Milton Friedman, Friedrich Hayek, Augusto Pinochet, and Hu Jintao: Authoritarian Liberalism vs. Liberal Authoritarianism

Jamie K. at Blood and Treasure writes:

Blood & Treasure: Hayekian dictatorship: Greg Grandin in Counterpunch sings of Friedman, Hayek, Pinochet, and someone closer to home:

Friedrich von Hayek, the Austrian émigré and University of Chicago professor whose 1944 Road to Serfdom dared to suggest that state planning would produce not "freedom and prosperity" but "bondage and misery," visited Pinochet's Chile a number of times. He was so impressed that he held a meeting of his famed Société Mont Pélérin there. He even recommended Chile to Thatcher as a model to complete her free-market revolution. The Prime Minister, at the nadir of Chile's 1982 financial collapse, agreed that Chile represented a "remarkable success" but believed that Britain's "democratic institutions and the need for a high degree of consent" make "some of the measures" taken by Pinochet "quite unacceptable."

Well, the left in Britain fought and lost in the 1980’s. But just think what might have happened if it hadn’t fought at all. Anyway:

Like Friedman, Hayek glimpsed in Pinochet the avatar of true freedom, who would rule as a dictator only for a "transitional period," only as long as needed to reverse decades of state regulation. "My personal preference," he told a Chilean interviewer, "leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism." In a letter to the London Times he defended the junta, reporting that he had "not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende." Of course, the thousands executed and tens of thousands tortured by Pinochet's regime weren't talking.

Hayek's University of Chicago colleague Milton Friedman got the grief, but it was Hayek who served as the true inspiration for Chile's capitalist crusaders. It was Hayek who depicted Allende's regime as a way station between Chile's postwar welfare state and a hypothetical totalitarian future. Accordingly, the Junta justified its terror as needed not only to prevent Chile from turning into a Stalinist gulag but to sweep away fifty years of tariffs, subsidies, capital controls, labor legislation, and social welfare provisions -- a "half century of errors," according to finance minister Sergio De Castro, that was leading Chile down its own road to serfdom.

I think that there is an important difference between Friedman and Hayek. Hayek is an economic (classical) liberal but a social conservative: a believer in respect for throne and altar. Social conservative Hayek can see Pinochet as a good thing: far better to have an authoritarian state that maintains the conservative moral order, if it can be persuaded to adopt laissez-faire economics, than it is to have a democracy that regulates the economy. Friedman, by contrast, hates and fears a government that prohibits use of recreational drugs in your home almost as much as he hates and fears a government that won't let you undersell your politically-powerful competitors. For Friedman, Pinochet is a bad--an aggressive, powerful military dictator--whose evil the Chicago Boys can curb by persuading him to adopt laissez-faire policies. (And, Friedman would say, Pinochet is vastly better than that communist Allende--consider, Friedman would say, that Castro's regime in Cuba is the zenith of what Communist rule can accomplish.)

Jamie K. goes on:

Now, the position of many mainstream intellectuals and economists in China, especially during the mid to late 1990’s was summed up at the time as “liberty before participation”, ie “capitalism now, democracy sometime, maybe.” And there’s still a powerful school of thought in China to the effect that the advantage of CPC rule is that it enables China to establish a full market economy without the kind of “historic mistakes” like the welfare state or the New Deal that you get when the public is allowed to vote itself the keys to the bank. People who call themselves libertarians in China are likely to be strong supporters of the Communist Party, at least on instrumental grounds.

I’ve argued before that many of China’s anti subversion laws – like those against “causing turmoil” or “disturbing social order” - have a Hayekian feel to them. They’re essentially designed as measures to stop people exercising the conceit of reason. If Hayek’s preference was for a liberal dictatorship, China is still the country that best meets that description, despite the recent leftish turn in official policy.

Comments

[andres]

I think I would go even farther than Jamie K. Libertarianism a la Hayek or even a la Friedman has always, in my view, been a recipe for corporate totalitarianism of which Pinochet's Chile, and even contemporary China, give only a very incomplete glimpse.

