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

   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   later when his regime had been replaced by a more democratic one.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.

   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 "has
   supported a fully free-market economy as a matter of principle. Chile
   is an economic miracle." [quoted by Elton Rayack, Not so Free to
   Choose, p. 37] Then US President George Bush praised the Chilean
   economic record in December 1990 when he visited that country, stating
   Chile deserved its "reputation as an economic model" for others to
   follow.

   However, the reality of the situation is radically different. As
   Chilean expert Peter Winn argues, "[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
   whom -- and at what cost?" ["Introduction", Peter Winn (ed.), Victims
   of the Chilean Miracle, p. 12] As we will prove, Chile's "economic
   miracle" is very 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.

   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 before Allende took office
   in November 1970 ("It is the firm and continuing policy that Allende be
   overthrown by a coup," as one CIA memo put it in October of that year
   [quoted by Gregory Palast, "A Marxist threat to cola sales? Pepsi
   demands a US coup. Goodbye Allende. Hello Pinochet", The Observer,
   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 "will do all in
   our power to condemn Chileans to utmost poverty." [quoted by Noam
   Chomsky, Deterring Democracy, p. 395]

   According to notes taken by CIA director Richard Helms at a 1970
   meeting in the Oval Office, his orders were to "make the economy
   scream." This was called Project FUBELT and its aims were clear: "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." ["Genesis of Project FUBELT" 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.

   Thousands of people were murdered by the forces of "law and order" and
   Pinochet's forces "are conservatively estimated to have killed over
   11,000 people in his first year in power." [P. Gunson, A. Thompson, G.
   Chamberlain, The Dictionary of Contemporary Politics of South America,
   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.

   Friedman, of course, stressed his "disagreement with the authoritarian
   political system of Chile." [quoted by Rayack, Op. Cit., 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 [1]section D.11, where we also discuss the
   limited nature of the democratic regime which replaced Pinochet and the
   real relationship between economic and political liberty.

   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 "not a nation of
   proletarians, but a nation of entrepreneurs." [quoted by Thomas E.
   Skidmore and Peter H. Smith, Modern Latin America, p. 137]

   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:

     "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." [Silvia Borzutzky, "The Chicago
     Boys, social security and welfare in Chile", The Radical Right and
     the Welfare State, Howard Glennerster and James Midgley (eds.), p.
     88]

   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, Op. Cit., p. 52] It is
   also interesting to note that "[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)."
   [Borzutzky, Op. Cit., p. 89] Obviously some forms of state intervention
   were more acceptable than others.

   April 1975 saw the Chicago Boys assume "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." 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 "had to concede that the social cost of the
   shock treatment was greater than he expected." [Rayack, Op. Cit., p.
   56, p. 41 and p. 57] For Friedman, his "only concern" with the plan was
   "whether it would be pushed long enough and hard enough." [quoted by
   Joseph Collins and John Lear, Chile's Free-Market Miracle: A Second
   Look, p. 29] Unsurprisingly, the "rigorous imposition of the neoliberal
   economic model after 1975 soon threatened [workers] job security too"
   and they "bore the brunt" of the changes in terms of "lost jobs and
   raised work norms." [Winn, "No Miracle for Us," Peter Winn (ed.), Op.
   Cit., p. 131]

   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:

     "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."
     [Peter Winn, "The Pinochet Era", Op. Cit., pp. 28-9]

   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. "The
   denationalisation process," notes Rayack, "was carried out under
   conditions that were extremely advantageous for the new owners . . .
   the enterprises were sold at sharply undervalues prices." Only large
   conglomerates could afford them, so capital became even more
   concentrated. [Op. Cit., 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 "were sold at a
   discount, according to one estimate, at least 20 per cent below their
   value." Thus "the privatisations were bargain sell-offs of public
   assets," which amounted to a "subsidy from the national treasury to the
   buyers of 27 to 69 percent" and so "[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."
   [Joseph Collins and John Lear, Chile's Free-Market Miracle: A Second
   Look, p. 206, p. 54 and p. 59]

   By 1978, the Chicago Boys "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."
   [Winn, "The Pinochet Era", Winn (ed.), Op. Cit., p. 31] According to
   Pinochet's Minister of Labour (1978-81), the Labour relations had been
   "modernised" and that "politicised" labour leaders and their
   "privileged fiefdoms" had been eliminated, with workers no longer
   having "monopolies" on job positions. Rather than government
   intervention, negotiation between capital and labour was now left to
   "individual responsibility and the discipline of the market." The
   stated aim was to "introduce democracy into the world of Chilean unions
   and resolve problems that for decades had been obstacles for the
   progress of workers." [quoted by Joseph Collins and John Lear, "Working
   in Chile's Free Market", pp. 10-29, Latin American Perspectives, 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.

