Invisible Hand and Iron Fist
by Alejandro Ruess
Dollars and Sense magazine Nov/Dec 1999
After taking power in a 1973 coup, General Augusto Pinochet
ruled Chile for 17 years. As of earlier this year, he had every
reason to believe he would never be prosecuted for the atrocities
committed by his regime. The Chilean military had granted itself
a blanket amnesty, and Pinochet himself enjoyed immunity as a
Last spring, however, Spanish judge Baltasar Garzon brought
charges of torture and genocide against him, and Pinochet was
arrested during a trip to London. He remains there under house
arrest, and it now seems as though death may be the only way he'll
escape judgment for his crimes. These include the more than 3,000
Chileans who were "disappeared"-murdered in state custody,
their fates kept secret-during his years in power.
During Pinochet's dictatorship, he and his cohorts not only
terrorized their country's citizens; they also methodically dismantled
the popular political institutions Chile had known before the
coup, and tried to erase from the minds of Chileans the memory
of their democratic traditions. Part and parcel of this violent
restructuring was adoption of a neoliberal, "free market"
economic model, espoused by a group of economists trained in the
school of Milton Friedman.
Today, as Pinochet awaits possible trial, Chile still hasn't
recovered from his years in power. In fact, the civilian governments
that have run Chile since 1990, even coalitions including socialist
members, have continued to carry out his economic policies. Of
all the dark shadows cast from those days, one of the longest
is that of Chile's so-called "economic miracle."
Chile's military coup took place on Sept. 11, 1973. By the
end of that day, President Salvador Allende was dead, and the
presidential palace had been reduced to a burning ruin. A similar
fate awaited Chilean democracy. Pinochet reigned as the nation's
absolute dictator until the restoration of civilian rule in 1990,
continued as commander-in-chief of the Armed Forces until 1998,
then took the office of senator-for-life provided him in the dictatorship's
Though he hasn't been head of state for nearly a decade, the
order that Pinochet wrought in Chile lives on. While the structure
of military impunity is showing its first cracks -a new and narrower
reinterpretation of the amnesty law, and new human-rights investigations-the
Armed Forces retain their "advisory" role. Chile's political
elites are still committed to the neoliberal economic model instituted
by the dictatorship. And the country's traditions of egalitarianism
and social solidarity remain in tatters.
In the days after the 1973 coup, the military was divided
over how radically they should remake the country they controlled.
One group argued that after a period of "repressive pacification"
aimed at the political left, the armed forces could give way to
a civilian government and return to the barracks. A second faction
argued instead for a thorough transformation of Chilean society.
The second, more extreme group, was to find allies in a group
of Chilean economists, trained at the University of Chicago to
be champions of the free market, and soon labeled derisively "the
Chicago Boys." The dictatorship would eventually take up
the neoliberal model they offered, not only as economic policy,
but as a whole new concept of society.
The Chilean social scientist Tomas Moulian has termed the
Chile created by the dictatorship a "consumer's paradise"
(though this only applied to a small part of the population) and
a "citizen's wasteland." The dictatorship destroyed,
by means of terror, the institutions of democracy and civic association.
It built in their place an atomized, individualistic society founded
on the idea that the only true sovereignty is consumer sovereignty.
When observers in the mainstream media claim to be perplexed by
the dictatorship's mixture of political authoritarianism with
economic liberalism, they fail to grasp the unity of Pinochet's
political and economic policies. The neoliberal economic model
was, in fact, at the heart of the totalitarian project.
Allende's unexpected victory in Chile's 1970 presidential
election threw both the U.S. Ieadership and the Chilean right
into a frenzy. The Popular Unity (UP) had clearly proclaimed its
intention to expropriate leading industries and banks, nationalize
the leading export (copper), and redistribute land and income,
in order to pave a democratic and peaceful "Chilean Road
to Socialism." But as then-U.S. National Security Advisor
Henry Kissinger would later say, the United States was not about
to "sit by and watch a country go Communist because of the
irresponsibility of its own people."
