Anurag Jain's Blog
Friday, September 12, 2003

More on 70s' Chile and its economic reforms

Do free market reforms lead to better life? Its a hotly debated topic everywhere, and especially amongst academic economists. Chile underwnet such reforms in mid-70s under the junta of Augusto Pinochet:

Continuing on my yesterday's post on Chile, before the coup d'etat on the September 11th, 1973, the government of Salvadore Allende was following the 'theory of economic dependency' which essentially says that you have to raise barriers for the outside world to do trade with you in order to grow your (domestic) economy. On the Chilean reforms, one point of view can be that Pinochet's military led rebellion in early 70s was in reality a puppet-led coup because behind the scenes (actually not so covertly!) the show was being managed by the CIA. But you have to also understand that the incumbent government of Salvadore Allende was not doing anything better on the economic front. Salvadore was not even able to control the temples of modernization - PSUs - efficiently!

Now, even though the military regime of Augustus Pinochet was brutal and resulted in killing of 2400 people, spiralling inflation, and extremely vulnerable economy, it ultimately paved the way for the free market reforms by bringing in Milton Friedman and Chicago coterie. But as you can guess easily, the transition period was extremely painful for the Chileans. Accordingly, one negative fallout of the whole Chilean rebellion of early 70s was that due to the political hue - dictatorship - of the time, and its brutalities, free market reforms came to be seen as negative and other Latin American economies shied away from introducing market reforms. But you have to see that these two are, in reality, not related at all. In fact, in Chile, introducing the free market reforms actually led to a democracy after a few years! Augusto Pincohet was arrested in London some 5-6 years ago for his atrocities.

To conclude, even if we leave the economic impact of free market reforms on Chileans aside, free markets did sort of work by leading to a free political environment!!

PS: More on free-market reforms soon.

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