Nationwide Neoliberalism Experiments
Your weekly excerpt from one of my books. This week: "The Hidden History of Neoliberalism: How Reaganism Gutted America and How to Restore Its Greatness"
Nationwide Neoliberalism Experiments
“Blind faith in the efficiency of deregulated financial markets and the absence of a cooperative financial and monetary system created an illusion of risk-free profits and licensed profligacy through speculative finance…” —United Nations Conference on Trade and Development report on “The Global Economic Crisis”[liii]
The neoliberal ideology of Mises, Hayek and Freidman (et al) has now heavily influenced much of the developed and developing world, creating economic, political, and social disasters from Thailand to South Africa to El Salvador. But its biggest openly-declared national-scale experiments were kicked off in 1973 in Chile, 1981 in the United States, and 1991 in Russia.
In each case, rejecting a democratic government “of, by and for the people” and replacing it with a corporatist government “of, by and for the corporate and wealthy” has produced widespread disaster.
There is literally not one single example of any country in the world that put into place neoliberal policies that hasn’t turned into a violent police state (Chile), devasted its own working class while producing a bumper crop of billionaires (the United States and the United Kingdom), or both (Russia).
Milton Friedman Hearts General Pinochet
One of the most famous examples of neoliberal shock to a nation’s system came in Chile half a century ago.
In 1971, Chile accounted for 20 percent of the world’s known copper reserves; copper was then the world’s most valuable commercial metal (iron was #2) and represented fully three-quarters of that nation’s export earnings.[liv] [lv] And those earnings represented only a small portion of the actual value of the copper Chile exported because three massive American companies, Anaconda, Kennecott, and Cerro (referred to by Chileans as the Gran Minería) claimed to own roughly 80 percent of all that nation’s copper, remnants of 19th century US claims to the mines.
The Chilean people had long chafed under this foreign ownership and exploitation of the nation’s single largest asset, as well as the way these foreign companies treated Chilean workers and miners.
Under President Frei Montalva through the 1960s the country negotiated a gradual and partial purchase of about half of the mines from the companies, but there was still widespread popular discontent around the issue.[lvi] Imagine how Texans might feel, for example, if 80 percent of all the oil and natural gas in that state was owned by Mexican companies and shipped to Mexico without any reimbursement other than paying taxes to the state of Texas.
As a result, Salvador Allende Gossen was elected president in 1970, after campaigning on fully nationalizing what copper was left in the mines (20% of the world’s reserves). The legislation to do this was presented to the country’s parliament in 1971 and overwhelmingly passed, with even the far-right National Party throwing in all their votes.
A Marxist, Allende had already nationalized the country’s banks by simply purchasing all the bank’s stock on the open market at competitive prices. Over 3 years he nationalized a total of 91 industries, increasing wages and lifting substantial portions of the working poor out of poverty.
On October 28th 1971 Allende opened a special tribunal in Santiago to determine how much Chile should reimburse the Gran Minería companies. After public hearings, they determined that the companies had done so much damage to both the mines and Chile’s working people and economy that they should pay Chile for some of the copper they’d recently taken out of the country: Kennecott owed Chile, they said, $310 million; Anaconda owed them $78 million; and Cerro, which had been less exploitative of Chilean workers and resources, would receive $18 million from the Chilean state.[lvii]
This set off fireworks in Richard Nixon’s White House, with Henry Kissinger and Nixon’s CIA beside themselves. Nationalization of a country’s natural resources was, they believed, the first step down the road toward total communism, even though Socialist Allende was a pragmatic politician with no intention of disrupting most of the rest of his country’s industries. Capitalism was generally fine with Allende, so long as was Chilean-owned, paid workers well and acted responsibly in the nation’s interest.
But the pressure was on from the copper giants and, when Allende also took the nation’s telecommunications system away from American-owned International Telephone & Telegraph (ITT), which owned 70 percent of the system, Nixon decided to act.