After the CIA failed to prevent Allende from taking office,
the enemies of the Popular Unity would bide their time until it
was possible to overthrow the constitutional government.
The UP enjoyed a freedom of maneuver during its first year
it would never have again. Its early successes would give way
to two years of deteriorating economic conditions, increasing
political polarization, and growing sentiment in the Armed Forces
for a military coup. (Matters were almost certainly made worse
by international financial pressure directed against the goals
of the Chilean government.) But while the UP would never again
match its electoral high-water mark of just over 50% of the vote
(not counting spoiled or blank ballots) in the April 1971 municipal
elections, its supporters would never abandon it. Even in its
trying final year, the party would win over 43% support in the
March 1973 congressional elections.
This impressive result probably sealed its fate. The opposition
had expected to win the two-thirds majority needed to impeach
Allende. Now it despaired of even being able to unseat the Popular
Unity in the next presidential election, slated for 1976.
On the day of the coup in 1971, each of the four members of
the new military junta (the commanders of the Army, Navy, Air
Force, and the national police force known as Carabineros) spoke
on the radio. Air Force Commander Gustavo Leigh promised to "root
out the Marxist cancer" from Chilean society.
Among the dictatorship's first measures was the banning of
political parties and trade unions. Chile's industrial workers
had been the bulwark of the UP and other parties of the left.
It was in Santiago's industrial suburbs that the toughest resistance
to the military coup was put up. Some workers held out for days
in their factories. Those who survived would be repaid for their
resistance in the stadiums and barracks the military had converted
into concentration camps.
As indiscriminate as the military was in its terror - anyone
vaguely accused of having been "involved" in leftist
politics was in danger of arrest, torture, or disappearance -
workers were the prime enemy. Urged on by the United States, Chilean
military officers, like others in Latin America, viewed themselves
as the guardians of the nation -at first against external enemies,
but increasingly against the "internal threat" of social
The Chilean Armed Forces came to power, however, with an outlook
not only anti-Marxist and anti-worker, but anti-politics in general.
Viewing themselves as professionals who wouldn't dirty their hands
in the sordid business of politics, they saw politicians as incompetents,
opportunists and demagogues, and blamed them for the "chaos"
into which Chile had been plunged. The dictatorship banned all
political parties-not only those of the left, but also the Christian
Democrats and even the right-wing National Party.
The Chicago Boys shared this anti-political outlook, and would
give it ideological coherence. Presenting themselves as "experts"
in "economic science," they appealed to the Armed Forces'
own ideal of apolitical "professionalism." What was
wrong with Chile, they argued, was, in a word, "politics."
And so the economists and the soldiers joined hands-an alliance
In the wake of the coup, the branches of the Armed Forces
divided UP governmental functions, with the Navy taking over economic
policy. Relations between advisors like the Chicago Boys and military
ministers were often acrimonious-the neoliberals were critical
of what they saw as the old-fashioned populist and corporatist
economic ideas of their military bosses. By 1975, the eclipse
of the military men had begun, as the Chicago Boys gained full
control over economic policy.
Pinochet was gradually consolidating his own personal supremacy,
marginalizing potential rivals and promoting younger officers
loyal to him. In this process he relied on the Chicago Boys, as
well as on the secret police (DINA), whose commander, General
Manuel Contreras, answered directly to him. DINA not only imposed
a reign of terror on the dictatorship's opponents, but also kept
tabs on other members of the Armed Forces.
Tensions grew between the two pillars of Pinochet's authority,
coming to a head in 1977. Contreras, whose economic ideas had
more in common with fascism than with "free market"
capitalism, exposed a financial scandal that reflected badly on
the Boys. The technocrats replied with criticism of the DINA's
war mentality. When DINA's assassination, in Washington D.C.,
of former Chilean ambassador and cabinet minister Orlando Letelier
and his American colleague Ronni Moffitt jeopardized Chile's relationship
with the United States, Contreras fell and the ascendancy of the
Chicago Boys was complete.