   All of which explains Friedman's 1991 comment that the "real miracle of
   Chile" was that Pinochet "support[ed] a free market regime designed by
   principled believers in a free market." [Economic Freedom, Human
   Freedom, Political Freedom] 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.

   The advent of the "free market" led to reduced barriers to imports "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."
   [Skidmore and Smith, Op. Cit., p. 138] The decline of domestic industry
   cost thousands of better-paying jobs. Looking at the textile sector,
   firms survived because of "lowered labour costs and increased
   productivity." The sector has "low real wages, which dramatically
   altered" its international competitiveness. In other words, the Chilean
   textile industry "had restructured itself on the back of its workers."
   [Peter Winn, "No Miracle for Us", Winn (ed.), Op. Cit., p. 130] The
   mines were "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." [Thomas Miller Klubock, "Class,
   Community, and Neoliberalism in Chile", Op. Cit., p. 241] This was the
   real basis of the 1976 to 1981 "economic miracle" Friedman praised in
   1982.

   As with most neo-liberal experiments, the post-1975 "miracle" was built
   on sand. It was "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." It was "largely
   short-term speculative capital . . . producing a bubble in stock market
   and real estate values" and "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." [Winn, Op. Cit., p. 38] Thus "the bottom fell out of
   the economy" 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, Op. Cit., p. 15]

   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, Op. Cit., p. 69] Chile's GNP "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." 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, Op. Cit., 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, Op.
   Cit., p. 138]

   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.

   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
   private 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
   "socialisation of private debts were both striking and unequal"). 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, "[w]ith understandable irony,
   critics lampooned the 'Chicago road to socialism.'" [Winn, Op. Cit., p.
   66 and p. 40]

   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 "assumed
   by the public," their "assets were sold to private interests."
   Significantly, the "one bank that had not been privatised and the other
   publicly owned companies survived the crisis in relatively good shape"
   and almost all of them were "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." [Collins and Lear,
   Chile's Free-Market Miracle: A Second Look, pp. 51-2]

   Needless to say, the recovery (like the illusionary boom) was paid for
   by the working class. The 1982 crash meant that "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." An 1982
   decree "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." [Collins and Lear, Op. Cit., 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, "Class, Community, and Neoliberalism
   in Chile," Winn (ed.), Op. Cit., p. 217] As Peter Winn summarises:

     "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." ["The
     Pinochet Era", Winn (ed.), Op. Cit., pp. 41-2]

   Unsurprisingly, for the capitalist class things were somewhat
   different. Private banks "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." [Winn, Op. Cit., p. 42] The government also raised
   tariffs from 10% to between 20 and 35% and the peso was drastically
   devalued. [Collins and Lear, Op. Cit., p. 15] Pinochet's state took a
   more active role in promoting economic activity. For example, it
   developed new export industries which "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." [Collins and Lear,
   Op. Cit., p. 20] The forestry sector was marked by government hand-outs
   to the already rich. Joseph Collins and John Lear argue that the
   neoliberals' "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." [Op. Cit., p. 205]

   By 1986, the economy had stabilised and the crisis was over. However,
   the recovery was paid for by the working class as "wages stayed low"
   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 "was even more drastic." Public unrest during the economic
   crisis made it politically difficult to eliminate, so it "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."
   Thus, "recovery and expansion after 1985 depended on two ingredients
   that are unsustainable over the long term and in a democratic society,"
   namely "an intensified exploitation of the labour force" and "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." [Collins and Lear, Op.
   Cit., Op. Cit., p. 83, p. 84 and p. 35]

   In summary, "the experiment has been an economic disaster." [Rayack,
   Op. Cit., p. 72]

C.11.1 Who benefited from Chile's "economic miracle"?

   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.

   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, Op. Cit., 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, Op. Cit., 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."

