If there is a single reason why the military dictatorship in Chile under Augusto Pinochet is viewed less negatively than contemporaneous authoritarian governments elsewhere in Latin America, it is the conventional wisdom of an “economic miracle” that took place in that country between 1973 and 1990. As is now well known, under the Pinochet régime, economists trained at the University of Chicago – the so-called Chicago boys – occupied key positions within Chile’s ministries of finance and the economy and implemented neoliberal reforms. These policies, it is claimed, reversed the negative outcomes brought about by the aggressive policies of nationalization implemented under Pinochet’s predecessor, the socialist Salvador Allende.
In Pinochet’s Economists: The Chicago School in Chile, Juan Gabriel Valdés seeks to detail the complicated processes by which this cadre of Chicago-trained economists attained such extraordinary influence. The monograph, which served as Valdés’s doctoral dissertation in the Department of Politics at Princeton,[1] offers a painstakingly detailed account of the origins of neoliberal economic thought following World War II, its consolidation at the University of Chicago, its transplantation to Chile during the 1950s and 1960s, and its emergence as the prime driver of economic policy under Pinochet.
Valdés is a very deliberate and direct writer, and as such, his thesis is quite clearly enunciated in nine points that end the book’s second chapter. According to this thesis, the project of the Chicago boys under Pinochet was the culmination of a program begun in the 1950s under the United States government’s International Cooperation Administration, which in 1961 became the United States Agency for International Development (USAID). With the intention of fostering cooperation between U.S. universities and educational institutions in developing countries, contacts were established between Chicago’s Department of Economics and the Universidad Católica de Chile for the purpose of transplanting schools of economic thought to contend with the prevailing development theories championed by structuralists such as Raúl Prebisch. Implicitly, according to Valdés, it was a program designed to undermine economic policies in Chile perceived as socialist. Deployed to combat socialism was a resurgent school of classical economic thought, which sought to dislodge the Keynesian consensus in economics that had resulted from the previous two decades of economic depression and eventual recovery.
Since the Chicago School had already become a hotbed of neoliberal economists – Milton Friedman principal among them – the initial stage of the USAID program, which involved Chilean students earning advanced economics degrees at Chicago, resulted in young economists returning to Chile fully versed in the principles of classical economics and highly ideologically motivated to implement these principles. Valdes calls this program one of “ideological transfer,” by which “a series of regulatory proposals and several policy recommendations”[2] that were commonly advocated for among Chicago economists became broadly supported among the Chicago trainees returning to Chile. Chief among these proposals and recommendations were privatization of nationally owned industries, removal of price controls, a purely monetarist approach to inflation (i.e., shrinking the money supply by restricting credit), and other strictly market-based policies. Over the course of more than a decade, a network of professors, students, and intellectuals committed to neoliberalism established control over the economics department at Universidad Católica, but its influence remained limited to academia until the convulsive effects of economic policies implemented not only under Allende but also under his predecessor, the Christian Democrat Eduardo Frei. Political polarization that began under Frei and that increased enormously under Allende culminated in the coup by the military in September 1973 that overthrew Allende’s government, which was supported by business and economic elites, as well as broad segments of the middle class. Once the military junta was firmly in control of the country, neoliberal reform of the economy and its institutions began, and Chile became a sort of laboratory in which these policies were implemented and their real-world consequences observed.
Beyond the phenomenon of ideological transfer, Valdés also examines the role played by Friedman’s Chicago School colleague Theodore Schultz and his contributions to the classical theory of human capital. According to Schultz, vitally important to the development of human resources and their role in the creation of wealth is the provision of education to potential trainees to obtain the future benefit of these trainees’ expertise. Schultz attributed much of the United States’ economic hegemony to a “return on investment” in education. Valdés’s assertion in his book is that the neoliberal economic school at Chicago experienced difficulty attracting the best graduate students in economics and found a solution through its contracts with USAID, which provided among the most talented students from Latin America. In this way, these students constituted a population to whom education could be provided as part of human capital development: “human capital was the banner under which the group of American economists undertook the experiment in Chile.”[3] Over time, this approach to human capital management expanded as private foundations, such as the Rockefeller and Ford Foundations, began to provide additional funding for ideological transfer, particularly in the 1960s under initiatives led by Chicago economics faculty member Arnold Harberger.
As noted, Valdés’s approach to this topic is deliberate and thorough, and his research is admirable. To piece together the story of how the Chicago boys were trained, returned to Chile, and acquired power, he undertook extensive work in the archives of the USAID, the Universidad Católica, and the Ford and Rockefeller Foundations. Moreover, he is circumspect in identifying or alleging any conspiracy by Chicago economists and the Chilean military in overthrowing the Allende government for the purpose of introducing neoliberalism. He notes disagreement among sources regarding CIA funding for the Chicago boys, concluding that collaboration by certain economists in drafting of the notorious pre-coup plan for post-Allende Chile (known as el ladrillo, i.e., “the Brick”) “did not require high financing: there were many previous studies that could have provided the basis for the program’s recommendations.”[4]
If there is a major weakness of Pinochet’s Economists, it is that the study ends in 1973, in the immediate aftermath of Allende’s ouster. As a result, there is little in the study about the actual outcomes of the Chicago boys’ program of reform. That said, in so far as the goal of the monograph is the origin of the Chicago boys’ presence in Chile in 1973 and not their activities thereafter, the study is essential to establishing that history. In addition, Valdés is a bit too eager to heap blame on the Allende administration for the cleavages in Chilean society on the eve of the coup. In this regard, it is perhaps important to bear in mind that Valdés’s father, Gabriel Valdés, was minister of foreign relations in the Frei administration and later president of the Chilean senate. These points notwithstanding, as one of the first studies to examine in such detail the introduction of neoliberalism in Chile, this book sets a high bar.
[1] Oddly, the Cambridge University Press edition of the monograph is copyrighted 1995, while the date of submission for the dissertation is November 1996. In addition, a Spanish-language work by Valdés, Le Escuela de Chicago: Operación Chile, which clearly covers the same topic and which is broadly cited in the literature on the Chicago boys, was published even earlier, in 1989.
[2] Juan Gabriel Valdés, Pinochet’s Economists: The Chicago School of Economics in Chile (New York: Cambridge UP, 1995), 50.
[3] Valdés, Pinochet’s Economists, 98.
[4] Valdés, Pinochet’s Economists, 251.