The "Chilean Miracle": "Chicago Boys" and Neoliberalism Under Pinochet (1973-1980)

The ascendance of neoliberalism as a guiding political and economic force under the dictatorship of General Pinochet, compared with the democratic socialism of the previous Allende era, lends credence to the thesis that Latin America in the 20th century was a land of revolution and reaction. The military junta which took power on 11 September 1973 made the eradication of Marxism one of its express goals; neoliberalism and free-market ideology offered both an attractive alternative to state development and a chance to improve ties with the United States, a guiding economic force in Latin America at the time. The group of technocrats and economists that guided neoliberal policies during the early years of the Pinochet regime were known as the "Chicago Boys," so-called because they had studied economics at the University of Chicago, with renowned economists and theorists such as Milton Friedman and Arnold Harberger.1

The Chicago Boys, led by Sergio de Castro, shared common backgrounds with a political movement that was gaining prominence under Pinochet - the "Gremialistas."2 The Gremialist movement consisted of right-wing cadres of intellectuals who depsised Allende's socialist program and the partisanship of Chilean democracy. For the most part, both the Gremialists and Chicago Boys came from upper-class, right-wing families. Although one might conclude that the free-market ideology of the Chicago Boys meant they were without political interests, the links between the two groups were crucial to bringing the Chicago Boys to the attention of Pinochet and other leaders of the junta. Indeed, many scholars believe that the political and institutional systems set up by the Gremialists, along with the intense climate of fear and repression enacted by the miltary regime, made it possible for the marketeers to implement their neoliberal policies in Chile.3

The Chicago Boys began guiding Chile's economy in 1975 when de Castro was appointed economics minister. The first two years of the coup had been characterized by close competition between several groups for primacy. Fernando Leniz, the previous economics minister, had for most of 1974 guided Chile's economy gradually and pragmatically towards a more market-centered orientation. Other elements, some supported by Pinochet's own military aides, supported the creation of a stronger interventionist state. Pinochet, it seems, was more "intrigued bu the Chicago Boys' "revolutionary aims" to transform the economy... the general yearned to be identified with a historical act of national renewal."4

Sergio de Castro's economic program involved implementing a vision of neoliberalism taken to its logical and theoretical extremes. Fiscal and monetary policy became a weapon with which to combat food shortages, inflation of the money supply, and budget deficits which de Castro's adherents saw as evidence of Allende's bloated "welfare state." Budget deficits were eliminated by slashing social programs which overwhelmingly benefitted the poorest members of Chilean society. De Castro's solution to the most extreme cases of poverty was to target direct aid at families, instead of supporting tuition and mortgage subsidies or price controls on food and necessities.5 Trade, finance, and domestic markets were all freed from government regulation. Interestingly enough, the vital Chilean copper industry, which had been nationalized under Allende, remained public throughout the Pinochet regime, perhaps because it represented such a vital aspect of the country's export economy.

In the well-documented climate of political and social violence, economic freedom was not intended for labor. Union leaders and workers, most of whom had benefitted a great deal under Allende, were some of the first victims of the internal war that raged from the coup until 1978. Business-owners, capitalists, and the wealthy, on the other hand, profitted enormously from the policies implemented shortly after the coup. Elections, collective bargaining capacity, strikes, and other tools of the labor unions were banned outright, which meant that business would have less to deal with in the way of labor disputes. Prices, which were fixed under Allende, were freed, and in 1973 the price of bread rose by 1,000 percent for three months.6 Wages, on the other hand, were fixed at arbitrary rates much lower than those during Allende or any of the past democratically-elected regimes.

Early supporters of the political and economic regimes of Pinochet's Chile were quick to champion the "Chilean Miracle" of growth. By 1979, budget deficits had been eliminated and annual growth rates averaged 6.5% (an impressive number by any standard).7 Sergio de Castro's monetarist policies had tightened the money supply, lowering inflation and rasing levels of production. Unemployment had fallen since the coup, and the state became more streamlined: five years of land and industry sell-offs to private hands had left only 23 strategic industries (in mining, energy, and communications) in state hands.8 The appearance of the success of monetarist policies meant that de Castro and the other free-marketeers were free to "liberalize" (privatize) the economy and government in a more total sense. After 1979, policies were designed to privatize medical care, social security, and even labor relations.



1 Pamela Constable and Arturo Valensuela, A Nation of Enemies: Chile Under Pinochet (W. W. Norton and Co.: New York, 1991) p. 168.
2 Carlos Huneeus, "Technocrats and Politicians in an Authoritarian Regime. The ODEPLAN Boys and Gremialists in Pinochet's Chile," in Journal of Latin American Studies Vol. 32 No. 2 (May 2000) p. 462.
3 See ibid.
4 Constable and Valensuela, p. 171.
5 Huneeus, 466.
6Peter Winn, Victims of the Chilean Miracle (Duke University Press: Durham, 2004) p. 22.
7 Constable and Valensuela, p. 189.
8 Ibid., 189.