Tuesday, July 18, 2023

The Chicago Boys and the separation between politics and economics

Sebastian Edwards tells a fascinating story about “neoliberalism” and the Chicago Boys in Chile. The Chicago Boys are the Chilean economists trained in the University of Chicago who had important responsibilities during the Pinochet dictatorship and beyond. They were strongly influenced by economists such as Friedman, Hayek or Harberger, who advocated an expanded role for markets, and a very limited role for governments. Edwards is very well positioned to give a very complete and balanced account of the somehow unpleasant story of the participation of prestigious academic economists in the economic management of the military dictatorship of Augusto Pinochet in Chile between 1973 and 1989. He was trained in Chicago University, but is not a Chicago Boy. Instead, he was a socialist activist opposed to the dictatorship in his youth. He shows empathy both for some of the economists involved, American (such as Friedman or Harberger) or Chilean, and for those who opposed the neoliberal model on occasion of the students’ demonstrations that ultimately led to the election of Gabriel Boric, a student leader, as President of the Republic in 2021.

In the 1990s and early 2000s (not before), there were great results to be shown for “the model.” But what was the model then? Actually, the best results took place in the years of the transition to democracy, when the democratically elected presidents belonged to the center-left coalition of La Concertación. The book explains very well that the center-left continued many of the neo-liberal aspects of the model (becuase of its success, because of lobbying from the elites, and because of constitutional constraints) with a more human touch, after the neoliberal model of shock therapy, privatizations and minimal government (except for law and order) had experienced an accute crisis in the early1980s.

Edwards explores three mistakes of the Chicago Boys: the failed pension system, the decision to fix the exchange rate by Chicago Boy Sergio de Castro that resulted in 25% unemployment in the early 1980s, and the narrow focus on extreme poverty instead of expanding it to inequality. The first and the third of these mistakes were among the topics on which the demonstrators focused in 2019 with the social revolt.

The book does not shy away from the moral responsability of the Chicago Boys and their American mentors. Sergio De Castro argued that when taking a job in the military government he was obbeying orders, and that politics and economics should be separated. Some economists easily find excuses in that things can be separated (politics and economics, technical and political issues, efficiency and equity…), when these matters come together in the real world. How could they not know that there were human rights abuses? They were in a government that was a human right abuse in itself, a government that had the original sin of starting by bombing (not precisely in secret) the official palace of a democratically elected president that, independently of his mistakes, had respected the Constitution of Chile.

Friedman and Harberger intervened for individual prisoners when they were requested to do so, but they never condemned the nature of a totalitarian government that did not respect elemental freedoms. These were great economists that contributed to reinforcing a crime.

For a while, they won the war of ideas, but this war was easier to win with guns and powerful lobbies. Now they have to fight it in an open, albeit imperfect, democratic society.

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