   After 1982, "stagnant wages and the unequal distribution of income
   severely curtailed buying power for most Chileans, who would not
   recover 1970 consumption levels until 1989." [Collins and Lear, Op.
   Cit., p. 25] By 1988, "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." [Winn, "The Pinochet Era", Op. Cit., 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, "Working in Chile's Free
   Market", Op. Cit., p. 26]

   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, Year 501,
   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.

   So after two decades of neoliberalism, the Chilean worker can look
   forward to "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." 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, "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" in 1989. In fact, it is "commonly assumed that employees work
   overtime without pay or else" and, unsurprisingly, the "pattern
   resembles the European production systems of the mid-19th century."
   [Collins and Lear, Op. Cit., 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, "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." [Volker Frank, "Politics without Policy", Op.
   Cit., p. 73]

   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, Wall
   Street, 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.

   Workers need to find money for health care as their "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."
   Unsurprisingly, "[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." [Collins and Lear, Op.
   Cit., p. 20 and p. 25]

   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 were 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 "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." That is, "to
   shore up capital markets through its transfer of worker savings to
   Chile's business elites." [Winn, "The Pinochet Era", Op. Cit., p. 64
   and p. 31]

   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, "the actual
   determining factor is not 'choice,' but one's ability to pay." 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 "grossly under-funded, rundown, over-burdened" one "for
   some 70% of Chileans." Most "pay more and receive less." [Collins and
   Lear, Op. Cit., p. 99 and p. 246]

   The impact on individuals extended beyond purely financial
   considerations, with the Chilean labour force "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.'" Little
   wonder, then, that "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.'"
   [Duncan Green, Op. Cit., p. 96 and p. 166]

   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, Year
   501, 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.

   So, in summary, Chile's workers "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."
   [Winn, "Introduction", Op. Cit., p. 10]

   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 "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."
   [Skidmore and Smith, Op. Cit., p. 138]

   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, Deterring Democracy, p. 231] This
   is more than confirmed by other sources. According to one expert in the
   Latin American neo-liberal revolutions, the elite "had become massively
   wealthy under Pinochet." [Duncan Green, The Silent Revolution, 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, "at least 60 percent of the population was relatively, if
   not absolutely, worse off." [James Petras and Fernando Ignacio Leiva,
   Democracy and Poverty in Chile, p. 39 and p. 34]

   In summary, "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." [Collins and
   Lear, Op. Cit., 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, Op. Cit., 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, Op. Cit., p. 34, p. 25
   and p. 170]

   Thus Chile has been a "miracle" for the capitalist class, with its
   successes being "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." There has been "a clear trend toward
   more concentrated control over economic resources . . . Economic
   concentration is now greater than at any other time in Chile's history"
   with multinational corporations reaping "rich rewards from Chile's
   free-market policies" ("not surprisingly, they enthusiastically applaud
   the model and push to implant it everywhere"). Ultimately, it is
   "unconscionable to consider any economic and social project successful
   when the percentage of those impoverished . . . more than doubled."
   [Collins and Lear, Chile's Free-Market Miracle: A Second Look, p. 252
   and p. 253]

   Thus the wealth created by the Chilean economy in during the Pinochet
   years did not "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 flood 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).

   Overall, "in 1972, Chile was the second most equal country in Latin
   America; by 2002 it was the second most unequal country in the region."
   [Winn, "The Pinochet Era", Op. Cit., p. 56] Significantly, this refutes
   Friedman's 1962 assertion that "capitalism leads to less inequality . .
   . inequality appears to be less . . . the more highly capitalist the
   country is." [Capitalism and Freedom, 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.

   There are two conclusions which can be drawn. Firstly, that Chile is
   now less 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.

C.11.2 What about Chile's economic growth and low inflation?

   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."

   As far as inflation goes, the Pinochet regime did 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 -- "make
   the economy scream", 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
   "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." [Winn, "The
   Pinochet Era", Op. Cit., 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:

     "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." [The Economic Consequences of Mrs Thatcher, p. 45]

   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 [2]section C.9). In other words,
   Monetarism and "free market" capitalism did not reduce inflation (as
   was the case with Thatcher and Reagan was well).

   Which leaves growth, the only line of defence possible for the claim of
   a Chilean "Miracle." As we discussed in [3]section C.10, 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 level
   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.

