The Rise and Fall of the Chicago Boys in Chile

THE RISE AND FALL___________ OF THE CHICAGO BOYS IN CHILE Paul E. Sigmund For twenty years, Chile has been mL·sionary territory. First the Christian Democrats tried to apply their theories of reformist Catholicism in Frei's "Revolution in Liberty." Then Salvador Allende's Popular Unity attempted to convert us to Marxism. Andfor the last nine years, the University of Chicago has been sending missionaries of the market to redo Chile in the image ofMilton Friedman. —a Chilean economist, 1982 O, 'ne of the many reasons for the fascination that Chile exerts for social scientists is the series of case studies in political economy it seems to provide for policymakers. The initial success of the latest of those experiments, the application of the free market prescriptions of Milton Friedman and Arnold Harberger of the University of Chicago, has been followed by what appears to be an almost total collapse of the Chilean economy: a reduction of 14 percent in gnp during 1982 was accompanied by unemployment rates that reached 23 percent in the middle of the year. The successes and failures of the latest Chilean economic experiment should be of more interest to U.S. policymakers than its predecessors . While the United States generally supported Eduardo Frei's Christian Democrats in the 1960s, their policy prescriptions were influenced principally by European writers and the U.N. Economic Commission for Latin America in Santiago. When a Marxist-dominated government succeeded the Christian Democrats, U.S. government and business opposed and even attempted to subvert the Allende experiment (in 1970, although, contrary to general opinion, not in 1973) and appeared to welcome the coup that overthrew him.1 Following the 1973 coup, 1. On the role of U.S. government and business, see Paul E. Sigmund, The Overthrow ofAllende and the Politics ofChile, 1964—1976 (University of Pittsburgh Press, 1977), and Paul E. Sigmund, Multinationals in Latin America: The Politics of Nationalization (Madison: University of Wisconsin Press, 1980), chapter 5. Paul E. Sigmund is professor of politics and director of the Latin American studies program at Princeton University. His most recent books are The Overthrow of Allende and the Politics of Chile (Pittsburgh University Press, 1977), and Multinationals in Latin America (Madison: University of Wisconsin Press, 1980). 41 42 SAIS REVIEW however, the Chilean junta turned over the making of the economic policy to a group of economists who, since the mid-1950s, had been receiving their doctoral training at the University of Chicago under the sponsorship ofthe Rockefeller and Ford foundations and the Agency for International Development (aid). They had returned to Chile as apostles of what President Reagan likes to call "the magic of the market," and from their academic base, the School of Economics of the Catholic University of Santiago, the Chicago boys were ready at the time of the coup with a fully developed program to rebuild the shattered economy of Chile. The striking success, followed by the even more impressive collapse, of these policies has prompted observers to argue that the recent Chilean experience proves that the market approach, so often touted by American government advisors, aid officials, and businessmen, is inapplicable to developing countries. What went wrong in Chile to produce the worst economic depression in Latin America—even worse than the economic crisis in El Salvador? Was it the result of the application—or the misapplication—of the prescriptions of the Chicago school? Does it prove, as some critics of the Chicago model argue, that market policies can be applied to lessdeveloped countries only by imposing what Paul Samuelson has called "market fascism"? Or did it go wrong because, as Milton Friedman has insisted, economic freedom was not accompanied by political democracy? To answer these questions one needs to look more closely at the rise and fall of the Chicago boys since the military coup of September 11, 1973. When the junta, comprised of heads of the armed forces and national police, but under the increasing dominance of Augusto Pinochet , the army commander, turned to the policy prescriptions of the Catholic University economists, it departed from what many Chilean observers had previously regarded as the likely economic course of the military if it came to...