A brief synopsis of the argument runs as follows. Hayek and Friedman never seemed to grasp the Schumpeterian argument that entrepreneurial-induced monopoly/oligopoly, not competition, is the natural state of most important markets today, and only corporate financial structures seem to be able to obtain the resources needed to maintain a significant share of such markets.

But the problem with large corporations running markets is that corporations _will_ have the financial resources to influence government itself. Politicians may flatter themselves that they are engaging in laissez faire economic policies, but inside the boardrooms, the CEOs are definitely not going to engage in a laissez faire approach to what's happening in legislatures and governors' mansions. In that sense, public choice theory's nightmare of government policy being captured by special interests comes true, but it occurs not because government engages in interventionist policies but precisely for the opposite reason--governments letting players in the market become too large and influential.

And once government falls under the influence of corporate boardrooms, corporations become largely unaccountable and will engage in all sort of foreign policy shenanigans, as well as of eventually getting around to prohibiting dissent and curtailing democratic freedoms (eg Military Commissions Act). Most of the post-WWII political history of the US has consisted of the process by which financial influence slowly calcifies the flexibility of democratic political processes. GW Bush and his circle are an outcome of this process, though not the only or even the final outcome.

[RT]

Sounds to me like both Hayek and Friedman let their economics get the better of their common sense.

As burdensome as over-regulation and heavy taxation might be, in what moral universe can they be worse than a government that kills and tortures whole bunches of people?

For most of us, that's a pretty straightforward call.

[Dave Parker]

Interestingly Thatcher’s not the only fan: Recommending approaches for today’s LDC’s, the UK Treasury’s May 2004 paper “Trade and the Global Economy” notes approvingly how “between 1975 and 1979, Chile eliminated all quantitative restrictions and trade controls and reduced its tariffs substantially” without any mention of the political context of the changes. The Park regime in South Korea naturally gets an endorsement too. India’s thrown in last to show that democracies can tag along.

China as Hayekian despotism is plain surreal: I suspect a plague of welfarism wouldn’t be among the likeliest consequences of the CPC’s removal. But it’s a charming thought.

[Scott Martens]

I'm not sure "liberal dictatorship" quite fits China. I think a better way to think of it is as something on the model of pre-Reform Act Britain: An oligarchy responsible primarily to itself, but not a central dictator responsible to no one. This is something of a common model in Chinese history - the leadership was historically subject to a lot of pressure from the elite, and the government was too complex to simply eliminate the elite and replace them with people whose loyalty was unquestionable.

And like pre-Reform Act Britain, it could be liberal and conciliatory or conservative and reactionary, depending on how the wind was blowing. Catholic emancipation, for example, took place well before the democratic structures of the Reform Acts. But never, ever, could it countenance a disloyal opposition or allow its foundations to be questioned.

There is something very Hayekian in that.

But China has a historically entrenched and self-justifying revolutionary tradition, one that long pre-dates Mao and flies in the face of Hayek's approach. When the state loses the Mandate of Heaven, there are famines and insurrections, and by those signs, the people know that Heaven has lost its confidence in the regime. Any assault on the structures of the state that actually manages to overthrow it is justified, by definition, because if the state had been legitimate, it would not have fallen.

People are not necessarily willing to suffer endlessly for liberal values. Hayek seemed to think they should.

[Dave Parker]

"Politicians may flatter themselves that they are engaging in laissez faire economic policies, but inside the boardrooms, the CEOs are definitely not going to engage in a laissez faire approach to what's happening in legislatures and governors' mansions."

Too true. And it's way beyond being a merely domestic issue. Question is, what's the world going to do about it, or will future voters just register as Exxon or Citigroup?

[eweininger]

"For Friedman, Pinochet is a bad--an aggressive, powerful military dictator--whose evil the Chicago Boys can curb by persuading him to adopt laissez-faire policies. (And, Friedman would say, Pinochet is vastly better than that communist Allende....)"

Like most people, I recognize the fact that under under conditions of formal democracy, all sorts of private interests can capture the authority of the state from time to time, with pernicious consequences. Nevertheless, to simply dismiss the notion of democractic legitimacy in toto on the basis of this (fairly obvious) insight amounts to a breathtaking intellectual leap.

Backwards, I might add.

