 1973 . . . to 130 per cent in 1977. But this did not succeed in moderating 
the growth of the money GNP or of the rise in prices, because -- lo and
behold! -- no sooner did they succeed in moderating the growth of the money 
supply down, than the velocity of circulation shot up, and inflation was 
greater with a lower rate of growth of the money supply . . . they have 
managed to bring down the rate of growth of prices . . . And how? By the 
method well tried by Fascist dictatorships. It is a kind of incomes policy. 
It is a prohibition of wage increases with concentration camps for those who 
disobey and, of course, the prohibition of trade union activity and so on. 
And so it was not monetarism that brought the Chilean inflation down . . . 
[It was based on] methods which by-passed the price mechanism."</i> [<b>The 
Economic Consequences of Mrs Thatcher</b>, p. 45]
</blockquote></p><p>
Inflation was controlled by means of state repression and high unemployment,
a combination of the incomes policy of Hitler and Mussolini and Karl Marx
(i.e., Friedman's "natural rate of unemployment" we debunked in 
<a href="secC9.html">section C.9</a>). In other words, Monetarism and "free market" capitalism did not 
reduce inflation (as was the case with Thatcher and Reagan was well).
</p><p>
Which leaves growth, the only line of defence possible for the claim of
a Chilean "Miracle." As we discussed in <a href="secC10.html">section C.10</a>, 
the right argue that relative shares of wealth are not important, it is the absolute 
level which counts. While the share of the economic pie may have dropped 
for most Chileans, the right argue that the high economic growth of the 
economy meant that they were receiving a smaller share of a bigger pie. 
We will ignore the well documented facts that the <b>level</b> of inequality, 
rather than absolute levels of standards of living, has most effect on 
the health of a population and that ill-health is inversely correlated 
with income (i.e. the poor have worse health that the rich). We will 
also ignore other issues related to the distribution of wealth, and 
so power, in a society (such as the free market re-enforcing and 
increasing inequalities via "free exchange" between strong and weak 
parties, as the terms of any exchange will be skewed in favour of the 
stronger party, an analysis which the Chilean experience provides 
extensive evidence for with its "competitive" and "flexible" labour 
market). In other words, growth without equality can have damaging 
effects which are not, and cannot be, indicated in growth figures. 
</p><p>
So we will consider the claim that the Pinochet regime's record on growth 
makes it a "miracle" (as nothing else could). However, when we look at the 
regime's growth record we find that it is hardly a "miracle" at all -- the 
celebrated economic growth of the 1980s must be viewed in the light of the 
two catastrophic recessions which Chile suffered in 1975 and 1982. As Edward 
Herman points out, this growth was <i>"regularly exaggerated by measurements 
from inappropriate bases (like the 1982 trough)."</i> [<b>The Economics of the 
Rich</b>] 
</p><p>
This point is essential to understand the actual nature of Chile's "miracle"
growth. For example, supporters of the "miracle" pointed to the period 1978 
to 1981 (when the economy grew at 6.6 percent a year) or the post 1982-84 
recession up-swing. However, this is a case of "lies, damn lies, and 
statistics" as it does not take into account the catching up an economy 
goes through as it leaves a recession. During a recovery, laid-off workers 
go back to work and the economy experiences an increase in growth due to 
this. This means that the deeper the recession, the higher the subsequent 
growth in the up-turn. So to see if Chile's economic growth was a miracle 
and worth the decrease in income for the many, we need to look at whole 
business cycle, rather than for the upturn. If we do this we find that Chile 
had the second worse rate of growth in Latin America between 1975 and 
1980. The average growth in GDP was 1.5% per year between 1974 and 
1982, which was lower than the average Latin American growth rate of 
4.3% and lower than the 4.5% of Chile in the 1960's. [Rayack, <b>Op. Cit.</b>,
p. 64]
</p><p>
This meant that, in per capita terms, Chile's GDP only increased by 
1.5% per year between 1974-80. This was considerably less than the 
2.3% achieved in the 1960's. The average growth in GDP was 1.5% per 
year between 1974 and 1982, which was lower than the average Latin 
American growth rate of 4.3% and lower than the 4.5% of Chile in the 
1960s. Between 1970 and 1980, per capita GDP grew by only 8%, while 
for Latin America as a whole, it increased by 40%. Between the years 
1980 and 1982 during which all of Latin America was adversely affected 
by depression conditions, per capita GDP fell by 12.9 percent, compared 
to a fall of 4.3 percent for Latin America as a whole. [Rayack, <b>Op. Cit.</b>, 
p. 57 and p. 64] 
</p><p>
Thus, between 1970 and 1989, Chile's GDP <i>"grew at a slow pace (relative
to the 1960s and to other Latin American countries over the same period)
with an average rate of 1.8-2.0 per cent. On a per capita basis . . . 
