News & Analysis
Bequest of Chicago Free-Market Boys is Chile Violence?
Chile court rules in favour of Patagonia HidroAysen dam ... The court, the highest in the land, rejected an appeal by environmentalist groups who fear it will damage Patagonia's fragile ecosystem. The project, which involves flooding 6,000 hectares (15,000 acres) of land, still needs government approval. It has sparked a number of protests, some of them violent. – BBC
Dominant Social Theme: This is a necessary dam.
Free-Market Analysis: Are the Chile Dam protests symptomatic of deeper dysfunction?
There are plenty of reports of protests over the dam that the Chile Supreme Court just approved (see excerpt above). These don't give the full impact of what's at stake given that there is not one dam planned but a number of them. This is a dam complex.
And it has sparked protests nationwide. The protests slowed the progress of the first project, a $5 billion coal-fired thermoelectric plant that is important to copper mining in the region.
The Brazilian billionaire Eike Batista's Castilla power project was in jeopardy because of them. Its fate was in the hands of the Chilean Supreme Court – and now the Supreme Court has decided in his favor.
There is little doubt protests will continue, and both sides have points to make. But the protests are not the issue. Chile, for all of its vaunted entrepreneurialism and capitalism, is a country in crisis.
It is in crisis due to its history and to the impact that an Anglo-American free-market philosophy has had on its culture and the political and business establishment.
Often in dysfunctional societies, it takes only one or two disconnected events to create the initial conflagration. It seems to come from nowhere but soon takes on a life of its own. It is an expression of deeper discontent.
Chile is in its own way a deeply dysfunctional society and the protests against a complex dam project that affects large swaths of Chile are expressions of this larger dissatisfaction. Society is riven and there is a perception that big money interests are in control in Chile despite the free market rhetoric.
The secret to understanding Chile is to realize the devastation left by Augusto Pinochet's dictatorship and the subsequent adoption of the "Chicago Boys" perspective – one that filled a larger culture vacuum – on how to rebuild a shattered society.
The impact of the Chicago School in Chile should not be underestimated. It's a good example of how ideology can serve political ends and have a lasting impact. Wikipedia tells us the following about the origination of the Chicago School's impact on Chile:
The Chicago Boys (c. 1970s) were a group of young Chilean economists most of whom trained at the University of Chicago under Milton Friedman and Arnold Harberger, or at its affiliate in the economics department at the Catholic University of Chile.
The training was the result of a "Chile Project" organised in the 1950s by the US State Department and funded by the Ford Foundation, which aimed at influencing Chilean economic thinking. The project was uneventful until the early 1970s. The Chicago Boys' ideas remaining on the fringes of Chilean economic and political thought, even after a 500-page plan based on the Chicago School's ideas called the Ladrillo – "The Brick" – was presented as part of Jorge Alessandri's call for alternative economic platforms for his 1970 presidential campaign.
Alessandri rejected Ladrillo, but it was revisited after the 1973 Chilean coup d'état on 11 September 1973 brought Augusto Pinochet to power, and became the basis of the new regime's economic policy. Eight of the ten principal authors of "The Brick" were Chicago Boys.
Juan Gabriel Valdés, Chile's foreign minister in the 1990s, described the Chile Project as "a striking example of an organized transfer of ideology from the United States to a country within its direct sphere of influence... the education of these Chileans derived from a specific project designed in the 1950s to influence the development of Chilean economic thinking." He emphasised that "they introduced into Chilean society ideas that were completely new, concepts entirely absent from the 'ideas market'".
Critics of free-market thinking generally point to The Chicago Freshwater School run by the famous economist Milton Friedman as evidence that free markets can be deeply damaging to society.
Some even mistakenly conflate the Chicago School with a more radical, anarchical school of thought known as Austrian economics, created by Murray Rothbard and supported by Lew Rockwell. This is somewhat naive in our view and expresses a misunderstanding of what free-market thinking really is and how it works.
Milton Friedman was far more of a pragmatist than Murray Rothbard and his mentor, Ludwig von Mises. The latter were interested in the theoretical attributes of Austrian economics. Von Mises even walked out of the Mont Pelerin Society he'd helped found, shouting "You are all socialists." Rothbard was a principled oponent of both central banking and the US military-industrial complex. He even had suspicions that the Cold War itself was manufactured.
