Milton Friedman

Milton Friedman's "Chilean Miracle"

by Alejandro Reuss

Dollars and Sense magazine, Jan/Feb 2007

The death last November of Milton Friedman, one of the best known and most influential conservative economists of the 20th century, unleashed a chorus of fawning eulogies. In the days after Friedman's death, the "mainstream" media, conservative economists and policymakers, and rightwing politicians and ideologues gushed about Friedman's commitment not only to "free markets" but to individual liberty and freedom from government intrusion of all kinds. The Financial Times summarized his philosophy as a "passionate belief in personal freedom." The New York Times credited him with inspiring a worldwide move "toward less government and greater reliance on individual responsibility." Margaret Thatcher referred to him as an "intellectual freedom fighter," and Federal Reserve Chair Ben Bernanke hailed his understanding of the "close connection that economic freedoms bear to other types of liberty."

A few reports mentioned the controversies surrounding Friedman's influence over and praise for the policies of Chile's military dictatorship. In 1973, the Chilean military overthrew the constitutional government of socialist Salvador Allende, proceeding to imprison, torture, and murder dissidents by the thousands. The dictatorship's chief economic advisors, known as the "Chicago Boys," had been trained in the University of Chicago's economics department, where Friedman was the most important figure. Friedman himself visited Chile in 1975, giving a series of lectures on "free market" economics, meeting personally with Pinochet, and soon after writing the dictator a lengthy letter advocating a "shock program" for the Chilean economy. Friedman's actions were widely viewed as an endorsement of the dictatorship, its notorious humanrights violations notwithstanding, and he later met with protests at home and abroad. While many obituaries for Friedman mentioned the influence of his "free market" ideas on Chile, few bothered to note the contradiction-a self-styled champion of individual liberty with a weak spot for an oppressive and bloody dictatorship. The New York Times' obituary for Friedman referred to the controversy over the Chile visit as no more than a "bump in the road" for him.

Friedman's relationship to the Chilean dictatorship, however, was no mere anomaly in a lifetime otherwise devoted to individual freedom. Rather, it shows an enormous blind spot in Friedman's conception of liberty. Friedman registered no protest against the dictatorship's human-rights violations in his letter to Pinochet, though he did manage to denounce the "trends toward socialism that started forty years ago, and reached their logical-and terrible-climax in the Allende regime," and to praise Pinochet for the dictatorship's "extremely wise" actions to "reverse this trend." In a famous 1982 column in Newsweek, Friedman described Chile under the dictatorship not only as an "economic miracle," despite the dramatic rise in poverty and inequality under the regime, but also as an "even more amazing political miracle." "A military regime," Friedman wrote, "has supported reforms that reduce sharply the role of the state and replace control from the top with control from the bottom." This supposed reduction in the power of the state, of course, ignored the dictatorship's criminalization of political parties and labor unions, its repression against public assembly and protest, and its practice of "disappearing" dissidents. In Friedman's worldview, it would appear, the dictatorship's "deregulation of motor transport" was a great triumph for human liberty, while state-sanctioned kidnapping, torture, rape, and murder were not worth troubling about.

Friedman's checkered history demands scrutiny above all since so many of the United States' current "free market" ideologues share his blind spot. The Cato Institute, a leading right-wing think tank and influential advocate of Social Security privatization, for example, styles itself a champion of "limited government, individual liberty, free markets and peace." Yet it employs a former official of the Pinochet dictatorship, its Secretary of Labor and Social Security, Jose Pinera, as a senior fellow and co-chair of its "Project on Social Security Choice." So much for the commitment to limited government, individual liberty, or peace-all that's left is "free markets." Appropriately enough, the organization administers a biennial prize for a "significant contribution to advancing human freedom," named in honor of-who else?-Milton Friedman.

Alejandro Reuss is a Dollars & Sense collective member, an historian of modern Latin America, and a doctoral student in economics at the University of Massachusetts, Amherst.

*****

Friedman's Cruel Legacy

by William Greider

The Nation magazine, December 11, 2006 - www.thenation.com

Now that the economists and their camp followers have mourned and celebrated the life of Milton Friedman, allow me to kick a little dirt on the icon. Without question, Friedman was the most influential economist of the second half of the twentieth century, as his admirers claim. What they do not say is that he was also the most destructive public intellectual of our time.

Friedman actually failed as a scientific economist but succeeded as a moral philosopher. His greatest scholarly accomplishment--his monetarist theory of how to regulate money and credit--was intellectually flawed at its core and collapsed when the Federal Reserve tried to follow it. The central bank wisely discarded Friedman's money-supply approach before it did more damage. It is now a forgotten relic at the Fed.

