Neo-Liberalism as an Economic and Political Doctrine in Chile - Coursework Example

Why Neo-liberalism as an Economic and political doctrine was successfully implemented, allowing Chile’s economy to excel post Pinochet’s dictatorship? Name: University: Course: Date: Neo-liberalism in Chile Thesis statement- neo-liberalism in Chile is as a result of interventionism and failures in the past economic policies which gave way to a successful implementation which was as a result of repressive nature which closed political spaces during Pinochet’s dictatorial regime. Neo-liberalism can be defined as a set of ideas and policies that are viewed as a revival or rejuvenation of Liberalism.1 This therefore suggests that liberalism has gone through an initial process of growth, decline and finally a recent revival. Neo-liberalism can also be defined as distinct ideology that stems from liberalism but with different ideas and policies. It is an economic ideology that promotes rational self-interest by using policies such as privatisation, deregulation, cutting down taxes and globalization. It is a form of neo-classical economic ideology that is rather challenging to point out since neoliberal economists and governments tend to sparingly refer to themselves as such. The term neo-liberalism as an economic model was coined by the Chicago school of economics during the 1960’s and 70’s.2 There are popular characteristics that can be associated with this ideology. The very first experiment of this theory was applied in Chile after the US backed a military coup that saw the ousting and death of the then leader Salvador Allende replacing him with the dictatorial leadership of general Pinochet. Pinochet’s regime was marred with killings of thousands of Chileans for political reasons and tens of thousands were tortured as the dictator and the so called Chicago boys set to put in to practice the neo-liberalism economic model. Anyone attempted to be in the way of this implementation was brutally suppressed. This ideology was only successful in Chile because of interventionism both from the US and mostly the government. The Chileans did not have a choice but to abide by the set rules by Pinochet’s military government. The US out of fear that the country would turn into a communist regime sought to support Pinochet into making turning the country in to a capitalist society. This is because US had always had keen interest in Chile’s mining sector.3 They had a lot invested in these mines and communism would mean that they would lose the benefits they received from the sector. The ideology also depended on the government to succeed. If the government had not come in to assist the Chilean workers during the recession, this ideology could have failed greatly. The ideology itself calls for a self-regulating market but this is rather different in the case of Chile. The government intervened in many occasions including allowing the copper mines to operate tax free and as such facilitated a boom in the private mining sector. The government in yet another case of interventionism created ProChile with the aim of assisting the private sector locate and sell to foreign markets. The military men themselves were part of the development. They believed in the economic growth of the country. Even though most of the state owned industries were privatised, Copper and Oil remained in the hands of the government.4 The state created agency named CORFO provided funding for new firms that were coming up and especially after the recession. Government’s interventionism cannot be separated from the so called miracle of Chile that was brought by the free market ideology. Neo-liberalism has been imposed throughout the world by institutions such as the International Monetary fund and the Inter- American development bank.5 It is quite a popular ideology especially in Latin America. Successful implementation of the ideology in Chile Chile is considered a poster child for neo-liberalism ideology. It is viewed as a success economic story of the modern world. Many consider it as a template for later to be applied economic vision by leaders such as Reagan and Margret Thatcher. The events surrounding successful implementation of the ideology in Chile were to some extent repeated elsewhere during implementation of neo-liberal policies.6 It is therefore a good case study for evaluation of positive and negative effects of free market capitalism and capitalist economies. As much as Chile is considered an economic miracle by some leaders, the miracle is class dependent. The neo-liberal policies implemented during the reign of Pinochet were a nightmare to the working class. On the other hand, the policies were a gateway to more wealth for the capitalists. The people of Chile did not have a choice but to abide by the standards set by their dictator leader Pinochet, consequently Chile was the first laboratory experiment of the neo-liberal policy. The so called successful implementation of the neo-liberal policies resulted in deaths of thousands of Chileans especially those who were opposed to the dictator and his policies during the coup in 1973. The tough economic crisis in 1975 saw Pinochet turn to the ideas of Milton Friedman and a group of economists from Chile whom had been taught by him at Chicago University. The meeting between Pinochet and Friedman led to the dictator relinquishing Chile’s economic power policy to Friedman and the “Chicago Boys”. Both Friedman and the Chicago boys group were free market economists who had the desire to satisfy the law of demand and supply. They also believed in the efficiency and fairness associated with the free market economy. Friedman and his team strategized to reduce state’s intervention in the market and social welfare postulating that these were what hindered Chile’s economic growth through minimal competition, lowering growth, leading to