Friedman was far more involved in applying his theories to American sociopolitical reality. He helped implement the modern income tax while working for the US government in the mid-20th century. His pragmatism eventually led him to make at least two major compromises with modern-era free-market principles.
The first was to grant that central banking was a necessary evil. The second was not to dispute the idea of a standing army and general military vigilance. Friedman led an admirable attack on the US draft in the 1970s but the result gave the US the all-volunteer army that has proven just as troublesome in some ways as the draft.
Not only that, but by making the draft the focus of his efforts, Friedman left in place – without much seeming demur – the US's larger military-industrial complex. In fact, Friedman supported the first Gulf War (though not apparently the second).
Friedman was a powerful man and his ideas have had consequences. The trouble with Friedman's pragmatic approach was that it tended to vitiate the application of a REAL private marketplace.
Critics of Austrian economics who are new to the field often confuse the Chicago School with Rothbard's more robust views and the Misesian school generally. Unfortunately, the former seems to encourage forms of statism (despite its free-market emphasis) while the latter explains ways to unock a more peaceful and prosperous society.
What occurs in the application of the Chicago Fresh Water School approach to markets is a kind of competition throughout the lower regions of society – visceral and even violent – while the means of money production remains in the hands of the state and the powerful families backing it.
Marry this to military vigilance, and a military-industrial complex of greater or lesser virulence is the inevitable result. One can categorize it to a greater or lesser extent as a form of fascism. The result, among others, is a simmering resentment between the middle and upper classes. Chile is likely an expression of the Chicago School's pragmatism and compromises.
In fact, it is an increasingly noxious brew. The culture having been somewhat shattered, all that is left to replace it is a virulent consumerism that apparently mimics the worst aspects of the United States' brand.
"Chile has suburbs," says one successful businessman who travels regularly to Chile, but asked not to be identified. "They remind you of American suburbs. The houses are big and the cars are big and what's important is getting ahead."
This source points out that it is the consumerism and the lack of a viable traditional culture that has caused the larger cultural dissonance. "People think mostly about getting ahead among the middle class but the upper classes will let them travel so far and no further."
This source believes that this simmering resentment will find outlets such as the dam protests that will continue to roil the larger society. Without a coherent, familial culture to fall back on, bereft of nativist roots due to the past violence and the importation of a consumer culture from the US, Chilean society may be doomed to increased turmoil.
"From a market and business standpoint, Chile most resembles America among Latin American economies," this source concludes. "But many who visit there decide it's not a very comfortable place to live. It's a country in search of a culture, of what it once had and now has lost."
Chile is often pointed to as a South American success story, a place where free-markets have successfuly created deep roots. But in many ways Chile is a lot like other Latin countries with an insular familial elite running things, a striving middle class and a deep pool of poverty. The difference between Chile and other countries is probably that its middle class is larger and its marketplace institutions somewhat stronger.
Conclusion: The larger problems remain. Emplacing a free-market, sociopolitical approach while leaving in place central banking and a standing military is an invitation, ultimately, to creating the kind of society that Chile has now and that the US has increasingly as well.
Posted by Danny B on 04/18/12 12:09 AM
On the subject of the dam,,, just build it. So, you lose a few trees and gain a lake.
What's so bad about that? It's not like the biosphere of Patagonia is that fragile.
Chile has 70 volcanoes.
Click to view link
They kick up on a regular basis.
Click to view link
As we all saw with Mt. Saint Helens, volcanoes can trash the biosphere pretty well.
The dam isn't such a big deal.
Reply from The Daily Bell
Perhaps the article really wasn't about dams? ...
Posted by taxesbyanyothername on 04/17/12 09:45 PM
The list of countries with a reasonable amount of public debt is pretty short. I would not even consider moving to any of them except Chile. Of course, a grass hut on Wallis, or Futuna, may turn out to be much safer than anywhere that you can read this from.
Posted by alexsemen on 04/17/12 08:06 PM
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Posted by NAPpy on 04/17/12 07:19 PM
What's that Mises quote about it being ok to be ignorant about economics, but not being ok to make policy proscriptions out of that ignorance? Or was it Rothbard? Anyways, it seems to be applicable here.
