Milton Friedman and Chile
Source Jim Devine
Date 06/12/04/19:06

Hurricane Milton

Walden Bello | November 30, 2006

WHILE ECONOMISTS LAUD the recently deceased Milton Friedman for being
"a champion of freedom whose work transformed economics and changed
the world," as a full-page advertisement in the New York Times put it,
people in the South will remember the University of Chicago professor
as the eye of a human hurricane that cut a swath of destruction
through their economies. For them, Friedman will long be associated
with two things: free-market reform in Chile and "structural
adjustment" in the developing world.

Soon after the coup against the government of Salvador Allende on
September 11, 1973, Chilean graduates of Friedman's economics
department, who were later dubbed the "Chicago Boys," took over the
helm of the economy and launched a program of economic transformation
with doctrinal vengeance. Friedman was often quoted as saying that
political freedom goes hand-in-hand with free markets. The irony that
the bayonets of one of Latin America's most bloodstained dictatorships
imposed a free market paradise in Chile could not have escaped the

Yet Friedman visited Chile during the dictatorship, giving his
blessings to the radical free-market, export-oriented thrust of the
regime, praising Chilean dictator General Augusto Pinochet for his
commitment to a "fully free market as a matter of principle," and
delivering talks such as "The Fragility of Freedom" that rang ironic
in the Chilean context. Even as he accused his critics of "tarring and
feathering" him with the regime's human rights abuses, Friedman took
pride in providing doctrinal inspiration for what he described as the
"Chilean Miracle."

The Chilean Experiment

After his disciples were done with it, Chile was indeed radically
transformed … for the worse.

Free market policies subjected the country to two major depressions
twice in one decade, first in 1974-75, when GDP fell by 12%, then
again in 1982-83, when it dropped by 15%. Contrary to ideological
expectations about free markets and robust growth, average GDP growth
in the period 1974-89—the radical Jacobin phase of the
Friedman-Pinochet revolution—was only 2.6%. By comparison, with a much
greater role of the state in the economy during the period 1951-71,
Chile's economy grew 4% a year.

By the end of the radical free-market period, both poverty and
inequality had increased significantly. The proportion of families
living below the "line of destitution" had risen from 12 to 15%
between 1980 and 1990, and the percentage living below the poverty
line, but above the line of destitution, had increased from 24 to 26%.
By the end of the Pinochet regime, some 40% of Chile's population, or
5.2 million of a population of 13 million, was poor.

In terms of income distribution, the share of the national income
going to the poorest 50% of the population declined from 20.4 to
16.8%, while the share going to the richest 10% rose dramatically from
36.5 to 46.8%.

In terms of the structure of the economy, the combination of erratic
growth and radical trade liberalization resulted in
"deindustrialization in the name of efficiency and avoiding
inflation," as one economist described it. Manufacturing's share of
GDP declined from an average of 26% in the late 1960s to 20% in the
late 1980s. Many metalworking and related manufacturing industries
went under in an export-oriented economy that favored agricultural
production and resource extraction.

Mitigating Friedmanism

The radical Friedman-Pinochet phase of the Chilean economic
counterrevolution came to an end in the early 1990s, after the
Concertacion came to power. In violation of classical Friedmanism,
this center-left coalition increased social spending to improve
Chile's income distribution, bringing down the proportion of people
living in poverty from 40 to 20% of the population. This cautious
"Keynesian" modification, which increased internal purchasing power,
contributed to the post-Pinochet average yearly growth rate of 6% a

Unwilling to challenge the upper classes, however, the social
democratic regime retained the basic neoliberal contours of economic
policy, leading to continuing high levels of poverty, unemployment,
and inequality. Also, the continued emphasis on agricultural and
natural resource exports has created tremendous environmental
stresses. Overfishing along Chile's coasts has gone hand in hand with
ecological destabilization from the spread inland of the fresh salmon
and mussel farms. A booming wood export industry has promoted the
growth of tree plantations at the expense of natural forests,
resulting in Chile becoming the second most deforested area in Latin
America after Brazil. Environmental management is widely acknowledged
to be ineffective, being consistently subverted by the imperatives of
export-oriented growth.

Exporting the "Revolution"

Chile was the guinea pig of a free market paradigm foisted on other
third world countries. Beginning in the early 1980s, the International
Monetary Fund and the World Bank subjected some 90 developing and
post-socialist economies to free-market "structural adjustment." From
Ghana to Argentina, state participation in the economy was drastically
curtailed, government enterprises passed to private hands in the name
of efficiency, protectionist barriers on Northern imports were
eliminated wholesale, restrictions on foreign investment were lifted,
and, through export-first policies, domestic economies were more
tightly integrated into the capitalist world market.

Structural adjustment policies (SAPs), which set the stage for the
accelerated globalization of developing country economies during the
1990s, created the same poverty, inequality, and environmental crisis
in most countries that free-market policies did in Chile, minus the
moderate growth of the post-Friedman-Pinochet phase. As the World Bank
chief economist for Africa admitted, "We did not think the human costs
of these programs could be so great, and the economic gains so slow in
coming." So discredited were SAPs that the World Bank and IMF soon
changed their names to "Poverty Reduction Strategy Papers" in the late

Despite being now universally seen as dysfunctional, free-market and
structural adjustment policies have been so thoroughly
institutionalized that they continue to reign. The legacy of Milton
Friedman will be with the developing world for a long time to come.
Indeed, the most appropriate inscription for Friedman's gravestone
comes from William Shakespeare's Julius Caesar: "The evil that men do
lives after them, the good is oft interred with their bones."

Walden Bello is professor of sociology at the University of the
Philippines and executive director of the Bangkok-based institute
Focus on the Global South.

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