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Argentina’s Perilous Embrace of Neoliberalism: Can Milai Succeed Where Chile Stumbled?

On January 17th of the current annum, amidst the illustrious gathering of the World Economic Forum in Davos, the newly anointed Argentine Head of State, Milai, delivered an oration decrying the perilous state of the Western sphere. He posited that the custodians of Western ethos find themselves besieged, forsaken in the wake of encroaching socialism. In Milai’s assertion, it is only through the adoption of laissez-faire capitalism that the scourges of hunger and poverty can be vanquished.

Elevated to the presidency against the backdrop of Argentina’s profound economic tribulations — rampant deficits and spiraling inflation — Milai wasted no time upon ascending to power on December 10, 2023. Swiftly, his administration embarked upon a program of radical reform, enacting over 300 measures. These included the privatization of state enterprises, the abolition of export constraints, regulatory easing, currency devaluation, and significant curtailing of social welfare provisions, eliciting nationwide consternation. The exacerbation of inflation compounded the plight of the common folk, igniting widespread protests. Merely a week following Milai’s Davos oratory, Argentina was convulsed by a general strike, a resounding repudiation of the administered “shock therapy.” Milai’s advocacy for capitalism and the adoption of “shock therapy” echoes the blueprint set forth by neighboring Chile. Since 2012, Chile has ascended to the echelons of “high-income economy” as delineated by the World Bank, standing as a paragon of prosperity within Latin America, primed for induction into the fold of developed nations. Yet, the laissez-faire ethos espoused by Chile is fraught with the vestiges of Pinochet’s autocratic regime, harboring inherent deficiencies. What the Argentine administration seeks to emulate is now what many Chileans endeavor to dismantle, yearning to commence afresh. In his tome, “The Chile Project: The Saga of the Chicago Boys and the Decline of Neoliberalism,” Sebastian Edwards, an erudite economist hailing from the University of California, Los Angeles, furnishes a comprehensive narrative encapsulating the triumphs and travails of Chile’s laissez-faire economy.

The genesis of Chile’s laissez-faire economy can be traced back to 1955 when the University of Chicago forged an alliance with the Pontifical Catholic University of Chile, admitting scholars dispatched by the latter for postgraduate studies in economics. These erudite Chilean acolytes, indoctrinated in the precepts of the Chicago School, later came to be known as the “Chicago Boys.” During this epoch, Keynesianism held sway in the Western economic milieu, extolling the virtues of state intervention. The tenets of the Chicago School, championing the laissez-faire doctrine, languished at the periphery of American economic discourse. Upon their return to Chile, the “Chicago Boys” remained marginal figures, bereft of any policy influence.

In 1970, the election of socialist Allende heralded a new era for Chile. The inaugural year of his governance witnessed an economic resurgence propelled by an expansionary monetary policy, swiftly succeeded by rampant hyperinflation. Allende’s administration responded to inflation with price controls, granting relevant authorities the prerogative to sanction or disavow price adjustments sought by corporations. However, the arbitrary nature of these controls rendered approved prices obsolete almost immediately, precipitating acute shortages and the proliferation of black markets. The regime’s crackdown on the black market further exacerbated scarcity, culminating in the closure of non-compliant establishments and the confiscation of their inventory.

In September 1973, with the imprimatur of the Nixon administration, Chilean Army Commander-in-Chief Pinochet orchestrated a military coup, resulting in Allende’s demise. Subsequently, Pinochet instituted a martial regime, suspending constitutional governance, dissolving the legislature, proscribing political parties, and ruthlessly quashing leftist dissent. Pinochet’s despotism endured for seventeen years, marked by the demise of over three thousand individuals and the torture of more than thirty thousand. Unlike its Latin American counterparts, Chile had hitherto boasted a tradition of democratic constitutionalism since 1925, with minimal military intrusion in political affairs. Pinochet’s insurrection and ensuing autocracy overturned Chile’s longstanding democratic moorings.

