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November 14, 2023
Make the Economy Scream
The Chicago Boys and the tragedy of the Chilean coup.
How Pinochet’s Chile Became a Laboratory for Neoliberalism
A new book examines how a group of University of Chicago–trained economists sought to remake the Chilean economy in the aftermath of 1973.
Santiago, Chile, June 1973.
(Getty)
This article appears in the November 27/December 4, 2023 issue, with the headline “Make the Economy Scream.”
The 1973 coup in Chile looms large in the Pan-American imagination. It is likely the most famous of the many US-backed golpes that took place in the 20th century; indeed, it has become so iconic, even archetypal, that it may have changed the connotations of the very words “coup” and “US-backed.”
When arguing over whether the 2016 impeachment of Brazilian President Dilma Rousseff should be considered a coup, for example,
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The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism
by Sebastian Edwards
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some commentators cited the Chilean case to argue that it shouldn’t—because that would imply a military takeover and the long-term destruction of democracy. When Venezuelan authorities set out to decorate the Ministry of Foreign Affairs a few years after President Hugo Chávez survived a failed coup attempt, they chose an eerie sculpture that evoked the violent downfall of Salvador Allende.
How is it that the military takeover in Chile on September 11, 1973, has become more famous than so many other putsches? After all, the generals in Argentina, Guatemala, and Indonesia killed far more people. Perhaps it was because Allende, a democratic socialist with international support, died a hero during the assault. There was also the figure of US President Richard Nixon, who had sought to undermine Chilean democracy in ways that could make other cases of US intervention seem downright indirect. Nixon started conspiring to derail Allende’s presidency in 1970, before the latter had even taken office, and directed the CIA to “make the [Chilean] economy scream.” There was also the infamous murder in 1976 of former Chilean foreign minister Orlando Letelier right in the middle of Washington, D.C. The attack, carried out by Pinochet’s secret police, killed a US citizen as well.
The 1973 coup and its aftermath also continue to loom large in the world of economics. The defenders of neoliberal policies have to contend with the uncomfortable fact that their approach was first implemented by a mass-murdering tyrant. They must acknowledge that their intellectual heroes in the University of Chicago’s Department of Economics transmitted these programs to Pinochet directly and that they were forced on the Chilean people by a group of Chilean economists, the so-called Chicago Boys, who had trained at the same university.
Sebastian Edwards, the author of a new book on the Chicago Boys, is one of those defenders of neoliberalism. Born in Chile to a very influential family, he eventually became a Chicago–trained economist himself and now teaches at UCLA. As a younger man he’d supported Allende, but after the coup he attended the Universidad Católica, the college where the Chicago Boys had set up shop, before studying at the University of Chicago and going on to work for the World Bank and as an advisor to California Governor Arnold Schwarzenegger. Now, in The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism, Edwards tries to separate the neoliberal project from the very illiberal regime that first put it into practice.
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Edwards is as successful as one can be in such an endeavor, armed with an impressive command of the material and a serious concern for the period in question. Even for those who see the Chilean coup as one of the worst crimes of the 20th century, his perspective can be welcomed. A sympathetic narrator who knew many of the people he chronicles in the book, he can offer additional details—and dispel some of the myths that haunt the left as much as the right. But Edwards also wants to link the neoliberal “reforms” to Chile’s relative prosperity now, as well as save the reputation of the Chicago Boys themselves, not just the economic ideas they espoused. This may explain why, at times, he neglects to mention facts that are readily available to readers and that would challenge his strongest assertions.
Ultimately, The Chile Project wants to defend the legacy of Chilean neoliberalism and to stop it from being dismantled by a new generation. But the tragedy of 1973 matters to the world primarily because of what was lost. After the globalization of neoliberalism by myriad other means, the path taken by the Chicago Boys is less important than the dream they were invited to help kill.
Before Pinochet and the coup, there was the “Chile Project.” It began in 1955, as the US Department of State sought to train Chileans in the ways of Chicago-style economics. These privileged young students—people like Sergio de Castro, Rolf Lüders, and Miguel Kast—learned about the power of self-interested, rational markets and the folly of state economic planning, and they were trained to view the welfare state with deep suspicion.
