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
developing world 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".
Soon
after the coup against the government of Salvador Allende
on
September 11, 1973, Chilean graduates of
Friedman's economics department, who were later
dubbed the "Chicago Boys", took over the helm of
the economy and launched a program of economic
transformation with doctrinal vengeance. Friedman
was often quoted as saying that political freedom
goes hand in hand with free markets. The irony
that the bayonets of one of Latin America's most
bloodstained dictatorships imposed a free-market
paradise in Chile could not have escaped the guru.
Yet Friedman visited Chile during the
dictatorship, giving his blessings to 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 such as
"The Fragility of Freedom" that rang ironic in the
Chilean context.
Even as he accused his
critics of "tarring and feathering" him with the
regime's human-rights abuses, Friedman took pride
in providing doctrinal inspiration for what he
described as the "Chilean Miracle". After his
disciples were done with it, Chile was indeed
radically transformed - for the worse.
Free-market policies subjected the country
to two major depressions in one decade, first in
1974-75, when gross domestic product (GDP) fell by
12%, then again in 1982-83, when it dropped by
15%. 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%. By comparison, with a much greater role of
the state in the economy during the period
1951-71, Chile's economy grew 4% a year.
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% between 1980 and 1990, and the percentage
living below the poverty line, but above the line
of destitution, had increased from 24% to 26%. By
the end of the Pinochet regime, some 40% of
Chile's population, or 5.2 million of a population
of 13 million, was poor.
In terms of
income distribution, the share of the national
income going to the poorest 50% of the population
declined from 20.4% to 16.8%, while the share
going to the richest 10% rose dramatically from
36.5% to 46.8%.
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. Manufacturing's share of GDP declined from an
average of 26% in the late 1960s to 20% in the
late 1980s. 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 1990s, after the Concertacion de Partites
por la Democracia came to power. In violation of
classical 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% to 20% of the
population. This cautious "Keynesian"
modification, which increased internal purchasing
power, contributed to the post-Pinochet average
yearly growth rate of 6% a year.
Unwilling
to challenge the upper classes, however, the
social-democratic regime retained the basic
neo-liberal contours of economic policy, leading
to continuing high levels of poverty, unemployment
and inequality. Also, the continued emphasis on
agricultural and natural-resource exports has
created tremendous environmental stresses.
Overfishing along Chile's coasts has gone hand in
hand with ecological destabilization from the
spread inland of the fresh-salmon and mussel
farms.
A booming timber-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 foisted on other Third
World countries.
Beginning in the early
1980s, the International Monetary Fund (IMF) and
the World Bank subjected some 90 developing and
post-socialist economies 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 imports were eliminated
wholesale, restrictions on foreign investment were
lifted and, through export-first policies,
domestic economies were 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 1990s, 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 1990s.
Despite being now universally seen as
dysfunctional, free-market and structural
adjustment policies have been so thoroughly
institutionalized that they continue to reign. The
legacy of Milton Friedman will be with the
developing world for a long time to come. Indeed,
the most appropriate inscription for Friedman's
gravestone comes from William Shakespeare's
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.