GDP [grew] at a rate (0.1-0.2 per cent) well below the Latin American
average . . . [B]y 1989 the GDP was still 6.1 per cent below the 1981
level, not having recovered the level reached in 1970. For the entire
period of military rule (1974-1989) only five Latin American countries
had a worse record. Some miracle!"</i> [Petras and Leiva, <b>Op. Cit.</b>, p. 32] 
</p><p>
Thus the growth "miracles" refer to recoveries from depression-like 
collapses, collapses that can be attributed in large part to the free-market 
policies imposed on Chile! Overall, the growth "miracle" under Pinochet 
turns out to be non-existent. The full time frame illustrates Chile's lack 
of significant economic and social process between 1975 and 1989. Indeed, 
the economy was characterised by instability rather than real growth.
The high levels of growth during the boom periods (pointed to by the 
right as evidence of the "miracle") barely made up for the losses during 
the bust periods.
</p><p>
All in all, the experience of Chile under Pinochet and its "economic 
miracle" indicates that the costs involved in creating a free market 
capitalist regime are heavy, at least for the majority. Rather than 
being transitional, these problems have proven to be structural and
enduring in nature, as the social, environmental, economic and political 
costs become embedded into society. The murky side of the Chilean
"miracle" is simply not reflected in the impressive macroeconomic
indictors used to market "free market" capitalism, indicators themselves
subject to manipulation as we have seen.
</p>

<h2><a name="secc113">C.11.3 Did neo-liberal Chile confirm capitalist economics?</a></h2>

<p>
No. Despite claims by the likes of Friedman, Chile's neo-liberal experiment
was no "economic miracle" and, in fact, refuted many of the key dogmas
of capitalist economics. We can show this by comparing the actual 
performance of "economic liberty" with Friedman's predictions about it.
</p><p>
The first thing to note is that neo-liberal Chile hardly supports the
claim that the free market is stable. In fact, it was marked by deep
recessions followed by periods of high growth as the economic recovered.
This resulted in overall (at best) mediocre growth rates (see 
<a href="secC11.html#secc112">last section</a>).
</p><p>
Then there is the fact that the Chilean experiment refutes key neo-classical
dogmas about the labour market. In <b>Capitalist and Freedom</b>, Friedman 
was at pains to attack trade unions and the idea that they defended the 
worker from coercion by the boss. Nonsense, he asserted, the <i>"employee is 
protected from coercion by the employer because of other employers for 
whom he can work."</i> [pp. 14-5] Thus collective action in the form of, say,
unions is both unnecessary and, in fact, harmful. The ability of workers 
to change jobs is sufficient and the desire of capitalist economists is 
always to make the real labour market become more like the ideal market of 
perfect competition -- lots of atomised individuals who are price takers, 
not price setters. While big business gets ignored, unions are demonised. 
</p><p>
The problem is that such "perfect" labour markets are hard to create 
outside of dictatorships. Pinochet's reign of terror created such a 
market. Faced with the possibility of death and torture if they stood
up for their rights, the only <b>real</b> alternative most workers had was
that of finding a new job. So while the labour market was far from being 
an expression of "economic liberty," Chile's dictatorship <b>did</b> produce 
a labour market which almost perfectly reflected the neo-classical (and 
Austrian) ideal. Workers become atomised individuals as state terror 
forced them to eschew acting as trade unionists and seeking collective 
solutions to their (individual and collective) problems. Workers had 
no choice <b>but</b> to seek a new employer if they felt they were being 
mistreated or under-valued. Terror created the preconditions for the 
workings of an ideal capitalist labour market. Friedman's talk of 
"economic liberty" in Chile suggests that Friedman thought that a 
"free market" in labour would work "as if" it were subject to death 
squads. In other words, that capitalism needs an atomised workforce 
which is too scared to stand up for themselves. Undoubtedly, he would 
prefer such fear to be imposed by purely "economic" means (unemployment 
playing its usual role) but as his work on the "natural rate of 
unemployment" suggests, he is not above appealing to the state to 
maintain it. 