After the victory of the Cuban Revolution in 1959, the Chile Project became an important part of Washington’s Cold War strategy in the hemisphere, even if most of its economists puttered along far from the spotlight. But then, with Allende deposed in 1973 and a new US-backed anti-communist dictatorship established, the neoliberal economists could finally get to work. In this sense, the Chicago Boys were in the right place at the right time: They were well-connected, relatively well prepared, and very willing to take on running the economy. They had not been trained with the stated intention of supporting a murderous dictatorship that would crush labor rights, as Edwards takes pains to establish. It just worked out that way.
In fact, when Milton Friedman—one of the principal architects of the so-called Chicago School of economics—traveled to Chile in 1975, it was still not clear whether Pinochet would fully embrace the Chicago School’s economic program. It was only after Friedman met personally with the dictator that Pinochet was persuaded to fight inflation with “shock treatment”—that is, steep budget cuts that would cause high unemployment but, Friedman promised, would also put the country on a more secure economic path. Soon after Pinochet announced a version of this plan, he tapped Sergio de Castro to take over at the Ministry of Economics. Thus began the most radical phase of neoliberal policy in Chile (or anywhere else in the world at that point). Pinochet forced through a new national constitution that made Allende-style socialism basically impossible and asserted that the state should not provide any services that the market might conceivably address. Chile aggressively privatized education and its social security program, and Pinochet’s 1980 Constitution made it illegal for public sector workers to strike.
At the macroeconomic level, this neoliberal turn meant abandoning extraordinary support for national industry and intentional attempts to upgrade Chile’s role in the global economy in favor of the export of naturally “competitive” products like fruit. Domestic prices were now set by market forces, not the state.
One could write this story focusing on its many victims. But Edwards focuses instead on the Chicago Boys as individual actors, documenting who wanted what, who disliked whom, and how their economic ideas were implemented. He makes no effort to hide his admiration for these economists: The book features a picture of the smiling author standing next to de Castro, who would serve as Chile’s minister of finance until 1982.
This biographical approach allows Edwards to address, and try to explain, the major mistakes made in the high neoliberal period—some due to political meddling, some to the Chicago Boys’ ideological vehemence, and all ultimately paid for by the Chilean people. Along the way, Edwards provides details that are both amusing and revealing. Friedman apparently tried to make the generals laugh and consistently failed—leading him to wonder if Chileans simply lacked a sense of humor. While in Santiago, the famed economist also proclaimed defensively that “speculation is just a word”—which is technically true of all words. Edwards reveals as well how the man who would go on to win the 1976 Nobel Memorial Prize in Economic Sciences came to be deeply stung by his association with Pinochet, especially after Letelier’s assassination in Washington.
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In another section, Edwards recounts an evocative scene in which some flabbergasted captains of Chilean industry could not believe that de Castro, as finance minister, would actually let them charge whatever price they wanted for basic consumer goods such as cooking oil. “It took them three visits to understand that De Castro was serious,” Edwards reports. Presumably, this is meant to illustrate how thoroughly Chile’s economy was stuck in the past. But it can also be read the opposite way: that the rules of neoliberal economies at first appeared incredible even to the men who would benefit from them. Such rules are no more natural than those of all the systems that preceded them. There is nothing about human beings that makes them spontaneously create a society in which capitalists get to decide who can afford to have dinner—someone with a lot of guns had to make it that way.
Regarding what the Chicago Boys knew about all those guns, Edwards gives them the benefit of the (supposed) doubt. “We will never know for sure the facts on these thorny issues,” he concludes in a section titled “Did the Chicago Boys Know about Human Rights Violations?,” which is mostly concerned with demonstrating that they did have disagreements with the military junta, mostly over economic policy. But it would have been very difficult for the “Boys” to stay ignorant of what was really going on. An Indonesian economist who arrived in Santiago to work for the United Nations in 1975 once told me that he would routinely see young Chileans scaling the walls of his UN compound in a desperate attempt to flee for their lives.
Edwards is an economist, not a historian or a journalist, so it makes sense that he is more interested in Chile’s Chicago-style “reforms” and their relationship to long-term growth than in the stories of the people crushed along the way. But even when measuring Pinochet’s dictatorship in economic terms, he quickly concedes that the regime was not a success, at least not as long as it lasted. “Taken as a whole, the performance for Pinochet’s seventeen years is not impressive,” he notes. Growth remained low throughout that period, while inflation and human suffering were high.