Posted by earnst on 04/17/12 04:43 PM
I've been thinking about fleeing there too.
Posted by nithsdale on 04/17/12 03:03 PM
Having spent some time in Chile in the 1970's and then last year, the very idea that Chile has a national cnaracter is pure hokkum. The country, a long strip of land facing the Pacific, includes so many climates that north and south of the country are not recognizable to each other and the towering mountain ranges dwarf everything in shadow. The early inhabitants maintained separate areas and to this day are still incognito.
Chile became known to the world thanks to seafarers. As a result, it attracted these people and different communities were established with still separate cultures. The Spanish gave loose governing structure to their colonial towns but never consolidated it outside their settlements and so Chile grew as a crazy quilt of Europeans fleeing problems at home for the last two hundred years, mirroring the American experience but without the drive for self determination. The move to make Chile more Chilean was born in the 20th Century and has been a tempest among the European groups who have stayed and assisted their area growths.
Chile is not an easy country to get consensus on anything. Many like it that way since it does insure some form of freedom but when the "nation" needs to unify for its existence, it turns to men of steel, Bolivar, Sam Martin et al, inlcuding Pinochet, for some sense of character until the crisis passes. That too is borm of the European habit.
All of South America is growing as it never did before. The immigrant populations have taken hold and finally decided they are never returning to whence they came but should dig in to what they own. Like here in the USA, the modern world requires "energy" source and so Chile must plan for it. The present population does not have the resources to accomplish its need, either in personnel or investment so must form an alliance with business and industry over a much broader area, particularly those other SA nations with a similar history along the Atlantic Ocean. Their needs are the same!
To constantly credit "elites" with any economic change is to reject the true facts that people, even when they do not know a lot about things, still want those things and will force them into being. The Supreme Court, in Chile, is like our own. It listens to what the lower courts transmit, and delivers an answer when others are not able to give voice to the larger cry.
Chileans will exhult when the electricty is always available and the people and their industry will prove that the dams are worth the effort!
Reply from The Daily Bell
No Asian wealth, Nithsdale?
No "hidden hand" of inscrutable oriental Money Power?
You are departing from your script ...
Anyway, your point is apparently (and we're not surprised) that the disparate peoples of Chile need strong, resolute leaders like Pinochet to reach "success" as a "nation." But nations are not people and success does not belong to aggregations but individuals.
Perhaps you are confusing the people of Chile with team sports ...
Posted by RDS on 04/17/12 02:08 PM
As someone originally from the US who lives in Chile, I found your article quite interesting. Some points I agree with more than others, though I think some of the claims are a bit exaggerated.
I agree that Chile has many problems, and like the rest of Latin America, quite divided by class lines (especially in the capital, Santiago). While I'm not a fan of Milton Friedman due to his being an apoligist for statism, nor Pinochet for obvious reasons, I would argue that Chile survived his military dictatorship admirably well. No state would support Misean/Austrian economic policy, and Pinochet's support of the Chicago school was far better than any other statist alternative.
I would say that today Chile has a freer economy and less government interference than any major country in the OECD, which makes it a pretty good place to live in my opinion. Due to the holdover from the dictatorship, the military still holds a somewhat elevated position in society, which I would like to see done away with, but it still doesn't go invading other nations or interfering in the daily lives of Chileans. That's something you definitely can't say for the US, which I would argue is far, far more of a fascist state than Chile.
While US style consumerism has definitely reached Chile, I would say that Chile still does maintain a distinct, unmanufactured, traditional culture and strong family values, something that is seldom found except for in pockets in the US. Here in the countryside there is a relaxed live an let live attitude, largely free from the rat race and the shallow aspirations that plague large sections of the capital its surroundings. In fact, I would say that the main downside to Chile is the lack of consumer selection found elsewhere in North America, Europe, Oz/NZ, or east Asia, though that doesn't bother me much.
Though it is far from perfect, I think Chile is a great place to live and free from many of the problems that have infested other nations with the totalitarian tip toe of statism. Just look next door at Argentina.