Greg Palast: The Pinochet Fairy Tale


Richard Moore

Subject: Tinker Bell, Pinochet And The Fairy Tale Miracle Of Chile
Date: Sun, 10 Dec 2006 22:17:31 -0500
From: Greg Palast <•••@••.•••>

Tinker Bell, Pinochet And The Fairy Tale Miracle Of Chile

by Greg Palast

Palast is the author of the New York Times bestseller, Armed Madhouse. (Signed 
copies available for the holidays at 

Sunday, Dec. 10, 2006
Chile¹s former military dictator General Augusto  Pinochet
died today at the age of 91.

Cinderella¹s Fairy Godmother, Tinker Bell and General Augusto Pinochet had much 
in common.

All three performed magical good deeds. In the case of Pinochet, he was 
universally credited with the Miracle of Chile, the wildly successful experiment
in free markets, privatization, de-regulation and union-free economic expansion 
whose laissez-faire seeds spread from Valparaiso to Virginia.

But Cinderella¹s pumpkin did not really turn into a coach. The Miracle of Chile,
too, was just another fairy tale. The claim that General Pinochet begat an 
economic powerhouse was one of those utterances whose truth rested entirely on 
its repetition.

Chile could boast some economic success. But that was the work of Salvador 
Allende - who saved his nation, miraculously, a decade after his death.

In 1973, the year General Pinochet brutally seized the government, Chile¹s 
unemployment rate was 4.3%. In 1983, after ten years of free-market 
modernization, unemployment reached 22%. Real wages declined by 40% under 
military rule.

In 1970, 20% of Chile¹s population lived in poverty. By 1990, the year 
³President² Pinochet left office, the number of destitute had doubled to 40%. 
Quite a miracle.

Pinochet did not destroy Chile¹s economy all alone. It took nine years of hard 
work by the most brilliant minds in world academia, a gaggle of Milton 
Friedman¹s trainees, the Chicago Boys. Under the spell of their theories, the 
General abolished the minimum wage, outlawed trade union bargaining rights, 
privatized the pension system, abolished all taxes on wealth and on business 
profits, slashed public employment, privatized 212 state industries and 66 banks
and ran a fiscal surplus.

Freed of the dead hand of bureaucracy, taxes and union rules, the country took a
giant leap forward Š into bankruptcy and depression. After nine years of 
economics Chicago style, Chile¹s industry keeled over and died. In 1982 and 
1983, GDP dropped 19%. The free-market experiment was kaput, the test tubes 
shattered. Blood and glass littered the laboratory floor. Yet, with remarkable 
chutzpah, the mad scientists of Chicago declared success. In the US, President 
Ronald Reagan¹s State Department issued a report concluding, ³Chile is a 
casebook study in sound economic management.² Milton Friedman himself coined the
phrase, ³The Miracle of Chile.² Friedman¹s sidekick, economist Art Laffer, 
preened that Pinochet¹s Chile was, ³a showcase of what supply-side economics can

It certainly was. More exactly, Chile was a showcase of de-regulation gone 

The Chicago Boys persuaded the junta that removing restrictions on the nation¹s 
banks would free them to attract foreign capital to fund industrial expansion.

Pinochet sold off the state banks - at a 40% discount from book value - and they
quickly fell into the hands of two conglomerate empires controlled by 
speculators Javier Vial and Manuel Cruzat. From their captive banks, Vial and 
Cruzat siphoned cash to buy up manufacturers - then leveraged these assets with 
loans from foreign investors panting to get their piece of the state giveaways.

The bank¹s reserves filled with hollow securities from connected enterprises. 
Pinochet let the good times roll for the speculators. He was persuaded that 
Governments should not hinder the logic of the market.

By 1982, the pyramid finance game was up. The Vial and Cruzat ³Grupos² 
defaulted. Industry shut down, private pensions were worthless, the currency 
swooned. Riots and strikes by a population too hungry and desperate to fear 
bullets forced Pinochet to reverse course. He booted his beloved Chicago 
experimentalists. Reluctantly, the General restored the minimum wage and unions¹
collective bargaining rights. Pinochet, who had previously decimated government 
ranks, authorized a program to create 500,000 jobs. In other words, Chile was 
pulled from depression by dull old Keynesian remedies, all Franklin Roosevelt, 
zero Reagan/Thatcher. New Deal tactics rescued Chile from the Panic of 1983, but
the nation¹s long-term recovery and growth since then is the result of - cover 
the children¹s ears - a large dose of socialism.

To save the nation¹s pension system, Pinochet nationalized banks and industry on
a scale unimagined by Communist Allende. The General expropriated at will, 
offering little or no compensation. While most of these businesses were 
eventually re-privatized, the state retained ownership of one industry: copper.

For nearly a century, copper has meant Chile and Chile copper. University of 
Montana metals expert Dr. Janet Finn notes, ³Its absurd to describe a nation as 
a miracle of free enterprise when the engine of the economy remains in 
government hands.² Copper has provided 30% to 70% of the nation¹s export 
earnings. This is the hard currency which has built today¹s Chile, the proceeds 
from the mines seized from Anaconda and Kennecott in 1973 - Allende¹s posthumous
gift to his nation.

Agribusiness is the second locomotive of Chile¹s economic growth. This also is a
legacy of the Allende years. According to Professor Arturo Vasquez of Georgetown
University, Washington DC, Allende¹s land reform, the break-up of feudal estates
(which Pinochet could not fully reverse), created a new class of productive 
tiller-owners, along with corporate and cooperative operators, who now bring in 
a stream of export earnings to rival copper. ³In order to have an economic 
miracle,² says Dr. Vasquez, ³maybe you need a socialist government first to 
commit agrarian reform.²

So there we have it. Keynes and Marx, not Friedman, saved Chile.

But the myth of the free-market Miracle persists because it serves a 
quasi-religious function. Within the faith of the Reaganauts and Thatcherites, 
Chile provides the necessary genesis fable, the ersatz Eden from which 
laissez-faire dogma sprang successful and shining.

In 1998, the international finance Gang of Four - the World Bank, the IMF, the 
Inter-American Development Bank and the International Bank for Settlements - 
offered a $41.5 billion line of credit to Brazil. But before the agencies handed
the drowning nation a life preserver, they demanded Brazil commit to swallow the
economic medicine that nearly killed Chile. You know the list: fire-sale 
privatizations, flexible labor markets (i.e. union demolition) and deficit 
reduction through savage cuts in government services and social security.

In Sao Paulo, the public was assured these cruel measures would ultimately 
benefit the average Brazilian. What looked like financial colonialism was sold 
as the cure-all tested in Chile with miraculous results.

But that miracle was in fact a hoax, a fraud, a fairy tale in which everyone did
not live happily ever after.


Greg Palast is the author of the New York Times bestseller, ³Armed Madhouse². 
Read his reports at 

Get a signed copy of Armed Madhouse for the holidays or browse for other signed 
gifts at 

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