[andres]

No one here is dismissing the notion of democratic legitimacy--although Hayek and Friedman definitely came close in the case of Chile. The USSR, Cuba, and Maoist China have been catastrophes precisely because their rulers dismissed the notion of democratic legitimacy. Rather the real problem for the ages is of reconciling democratic legitimacy with decentralized, privately run markets as allocation mechanisms. IMO, only some form of social democracy or market socialism can hope to accomplish this; Soviet communism and American capitalism (so far) have not.

[Nick Kaufman]

Two points.

1. I think that history and most people here underestimate the economic disaster Allende was. This is a man who got an economy running a 2% deficit and a 20% inflation only to turn them into a 24% deficit and a 505% inflation.

Moreover, while I will not defend Pinochet, Allende bears the responsibility for the polarization and nervous breakdown he brought to Chilean society.

Long point short. Economically speaking Pinochet was vastly superior to Allende.

2. I think that viewing China as an enlightened liberal state is a stretch, but all the same the juxtaposition with the strategy Gorbachev chose to follow is very interesting. Whereas the Chinese chose liberal economic reforms first and democracy presumably much later, Gorbachev chose democracy first and economic reforms later.

That turn of event -while fortunate for all of us, since it led to the end of the Cold War- led to the disintegration of Russia and her inability to impose sensible reforms. Not to mention, that they eventually led to Putin's autocracy which is really neither liberal nor democratic.

[Marshawn Manhunter]

Mr Kaufman utterly disregards the historic contexts in his dismissal of Allende. The fact that the country was attempting to emerge from centuries of economic and political domination from without by a nativist democratic shift, which was actively opposed by the CIA, and culminated in the assassination of Mr. Allende, is not a fact to be simply unaddressed by economists.
Too often in these economic discussions these issues are attributed to "invisible hands" and rational market actors, but what is really happening is a program of intentional economic terrorism perpetrated by US and international monetary interests such as WB and IMF. Too few citizens are informed enough to comprehend the economic point of the spear, preferring to believe that unregulated market capitalism is equivalent to freedom and is the best possible most natural state of man.
The interesting cultural link here is that were they not themselves Jewish and subject to discrimination and death at the hands of their former governments, these expatriates would happily have taken part in the post-Anschluss government of Austria or other Axis powers. Perhaps if the National Socialists had singled out Catholics, say, for liquidation the outcome for Chicago's intellectual heritage would have been vastly different.

[Ponzi Q. Globalization]

"Whereas the Chinese chose liberal economic reforms first and democracy presumably much later"

Presumably? Is this part of the Chinese Communist Party platform?

"That turn of event -while fortunate for all of us, since it led to the end of the Cold War- led to the disintegration of Russia and her inability to impose sensible reforms. Not to mention, that they eventually led to Putin's autocracy which is really neither liberal nor democratic."

So was it fortunate or not? Maybe we should wait a bit longer (a few hundred years?) before deciding one way or another.

[andres]

Nick: Sorry, but I don't agree on Chile. Allende's 2 1/2 years in power _were_ an economic disaster, but he doesn't bear all or even most of the responsibility. In fact, it's pretty clear that the Chilean economy was destined for macroeconomic collapse as soon as he was elected, given both the nature of Unidad Popular policies and the corresponding right-wing backlash.

Allende's platform of breaking up the monopolies in the large business sector, of accelerating land redistribution, and of not providing compensation to the foreign mineral companies for the nationalization of the copper mines, were clear from even before he was elected. And Allende did not subject the Chilean economy to helicopter drops of money. No one _forced_ the price level to spiral: it was done because businessmen reacted negatively to the political and business takeovers by hoarding inventories and drastically reducing production. Not to mention the drastic capital flight that ensued during Allende's years in power, plus the truck companies refusing to operate, plus the Nixon administration deciding to do anything that would help destabilize the Chilean economy (eg to block foreign copper sales by the government).

Before I get accused of defending Allende, it is wise to say that his policy of state takeover of the largest businesses, of uncompensated nationalization, and of continuing to maintain price controls in many areas was highly stupid from an economic point of view as well as politically unwise. In short, his policies were definitely provocative, but Allende's enemies let themselves be provoked. If the Chilean business sector had not _reacted_ to the government policies with a production and investment strike and capital flight, then the economic crisis that Allende gets blamed for, and which is used by many to justify the coup, would not have happened. Other countries have embarked on policies of redistribution before without provoking the type of political violence that occurred in Chile, though admittedly not as rapidly as Allende did.

