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 senator.

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 1980 constitution.

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 revolution.

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 of technocrats.

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 50.

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" is threatened.

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 economic policies.

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 era.

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.

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