</p><p>
Unfortunately for capitalist ideology, Chile refuted that notion, 
with its workers subject to the autocratic power of the boss and 
having to give concession after concession simply to remain in work. 
Thus the <i>"total overhaul of the labour law system [which] took place 
between 1979 and 1981 . . . aimed at creating a perfect labour market, 
eliminating collective bargaining, allowing massive dismissal of 
workers, increasing the daily working hours up to twelve hours and 
eliminating the labour courts."</i> [Silvia Borzutzky, <b>Op. Cit.</b>, p. 91] 
In reality, the Labour code simply reflected the power property owners 
have over their wage slaves and <i>"was solidly probusiness. It was 
intended to maximise the flexibility of management's use of labour 
and to keep any eventual elected government from intervening on behalf 
of labour in negotiations between employers and workers."</i> This was 
hidden, of course, by <i>"populist rhetoric."</i> [Collins and Lear, <b>Op. Cit.</b>, 
p. 16] In fact, the Plan Laboral <i>"was intended to definitely shift
the balance of power in labour relations in favour of business and
to weaken the workers and unions that formed the central political 
base of the Left."</i> [Winn, <i>"The Pinochet Era"</i>, <b>Op. Cit.</b>, p. 31]
</p><p>
Unsurprisingly,  <i>"workers . . . have not received a fair share of the 
benefits from the economic growth and productivity increases that their 
labour has produced and that they have had to bear a disproportionate 
share of the costs of this restructuring in their wages, working 
conditions, job quality, and labour relations."</i> [Winn, <i>"Introduction"</i>, 
<b>Op. Cit.</b>, p. 10] 
</p><p>
Chile, yet again, refuted another of Friedman's assertions about capitalism. 
In 1975, he wrongly predicted that the unemployed caused by the Monetarist 
recession would quickly find work, telling a Santiago audience that they 
would <i>"be surprised how fast people would be absorbed by a growing 
private-sector economy."</i> [quoted by Rayack, <b>Op. Cit.</b>, p. 57] Unemployment 
reached record levels for decades, as the free market regime <i>"has been 
slow to create jobs. During the 1960s unemployment hovered around 6 
percent; by contrast, the unemployment level for the years 1974 to 1987 
averaged 20 percent of the workforce. Even in the best years of the boom 
(1980-1981) it stayed as high as 18 percent. In the years immediately
following the 1982 crash, unemployment -- including government emergency 
work programs -- peaked at 35 percent of the workforce."</i> Unsurprisingly,
the <i>"most important rationalisation"</i> made by Chilean industry <i>"was the 
lowering of labour costs. This was accomplished through massive layoffs, 
intensifying the work of remaining workers, and pushing wage levels 
well below historic levels."</i> This was aided by unemployment levels 
which <i>"officially averaged 20 percent from 1974 to 1987. Chronic high 
levels of unemployment afforded employers considerable leverage in setting 
working conditions and wage levels . . . Not surprisingly, workers who 
managed to hold onto their jobs were willing to make repeated concessions 
to employers, and in order to get jobs employees often submitted to onerous 
terms."</i> Between 1979 and 1982, more than a fifth of manufacturing companies
failed and employment in the sector fell by over a quarter. In the decade 
before 1981, out of every 26 workers, 13 became unemployed, 5 joined the 
urban informal sector and 8 were on a government emergency employment 
program. It should be stressed that official statistics <i>"underestimate the 
real level of unemployment"</i> as they exclude people who worked just one day 
in the previous week. A respected church-sponsored institute on employment 
found that in 1988, unemployment in Santiago was as high as 21%. [Lear and 
Collins, <b>Op. Cit.</b>, p. 22, p. 15, p. 16, p. 15 and p. 22]
</p><p>
The standard free-market argument is that unemployment is solved by 
subjecting the wage level to the rigours of the market. While wages 
will be lower, more people will be employed. As we discussed in 
<a href="secC9.html">section C.9</a>, the logic and evidence for such claims is spurious. 
Needless to say, Friedman never revised his claims in the light of 
the empirical evidence produced by the application of his ideas.