As The New York Times reported in July of 1973:
“The International Telephone and Telegraph Corporation submitted to the White House last October an 18‐point plan designed to assure that the Government of Chile’s Marxist president, Salvador Allende Gossen, ‘does not get through the crucial next six months.’ …
“The I.T.T. plan called for extensive economic warfare against Chile to be directed by a special White House task force, assisted by the Central Intelligence Agency; the subversion of the Chilean armed forces; consultations with foreign governments on ways to put pressure on the Allende regime, and diplomatic sabotage.”[lviii]
Nixon authorized $10 million for a covert operation in Chile, specifying that the US Embassy in Santiago was to know nothing about it.[lix]
Allende was tremendously popular in Chile. While Richard Nixon had been elected president in 1972 with the votes of only 35 percent of eligible American voters, Allende’s party had won 37 percent of the 1970 popular vote. He was then elected president by an overwhelming majority in the Parliament, and 800,000 people – one tenth of the entire population of Chile – showed up in Santiago for a huge celebration.
Nixon, Kissinger, and the CIA decided to take action, and launched a campaign against Allende that included economic pressure and an alignment with the Chilean military through a general who’d led the so-called Nazi Cell within the Chilean army, firing on and killing striking workers in 1967. General Pinochet had “been several times to the U.S. Southern Command schools in the Panama Canal Zone and has served as military attaché in Washington,” having famously said, “The army’s duty is to kill.” [lx]
On September 11th 1973 – a 9/11 that Chileans claim as their own – General Augusto Pinochet rolled his tanks and led his soldiers into Santiago while the army and air force bombed the presidential palace. The attack was preceded by hundreds of truckers (some funded and guided by IT&T and the CIA) blocking parts of the city for weeks, shutting down commerce to protest the leftwing tilt of the Allende government.[lxi]
President Allende gave a final address to the nation via radio, then, seeing where things were heading, shot himself in the head.
The violent coup was a shock to Chile. The country had one of the most advanced democracies on the continent, having 160 years of elected governments, the most recent run of democracy in the country lasting 41 years until Pinochet and the CIA took it down.
But Pinochet and the CIA had done their homework; the entire Chilean military went along with the coup. They then proceeded to round up the opposition, arresting and imprisoning over 13,000 people who were seen as allies and supporters of the Allende government. Thousands were taken to the National Stadium, where many were tortured and hundreds were executed. As Rupert Cornwall noted in The Independent, those numbers didn’t even include the “200,000 people who were forced into exile to escape persecution or worse.”[lxii]
By way of intimidating any Chileans who may think about joining opposition to Pinochet’s government, the military routinely left mutilated bodies on roadsides and in the country’s drainage and irrigation canals.
As The New York Times noted when Pinochet died:
“[D]uring his rule, more than 3,200 people were executed or disappeared, and scores of thousands more were detained and tortured or exiled. …
“The press was censored, and labor strikes and unions were banned. A fearsome security apparatus known as the National Intelligence Directorate, or DINA, persecuted, tortured and killed Pinochet opponents within Chile and sometimes beyond its borders. A government-commissioned report issued in 2004 concluded that almost 28,000 people had been tortured during the general’s rule. …
“Tens of thousands of Allende sympathizers were rounded up and brutally interrogated. A majority of the killings took place in the first three months, long after resistance had ended. In most cases, prisoners from a slum or agrarian community would be executed as a means of terrorizing their neighbors into accepting military rule. The killings were often cynically, and falsely, justified as cases in which prisoners were shot while trying to escape. ”[lxiii]
The blank slate of a new Chile offered the perfect laboratory for Milton Friedman’s “Chicago Boys” to try out their exciting new neoliberal experiment. With encouragement from Nixon’s administration, Pinochet brough in a group of economists who’d studied under Friedman and his acolytes, including Chilean economist Sergio de Castro.
They privatized most of the industries Allende had nationalized, threw open the nation’s retail systems to foreign-made products, abandoned wage and price regulations and labor protections, and increased military spending while cutting overall government spending by 10 percent. Pinochet even privatized the nation’s social security system, turning it over to the newly-privatized banks.
The result was an official 375 percent rate of inflation in 1974 (the highest in the world at that time) as cheap imports flooded the country, factories shut down, and workers and families were thrown onto the streets. Food and other necessities were estimated to have gone up as much as 1000 percent in price as malnutrition and hunger haunted the nation’s children.[lxiv]
The Chicago Boys were in a crisis as their experiment seemed to be collapsing all around them, so they convinced Pinochet to bring Milton Friedman himself to Chile to encourage people to continue with the Grand Experiment.
