Chile: Latin America’s most successful country is in a social downward spiral

Economists appreciate Latin America on its own terms. It is a treasure trove of examples of how potentially successful countries become outsiders because of poor governance.

In Venezuela, a humanitarian disaster; in Argentina, stagnation and insolvency; in Colombia, guerrilla war with drug lords; in Bolivia, a military coup; and so on.

A volcanic environment incompatible with economic growth.

The exceptions can be counted on the fingers: Tiny Uruguay with a developed banking sector, the offshore republic of Panama and Chile – a success story in itself.

In recent decades, this country has eliminated extreme poverty, built skyscrapers in its capital, and become a destination for migrants from all over the continent.

However, in mid-October 2019, fans of the “Chilean economic miracle” were bitterly disappointed.

The pogroms that have accompanied the massive street protests for three months have dealt a severe blow to the Chilean economy. Trade and the tourism sector have been particularly hard hit.

Santiago’s central avenue looks like it has survived the shelling, and transatlantic planes from Europe take off for Chile half empty. And that’s not even considering the rise in unemployment and the outflow of foreign capital.

However, the most important showcase that the protesters have smashed is symbolic. It is a prime example of the success of “brutal Chilean neoliberalism,” as the protesters themselves call this economic model.

Hated by some, accepted by others, this model is now under scrutiny. If the diagnosis of neoliberalism is confirmed, the effects of the crisis in Chile will be felt far beyond Latin America.

After the demonstrations began on October 18, forty Catholic University economists wrote an open letter admitting they could not have foreseen the crisis and calling for more attention to inequality in Chilean society.

They have always thought that economic problems are the most difficult in the social sciences. But in Chile, they are confronted with something that seems much more complex. Now they have to look back and figure out precisely what they missed.

Nearly half a century ago, the Catholic University of Chile played a crucial role in what many now call the “Chilean economic miracle.” More a marketing slogan than an academic term, it emerged in the 1970s thanks to respected Western economists who publicly supported General Augusto Pinochet’s market reforms.

The face of Western support for the Chilean military junta was the founder of monetarism, the influential American economist Milton Friedman. Friedman inspired a generation of “Chicago Boys” – young Chilean economists who studied the new market economy at the University of Chicago in the 1960s.

The Cold War was in full swing, and the U.S. government actively used educational programs to promote pro-capitalist ideas in Latin America.

After the 1973 military coup, the “Chicago Boys,” who had supported the defeat of the Socialists, proposed an economic reform program to Pinochet.

The young technocrats’ prescriptions were so radical that they initially scared off the Chilean generals (as did Salvador Allende’s 1970 campaign opponent, who called the Chicago team “lunatics”).

But the desire to retain sole power and the apparatus’s struggle with the leader of the conservative wing of the army, General Gustavo Li, forced Pinochet to undertake a risky experiment.

It was, in fact, a no less revolutionary project than the construction of the democratic socialism of the recently deposed Allende. The reasons for Pinochet’s initial hesitation are understandable.

First, military regimes in Latin America are not usually prone to economic freedoms, preferring a solid state, patriotism, and spirituality.

Second, what the free-market advocates in Chicago were proposing, was in stark contrast to the prevailing view of economic order at the time.