In this internal power struggle, the economists had benefited
from the strategy Pinochet used to try to lend his dictatorship
legitimacy. He had been late in joining the coup plotters, and
therefore it looked better for him to put less emphasis on having
"rescued" the nation from communism, and more on having
overseen its "modernization." The neoliberals offered
a scheme that fit in well with this image. The Chicago Boys argued
that while the UP had politicized the economy to a greater degree
than previous administrations, this tendency had been endemic
in Chile for far longer. Thus, the reform of Chilean economics
was not a matter of undoing three years of economic history, but
When they got their hands on Chile's stagnant and inflationary
economy in 1975, the Chicago Boys administered a "shock treatment"-they
devalued the currency, reduced public expenditure and greatly
increased effective interest rates, triggering a major recession.
They also increased privatizations and slashed tariffs.
The resulting economic contraction and trade liberalization
torpedoed Chile's industrial sector, the lifeblood of the working
class, further undermining the dictatorship's opponents.
The land reforms carried out under Chile's previous two civilian
administrations were not reversed, since the traditional landed
estates were not restored. Rather, land ownership was reconcentrated
for commercial and export-oriented purposes. Exports expanded
into the so-called "Three F's": fruit, forest products,
and fish. For all their talk of "modernization," the
dictatorship's economists shifted back to a raw-material export
model, albeit one less single-minded in its focus on copper than
it had once been.
For all the alleged "success" of the neoliberal
model, the economy under the dictatorship was hardly impressive.
Periods of rapid growth in the late 1970s and the mid-to-late
1980s were offset by two deep recessions. The recession of the
mid- 1970s was, as noted, exacerbated by the neoliberals' "shock
treatment," and the even deeper crisis of the early 1980s,
while worldwide in scope, was particularly acute in Chile, since
it had been opened even more than other Latin American countries
to international trade and capital.
The Chilean banks, recently privatized, had borrowed extensively
abroad in the period preceding the crisis. When the credits disappeared
and the edifice of debt-led growth came crashing down, the banks
went belly up. The Chicago Boys insisted on staying the course
even as the crisis deepened. In 1982, however, Pinochet demanded
the resignation of Economics Minister Sergio de Castro, a sign
that the Boys had fallen.
The dictatorship, so recently dedicated to privatizing anything
and everything, hastened to renationalize the banks. (Its opponents
sardonically christened this the "Chicago Road to Socialism.")
Along with economic collapse, the dictatorship would face its
most severe political crisis-the "period of protest"-and
would answer with the worst repression since the days immediately
following the coup.
Pinochet's new economic team, still composed of neoliberal
economists, but not the Chicago mafia that had ruled since 1975,
was charged with getting the economy back on track in time for
the plebiscite the regime would face in 1988. With the economic
"boom of the 1980s," the military faced the plebiscite
confident of victory.
As events turned out, Pinochet became one of the few dictators
ever to lose an election in which he was the only candidate. The
"No" vote rested on the issues of human rights and poverty-
the thousands of disappeared, and the millions of poor people.
The next year, the regime ran as its presidential candidate former
Finance Minister Hernan Buchi, and lost.
The political and social changes wrought by the dictatorship,
however, were designed to outlive it. The constitution of 1980
installed a military tutelage, creating limited-term, non-elective
senate seats for several former government officials, and extending
lifetime seats to past presidents, including Pinochet. This set-up,
still in place after a decade of civilian rule, insures a bastion
of military influence in the legislative branch
The constitution also guaranteed military independence from
the civilian government, by limiting the president's power to
sack officers, making it impossible to remove the commander-in-chief
of any Armed Forces branch during a term in office, and forcing
the president to get approval from a National Security Council
(including the four branch commanders) before requesting the resignation
of any branch commander. The constitution further guaranteed that
the Armed Forces would be self-perpetuating, by forbidding the
creation of any new armed force beyond the existing four, and
making their respective military academies the exclusive path
for bringing in new officers.
Finally, the constitution includes clauses - such as "The
armed forces ... are essential for national security and guarantee
the institutional order of the Republic," which imply that
the military has permanent right to intervene any time "order"
The most important neoliberal transformations, likewise, have
outlasted military rule. They also transcend the economic sphere.
