[Marxism] Tinker Bell, Pinochet And The Fairy Tale Miracle Of Chile

Dbachmozart at aol.com Dbachmozart at aol.com
Mon Dec 11 13:47:35 MST 2006

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 _www.palastinvestigativefund.org_ 
sticsID=27&Demo=0&Email=dbachmozart at aol.com) 

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

Cinderella’s  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 Cinderella’s 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, Chile’s 
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 Chile’s  population lived in poverty. By 1990, the year “
President” Pinochet left office,  the number of destitute had doubled to 40%. 
Quite a miracle.

Pinochet did  not destroy Chile’s economy all alone. It took nine years of 
hard work by the  most brilliant minds in world academia, a gaggle of Milton 
Friedman’s 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 … into bankruptcy and depression. After  nine years of 
economics Chicago style, Chile’s 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 Reagan’s State Department issued a report concluding, “Chile is  a 
casebook study in sound economic management.” Milton Friedman himself coined  
the phrase, “The Miracle of Chile.” Friedman’s sidekick, economist Art 
Laffer,  preened that Pinochet’s Chile was, “a showcase of what supply-side 
economics can  do.”

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

The Chicago Boys persuaded the junta that  removing restrictions on the nation
’s banks would free them to attract foreign  capital to fund industrial 

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 

The bank’s 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 “Grupos” 
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 unions’ 
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 nation’s long-term recovery and growth since  then is the result of - 
cover the children’s ears - a large dose of  socialism.

To save the nation’s 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, “Its absurd to  describe a nation 
as a miracle of free enterprise when the engine of the economy  remains in 
government hands.” Copper has provided 30% to 70% of the nation’s  export 
earnings. This is the hard currency which has built today’s Chile, the  proceeds 
from the mines seized from Anaconda and Kennecott in 1973 - Allende’s  
posthumous gift to his nation.

Agribusiness is the second locomotive of  Chile’s economic growth. This also 
is a legacy of the Allende years. According  to Professor Arturo Vasquez of 
Georgetown University, Washington DC, Allende’s  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. “In order to have 
an economic miracle,” says Dr. Vasquez, “maybe you  need a socialist 
government first to commit agrarian reform.”

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, “Armed Madhouse”
. Read his  reports at _www.GregPalast.com_ 
zMTc=&CampaignID=69&CampaignStatisticsID=27&Demo=0&Email=dbachmozart at aol.com) 

Get  a signed copy of Armed Madhouse for the holidays or browse for other 
signed  gifts at _www.PalastInvestigativeFund.org_ 
achmozart at aol.com) 

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