Article

Anatomy of an economic miracle

With Pinochet's arrest, the usual slime of the right pronounced that his dictatorship created an economic "miracle." Here we concentrate on the facts of the "miracle" imposed on the Chilean people. The actual results of the free market policies introduced by the dictatorship were far less than the "miracle" claimed. The initial effects of introducing free market policies in 1975 was a shock-induced depression which caused national output to fall by 15%, wages to slide to one-third below their 1970 level and unemployment to rise to 20%. This meant that, in per capita terms, Chile's Gross Domestic Product (GDP) only increased by 1.5% per year between 1974-80. This was considerably less than the 2.3% achieved in the 1960's.

Supporters of the "miracle" pointed to the period 1978 to 1981, when the economy grew at 6.6% a year. However, this is a case of "lies, damn lies, and statistics" as it does not take into account the catching up an economy goes through as it leaves a recession. If we look at the business cycle as a whole, rather than just the upturn, we find that Chile had the second worse growth in Latin America between 1975 and 1980. The average rate of growth in GDP was 1.5% per year between 1974 and 1982, lower than the Latin American average of 4.3% and lower than 1960's Chile's 4.5%. Between 1970 and 1980, per capita GDP grew by only 8%, while for Latin America as a whole, it increased by 40% and for the years 1980 and 1982 per capita GDP fell by 12.9%, compared to 4.3% for Latin America as a whole. In 1982, after 7 years of free market capitalism, Chile faced yet another economic crisis which, in terms of unemployment and falling GDP was even greater than the shock treatment of 1975. Real wages dropped sharply, and bankruptcies skyrocketed, as did foreign debt. By the end of 1986 GDP per capita barely equalled that of 1970. Between 1970 and 1989, Chile grew by a lacklustre 1.8 to 2.0% a year, slower than most Latin American countries. The high growth, in other words, was a product of the deep recessions that the regime created.

The working class

The working class was by far the hardest hit by the Pinochet "reforms", particularly in urban areas. By 1976, the third year of Junta rule, real wages had fallen to 35% below their 1970 level. Only in 1981 did they come close to the 1970 level, only to fall again to 86.7% by 1983. Unemployment was 14.8% in 1976, falling to 11.8% by 1980 (this is still double the average 1960's level) only to rise to 20.3% by 1982. By 1986, per capita consumption was actually 11% lower than the 1970 level. Between 1980 and 1988, the real value of wages grew only 1.2% while the real value of the minimum wage declined by 28.5%. During this period, urban unemployment averaged 15.3% per year. In other words, after nearly 15 years of free market capitalism, real wages had still not exceeded their 1970 levels. Moreover, labour's share of national income fell from 52.3% to 30.7% between 1970 and 1989. In 1995, real wages were still 10% lower than in 1986 and 18% lower than during the Allende period! The real "Miracle"

However, the other main effect of the Pinochet years was increased wealth for the elite, and this is what has been claimed as a "miracle." Between 1970, the richest 10% of the population saw their share in the national income rise from 36.5% in 1980 to 46.8% by 1989. In the words of one of the best known opposition economists, "the Chilean system is easy to understand. Over the past twenty years $60 billion has been transferred from salaries to profits."

Thus the wealth created by the economic growth Chile experienced did not "trickle down" to the working class (as predicted by "free market" capitalist dogma) but instead accumulated in the hands of the rich. Just as in the UK and the USA.

The proportion of the population below the poverty line (the minimum income required for basic food and housing) increased from 20% to 44.4%. On the other hand, while consumption for 80% of Chilean households dropped between 1970 and 1989, it rose from 44.5% to 54.6% for the richest 20%.

State Aid

The Pinochet regime's support for "free market" capitalism did not prevent it organising a massive bail-out of the economy during the 1982 recession - yet another example of market discipline for the working class, welfare for the rich. As was the case in the USA and the UK.

The ready police repression (and "unofficial" death squads) made strikes and other forms of protest both impractical and dangerous. The law was changed to reflect the power property owners have over their wage slaves. The total overhaul of labour law between 1979 and 1981 aimed at creating a perfect labour market, eliminating collective bargaining, allowing massive dismissal of workers, increasing the working day up to twelve hours and eliminating the labour courts. Little wonder, then, that this favourable climate for business operations resulted in generous lending by international financial institutions.

Of course, supporters of the Chilean "Miracle" and its "economic liberty" did not bother to ask how the suppression of political liberty affected the economy or how people acted within it. They maintained that the repression of labour, the death squads, the fear installed in rebel workers would be ignored when looking at the economy. But in the real world, people will put up with a lot more if they face the barrel of a gun than if they do not. And this fact explains much of the Chilean "miracle." According to Sergio de Castro, the architect of the economic programme Pinochet imposed, dictatorship was needed to introduce "economic liberty" because:

"it provided a lasting regime; it gave the authorities a degree of efficiency that it was not possible to obtain in a democratic regime; and it made possible the application of a model developed by experts and that did not depend upon the social reactions produced by its implementation." In other words, "economic liberty" required rule by technocrats and the military. The regime's pet "experts" used the Chilean people like laboratory rats in an experiment to make the rich richer. This is the system held up by the right as a "miracle" and an example of "economic liberty." Like Thatcher's "economic miracle", we discover a sharp difference between facts and rhetoric. And like Thatcher, it made the rich richer and the poor poorer, a true "miracle."

So, for all but the tiny elite at the top, the Pinochet regime of "economic liberty" was a nightmare. Economic "liberty" only benefitted one group in society, an obvious "miracle." For the vast majority, this "miracle" resulted, as it usually does, in increased poverty, unemployment, pollution, crime and social alienation. The irony is that many on the right point to it as a model of the benefits of the free market.