Even with Edwards’s best attempts to mount an honest defense of Chilean neoliberalism on policy grounds, it is striking—after all the caveats, concessions, and explanations he is forced to make—how little there is to defend. Edwards notes that the massive unemployment the 1975 “shock treatment” caused was even higher than expected and failed to deliver the promised benefits. (Shortly before his murder, Letelier wrote about that economic mayhem in the pages of this magazine.) Edwards recognizes that bungled currency policies led to a devastating recession in 1982, and he admits that the “neoliberal economic revolution” in Chile was possible only because democracy had been suspended. The country’s much-touted private pension program, Edwards tells us, actually came up with far less retirement money than people needed. The neoliberal years also allowed a kind of unofficial apartheid between white and non-white Chileans. In fact, Chilean inequality rose to levels that were high even by South America’s abysmal standards, and Edwards concedes that, in practice, the privatization programs that handed hundreds of state-owned companies to private entities amounted to the transfer of national assets to the regime’s cronies at fire-sale prices.
But Edwards wants to argue that even though Pinochet was finally voted out of office (and eventually charged with hundreds of killings and other human rights violations), the Chicago Boys had the last laugh. After the dictatorship fell in 1990, the center-left Concertación coalition restored labor rights and expanded social programs—but, Edwards points out, the new government nevertheless kept in place much of the country’s core economic system. Crucially, the Pinochet-era Constitution was retained, as was “the reliance on markets at every level” and “the emphasis on an economy thoroughly dominated by the private sector.” In this way, Edwards claims, the Chicago Boys were ultimately vindicated: Chile has one of the highest GDPs per capita in Latin America, bested only by Panama in recent years. Globally that puts the country just behind Bulgaria and Kazakhstan, according to recent data from the International Monetary Fund, but Chile has indeed moved up the regional rankings since 1973. “Pinochet lost the electoral battle,” Edwards writes, “but the Chicago Boys won the ‘war of ideas.’”
This attempt at a victory lap is one instance where Edwards’s close biographical approach proves lacking, as a reference to almost any other country over the same period would have proved instructive. For example, neoliberalism’s victory in the “war of ideas” cannot explain why, across the continent in Brazil, President Fernando Henrique Cardoso, a dependency theorist and former dissident, neoliberalized the Brazilian economy—Latin America’s largest—from 1995 to 2002, overseeing a wave of privatizations and macroeconomic policies that gave the country’s free-market think tanks little to complain about. Nor can it explain why Egypt, Tunisia, and Syria abandoned the once-powerful dream of “Arab socialism” in favor of the economic approach promoted by the likes of the World Bank and the IMF. Or why governments of various ideological stripes throughout Latin America adopted similar policies, requiring them to crack down on a wave of raucous anti-neoliberal protests in the 1990s and 2000s that touched nearly every country in the region.
A much better explanation is that changing conditions in the global economy—due both to market pressures and to the posture of major international institutions—made it incredibly difficult to sustain state-led industrialization programs in the Global South. As a result, most of these countries gave up and fell back on the old Third World practice of ripping stuff out of the earth and selling it to richer countries. Controls on prices and currencies, not to mention the maintenance of a robust welfare state, were swept away. As the historian Quinn Slobodian has recently argued, neoliberalism was a global phenomenon, conceived to a large extent precisely to limit the ways that a given country, whether Chile or the Philippines or the Democratic Republic of Congo, could choose to get in the way of international property rights.
If neoliberalism’s implementation had depended on enthusiastic ideologues infiltrating national governments and gaining the ears of autocrats, it would not have conquered the world. A far more common example is the case of the generals in Turkey who overthrew the government in 1980: They believed in the importance of the state and—as political scientist Ahmet Insel notes—“could not quite stomach” the country’s impending liberalization after their coup, but they also feared ignoring what was “dictated by modern times.” In some way or another, almost every government on Earth has made its peace with the new global system—including those that remain nominally Marxist-Leninist.
Remarkably, The Chile Project mentions China only once, when Edwards tries to justify Friedman’s ties to the Pinochet regime by noting that he went to Beijing, too. But the People’s Republic of China (now Chile’s main trading partner) found a very different way to participate in the global neoliberal order. Rather than implement the radical version of “shock treatment” or adopt wholesale the economic policies urged by Western advisers, China took a more flexible approach, as the economist Isabella Weber has shown—maintaining, of course, the political supremacy of the Communist Party—and becoming the only large nation in the Global South to meaningfully close some of the gap with the First World since the 1973 coup in Chile. It is now widely recognized that, to the extent that Latin America had a few decent years over the past several decades, it had a great deal to do with a construction boom in China that increased demand for the region’s commodities. The price of copper, for instance—Chile’s most important export—more than tripled from 1990 to 2020. If the era of “neoliberal consensus” is now coming to an end, that may have much less to do with the “war of ideas” than the fact that the most powerful men in the United States have decided that a geopolitical rival is doing too well.