In Friedman’s memoir co-authored with his wife, Two Lucky People, he describes what he laid out to the Chilean people during his March, 1975 visit. “If this shock approach were adopted,” he wrote, “I believe it should be announced publicly in great detail, to take effect at a very close date.”
Pinochet’s 10 percent cut in government spending was way too timid, Friedman thought. Instead, he wrote, it should include:
“A commitment by the government to reduce government spending by 25 percent within six months, the reduction to take the form of across-the-board reduction of every separate budget by 25 percent, the personnel separations [firings of government employees] to take place as soon as possible…”
This gutting of the Chilean government wouldn’t really have much impact on the average person, Friedman said. “The discharge of present government employees will not reduce output but simply eliminate waste – their discharge will not mean the production of one fewer pair of shoes or one fewer loaf of bread.”
Betraying a certain self-consciousness, he added, “[S]ome of the poorest classes will be affected and whether they are or not, the program will be blamed for their distress.”
Summarizing his message to Pinochet and the Chilean people, Friedman notes, “Such a shock program could end inflation in months and would set the stage for the solution of your second major problem – promoting an effective social market economy.”
The problems with Chile’s economy two years into the Chicago Boy’s and Pinochet’s grand experiment were not at all the fault of Friedman’s neoliberal prescription, he wrote.
“This problem is not of recent origin. It arises from trends toward socialism that started 40 years ago and reached their logical – and terrible – climax in the Allende regime. You have been extremely wise in adopting the many measures you have already taken to reverse this trend.”
Pinochet took it to heart and by 1980 public spending under Pinochet was half what it had been when he seized power. But the economy was still in crisis.
“Undeterred,” Naomi Klein writes in Shock Doctrine, “Pinochet’s economic team went into more experimental territory, introducing Friedman’s most vanguard policies: the public school system was replaced by vouchers and charter schools, health care became pay-as-you-go, and kindergartens and cemeteries were privatized. Most radical of all, they privatized Chile’s social security system.”
Ironically, Klein notes, “The only thing that protected Chile from complete economic collapse in the early eighties was that Pinochet had never privatized Codelco, the state copper mine company nationalized by Allende. That one company generated 85 percent of Chile’s export revenues, which meant that when the financial bubble burst, the state sill had a steady source of funds.”[lxv]
In the end it had all been a futile exercise, as The New York Times noted in Pinochet’s obituary noted in December, 2006:
“But by the time of his death, even some of those economic victories had been called into question. The privatizing of Chile’s social security system, in particular, has come under attack as unjust and is undergoing revision. And across Latin America, many of the countries that had adopted similar reforms are reversing some of them, responding to a growing wave of popular, leftist anger over untrammeled foreign competition and unequal distribution of wealth.”[lxvi]
The neoliberals still largely control Chile, although they’ve become more like Bill Clinton than Augusto Pinochet. But the results are visible. Chile has Latin America’s top GDP per capita but that income and wealth is hardly well distributed; its poverty level is even higher than that of Brazil.
As economic scholar Branko Milanovic note in November 2019, “The bottom 5 percent of Chile’s population have an income level that is about the same as that of the bottom 5 percent in Mongolia. The top 2 percent enjoy an income level equivalent to that of the top 2 percent in Germany. … Chile is the country where billionaires’ share, in terms of GDP, is the highest in the world…The wealth of Chile’s billionaires, compared to their country’s GDP, exceeds even that of Russia’s.”[lxvii]
In his book The Pinochet File, Peter Kornbluh writes:
“The military regime’s problems began in mid-1982 when the country suffered its worst economic recession since the Great Depression. Gross national product plummeted by 14 percent; unemployment rose to 30 percent. Chile’s foreign debt reached $19 billion, then the highest per-capita debt in the world. The ‘economic miracle’ created by the University of Chicago-trained students of free market guru and regime advisor Milton Friedman was discredited.”[lxviii]
Although neoliberal “scholars” and think-tanks funded by American rightwing billionaires have gone to astonishing lengths to try to portray Friedman and Pinochet’s experiment with neoliberalism a success (just check the internet: there are 20 praising them for every one criticizing them), the simple reality is that the Chilean experiment, the world’s first real try at neoliberalism, failed utterly…and killed a lot of people in the process.