artificially increased wages and eventually inflation. Pinochet’s ultimate objective was transforming Chile to a nation of entrepreneurship rather than being proletarians.7 There are claims that the Chicago boys played a part in the coup that ousted Allende since they had a very close relationship with the military. The coup also had support of certain people with business interests. Consequently after the coup, many of the strategists unsurprisingly became economic advisers in the ministry. In April 1975, the Chicago boys took over dictatorial control over the economic policy of Chile. The actual results on the ground of what was seen as the successful implementation of the neo-liberal policies were far less than the success claimed by Friedman and the right wingers. The initial effects of the market policies introduction was depression as a result of shock which resulted in the drop of the GDP fell by a big margin leading to higher levels of unemployment. Even Pinochet admitted that these consequences were more than he had bargained for. For Friedman, his main concern was whether the market policies would be pushed longer and hard enough. The rigorous implementation of these market policies unsurprisingly were felt by the workers who lost their jobs. After this economic depression, the economy started to pick up again. This resulted to the coining of the term “an economic miracle”. The neo-liberalists used this to reinforce their market policies implementation. Between the years of 1975-1982, the government introduced several economic reforms as suggested by the Chicago boys and their intellectual allies, Friedman and Von Hayek.8 Many of the state owned corporations and industries were privatised. These privatisations were done in a manner that profited only the wealthy. The government enterprises were sold at a very low cost which served as an advantage to the new owners. However, only large conglomerates could afford to buy them and as such capital became even more concentrated. In 1978, the Chicago boys started pressing for laws that were meant to bring labour relations in line with the neo-liberal policies in which the market would self regulate. Negotiations between labour and capital were left to responsibility of the individual and market discipline. Seven years later in to the free market economy, Chile was hit by an even bigger economic crisis than that of 1975. The Chicago boys advised the government against intervening as the market would self correct. However, the economy grew to crisis proportion and the government could not afford to stay and watch at the periphery. The Chilean government came in with various projects with the aim of saving the average workers who were the hardest hit. The IMF also offered loans to Chile to pull itself out of the economic nightmare.9 The recovery was paid for by the workers. The Chicago boys introduced a strategy to cut down the workers’ wages. This is what catered for Chile’s recovery throughout that whole decade. Even with the onset of as the economic recovery, the wages stayed low. This was the key to what continued to be celebrated as an economic miracle. Milton Friedman, Pinochet and Chile’s economic failure in the 60’s Friedman was a neo-liberal who played a key part in the implementation of a free market policy in Chile. He was a close ally of the then Dictator leader, Pinochet. It is Pinochet who consulted Friedman on the economic policy that would lead to positive growth of Chile.10Together with other Chilean economists he had taught at the university in Chicago, Friedman advice was for the dictator to surrender control of the economic policy under him and the Chicago boys, as they have fondly been referred. Pinochet handed over the policy to Friedman whom introduced the neo-liberal policy with the assistance of the military and the full backing of the dictator himself. The new market policies were imposed on the people who did not have a choice but to oblige as those who resisted were met with brutality. The government was not to interfere with the market forces as they were said to be self correcting. Privatisation of public enterprises was encouraged and the workers’ wages were reduced drastically as a measure of cutting down government spending. Friedman’s neo-liberal policies had the worst effects on the average workers as the capitalist were empowered to gain more riches. These market policies led to economic crisis in Chile with Friedman and his team of the Chicago boys still advocating for the government not to intervene and the market will regulate itself and the crisis would be over.11 The implementation of neo-liberalism led killing of very many Chileans and it is the average worker who bore the brunt of this ideology as money continued to be concentrated in the hands of a few individuals who were already wealthy. Friedman was a policy realist and tried to deal with the situation as it was. He made it clear in 1991 that he did not harbour any positive thoughts about the repressive regime that Pinochet had set up in Chile. He called it a terrible regime but the real miracle is how well the economy has done. He added that the real miracle was how the Chilean military junta was supportive of the free market policies that had been designed by true believers of a free market economy. He further argued that the drive for Chile to attain political democracy was as a result of the success in its economy. Economic freedom led to a referendum that was meant to introduce political democracy.12 Economic interests of the different actors involved in the implementation of Neo-liberalism Neo-colonialism benefited a few people in Chile rather than benefiting the majority especially low income earners. Different players had different interests in the implementation of the neo-liberal policies. The business men courted Pinochet in an effort to lure him in to influencing