How Socialism Protected Chileans from Earthquake Fall-out
Ever since deregulation caused a worldwide economic meltdown in
September 2008 and everyone became a Keynesian again, it hasn't been
easy to be a fanatical fan of the late economist Milton Friedman. So
widely discredited is his brand of free-market fundamentalism that his
followers have become increasingly desperate to claim ideological
victories, however far-fetched.
A particularly distasteful case in point. Just two days after Chile
was struck by a devastating earthquake, Wall Street Journal
columnist Bret Stephens informed his readers that Milton Friedman's "spirit
was surely hovering protectively over Chile" because, "thanks largely to
him, the country has endured a tragedy that elsewhere would have been an
apocalypse.... It's not by chance that Chileans were living in houses of
brick--and Haitians in houses of straw--when the wolf arrived to try to
blow them down."
According to Stephens, the radical free-market policies prescribed
to Chilean dictator Augusto Pinochet by Milton Friedman and his infamous
"Chicago Boys" are the reason Chile is a prosperous nation with "some of
the world's strictest building codes."
There is one rather large problem with this theory: Chile's modern
seismic building code, drafted to resist earthquakes, was adopted in
1972. That year is enormously significant because it was one year
before Pinochet seized power in a bloody U.S-backed coup. That means
that if one person deserves credit for the law, it is not Friedman, or
Pinochet, but Salvador Allende, Chile's democratically elected socialist
President. (In truth many Chileans deserve credit, since the laws were a
response to a history of quakes, and the first law was adopted in the
1930s).
It does seem significant, however, that the law was enacted even in
the midst of a crippling economic embargo ("make the economy scream"
Richard Nixon famously growled after Allende won the 1970 elections).
The code was later updated in the nineties, well after Pinochet and the
Chicago Boys were finally out of power and democracy was restored.
Little wonder: As Paul Krugman points out, Friedman was ambivalent
about building codes, seeing them as yet another infringement on
capitalist freedom.
As for the argument that Friedmanite policies are the reason
Chileans live in "houses of brick" instead of "straw," it's clear that
Stephens knows nothing of pre-coup Chile. The Chile of the 1960s had the
best health and education systems on the continent, as well as a vibrant
industrial sector and rapidly expanding middle class. Chileans believed
in their state, which is why they elected Allende to take the project
even further.
After the coup and the death of Allende, Pinochet and his Chicago
Boys did their best to dismantle Chile's public sphere, auctioning off
state enterprises and slashing financial and trade regulations. Enormous
wealth was created in this period but at a terrible cost: by the early
eighties, Pinochet's Friedman-prescribed policies had caused rapid
de-industrialization, a ten-fold increase in unemployment and an
explosion of distinctly unstable shantytowns. They also led to a crisis
of corruption and debt so severe that, in 1982, Pinochet was forced to
fire his key Chicago Boy advisors and nationalize several of the large
deregulated financial institutions. (Sound familiar?)
Fortunately, the Chicago Boys did not manage to undo everything
Allende accomplished. The national copper company, Codelco, remained in
state hands, pumping wealth into public coffers and preventing the
Chicago Boys from tanking Chile's economy completely. They also never
got around to trashing Allende's tough building code, an ideological
oversight for which we should all be grateful.
Thanks to CEPR for tracking
down the origins of Chile's building code.
The Nation