During Allende’s tenure, the “Chicago Boys” vehemently censured the government’s economic policies. With Pinochet’s ascension to power, the “Chicago Boys” found themselves at the vanguard of economic decision-making, offering a panacea for Chile’s economic malaise. However, the military junta harbored misgivings regarding the laissez-faire paradigm. It wasn’t until 1975, when Milton Friedman, the luminary of the Chicago School, journeyed to Chile and conferred with Pinochet, that the latter relinquished economic stewardship to the “Chicago Boys.” Friedman attributed Chile’s hyperinflation to the central bank’s profligate issuance of currency to offset a budget deficit amounting to ten percent of GDP. To ameliorate this predicament and forestall runaway inflation, Friedman advocated a draconian austerity regimen, entailing a twenty-five percent reduction in government expenditure. While this prescription entailed transient unemployment pangs, Friedman averred that the long-term dividends of low inflation and robust growth justified the ordeal. Additionally, Friedman advocated for economic liberalization, the abrogation of price controls, deregulation, and the privatization of state enterprises — constituting the essence of “shock therapy.”

Amidst the throes of stagflation besetting Western industrialized nations, Keynesianism waned, paving the ascendant path of neoliberalism — an era marked by market primacy. Yet, it was not the bastions of Western industrialism but Chile, a burgeoning nation, that embraced neoliberal policies with fervor.

In the nascent years of “shock therapy,” Chile witnessed meteoric economic expansion, albeit punctuated by protracted unemployment. The jobless rate persisted at an “exceedingly elevated” threshold, surpassing twenty percent. In 1980, Pinochet’s autocratic regime promulgated a new constitution, extolling the virtues of market-driven solutions and criminalizing strikes by public sector employees — thereby annulling the socialist precepts of Allende’s regime.

Though Friedman espoused the doctrine of floating exchange rates and decried fixed regimes, it was Sergio de Castro, Chile’s finance minister and scion of the “Chicago Boys,” who pegged the Chilean peso to the US dollar in 1979. This peg coincided with the Federal Reserve’s monetary tightening, precipitating chronic trade deficits and culminating in the 1982 currency crisis. Per capita GDP plummeted by twenty percent that year, with unemployment cresting at nearly thirty percent. Had Chile been a democracy at the time, the government would assuredly have faced collapse.

By the mid-1980s, Chile embraced pragmatic economic reforms, effectuating sweeping tax cuts, galvanizing private investment, augmenting infrastructural spending, and fostering foreign direct investment through debt-for-equity swaps — thereby rejuvenating ailing sectors such as mining. In 1989, the unemployment rate ebbed to a relatively manageable 6.8%. Concurrently, burgeoning social pressures compelled the Pinochet regime to initiate a presidential plebiscite in 1988, paving the way for a differential election. Pinochet conceded defeat and relinquished the presidency the subsequent year, albeit retaining the mantles of Army Commander-in-Chief and Senator for Life.

During Pinochet’s seventeen-year tenure, Chile’s actual Gross Domestic Product (GDP) annual growth rate stood at a mere 1.7%, trailing behind the population growth rate and falling far short of an economic marvel. The implementation of “shock therapy” precipitated catastrophic levels of unemployment and widespread social turmoil, all the while the fruits of economic expansion remained inequitably distributed. Had Chile not been under the iron grip of an authoritarian military junta during this period, it is arduous to envision that the neoliberal economic strategies championed by the “Chicago Boys” would have evaded popular upheaval.

Successive democratically elected administrations following 1990 endeavored to rectify the injustices perpetuated by Pinochet’s military regime, reinstating labor rights and broadening social welfare provisions, yet all persisted in the economic doctrines formulated by the “Chicago Boys.” The constitutional framework established during the Pinochet era endured, steadfastly endorsing the tenets of a market-driven economy.

Throughout the 1990s, Chile boasted an average annual GDP growth rate nearing 8%, attracting substantial foreign investment and attaining an economic marvel, largely attributable to the restoration of democratic governance. In the aftermath of the “Cold War,” the tolerance of Western nations for their erstwhile right-wing dictatorships notably waned. In 1998, during Pinochet’s convalescence in the United Kingdom, an international arrest warrant was issued by a Spanish tribunal. His subsequent detention in London, where he was placed under house arrest, tarnished his standing irreparably. Had Chile remained under military rule into the 1990s, it would assuredly have faced international ostracism; however, a democratic Chile succeeded in forging political integration with Western nations, securing numerous lucrative free trade agreements and exporting its agricultural produce globally. This symbiosis proved pivotal to its robust economic expansion. In 2010, Chile ascended to the ranks of the Organization for Economic Cooperation and Development (OECD), colloquially termed the “club of developed nations,” signaling its ascendancy.

Nevertheless, Chile’s narrative of success took an unforeseen twist in 2019, when tens of thousands took to the streets in riotous dissent and cathartic expression over a trifling 30 peso ($0.40) hike in subway fares in the capital, Santiago, underscoring their discontentment.

