Chile: Socialism, Dictatorship, and Liberalism

First Published: 2005-01-15

Posted at the Ludwig von Mises Institute web site January 13, 2005.

With Augusto Pinochet awaiting trial for ordering the killing, torture, and imprisonment of political dissidents during the 1970's, Chilean politics is back in the news. This is still a sore spot for most every Chilean, and even here in America, any sympathetic mention of either Pinochet or his Marxist predecessor Salvador Allende can provoke some harsh words.

American leftists hate Pinochet for all the wrong reasons, despising his role in liberating the Chilean economy and ending Allende's drive toward making Chile into another Cuba. Still convinced that Fidel Castro is Latin America's most enlightened leader, many Che Guevera devotees still chafe under Allende's ignominious defeat.

Just as disturbing is the fact that many conservatives did-and still do-look the other way on Pinochet's record on torture and suspension of basic liberties. Indeed, conservatives in the US have recently argued for the merit of torture and detention as effective means of controlling dissident populations. T he fact remains, however, that few subjects inspire more debate among students of Latin American history than the Pinochet question, although its days as anything more than an academic issue may soon be numbered.

For most Chileans, and especially the young, the dark days of the junta have become quite irrelevant in the daily lives of modern Chileans. While Chile is rarely found in the sensationalist American news, the economic realities of modern Chile are often in the international financial news. Chile, it turns out, is a great place to invest and to do business. Unlike many Latin American countries, Chile is not notable for its strongman politics (like Venezuela) or its ongoing guerilla wars (like Colombia), but is rather a place where people prefer to get on with the business of doing business.

One might even say that Chile has become a nation of shopkeepers-a phrase once derisively used by foreign observers to describe the British. Throughout the 1990's, and today, under the current administration of "socialist" Ricardo Lagos, Chile has furiously been attempting to secure free trade agreements with every country it can from New Zealand to South Korea to the United States. Free trade, low debt, low taxes, and relatively laissez-faire economics are at the heart of the ongoing economic expansion in Chile. Long a practical and trade-minded people, the Chileans are now enjoying the fastest growing economy in Latin America, and are considered an increasingly good investment choice by the world financial community. And, as some have said, it is well on its way to becoming a first-world nation.

One would think that a nation on the verge of becoming one of the richest in the world would be a good thing, but one should never underestimate the poor judgment of those clinging to the tenets of defunct economists. The Latin American left, of course, has never been one to admit that capitalism has brought prosperity to anyone anywhere in the history of mankind, so Chile remains a significant thorn in their side.

Much of this is due to the fact that the opening of the Chilean economy came during the Pinochet regime, a regime that embodies the antithesis of all that is good and decent among Latin American leftists. Yet, most insidious for the left is the fact that Chile has so thoroughly repudiated the basic foundations of Dependency Theory. Instructed by bad economics and worse ideology, many intellectuals of Latin America concluded that the reason Latin America had not become a global economic powerhouse was because there had not been enough regulation put on the economy, and that they had been long exploited by the United States and its European allies.

While decades of American meddling in Latin America is hardly deniable, there had never been anything resembling a relatively free market in Latin America with its state-controlled economies and oligarchic rule. And while the region's economies had long groaned under the weight of heavy handed governments, things became worse during the 20th century as such regimes were further encouraged by the theories of European and American socialists of the New Deal variety (i.e., John Maynard Keynes & company) who preached that new trade barriers, price and wage controls, and vast redistribution of wealth would solve the economic problems of the world. Such barriers, it was believed, would free Latin America from international competition and corporate "meddling" and bring prosperity to the whole region.

As has now become obvious, such policies bring anything but prosperity, and the more the Latin Americans attempted to pursue autarky by government fiat, the more their populations sank into poverty and economic ruin. For decades, Chile had remained relatively resistant to Dependency Theory as trade-minded governments under Eduardo Frei and Jorge Alessandri attempted to keep their economies relatively open. Yet the zeitgeist of the time overwhelmed them, and with the ascent of Salvador Allende in 1970, international trade collapsed, private firms were confiscated and nationalized, and hyperinflation took its hold on the country.

The economic disaster all ended badly, as such things tend to do, with a military coup and the Pinochet dictatorship. The downward spiral did not end merely with the end of the Allende regime, however. As even its sympathizers will tell you, the military junta was not a big fan of free-market economics. They preferred an economy that would "obey orders." Yet, protectionism and the controlled economy had proven to be such an abject failure that something had to be done, so with few other options Pinochet turned to disciples of what was then considered the radically free-market Chicago School of Economics. A total economic meltdown was avoided. The budget was balanced, regulations were lifted, the health care system was freed, and international trade resumed. Markets, as they will always do when given the chance, moved toward providing more goods at cheaper prices, and economic growth quickly began to outpace other Latin American economies.

