Bequest of Chicago Free-Market Boys is Chile Violence?
By Staff News & Analysis - April 17, 2012

Chile court rules in favour of Patagonia HidroAysen dam … The court, the highest in the land, rejected an appeal by environmentalist groups who fear it will damage Patagonia's fragile ecosystem. The project, which involves flooding 6,000 hectares (15,000 acres) of land, still needs government approval. It has sparked a number of protests, some of them violent. – BBC

Dominant Social Theme: This is a necessary dam.

Free-Market Analysis: Are the Chile Dam protests symptomatic of deeper dysfunction?

There are plenty of reports of protests over the dam that the Chile Supreme Court just approved (see excerpt above). These don't give the full impact of what's at stake given that there is not one dam planned but a number of them. This is a dam complex.

And it has sparked protests nationwide. The protests slowed the progress of the first project, a $5 billion coal-fired thermoelectric plant that is important to copper mining in the region.

The Brazilian billionaire Eike Batista's Castilla power project was in jeopardy because of them. Its fate was in the hands of the Chilean Supreme Court – and now the Supreme Court has decided in his favor.

There is little doubt protests will continue, and both sides have points to make. But the protests are not the issue. Chile, for all of its vaunted entrepreneurialism and capitalism, is a country in crisis.

It is in crisis due to its history and to the impact that an Anglo-American free-market philosophy has had on its culture and the political and business establishment.

Often in dysfunctional societies, it takes only one or two disconnected events to create the initial conflagration. It seems to come from nowhere but soon takes on a life of its own. It is an expression of deeper discontent.

Chile is in its own way a deeply dysfunctional society and the protests against a complex dam project that affects large swaths of Chile are expressions of this larger dissatisfaction. Society is riven and there is a perception that big money interests are in control in Chile despite the free market rhetoric.

The secret to understanding Chile is to realize the devastation left by Augusto Pinochet's dictatorship and the subsequent adoption of the "Chicago Boys" perspective – one that filled a larger culture vacuum – on how to rebuild a shattered society.

The impact of the Chicago School in Chile should not be underestimated. It's a good example of how ideology can serve political ends and have a lasting impact. Wikipedia tells us the following about the origination of the Chicago School's impact on Chile:

The Chicago Boys (c. 1970s) were a group of young Chilean economists most of whom trained at the University of Chicago under Milton Friedman and Arnold Harberger, or at its affiliate in the economics department at the Catholic University of Chile.

The training was the result of a "Chile Project" organised in the 1950s by the US State Department and funded by the Ford Foundation, which aimed at influencing Chilean economic thinking. The project was uneventful until the early 1970s. The Chicago Boys' ideas remaining on the fringes of Chilean economic and political thought, even after a 500-page plan based on the Chicago School's ideas called the Ladrillo – "The Brick" – was presented as part of Jorge Alessandri's call for alternative economic platforms for his 1970 presidential campaign.

Alessandri rejected Ladrillo, but it was revisited after the 1973 Chilean coup d'état on 11 September 1973 brought Augusto Pinochet to power, and became the basis of the new regime's economic policy. Eight of the ten principal authors of "The Brick" were Chicago Boys.

Juan Gabriel Valdés, Chile's foreign minister in the 1990s, described the Chile Project as "a striking example of an organized transfer of ideology from the United States to a country within its direct sphere of influence… the education of these Chileans derived from a specific project designed in the 1950s to influence the development of Chilean economic thinking." He emphasised that "they introduced into Chilean society ideas that were completely new, concepts entirely absent from the 'ideas market'".

Critics of free-market thinking generally point to The Chicago Freshwater School run by the famous economist Milton Friedman as evidence that free markets can be deeply damaging to society.

Some even mistakenly conflate the Chicago School with a more radical, anarchical school of thought known as Austrian economics, created by Murray Rothbard and supported by Lew Rockwell. This is somewhat naive in our view and expresses a misunderstanding of what free-market thinking really is and how it works.

Milton Friedman was far more of a pragmatist than Murray Rothbard and his mentor, Ludwig von Mises. The latter were interested in the theoretical attributes of Austrian economics. Von Mises even walked out of the Mont Pelerin Society he'd helped found, shouting "You are all socialists." Rothbard was a principled oponent of both central banking and the US military-industrial complex. He even had suspicions that the Cold War itself was manufactured.

Friedman was far more involved in applying his theories to American sociopolitical reality. He helped implement the modern income tax while working for the US government in the mid-20th century. His pragmatism eventually led him to make at least two major compromises with modern-era free-market principles.

The first was to grant that central banking was a necessary evil. The second was not to dispute the idea of a standing army and general military vigilance. Friedman led an admirable attack on the US draft in the 1970s but the result gave the US the all-volunteer army that has proven just as troublesome in some ways as the draft.

Not only that, but by making the draft the focus of his efforts, Friedman left in place – without much seeming demur – the US's larger military-industrial complex. In fact, Friedman supported the first Gulf War (though not apparently the second).

Friedman was a powerful man and his ideas have had consequences. The trouble with Friedman's pragmatic approach was that it tended to vitiate the application of a REAL private marketplace.

Critics of Austrian economics who are new to the field often confuse the Chicago School with Rothbard's more robust views and the Misesian school generally. Unfortunately, the former seems to encourage forms of statism (despite its free-market emphasis) while the latter explains ways to unock a more peaceful and prosperous society.

What occurs in the application of the Chicago Fresh Water School approach to markets is a kind of competition throughout the lower regions of society – visceral and even violent – while the means of money production remains in the hands of the state and the powerful families backing it.

Marry this to military vigilance, and a military-industrial complex of greater or lesser virulence is the inevitable result. One can categorize it to a greater or lesser extent as a form of fascism. The result, among others, is a simmering resentment between the middle and upper classes. Chile is likely an expression of the Chicago School's pragmatism and compromises.

In fact, it is an increasingly noxious brew. The culture having been somewhat shattered, all that is left to replace it is a virulent consumerism that apparently mimics the worst aspects of the United States' brand.

"Chile has suburbs," says one successful businessman who travels regularly to Chile, but asked not to be identified. "They remind you of American suburbs. The houses are big and the cars are big and what's important is getting ahead."

This source points out that it is the consumerism and the lack of a viable traditional culture that has caused the larger cultural dissonance. "People think mostly about getting ahead among the middle class but the upper classes will let them travel so far and no further."

This source believes that this simmering resentment will find outlets such as the dam protests that will continue to roil the larger society. Without a coherent, familial culture to fall back on, bereft of nativist roots due to the past violence and the importation of a consumer culture from the US, Chilean society may be doomed to increased turmoil.

"From a market and business standpoint, Chile most resembles America among Latin American economies," this source concludes. "But many who visit there decide it's not a very comfortable place to live. It's a country in search of a culture, of what it once had and now has lost."

Chile is often pointed to as a South American success story, a place where free-markets have successfuly created deep roots. But in many ways Chile is a lot like other Latin countries with an insular familial elite running things, a striving middle class and a deep pool of poverty. The difference between Chile and other countries is probably that its middle class is larger and its marketplace institutions somewhat stronger.

After Thoughts

The larger problems remain. Emplacing a free-market, sociopolitical approach while leaving in place central banking and a standing military is an invitation, ultimately, to creating the kind of society that Chile has now and that the US has increasingly as well.