   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
   "regularly exaggerated by measurements from inappropriate bases (like
   the 1982 trough)." [The Economics of the Rich]

   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, Op. Cit., p. 64]

   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, Op. Cit.,
   p. 57 and p. 64]

   Thus, between 1970 and 1989, Chile's GDP "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!" [Petras and Leiva, Op.
   Cit., p. 32]

   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.

   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.

C.11.3 Did neo-liberal Chile confirm capitalist economics?

   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.

   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 [4]last section).

   Then there is the fact that the Chilean experiment refutes key
   neo-classical dogmas about the labour market. In Capitalist and
   Freedom, 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 "employee is protected from coercion by the employer
   because of other employers for whom he can work." [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.

   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 real 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 did
   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 but 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.

   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
   "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." [Silvia Borzutzky, Op. Cit., p. 91] In
   reality, the Labour code simply reflected the power property owners
   have over their wage slaves and "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." This was hidden,
   of course, by "populist rhetoric." [Collins and Lear, Op. Cit., p. 16]
   In fact, the Plan Laboral "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."
   [Winn, "The Pinochet Era", Op. Cit., p. 31]

   Unsurprisingly, "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." [Winn, "Introduction",
   Op. Cit., p. 10]

   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 "be surprised how fast people would be
   absorbed by a growing private-sector economy." [quoted by Rayack, Op.
   Cit., p. 57] Unemployment reached record levels for decades, as the
   free market regime "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." Unsurprisingly, the "most important
   rationalisation" made by Chilean industry "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." This was aided by unemployment levels which "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." 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 "underestimate the real level of unemployment" 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, Op.
   Cit., p. 22, p. 15, p. 16, p. 15 and p. 22]

   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
   [5]section C.9, 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.

   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: "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." [Lear and
   Collins, Op. Cit., 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 increased supply nor that the demand for labour did not
   increase to in response to the drop in its real wage.

   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.

   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 "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." [quoted by Silvia Borzutzky,
   "The Chicago Boys, social security and welfare in Chile", The Radical
   Right and the Welfare State, Howard Glennerster and James Midgley
   (eds.), p. 90] They affirmed that "in a democracy we could not have
   done one-fifth of what we did." [quoted by Winn, "The Pinochet Era",
   Winn (ed.), Op. Cit., p. 28]

   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:

     "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." ["The Continuing
     Relevance of Socialism", Robert Skidelsky (ed.), Thatcherism, p.
     146]

   Little wonder, then, that Pinochet's regime was marked by
   authoritarianism, terror and rule by savants. Indeed, "[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." [Silvia
   Borzutzky, Op. Cit., p. 90] However, as Winn points out:

     "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." [Op. Cit., p. 28]

   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":

     "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." [The Political Philosophy of Bakunin, p. 79]

   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.

   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, "tax increases targeted for
   social spending for the poor" allowed them to "halve the 1988 45
   percent poverty rate bequeathed by Pinochet." In fact, the "bulk of
   this spending" was aimed at "the poorest of the poor, the 25 percent of
   the population classified as destitute in 1988." [Winn, "The Pinochet
   Era," Op. Cit., p. 50, p. 52 and p. 55]

   However, while this "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." [Paul W Drake,
   "Foreword", Winn (ed.), Op. Cit., 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
   "a substantial number of the Chilean labour force receives wages and
   salaries that are only slightly above the minimum wage." [Volker Frank,
   "Politics without Policy", Winn (ed.), Op. Cit., 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 dropped to
   4.4%, in 1992, the lowest since the early 1970s.

   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 "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," many problems remain such as
   "a work week that was among the longest in the world." [Winn,
   "Introduction", Op. Cit., p. 4]

   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 "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." [One World, Ready or Not, p.
   280]

   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, "Is Chile a
   Neoliberal Success?", Dollars & Sense, 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,
   "A Smoother Road To Free Markets," Washington Post, 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).

   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.

   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 [6]section D.11).
   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.

References

   1. file://localhost/home/mauro/baku/debianize/maint/anarchy/secD11.html
   2. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
   3. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC10.html
   4. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC11.html#secc112
   5. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
   6. file://localhost/home/mauro/baku/debianize/maint/anarchy/secD11.html