Perhaps the most remarkable thing about the relative freedom of the Chilean economy has been its resilience during these thirty years since the coup. Naturally, once the Pinochet junta found that the middle classes were prospering under its economic plans, it continued the policies in order to maintain its precious political capital. As a junta, it was able to ignore the incessant calls from the left throughout the region to raise taxes, control the economy, and cut off trade. Yet, even after the junta finally fell into undeniable disfavor, the free economy continued, and significantly, even after the election of President Ricardo Lagos, an outspoken opponent of the junta who calls himself a socialist. The economy of Chile has only become more focused on good business, sound money, and extensive trade.

Without a doubt, thirty years ago, a politician with policies like those Lagos now espouses would have been berated as a reactionary free-market extremist and a sell-out to American corporate interests. Yet, unlike the aging communists and liberation-theology types of Latin America who still dream of a great egalitarian revolution, the socialist Lagos is hardly willing to throw out the policies of the Pinochet era simply because they are perceived as "undemocratic."

The Chilean economy after all, has posted growth rates above 7% per year for many years now, and maintains a very small debt load (Chile now has a budget surplus of 2% of GDP), relatively sound currency, and a free business environment. Chileans have savings rates many times in excess of American rates. As Lagos himself now says: "It is not something of the right-wing parties nor the left-wing parties. It's simply sound economic policy."

Lagos has said that he would like to see Chile continue its drive to become a regional trade center doing business all along the pacific rim and throughout the Americas, providing an open port for trade with all the accompanying services and technology. In short, he wants another Singapore.

One should not speak too highly of Lagos, of course, as he is a politician. But, he is a politician who is unwilling to argue with economic success. The real source of Chile's prosperity, which even the politicians grudgingly admit, is the spirit of business, trade, and friendly commerce with all nations that prevails today. Even the heavy-handed attempts by the Lagos administration to mandate English instruction for all school children is, at its heart about more trade, more business, and making more money. Naturally, private sector schools have been teaching English for many years, but the left in Chile has opposed English instruction in the public schools as a part of American cultural "imperialism."

While this writer is certainly not enthusiastic about government schools, it nevertheless stands to reason that if you must have them, teaching English might be a fairly practical thing to do. And fortunately, most Chileans, eager to do more business with the English-speaking nations of the world have better things to do than pound the table and complain about cultural imperialism.

As the value of the American dollar plummets, and spending reels out of control, and Europe sinks ever deeper into a bureaucratic quagmire, Chile is indeed one of the most free and open economies in the world today. James Barrineau of Alliance Capital has recently declared, "it is hard to find fault with Chile these days," and if one compares Chile's per capita government debt of $742 to America's $25,099, it is easy to see why.

Alas, the Chileans' devotion to good business and open trade was once a hallmark of our own nation as well. Yet today, while the Chileans save, Americans and their government, encouraged by the increasingly irresponsible easy money policies of the Federal Reserve, spend and spend while private and government debt piles up. Trade is curtailed through new and old protectionist policies, and as if a study were needed to confirm it, the United States continues to fall on the Economic Freedom Index (from 10th to 12th), and is now behind countries like Chile, Iceland, and Denmark.

Once, long ago, George Washington exhorted his countrymen to pursue nothing more in its international affairs other than peaceful trade with all nations. With a few exceptions, America spent many decades doing just that. Today, in contrast, Americans are taxed by their government to pay for American troops in over 100 foreign nations and to pay the interest on a massive debt financing wars and military interventions in every corner of the globe. To protect ridiculously inefficient agricultural interests, the government lays a heavy tax burden on consumers to subsidize such political largesse, and every year thousands upon thousands of pages of new regulations are written to further control health care, insurance, and every other kind of private enterprise, big and small.

"They hate us because we're free" is the mantra of the global interventionists, yet one can only wonder why cities like Copenhagan, Santiago, Wellington, and Singapore are not near the top of every terrorist's "to do" list. The Chilean government, unlike the American one, is not busy bankrupting itself with hundreds of thousands of troops in a foreign land desecrating mosques and supporting repressive regimes like the Saudi royal family or the Likuds in Israel. They are simply pursuing peaceful commerce with all nations, and they are reaping the rewards.

When a socialist government in Chile acts with more restraint and displays a much greater fondness for sound money and free trade than our own allegedly "conservative" government in America, the time has come to take a serious look at how we do business. As our economy is drained of its freedom and its future by the proponents of debt, protectionism, and incessant intervention abroad, it may soon be clear, that Americans, once so content to make money and do business in peace, have forgotten what liberty and prosperity are all about.

Ryan McMaken is a policy analyst in Colorado.

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