In slogans and graffiti, demonstrators attributed these grievances to neoliberalism and the legacy of the “Chicago Boys,” a revelation that caught many off guard. Why did such vehement protests erupt in Chile, a nation hailed for its economic prowess? The roots of the turmoil lie in several factors: foremost among them, corruption. During the Pinochet era, the “Chicago Boys” privatization initiative, ostensibly aimed at transferring state-owned enterprises to private hands, in reality facilitated the transfer of state assets to cronies and confidants of the ruling elite at nominal prices. Shielded by the military regime, these improprieties remained concealed at the time. From the mid-2000s onward, the media exposed a litany of scandals involving corporate malfeasance, graft, tax evasion, and corruption. Public faith in the laissez-faire market economy waned as it became increasingly evident that it was manipulated by cronyism and deceit, undermining the notion that individual endeavor was the conduit to social mobility.

Secondly, the issue of education looms large. Since the Pinochet era, Chile has witnessed a proliferation of for-profit universities, precipitating a sixfold surge in university enrollment over three decades, ostensibly expanding access to higher education. However, the primary motive behind for-profit universities is profit maximization; these institutions function as corporate entities, with profits disbursed as dividends or, in some cases, through public listing. Investors can readily exert control over for-profit universities through equity acquisitions. Students enrolled in such institutions grapple with exorbitant tuition fees, yet find themselves ill-equipped for the job market upon graduation, relegated to menial employment as they struggle to repay mounting debts. Beginning in the early 2010s, legions of heavily indebted and underemployed graduates joined the escalating protests.

The pension predicament constitutes a third grievance. During the Pinochet era, the “Chicago Boys” overhauled the public pension system, instituting individual pension savings accounts characterized by paltry recommended savings rates, minimal mandatory employer contributions, and exorbitant pension management fees. Moreover, retirement ages (60 for women and 65 for men) remained static despite increases in life expectancy. Retirees from the early 2000s found their pensions fell far short of expectations, exacerbating disillusionment among today’s youth regarding their future prospects. This served as a catalyst for the unrest.

Lastly, while Chile’s Gini coefficient—a conventional measure of economic inequality—has markedly diminished since the demise of military rule, social disparities persist, spanning citizen engagement, environmental conservation, healthcare, and beyond. Chile’s demographic landscape predominantly comprises whites, individuals of Indo-European descent, and indigenous peoples, with the latter constituting the majority. Neoliberal economic policies have exacerbated ethnic cleavages between the affluent and the marginalized, engendering an informal racial dichotomy between whites and non-whites.

The aforementioned issues trace their origins to the neoliberal economic prescriptions promulgated by the “Chicago Boys” during the Pinochet era. While the autocratic dictates of the military regime facilitated the expedient implementation of these policies, they also imbued Chilean neoliberalism with an authoritarian streak, constituting its original sin, difficult to expunge.

The protests and upheaval of 2019 precipitated a nationwide referendum on constitutional reform, with four-fifths of Chileans voting to jettison Pinochet’s constitution. In 2021, leftist politician Boric ascended to the presidency of Chile. The proposed constitution under his stewardship sought to repudiate nearly all the policies advocated by the “Chicago Boys,” advocating for restrictions on property rights, the nationalization of pensions, the empowerment of labor unions, and augmented government expenditure. Nonetheless, this proposal suffered defeat in a referendum held in September 2022. In early 2023, Chile embarked on a fresh round of constitution-making endeavors. However, the draft authored by right-wing factions, bearing a pronounced conservative imprint, met a similar fate in the referendum held in December of that year. Chile finds itself ensnared in a quagmire of profound polarization between left and right factions.

Drawing from Edwards’ scholarship, it becomes evident that attempts by the Milley administration in Argentina to replicate Chile’s economic miracle are destined for failure. Firstly, lacking the despotic firmness of Pinochet’s military regime, Milley faces formidable obstacles in implementing “shock therapy” with any semblance of efficacy. Secondly, even if neoliberal policies are implemented, the inevitable byproduct will be endemic corruption and a surge in social disparities. The wave of dissent engulfing neighboring Chile portends a replication in Argentina. In his address at Davos, Milley decried the encroachment of socialism upon those entrusted with safeguarding Western values. Yet, this “assimilation” represents an overarching trend in the wake of neoliberalism’s wane.

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