</p><p>
Given the fact that "labour" (i.e., an individual) is not produced for 
the market in the first place, you can expect it to react differently 
from other "commodities." For example, a cut in its price will generally 
increase supply, not decrease it, simply because people have to eat, 
pay the rent and so forth. Cutting wages will see partners and children 
sent to work, plus the acceptance of longer hours by those who remain 
in work. As such, the idea that unemployment is caused by wages being 
too high has always been a specious and self-serving argument, one 
refuted not only by logic but that bane of economics, empirical 
evidence. This was the case with Chile's "economic miracle," where 
declining wages forced families to seek multiple incomes in order
to survive: <i>"The single salary that could support a family was beyond 
the reach of most workers; the norm, in fact, was for spouses and 
children to take on temporary and informal jobs . . . Even with 
multiple incomes, many families were hard-pressed to survive."</i> [Lear 
and Collins, <b>Op. Cit.</b>, p. 23] Which, of course, refutes "free market" 
capitalist claim that the labour market is like any other market. 
In reality, it is not and so it is hardly surprising that a drop in 
the price of labour <b>increased</b> supply nor that the demand for labour
did not increase to in response to the drop in its real wage.
</p><p>
Lastly, there is the notion that collective action in the market by
the state or trade unions harms the general population, particularly 
the poor. For neo-classical and Austrian economists, labour is the 
source of all of capitalism's problems (and any government silly 
enough to pander to the economically illiterate masses). Pinochet's 
regime allowed them to prove this was the case. Again Chile refuted
them. 
</p><p>
The "Chicago Boys" had no illusions that fascism was required to 
create free market capitalism. According to Sergio de Castro, the 
architect of the economic programme Pinochet imposed, fascism was 
required to introduce "economic liberty" because <i>"it provided a 
lasting regime; it gave the authorities a degree of efficiency 
that it was not possible to obtain in a democratic regime; and it 
made possible the application of a model developed by experts and 
that did not depend upon the social reactions produced by its 
implementation."</i> [quoted by Silvia Borzutzky, <i>"The Chicago Boys, 
social security and welfare in Chile"</i>, <b>The Radical Right and the 
Welfare State</b>, Howard Glennerster and James Midgley (eds.), p. 90] 
They affirmed that <i>"in a democracy we could not have done one-fifth 
of what we did."</i> [quoted by Winn, <i>"The Pinochet Era"</i>, Winn (ed.), 
<b>Op. Cit.</b>, p. 28] 
</p><p>
Given the individualistic assumptions of neo-classical and Austrian
economics, it is not hard to conclude that creating a police state 
in order to control industrial disputes, social protest, unions, 
political associations, and so on, is what is required to introduce 
the ground rules the capitalist market requires for its operation. As 
socialist Brian Barry argues in relation to the Thatcher regime in 
Britain which was also heavily influenced by the ideas of "free market" 
capitalists like Milton Friedman and Frederick von Hayek:
</p><p><blockquote><i>
"Some observers claim to have found something paradoxical in the fact
that the Thatcher regime combines liberal individualist rhetoric with
authoritarian action. But there is no paradox at all. Even under the
most repressive conditions . . . people seek to act collectively in order
to improve things for themselves, and it requires an enormous exercise
of brutal power to fragment these efforts at organisation and to force
people to pursue their interests individually. . . left to themselves,
people will inevitably tend to pursue their interests through collective
action -- in trade unions, tenants' associations, community organisations
and local government. Only the pretty ruthless exercise of central power
can defeat these tendencies: hence the common association between 
individualism and authoritarianism, well exemplified in the fact that 
the countries held up as models by the free-marketers are, without 
exception, authoritarian regimes."</i> [<i>"The Continuing Relevance of 
Socialism"</i>, Robert Skidelsky (ed.), <b>Thatcherism</b>, p. 146]
</blockquote></p><p>
Little wonder, then, that Pinochet's regime was marked by authoritarianism,
terror and rule by savants. Indeed, <i>"[t]he Chicago-trained economists 