the economic policy. The business community was a beneficiary of the newly introduced policies as business people started production of more export goods than goods for consumption. This led to more money in the hands of a few elite. The capitalists and especially those who owned large conglomerates also had an interest in this ideology as privatisation of public industries and enterprises meant that they could acquire them at very low prices. They would then refurbish them and produce goods and services and later offer them at a higher price. The politicians who served as advisers in the Pinochet era later became economic advisers in the ministry after the neo-liberal policies were introduced. Pinochet supported the neo liberal policies as a way of advancing a larger national project. He was not a neo-liberal but a nationalist who took advantage of the policies to achieve a national project. He needed an economic narrative that was not just compatible with the characteristics he identified as being inherently Chilean but one that would enable him distance to himself from the vices and values that had led to the socialist regime and the coup. Neo-liberalism gave him a platform as it was a good programme to exercise his project of remaking Chile into a society that would ultimately hold in high regard the values of private entrepreneurship and freedom that would keep the government at a distance.13 Pinochet benefitted greatly from forming a friendship with the neo-liberals, the Chicago boys. By doing so, he would wrestle power away from the navy in matters to do with the economy and consolidate his own dictatorship. He was also trying to avoid a confrontation with the powerful domestic capitalists. As such, he chose to concentrate wealth in their hands. The Chicago boys had close ties with foreign investors owning conglomerates and were eager to take financial advantage in the global system. Pinochet therefore saw neo-liberalism as a policy that would attract them to invest in Chile. He relied on the neo-liberals to advance his personal rule by transforming the economy. During this period, Chile’s economic growth expanded at a very slow rate. Chile’s main export is copper and the US has had a keen interest in it for a long time. During this period, many US companies had invested in this industry heavily with some owning most of them. In 1964, Eduardo Frei became the president and attempted to nationalize the mines but was met with tough resistance from the business community. Chile also over evaluated its currency in the import substitution. Even with attempted agrarian reforms, the government still controlled the agricultural prices in an effort to subsidize the urbanites and the working class. The agricultural sector was in particular harmed by over valuing Chile’s currency.14 This became the most evident failure of the economic policy in Chile in the 1960’s. As such, manufacturing and copper mining industries grew significantly. Inflation was also a big hindrance to policy growth during this period. The main root of inflation pressure was coming from the lax fiscal policy. Three major attempts to stabilise the economy were developed. These attempts had one goal in mind, to tackle pressures brought by inflation such as low wages, high prices of commodities and increases in foreign exchange rates. Efforts under the leadership of Frei to revive the economy were made. These included the agrarian reform, minimal liberalisation, and a minidevaluation policy with an objective of barring erosion of real exchange rate. US intervention Ideology United States settled on Chile as a model country that would be bring a different democratic road to development. As such, the US rallied behind Frei in 1964. This brought about resentment of the US strategies by the upper class and Marxists in Chile. The victory of Allende was seen as a set back by the US in its endeavours to transform Chile.15 Therefore the US embarked in campaigns to oust Allende and weaken his government after the elections. The US did not have a direct hand in the overthrowing of Allende but supported the military in the coup of 1975. Rampant human rights violations and the election of Jimmy Carter in 1976 led to a hostile attitude towards the government of Chile. The US condemned the mass killings and gross violation of human rights. After the defeat of Carter, Reagan took over power. The government was of the view that Pinochet’s regime was not a satisfactory step towards achieving democracy. This was ironic since the US had embraced the dictatorial regime in while ignoring those that were pro-democracy.16 The US government started backing the opposition who were calling for free and fair elections. This can be seen as an infringement in the decision making process of the Chileans. The Gorge bush regime openly supported the idea of free market as they would also benefit through open trade. Bibliography Tomic, Patricia, Ricardo Trumper, and Rodrigo Hidalgo Dattwyler. 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"Liberalism and international legal scholarship: The Pinochet case and the move toward a universal system of transnational law litigation." Harv. Intl. LJ 41 (2000): 129. Oppenheim, L.H. (1993/1999) Politics in Chile: Democracy, Authoritarianism, and the search for Development, 2nd edition (Oxford, Westview Press). MacLean’s, J."Life after Pinochet: Chiles thriving economy and low poverty is largely thanks to free- market policies". (2008):120 (37): 38-39. Carcamo-Huechante, L. E. "Milton Friedman: Knowledge, Public Culture, and Market Economy in the Chile of Pinochet". Public Culture: Bulletin of the Project for Transnational Cultural Studies. (2006)18 (2): 413-436. Barton, J.Chile, in Buxton, J. and Phillips, N. (editors) Case studies in Latin American Political Economy (Manchester, Manchester University Press). (1999) pp.62-82. Read More