What’s the Matter with Chile?: A review of The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism by Sebastian Edwards (Geoff Shullenberger, Winter 2023, American Affairs)
The Left, in Chile and abroad, has been blindsided by recent events, as evidenced by its inability to make sense of the failure of the new constitution, much less the rise of Kast. For its part, the surging Chilean Right, which now openly harkens back to the Pinochet era as a political ideal, has little to say about why so much of the public took to the streets in 2019 or why nearly 80 percent rejected the old constitution in the 2020 plebiscite. A more sober and insightful response to these questions comes from the Chilean economist Sebastian Edwards, who teaches at UCLA. His new book, The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism, was written to make sense of the 2019 estallido social and the subsequent ascent of Boric. But he takes the long view, returning to the economic policies of the Allende administration, then documenting in painstaking detail the controversial reforms of the “Chicago Boys”—the University of Chicago–trained economists who devised the neoliberal model imposed under Pinochet—and the modifications of this program after the return of democracy.
Edwards’s central aim is to account for what he calls the “Chile paradox.” “By 2015,” he writes, “Chile was the indisputable economic leader of Latin America.” How is it, then, that the country with “the highest income per capita, the lowest incidence of poverty, and the best overall social indicators” in the region witnessed a massive revolt on material grounds, the leaders of which demanded a total overhaul of the economic system? The answer cannot simply be that other modes of social well-being were sacrificed to the neoliberal ideal of growth at all costs. This was largely true in the period the neoliberal model was initially imposed under Pinochet, but most of the period of sustained growth was overseen by social democratic leaders who were deeply concerned with avoiding this exact pitfall, and governed accordingly. At the same time, given the coalescence of four-fifths of the public around scrapping the constitution, the revolt can’t be dismissed as ideological confusion or a fit of pique. Clearly something was and is deeply amiss in this apparently successful nation; the willingness of voters to support candidates nostalgic for the dictatorship is as conspicuous a symptom of this as was the earlier left-wing revolt.
In various ways, Edwards is uniquely well-positioned to interpret the history he sets out to chart. He is a member of one of the most illustrious old-money families in Chile. His forebears include the publishers of Santiago’s premier newspaper, El Mercurio, and the literary figures Joaquín Edwards Bello and Jorge Edwards. The latter served as Allende’s ambassador to Cuba, even as other members of the family were among those lobbying the U.S. government to assist in Allende’s overthrow. Sebastian, like Jorge, was evidently something of a black sheep in his largely conservative family. As he recounts, he studied economics at the Universidad de Chile, the more left-leaning of the country’s two most prestigious universities, supported the Socialist Party, and even took a job in Allende’s government while still a student. “After the coup d’état,” Edwards recounts, “our school was closed because, according to the military, it was a ‘nest of communist rats.’” He managed to avoid the misfortunes that befell other student activists after the coup—perhaps due to family connections—and transferred to the Universidad Católica, the more conservative of the two major universities. It was a fateful change of scene.
Starting in the 1950s, as Edwards explains, the Católica’s economics department had become the hub of an academic exchange with the University of Chicago. The program got its start from U.S. government efforts to fight the influence of communism abroad by instilling market-friendly views in economists in training. This was the birthplace of the “Chicago Boys.” Talented Católica economics students were given the opportunity to pursue further study at Chicago, the seat of Milton Friedman and Friedrich von Hayek. When Edwards joined the department in 1974, the Chicago Boys hadn’t made their name yet; on the contrary, they had toiled in relative obscurity for two decades, with free market ideals generally unpopular in an intellectual panorama still dominated by other paradigms. This situation in Chile reflected that in much of the world during the three decades after the Second World War, when Keynesianism was mostly uncontested.
Just a year before the coup in Chile, Friedman famously stated: “Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” Left-wing intellectuals like David Harvey and Naomi Klein have often accounted for the triumph of neoliberalism in the 1970s by quoting Friedman’s words as an illustration of the movement’s playbook—the “shock doctrine,” as Klein called it. They have taken post-coup Chile as ground zero for the approach Friedman seemed to be advocating. In their simplest version, such accounts can take on a Manichaean, conspiratorial quality. Edwards, who through his deep connections to Católica and Chicago is well-acquainted with most of the people involved in Chile’s neoliberal reforms, offers a counterpoint to such narratives. His personal loyalties do not make him reticent to criticize the Chicago Boys’ policies or their complicity with the dictatorship. Nonetheless, he argues that Chile’s neoliberalization was a far more contingent and internally conflicted process than is often understood.
Edwards’s qualified defense of the Chicago Boys begins with his highly critical account of Allende’s economic policies. Defenders of Allende tend to attribute the serious economic woes of his government to external meddling by the United States and internal sabotage by right‑wing elements. Without denying these were factors, Edwards argues that Allende’s policies failed for foreseeable reasons. Initially, the socialist government succeeded in its goal of increasing aggregate demand through government spending—a standard Keynesian aim, pursued in a particularly radical fashion. But the longer-term result was to cause inflation to surge to over 700 percent in the year prior to the coup. “What the Allende government engaged in,” Edwards writes, “decades before it got its name, were policies very similar to those touted by the supporters of Modern Monetary Theory”: in effect, print lots of money and pretend inflation isn’t a thing.
Edwards also offers an inside view of the Allende regime’s haphazard attempts to deal with the fallout through what he calls a “surrealistic system of price controls.” As a nineteen-year-old student, he was recruited to work in the government Directory of Industry and Commerce, which had the power to authorize or refuse requests for price increases from industry. With inflation rendering authorized prices almost instantly outdated, producers had to constantly submit new price requests, which were “promptly denied.” As Edwards remarks, “Any first year student would have predicted the results of this viciously circular process: massive shortages and a thriving black market for all sorts of goods.” The government responded by cracking down harshly on the black market, shutting down stores that failed to comply with official prices and confiscating their goods. These heavy-handed tactics became a drag on the government’s popularity.
It was in response to these mounting problems that some in Allende’s government began developing the secret project known as Cybersyn, which has recently become the subject of considerable scholarly and popular interest. Guided by the English management consultant Stafford Beer, Cybersyn was supposed to use cutting-edge cybernetic theory and the latest technologies—the telex and the computer—to determine the correct prices of every good in the country. The project has become attractive to those on the left today who imagine that new communication technologies might be used to develop a more intelligently managed economy than was viable in earlier socialist projects. But Edwards is dismissive of the oft-floated idea that Cybersyn could have remedied Chile’s deep economic woes if given more time. He recalls a meeting he attended, at which Beer was present, in which the impracticality of the project seemed evident even to the consultant on whose ideas it was based.
In other words, whatever errors the Chicago Boys themselves made once they had the opportunity to reshape Chile’s economy, Edwards is clear that they were right to believe that the path taken by Allende’s government could only lead to disaster.
Francis Spufford’s Red Plenty is an amusing look at why cybernetics is so unworkable.