emphasised the scientific nature of their programme and the need to replace 
politics by economics and the politicians by economists. Thus, the decisions 
made were not the result of the will of the authority, but they were 
determined by their scientific knowledge. The use of the scientific 
knowledge, in turn, would reduce the power of government since decisions 
will be made by technocrats and by the individuals in the private sector."</i> 
[Silvia Borzutzky, <b>Op. Cit.</b>, p. 90] However, as Winn points out:
</p><p><blockquote><i>
"Although the Chicago Boys justified their policies with a discourse
of liberty, they were not troubled by the contradiction of basing 
the economic freedom they promoted on the most dictatorial regime in
Chilean history -- or in denying workers the freedom to strike or
bargain collectively. At bottom, the only freedom that they cared
about was the economic liberty of those Chileans and foreigners with
capital to invest and consume, and that 'freedom,' de Castro believed,
was best assured by an authoritarian government and a passive labour
force. In short, their notions of freedom were both selective and
self-serving."</i> [<b>Op. Cit.</b>, p. 28]
</blockquote></p><p>
Of course, turning authority over to technocrats and private power does 
not change its nature -- only who has it. Pinochet's regime saw a marked
shift of governmental power away from protection of individual rights to 
a protection of capital and property rather than an abolition of that power 
altogether. As would be expected, only the wealthy benefited. The working
class were subjected to attempts to create a "perfect labour market" -- 
and only terror can turn people into the atomised commodities such a
market requires. Perhaps when looking over the nightmare of Pinochet's 
regime we should ponder these words of Bakunin in which he indicates 
the negative effects of running society by means of science books and 
"experts":
</p><p><blockquote><i>
"human science is always and necessarily imperfect. . . were we to force
the practical life of men -- collective as well as individual -- into 
rigorous and exclusive conformity with the latest data of science, we 
would thus condemn society as well as individuals to suffer martyrdom on 
a Procrustean bed, which would soon dislocate and stifle them, since life
is always an infinitely greater thing than science."</i> [<b>The Political
Philosophy of Bakunin</b>, p. 79]
</blockquote></p><p>
The Chilean experience of rule by free market ideologues prove Bakunin's
points beyond doubt. Chilean society was forced onto the Procrustean
bed by the use of terror and life was forced to conform to the assumptions
found in economics textbooks. And as we proved above, only those with power 
or wealth did well out of the experiment. From an anarchist perspective, 
the results were all too sadly predictable. The only surprising thing is
that the right point to the experiment as a success story.
</p><p>
Since Chile has become (mostly) a democracy (with the armed forces still 
holding considerable influence) the post-Pinochet governments have made 
minor reforms. For example, <i>"tax increases targeted for social spending 
for the poor"</i> allowed them to <i>"halve the 1988 45 percent poverty rate 
bequeathed by Pinochet."</i> In fact, the <i>"bulk of this spending"</i> was aimed 
at <i>"the poorest of the poor, the 25 percent of the population classified 
as destitute in 1988."</i> [Winn, <i>"The Pinochet Era,"</i> <b>Op. Cit.</b>, p. 50, p. 52 
and p. 55]
</p><p>
However, while this <i>"curtailed absolute poverty, they did not reduce 
inequality . . . From 1990 to 1996 the share of the national income of 
the poorest 20 percent of the population stagnated beneath 4 percent,
while that of the richest 20 percent inched up from 56 percent to
57 percent . . . the distribution of income was one of the most unequal
in the world. In Latin America, only Brazil was worse."</i> [Paul W Drake, 
<i>"Foreword"</i>, Winn (ed.), <b>Op. Cit.</b>, p. xi] The new government raised 
the minimum wage in 1990 by 17% in real terms, with another rise of 
approximately 15% two years later. This had a significant on income
as <i>"a substantial number of the Chilean labour force receives wages and
salaries that are only slightly above the minimum wage."</i> [Volker Frank, 
<i>"Politics without Policy"</i>, Winn (ed.), <b>Op. Cit.</b>, p. 73 and  p. 76]
In stark contrast to the claims of neo-classical economics, the rise
in the minimum wage did not increase unemployment. In fact, it <b>dropped</b> 
to 4.4%, in 1992, the lowest since the early 1970s. 
