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Now
While economists laud the recently deceased
Milton Friedman for being "a champion of freedom whose work
transformed economics and changed the world," as a full-page
advertisement in the New York Times put it, people in
the South will remember the University of Chicago professor as
the eye of a human hurricane that cut a swath of destruction
through their economies. For them, Friedman will long be associated
with two things: free-market reform in Chile and "structural
adjustment" in the developing world.
Soon after the coup against
the government of Salvador Allende on September 11, 1973, Chilean
graduates of Friedman's economics department, who were later
dubbed the "Chicago Boys," took over the helm of the
economy and launched a program of economic transformation with
doctrinal vengeance. Friedman was often quoted as saying that
political freedom goes hand-in-hand with free markets. The irony
that the bayonets of one of Latin America's most bloodstained
dictatorships imposed a free market paradise in Chile could not
have escaped the guru.
Yet Friedman visited Chile
during the dictatorship, giving his blessings to the radical
free-market, export-oriented thrust of the regime, praising Chilean
dictator General Augusto Pinochet for his commitment to a "fully
free market as a matter of principle," and delivering talks
such as "The Fragility of Freedom" that rang ironic
in the Chilean context. Even as he accused his critics of "tarring
and feathering" him with the regime's human rights abuses,
Friedman took pride in providing doctrinal inspiration for what
he described as the "Chilean Miracle."
The Chilean
Experiment
After his disciples were done
with it, Chile was indeed radically transformed for the worse.
Free market policies subjected
the country to two major depressions twice in one decade, first
in 1974-75, when GDP fell by 12%, then again in 1982-83, when
it dropped by 15%. Contrary to ideological expectations about
free markets and robust growth, average GDP growth in the period
1974-89-the radical Jacobin phase of the Friedman-Pinochet revolution-was
only 2.6%. By comparison, with a much greater role of the state
in the economy during the period 1951-71, Chile's economy grew
4% a year.
By the end of the radical free-market
period, both poverty and inequality had increased significantly.
The proportion of families living below the "line of destitution"
had risen from 12 to 15% between 1980 and 1990, and the percentage
living below the poverty line, but above the line of destitution,
had increased from 24 to 26%. By the end of the Pinochet regime,
some 40% of Chile's population, or 5.2 million of a population
of 13 million, was poor.
In terms of income distribution,
the share of the national income going to the poorest 50% of
the population declined from 20.4 to 16.8%, while the share going
to the richest 10% rose dramatically from 36.5 to 46.8%.
In terms of the structure of
the economy, the combination of erratic growth and radical trade
liberalization resulted in "deindustrialization in the name
of efficiency and avoiding inflation," as one economist
described it. Manufacturing's share of GDP declined from an average
of 26% in the late 1960s to 20% in the late 1980s. Many metalworking
and related manufacturing industries went under in an export-oriented
economy that favored agricultural production and resource extraction.
Mitigating
Friedmanism
The radical Friedman-Pinochet
phase of the Chilean economic counterrevolution came to an end
in the early 1990s, after the Concertacion came to power.
In violation of classical Friedmanism, this center-left coalition
increased social spending to improve Chile's income distribution,
bringing down the proportion of people living in poverty from
40 to 20% of the population. This cautious "Keynesian"
modification, which increased internal purchasing power, contributed
to the post-Pinochet average yearly growth rate of 6% a year.
Unwilling to challenge the
upper classes, however, the social democratic regime retained
the basic neoliberal contours of economic policy, leading to
continuing high levels of poverty, unemployment, and inequality.
Also, the continued emphasis on agricultural and natural resource
exports has created tremendous environmental stresses. Overfishing
along Chile's coasts has gone hand in hand with ecological destabilization
from the spread inland of the fresh salmon and mussel farms.
A booming wood export industry has promoted the growth of tree
plantations at the expense of natural forests, resulting in Chile
becoming the second most deforested area in Latin America after
Brazil. Environmental management is widely acknowledged to be
ineffective, being consistently subverted by the imperatives
of export-oriented growth.
Exporting
the "Revolution"
Chile was the guinea pig of
a free market paradigm foisted on other third world countries.
Beginning in the early 1980s, the International Monetary Fund
and the World Bank subjected some 90 developing and post-socialist
economies to free-market "structural adjustment." From
Ghana to Argentina, state participation in the economy was drastically
curtailed, government enterprises passed to private hands in
the name of efficiency, protectionist barriers on Northern imports
were eliminated wholesale, restrictions on foreign investment
were lifted, and, through export-first policies, domestic economies
were more tightly integrated into the capitalist world market.
Structural adjustment policies
(SAPs), which set the stage for the accelerated globalization
of developing country economies during the 1990s, created the
same poverty, inequality, and environmental crisis in most countries
that free-market policies did in Chile, minus the moderate growth
of the post-Friedman-Pinochet phase. As the World Bank chief
economist for Africa admitted, "We did not think the human
costs of these programs could be so great, and the economic gains
so slow in coming." So discredited were SAPs that the World
Bank and IMF soon changed their names to "Poverty Reduction
Strategy Papers" in the late 1990s.
Despite being now universally
seen as dysfunctional, free-market and structural adjustment
policies have been so thoroughly institutionalized that they
continue to reign. The legacy of Milton Friedman will be with
the developing world for a long time to come. Indeed, the most
appropriate inscription for Friedman's gravestone comes from
William Shakespeare's Julius Caesar: "The evil that
men do lives after them, the good is oft interred with their
bones."
Walden Bello is professor of sociology at the University
of the Philippines and executive director of the Bangkok-based
institute Focus on the Global South.
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