The Chilean miracle: how the 'Chicago boys' saved Chile from socialist misery

On Sept. 11, 1973, after almost three years of the socialist government of Salvador Allende, General Augusto Pinochet took power in Chile through a coup d'état. This brought about many different consequences, some regrettable, but others that are worth evaluation. This is the story of the "Chicago boys," a group of Chilean economists who, after studying at the University of Chicago, managed to take command of the economy for much of Pinochet's rule and carried out one of the greatest economic "miracles" that has ever been seen in Latin America.

Allende and the forgotten economic disaster

To begin this story we must remember the tragedy that led to the famous coup d'état of 1973. The left does not like to talk about the poor economic situation, nor about the lack of freedom and rights in Allende's socialist Chile. However, the reality is that the country that Pinochet took over had an unbearable inflation of 600%, there were abundant shortages. An economic crisis began in the early '70s when Allende took power, affecting the entire population, with the government expropriating rich and poor alike.

People were hungry. There were no basic products, and long lines to get almost anything were an every-day struggle. The "empty pot marches" became emblematic, women who went out with their children to protest because they had no way to feed them. It also became common for women to throw corn at the military, accusing them of being cowardly "chickens" for not removing Allende from power.

The economic situation, as well as the violation of freedoms and rights, reached such a point that on Aug. 22, 1973, the Chamber of Deputies of Chile declared Allende's government unconstitutional. The resolution denounced a "serious breach of the constitutional and legal order of the Republic" and asked the Armed Forces and Carabineros "to put an immediate end to all the factual situations referred to, which violate the Constitution and the law." After that declaration, on Sept. 11 of the same year, Pinochet removed Allende from power.

The economic miracle

Although the economic policies implemented at the beginning of Pinochet's rule gave much power to the state, about a year after the coup d'état, the economy was handed over to the "Chicago boys," who in record time carried out strong policies of economic liberalization, achieving surprisingly positive results by 1975.

One of the first policies put in place was price liberalization. Allende, like most socialists, had set maximum prices that led to dramatic shortages. The total liberalization of prices carried out by Sergio de Castro, who assumed the position of minister of finance and economy, again generated incentives to produce, and Chileans returned to enjoy goods and services like any free country does.

The "Chilean miracle" is also due to the unilateral and unrestricted opening of markets. Chile, led by these University of Chicago economists, decided to unilaterally lower tariffs and allow the entry of foreign products with enormous ease. Contrary to what protectionists believe, Chilean industry did not disappear, but in that context of economic freedom, national industries learned to compete and relocate to the sectors where they performed best. Meanwhile, the population enjoyed the benefit of foreign products at low prices.

Another of the great pillars of the "Chilean miracle" that lifted the country out of misery to position it as the most prosperous in the region, was the labor and pension reform carried out by José Piñera, the minister of labor. The labor market was made much more flexible, this issue being particularly important when an opening of the international market of such a scale is carried out. Thanks to this reform, mobility between jobs became quite easy, and the economy could quickly adapt to the new dynamics. Of course, its new private pension system also became one of the foundations of the new Chile that went from economic misery to a leading country on the continent.

Piñera also dismantled large networks of bureaucracy. During that period led by the "Chicago boys," privatization and reducing the number of state employees was key. In the first stage, public spending was reduced by 20%, 30% of state employees were laid off, and the housing savings and loan system was liquidated. All this was accompanied by the privatization of energy, air transport, mining companies, the telecommunications sector and different service companies.

Chile has kept these economic pillars that were started by the "Chicago boys" more or less intact. Even socialist governments such as Michelle Bachelet's did not dismantle the foundations. That made the country the most prosperous in the region for decades, occupying the top positions not only in terms of economic figures but also for issues like health and freedom. Chile, in general, has competed with countries in Europe on quality of life, all because of the deep roots that these free-market economists established.

Unfortunately, in recent years the radical left managed, among other things, to throw the Constitution in the trash. It is yet to be seen what the future of Chile will bring with this new drift, but the ideas that led to something as transcendent as the so-called "Chilean miracle" should always be remembered so that society does not forget which measures that lead to prosperity and which ones led to misery.