Friedman's broader argument--that a society should be governed by self-regulating markets instead of big government--did better but also did not lead to the utopia he promoted. His "free market" faith has produced instead the very thing Friedman regularly denounced: a bastardized system of interest-group politics that serves favored sectors of citizens at the expense of many others. Enterprise and markets were indeed set "free" of government regulation, but big government did not go away (it grew bigger). Only now government acts mainly as patron and protector for the largest, most powerful interests--the same ones that demanded their liberation. Instead of serving the broad general welfare, government enables capital and corporations to feed off the taxpayers' money and convert public assets into private profit centers, shielded from the wrath of any citizens trying to object. If that is what Friedman really had in mind, he should have said so.

His most profound damage, however, was as a moral philosopher. He championed an ethic of unrelenting, unapologetic self-interest that effectively pushed aside human sympathy. In fact, humans' responsibility to one another has been delegitimized--portrayed as an obstacle to the hardheaded analysis that maximizes returns. Friedman explained: "So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no, they do not."

Pay no attention to the collateral consequences. Your only obligation is to the bottom line. Friedman's message was highly appealing--he promised people a path to freedom--but it triumphed, ultimately, because it served the powerful forces of capital over labor, economic wealth over social concerns. Government was indeed failing on many fronts, especially inflation, and liberalism had no answer. Friedman's answer was alluringly simple. Get rid of government.

People everywhere now understand what Friedman's kind of "freedom" means. America has been brutally coarsened by his success at popularizing this dictum--millions of innocents injured, mutual trust gravely weakened, society demoralized by the hardening terms of life. Most people know in their gut this is wrong but see no easy way to resist it. Friedman's utopia is also drenched in personal corruption. The proliferating scandals in business, finance and government flow directly from his teaching people to go for it and disregard moral qualms. When you tell people in power that their highest purpose in life is to maximize their own returns, there is no limit to how much "good" they will do for the rest of us. I don't recall hearing Friedman express any discomfort. Perhaps he regarded looting and stealing as natural features of capitalism that market forces would eventually correct.

This is what the memorials left out: the cruel quality of Friedman's obliviousness. Art Hilgart, a retired industrial economist, recalls hearing Friedman lecture in 1991 and recommend the destruction of Medicare, welfare, the postal system, Social Security and public education. The audience was dumbfounded.

Finally, a brave young woman asked what this would mean for poverty. "There is no poverty in America," Friedman instructed. A clear voice arose from the back of hall: "Bullshit!" The audience cheered wildly.

*****

Milton Friedman and the Global South

by Walden Bello

www.zmag.org/, 11/27/06

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 soon dubbed the "Chicago Boys," took over the helm of the economy and launched a program of economic transformation with doctrinal vengeance. In light of his much-quoted assertion about political freedom going hand-in-hand with free markets, the irony that in Chile a free market paradise was being imposed with the bayonets of one of Latin America's most bloodstained dictatorships could not have escaped the guru.

Yet Friedman visited Chile during the dictatorship, anointing 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 with a title "The Fragility of Freedom" that could only be ironic in the Chilean context. Even as he accused his critics of being bent on "tarring and feathering" him with the regime's human rights abuses, Friedman took pride in his doctrinal inspiration of what he described as the "Chilean Miracle."


The Chilean Experiment

After his disciples were done with it, Chile was indeed radically transformedfor 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 per cent, then again in 1982-83, when it dropped by 15 per cent.

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 per cent, compared to over 4 per cent a year in the period 1951-71, when there was a much greater role of the state in the economy.

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 per cent between 1980 and 1990, and the percentage living below the poverty line, but above the line of destitution, had increased from 24 to 26 per cent. This meant that at the end of the Pinochet regime, some 40 per cent of Chile's population, or 5.2 million of a population of 13 million, were poor.

In terms of income distribution, the share of the national income going to the poorest 50 per cent of the population declined from 20.4 per cent to 16.8 per cent, while the share going to the richest ten per cent rose dramatically from 36.5 per cent to 46.8 per cent.

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, with manufacturing's share of of GDP declining from an average of 26 per cent in the late 1960's to 20 per cent in the late eighties. 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 1990's, after the Concertacion came to power. In violation of classic 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 per cent to 20 per cent of the population. This modification, which increased internal purchasing power, contributed to the post-Pinochet average yearly growth rate of six per cent a year.

However, with the social democratic regime unwilling to challenge the upper classes, the basic neoliberal contours of economic policy were kept, including the emphasis on agricultural and natural resource exports. This focus on primary product exports has created tremendous environmental stresses. Overfishing along Chile's coasts has gone hand in hand with ecological destabilization from the spread of the fresh salmon and mussel farms inland. 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 that was foisted on other third world countries beginning in the early 1980's through the agency of the International Monetary Fund and the World Bank. Some 90 developing and post-socialist economies were eventually subjected 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, the domestic economy was 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 1990's, 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 1990's.

Yet free-market and structural adjustment policies have been institutionalized so thoroughly that, despite their being now universally seen as dysfunctional, they continue to reign. The legacy of Milton Friedman will be with the developing world for a long time to come. Indeed, there is probably no more appropriate inscription for Friedman's gravestone than what William Shakespeare wrote in 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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