NEOLIBERALISM IN CHILE: ESTABLISHMENT, CHARACTERISTICS, ADVANTAGES - HISTORY - 2025

The neoliberalism in Chile was implemented during the dictatorship of Augusto Pinochet, in the 70s and 80s of the twentieth century. Previously, there had been some attempt to implement this system in the country, but it had practically remained in the theoretical sphere.

Neoliberalism is a doctrine that comes from the economic liberalism developed after the Industrial Revolution. In general terms, it is a theory in which the market is given primacy, affirming that the State should not have any role (or a minimal one) in economic structures.

Neoliberalism began to be applied in Chile with Augusto Pinochet

Faced with its liberal origin, neoliberalism also has a political charge, especially the one applied in Chile: it was contrary to the party system and profoundly anti-communist.

The theory arrived in the country by some economists from the Catholic University who had studied in Chicago, the intellectual center from which neoliberal ideas spread.

These economists found a favorable field during the dictatorship, despite some initial reluctance from a sector of the military. The results of these policies were mixed. Some macroeconomic data improved, but a good part of the population, employees and workers, saw their living conditions deteriorate.

Establishment

Background

In the 1950s there was a first attempt to impose neoliberalism as an economic system in Chile. The then president, Carlos Ibáñez del Campo, received advice from the Klein Saks Mission for three years, from 1955 to 1958, for this. However, the recommendations were never implemented given the opposition generated.

Chicago School

It was precisely in the same 1955 when the Faculty of Economics of the Catholic University of Chile reached a collaboration agreement with the American Agency for International Development (USAID).

Through this agreement, several Chilean students completed their training at the University of Chicago, the center of global neoliberalism.

These students ended up being theorists of the establishment of the system in Chile. Among them were Sergio de Castro, Pablo Baraona, Álvaro Bardón and Sergio de la Cuadra. Many of the so-called Chicago boys were part of the Pinochet governments.

The brick

The main theoretical work that they developed, and that later served for the implantation of liberalism, was a document that they called El Ladrillo. This, drawn up in the early 1970s, established the lines of action for Chile to become a neoliberal country.

At first, El Ladrillo was going to be part of Jorge Alessandri's economic program, but his electoral defeat against Salvador Allende prevented it. It had to be the military coup of 1973 that provided the opportunity for the Chicago boys to implement their proposal.

military government

The first economic measures taken by the military government after the coup were already neoliberal in nature. However, the country's situation is that aspect did not improve. Given this, in 1975 one of the Chicago boys, Sergio de Castro, was appointed Minister of the Economy.

According to historians, at first there was no consensus among the military protagonists of the coup. Faced with those who defended neoliberalism, there was a sector in favor of a national-corporatist option. It was the first who prevailed.

From there, the reforms associated with this ideology followed. First, with the so-called shock policies until 1976. The visit to Chile in 1975 by Milton Friedman, the main theorist of neoliberalism, led to a series of immediately applied recommendations.

By 1978 the entire military junta was in favor of neoliberalism. The following year there were reforms called "the seven modernizations", which introduced the most important measures to strengthen the model.

However, Milton Friedman himself declared that “he never agreed with the adaptation that the group of Chilean economists led by Sergio de Castro made of his theory, and that having determined a rigid dollar at the beginning of the implementation of the model destroyed the projection of Chile from the beginning ”.

characteristics

Economical

Being an eminently economic doctrine, the characteristics of Chilean neoliberalism mainly affect this area.

Following neoliberal principles, the economic rationale focused on competition, eliminating (or limiting as much as possible) the role of the state.

Thus, it is understood that the market regulates itself, eliminating the weakest companies and rewarding the most profitable. In theory, this would cause prices to fall, quality to increase, and production costs to fall.

Another of the characteristics was to allow the opening to the outside of the markets. Tariffs had to be eliminated and, in fact, the Chilean government reduced them to the maximum.

As for prices, the state should not interfere, not even with basic necessities. The theory states that competition and the law of supply and demand are the factors that determine what each item costs.

Finally, public wages must be reduced, as well as income taxes. On the contrary, those of added value (such as VAT) rise to cover budgetary needs. In the end, this benefits high-income companies and companies compared to the working population.

Education

In education, neoliberal theory favors private centers over public ones. The way to do this is by awarding grants and then allowing them to choose the type of student. It is a vision of education that assimilates it to the operation of a company

Regarding the health system, neoliberalism is also committed to privatizing medical centers. The State only limits itself to building the infrastructures, then handing them over to private companies.

Policies

The political characteristics of Chilean neoliberalism are quite specific to the country. In reality, the theory does not affirm that an authoritarian state is necessary to develop the doctrine, but the military coup united both concepts.

Pinochet and his supporters criticized the political party system and ideological pluralism. In a way, for them, democracy, with the popular vote, was only a way of prioritizing social interests over individual ones, something that harmed the nation.

Advantage

The advantages of the implementation of the neoliberal model are seen, especially, when macroeconomic data are analyzed. By 1981 inflation had been subdued. For this, the currency was changed and a fixed exchange rate was set with the dollar.

As a positive effect, the abolition of tariffs caused products that arrived from abroad to drop a lot in price, resulting in principle more affordable for the population.

On the other hand, the growth figures experienced a great boom. This and the sale of public companies allowed a considerable reduction in the fiscal deficit.

Disadvantages

The problem that neoliberalism brought with it in Chile was that it left behind a good part of the population. Good macroeconomic data contrasted with microeconomics; that is, with what people perceived on the street.

For example, inflation that had been reduced in 1981 later shot up again. The fixed exchange rate with the dollar had to be eliminated when the external debt reached 16 billion dollars. In fact, the government was forced to intervene some companies in 83 to prevent their bankruptcy.

On the other hand, salaries suffered a large reduction. It is estimated that in the period between 1974 and 1980, real wages were barely three-quarters of those of 1970.

As for unemployment, this increase in a very considerable way. The drop in tariffs -which hurt national companies- and other factors led to it reaching 30% between 1982 and 1983.

References

1. Schoolchildren. Dictatorship in Chile: The neoliberal model. Obtained from escolar.net
2. Biography of Chile. History of Chile: Recent History. The neoliberal model. Obtained from biografiadechile.cl
3. Chilean Memory. Conformation of the neoliberal ideology in Chile (1955-1978). Obtained from memoriachilena.cl
4. Chossudovsky, Michel. Chile, September 11, 1973: The Inauguration of Neoliberalism, “Shock Treatment” and the Instruments of Economic Repression: The Junta's Deadly “Economic Medicine”. Retrieved from globalresearch.ca
5. Klein, Naomi. Milton Friedman did not save Chile. Retrieved from theguardian.com
6. Solimano, Andrés. The Chilean Development Model and the Limits of Neoliberal Economics. Retrieved from wider.unu.edu
7. Opazo, Tania. The Boys Who Got to Remake an Economy. Retrieved from slate.com