After Edwards has carefully established a narrative that allows Chilean neoliberalism to snatch a victory from the jaws of history, he turns to contemporary politics in the country, which, he worries, threatens to destroy the legacy of the Chicago Boys. He obviously does not approve of the estallido social, the raucous Chilean mass protests of 2019, or the generation of former student leaders that it helped deliver into power. He calls Gabriel Boric, the current Chilean president, “far left”—an epithet that has not been used even by The Economist or The Wall Street Journal to describe the 37-year-old Radiohead fan who has annoyed many on the Latin American left by openly criticizing Nicaragua and Venezuela and taking a more pro-Zelensky position than that of Lula in Brazil. Edwards also makes the very questionable decision to compare the 2019 revolt to the Holocaust, on the basis that punks in the street yelled at anyone they considered “the elite” and told them they had to dance in order to pass. Edwards writes: “A Jewish friend could not hold back his tears when he mentioned that his grandparents had gone through a similar experience in Nazi Germany.”
At the end of The Chile Project, Edwards asserts that a widespread rejection of neoliberalism might cause Chile to fall behind other Latin American countries. Since this prediction is seemingly based on faith alone, it’s impossible to prove him wrong. But his disdain crosses over into an easily falsifiable empirical assertion when he writes of the people drafting a new constitution: “The possibility that such a charter could reduce the attractiveness of Chile as an investment destination; weaken the peso; lower employment; generate instability; and reduce growth…[never] cross[ed] their minds.” It is very much his right to dislike the now-rejected document that was drafted—most Chileans seemed to agree—but Edwards’s patronizing characterization could have been dispelled by spending 30 minutes walking around the Constitutional Convention, where these things were discussed quite regularly. Neoliberals aren’t the only ones who think about the economy, and yet this unconscious assumption of epistemic supremacy runs throughout his book.
Still, Edwards wants to understand why the Chilean people so overwhelmingly reject the hard neoliberalism of the Pinochet years: Even after the failure of the first constitutional draft, he admits, there is no appetite for the maintenance of Chicago-style economic policies. One major reason for this, he writes, is that the neoliberals did not worry about inequality at all—former Finance Minister Rolf Lüders said in 2015 that it was just an “envy problem”—but it turns out that inequality really does matter to real people in real communities. As a result, Edwards acknowledges that inequality is “politically important,” which I think is the neoliberal way of saying that it shouldn’t matter. But it is still an important admission from his side, if we are to keep deciding things with elections.
Less convincing is the second reason that Edwards offers: He wonders if Chileans simply “did not realize” how much things had improved because of the current left-wing hegemony over political discourse. (Though even if Antonio Gramsci and Judith Butler are now popular in universities, as he complains, it would take a whole lot of cultural Marxism to make people forget what happened to their families.) But then he points to something that, even if not intentionally, gets to the heart of the matter: He asks whether Chileans wanted more progress than they got. Indeed, the point of Allende’s Unidad Popular was not for Chile to be slightly better than its neighbors at exporting minerals, with a GDP per capita just one-third that of the United States. The idea instead was to create a world without exploitation, and for the countries of the Global South to take their rightful place as equals alongside the countries that had historically exploited them. The fact that this has been hard to achieve does not mean that the people of the Global South do not deserve it. The tragedy of 1973 matters around the world not because anyone thinks that Allende had solved the problem of economic underdevelopment during his short time in office. It matters because it proves, perhaps more than any other 20th-century coup, that as the United States built hegemony within a global capitalist system, it refused to tolerate experiments with socialism in any other country, even if they played by all the rules.
In fact, it was worse if they did play by the rules. Richard Nixon was not afraid that Allende would wreck Chile; he was afraid that democratic socialism would succeed. This is what Nixon told his National Security Council in 1970, several days after Allende’s inauguration:
Our main concern in Chile is…that [Allende] can consolidate himself, and the picture projected to the world will be his success…. If we let the potential leaders in South America think they can move like Chile and have it both ways, we will be in trouble…. No impression should be permitted in Latin America that they can get away with this.
Vincent Bevins
Vincent Bevins is the author of If We Burn: The Mass Protest Decade and the Missing Revolution.
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