Pinochet's economists did not just decontrol prices, privatize
industry and abolish tariffs. They also redesigned, along neoliberal
lines, Chilean labor law, social welfare, education and social
security. The 1978 labor code, for example, was founded on the
principle of the individuals right to contract, and legally restricted
the rights to collective action that Chilean workers had enjoyed
before the dictatorship.
Social welfare benefits were restricted to the very poor (and
therefore stigmatized). In education and social security, respectively,
the dictatorship instituted the school choice and pension privatization
schemes now favored by U.S. conservatives. In each case, the intent
and effect was to undermine social solidarity and the ethic of
social rights in favor of individual striving.
Deprived of real social choices-like voting for political
parties that favored spending more on education or social security
benefits-Chileans were left with purely individual choices-like
moving one's children from one school to another, or one's pension
from one mutual fund to another.
This last-mentioned reform, by the way, had the added appeal
of making Chilean workers dependent on the profitability of private
companies in whose stocks their pension funds were invested. The
man most responsible for the privatized pension system, Harvard-trained
Minister of Labor and Social Security Jose Pinera, has been explicit
about the intended political and social effects of the measure-it
was meant to make a worker's retirement income "depend on
his own efforts ... not on the government or on ... pressures
brought by special interest groups," thus "depoliticizing
a huge sector of the economy," lessening "political
conflict and election-time demagoguery," and "promot[ing]
social and economic stability."
The changes wrought by the dictatorship were the lance point
of a cultural counter-revolution. Chile has always been a very
unequal society. Now, however, as the country with the second-worst
income distribution in Latin America, it exhibits a tolerance
for inequality and conspicuous consumption that were relatively
unknown before the dictatorship. It has learned to fear and reject
"utopian" plans, with "utopian," sadly, defined
as virtually anything outside the status quo.
Even the leaders of the Socialist Party have reconciled themselves
to "the market." The Socialists have played second fiddle
to the Christian Democrats in the coalition, known as the Concertacion,
which has governed Chile since the restoration of civilian rule,
and which has offered the world the sad spectacle of former political
prisoners and exiles demanding that Pinochet be returned to Chile.
The Concertacion's candidate in this fall's presidential election,
for the first time, will be a Socialist. Ricardo Lagos, who courageously
appeared on Chilean television calling for a "No" vote
against Pinochet in the 1988 plebiscite before any other politician
dared, now emphasizes continuity, rather than change, in the country's
If the neoliberal model is still kicking in 2006, when the
next president's term is due to end, it will have a longer history
under Chile's restored "democracy" than it had under
military rule. During the last two administrations, with the neoliberal
model in place, Chile has seen rapid economic growth. Poverty
has been reduced substantially (owing to job creation and increased
antipoverty programs), but even official government reports despair
of making any further such advance within the neoliberal model,
because the export economy depends on cheap labor. There has been
no reduction whatsoever in inequality.
Moreover, the Chilean "miracle" has recently begun
to show cracks even on its own terms. The economy is in recession.
Chile's GDP for the first quarter of 1999 showed only 2.3% growth.
This coincides with the deepest political crisis of the Concertacion
For the last quarter century, the neoliberal model has been
peddled to the world as an example to be emulated. It has replaced
Chile's heritage of democracy and egalitarianism as the country's
legacy to the world. These values are what the dictatorship sought
to "root out," calling them a "cancer." They
were once the heart of Chile. And despite all the terror used
by the Armed Forces, they were never entirely destroyed.
A picket fence surrounds the house, in the coastal town of
Isla Negra, where the Chilean poet, Nobel laureate, and communist
Pablo Neruda lived and is buried. Pilgrims come to the house,
which is now a museum, and leave tributes scrawled on the fence.
One such tribute reads: "De un cancer a otro, te quiero"-From
one "cancer" to another, I love you. Neruda died shortly
after the military coup. Chile has suffered a long night since
then. But it shows persistent signs of life.
Alejandro Reuss is a Dollars & Sense collective member.