</p><p>
Overall, increased social spending on health, education and poverty 
relief has occurred since the end of the dictatorship and has lifted 
over a million  Chileans out of poverty between 1987 and 1992 (the 
poverty rate has dropped from 44.6% in 1987 to 23.2% in 1996, although 
this is still higher than in 1970). However, inequality is still a major 
problem as are other legacies from the Pinochet era, such as the nature 
of the labour market, income insecurity, family separations, alcoholism, 
and so on. Yet while <i>"both unemployment and poverty decreased, in part 
because of programs targeted at the poorest sectors of the population by 
centre-left governments with greater social concern than the Pinochet 
dictatorship,"</i> many problems remain such as <i>"a work week that was among 
the longest in the world."</i> [Winn, <i>"Introduction"</i>, <b>Op. Cit.</b>, p. 4]
</p><p>
Chile has moved away from Pinochet's "free-market" model in other 
ways to. In 1991, Chile introduced a range of controls over capital, 
including a provision for 30% of all non-equity capital entering Chile 
to be deposited without interest at the central bank for one year. This 
reserve requirement - known locally as the encaje - amounts to a tax 
on capital flows that is higher the shorter the term of the loan. As 
William Greider points out, Chile <i>"has managed in the last decade to 
achieve rapid economic growth by abandoning the pure free-market theory 
taught by American economists and emulating major elements of the Asian 
strategy, including forced savings and the purposeful control of capital. 
The Chilean government tells foreign investors where they may invest, 
keeps them out of certain financial assets and prohibits them from 
withdrawing their capital rapidly."</i> [<b>One World, Ready or Not</b>, p. 280] 
</p><p>
Needless to say, while state aid to the working class has increased
somewhat, state welfare for business is still the norm. After the
1982 crash, the Chilean Economic Development Agency (CORFO) reverted
to its old role in developing Chilean industry (after the coup, it did
little more than just selling off state property at discount prices to 
the wealthy). In other words, the post-recession "miracle" of the 1980s
was due, in part, to a state organisation whose remit was promoting 
economic development, supporting business with new technology as well 
as technical and financial assistance. It, in effect, promoted joint 
public-private sectors initiatives. One key example was its role in
funding and development of new resource-sector firms, such as the 
forestry sector ad the fishing industry. While free-marketeers have 
portrayed the boom natural-resource extraction as the result of the
"free market," in reality private capital lacked the initiative and 
foresight to develop these industries and CORFO provided aid as well
as credits and subsidies to encourage it. [James M. Cypher, <i>"Is Chile 
a Neoliberal Success?"</i>, <b>Dollars & Sense</b>, September/October 2004] 
Then there is the role of Fundacin Chile, a public-private agency 
designed to develop firms in new areas where private capital will
not invest. This pays for research and development before selling 
its stake to the private sector once a project becomes commercially 
viable. [Jon Jeter, <i>"A Smoother Road To Free Markets,"</i> <b>Washington 
Post</b>, 21/01/2004] In other words, a similar system of state 
intervention promoted by the East-Asian Tigers (and in a similar
fashion, ignored by the ideologues of "free market" capitalism --
but, then, state action for capitalists never seems to count as 
interfering in the market).
</p><p>
Thus the Chilean state has violated its "free market" credentials, 
in many ways, very successfully too. While it started in the 1980s,
post-Pinochet has extended this to include aid to the working class.
Thus the claims of free-market advocates that Chile's rapid growth 
in the 1990s is evidence for their model are false (just as their 
claims concerning South-East Asia also proved false, claims conveniently 
forgotten when those economies went into crisis). Needless to say, Chile 
is under pressure to change its ways and conform to the dictates of 
global finance. In 1998, Chile eased its controls, following heavy 
speculative pressure on its currency, the peso. That year economic
growth halved and contracted 1.1% in 1999. 
</p><p>
So even the neo-liberal jaguar has had to move away from a purely free 
market approach on social issues and the Chilean government has had to 
intervene into the economy in order to start putting back together the 
society ripped apart by market forces and authoritarian government. 
However, fear of the military has ensured that reforms have been minor 
and, consequently, Chile cannot be considered a genuine democracy. In 
other words, "economic liberty" has not produced genuine "political 
liberty" as Friedman (and others) claim (see <a href="secD11.html">section D.11</a>). 
Ultimately, for all but the tiny elite at the top, the Pinochet regime of "economic
liberty" was a nightmare. Economic "liberty" only seemed to benefit one
group in society, an obvious "miracle." For the vast majority, the "miracle"
of economic "liberty" resulted, as it usually does, in increased 
inequality, exploitation, poverty, pollution, crime and social alienation. 
The irony is that many right-wing free-marketers point to it as a model 
of the benefits of capitalism. 
</p>

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