Richard Davies - Why is inequality booming in Chile? Blame the Chicago Boys
Milton Friedman
thought his disciples had created an economic ‘miracle’ in Chile’. But their
policies soon backfired
We thought that
inequality would, in the end, disappear” says Rolf Lüders, recalling his time
at the helm of the Chilean economy. Now in his 80s Mr Lüders is one of a group
known as the ‘Chicago Boys’ who are held responsible for the extreme inequality
seen in Chile and who tend to be vilified during protests and riots, including
those of the past two weeks. I went to Santiago to spend time talking to people
at both ends of the income spectrum, and the Chicago Boys themselves. Chile was once a pin-up
economy, lauded as the model other emerging economies should copy - what went
wrong?
The Chicago Boys were
exchange students who travelled to the US to study economics, the idea being
that they would return home to teach, driving up standards and encouraging
their peers to abandon socialism-inspired ideas. Their impact would be far
greater than anyone imagined. After General Augustine Pinochet seized power in
1973 the dictator quickly promoted the Chicago-trained economists to
ministerial positions. A thick book of market-orientated policies they had put
together, known as El Ladrillo (‘the brick’) became a blueprint setting out how
the Chilean economy must be run.
El Ladrillo diagnosed
the bloated state as Chile’s biggest problem-the public sector was duly
slashed. Between 1973 and 1980 the number of state-controlled companies fell
from 300 to 24 and there were big cuts to budgets for infrastructure, housing,
education and social security. The early results were disastrous--Chile’s newly
liberalised financial sector was crippled by a crash in 1982—but with time the
country began to bloom, growing 7 per cent a year on average between 1985 and
1997. There was low inflation and Chile’s investment and export rates became
the best in South America. Milton Friedman, who had taught Mr Lüders and his
compatriots in Chicago, called it ‘the miracle of Chile’.
Inequality began to rise
sharply too - but two pillars of the economists’ plan made this a secondary
concern. The first was the belief that poverty, which was more important than
inequality, could be eradicated by growth. Here Chilean data and the accounts I
heard in Santiago chime and show the Chicago Boys were, in a way, right. Fully
17 per cent of the population were recorded as indigent in 1987 (meaning they
could not afford food) and by 2000 this had fallen to 6 per cent. At the ‘Los
Blanco’ market in San Bernardo—a low-end market in a poor district—I met people
in their 50s who recalled being cold and hungry in their youth and regarded
Chile’s economic expansion as a reason for their improved lot... read more:
https://www.theguardian.com/commentisfree/2019/nov/13/why-is-inequality-booming-in-chile-blame-the-chicago-boys