The polarization of Chilean society, leading to a sort of "civil cold war" had already occurred prior to 1970--Chile had the second worst income distribution in Latin America at that time, as well as a history of murderously suppressing labor strikes even under civilian governments. To blame Allende and Popular Unity exclusively for this polarization is naive at best and dishonest at worst.

[PrestoPundit]

Would it be too much to ask that we stick with facts?

You won't find Hayek anywhere advocating for throne and alter. The man was a confessed agnostic and his preference was for republican democracy, and nothing else. If you make distinctions -- which we all should -- Hayek counted communist authoritarians worse than liberal economic authoritarians -- as an example he would prefer today's China over Mao's China. I know of several important academics and intellectuals on the left over the past 50 years who would have an opposite scale of preferences. So much the worse for them.

And sticking to evidence, what evidence is there that Hayek as an old and sickly man concerned with finishing a major treatise and not much bothing with international news knew much of anything what Pinochet and his people had done? In fact there is contrary evidence suggesting that Hayek was about as aware as a sickly resident of an old folks home of what was going on in Chile. If foks have any evidence to the contrary, they need to produce it.

[Northern Observer]

I've just lost a tremendous amount of respect for Hayek.
Terrible judgement.
Democratic demands on the economy are legitimate, period. They never ever ever justify dictatorship. It invalidates your free market principles if you won't let the people decide their own "G" level and resort to sticking a gun in their face if they choose "wrong"

This is why I've always been suspicious of right wing thinkers. There's a bloody weakness for the boot and truncheon at the heart of their thinking.

[Nick Kaufman]

Andres,

I, as well, do not intend to be an apologist for the landowner class and the reactionary bourgeoisie which indeed repressed in a variety of ways the poor.

However, I will maintain that Allende was responsible for the polarization; although perhaps a more accurate description would be "the unprecedented intensity of polarization".

One thing to keep in mind is that while the society was polarized, Chilean politics had a tradition of centrist compromises. More importantly, Allende won a three way race with 36% of the vote. At the time, the other two alternatives, the moderate Christian Democrats (35%) and the conservatives (28%) were by no means united in their abhorrence and opposition to Allende. The moderates supported moderate versions of social reform in the vein their popular President Frey had done in the preceding term. They also included a large chunk of leftist elements that presumably were sympathetic to Allende and a Socialist alternative.

The fact of the matter however is that two years later, Allende had pushed so hard, that the Christian Democrats were solidly aligned with the Conservatives, not in mere opposition of the policies, but in sharing the intention to impeach him. I am not that immersed in Chilean history, but it does sound unprecedented.

As for his economic policies, you say that "people were allowed to be provoked". I don't see it this way and I don't think that his can hold water. Why? Because, I don't think that their fears were unfounded or that they were driven by irrationality.

When you have a President and a Party which talks of the first democratic transition to socialism -at a time when Socialism is viable and Cuba fresh in the minds of people- when you have uncompensated nationalizations as you say, many of which were carried literally by tactics of mob rule which only add to the uncertainty and the fear- it's not imprudent to get your money out. There have been less modest policies causing capital flight.

As for Allende, he could have followed much more moderate ways to implement redistributive policies. Many other examples that weren't so disastrous come to mind, Lula in Brazil for example, even Chile's post transition governments.

However, moderation or moderate redistribution was not the point. Imposing socialism was; and that was a bad idea that couldn't work.

If there wasn't that much leftist propaganda, more people would know that. And while, everyone should know that CHicago boys' record was mixed, people should know the structaralist/dependentistas policies was an unmitigated disaster and a lesson for all.

[Walt]

PrestoPundit: "So much the worse for them?" Can't you make a point without being an ass? I was reading your comment sympathetically until that point.

The thing that bugs me about this argument is that it shouldn't be Allende versus Pinochet. It's Pinochet versus democracy. Chile had an unbroken democratic tradition. If you grant that Allende was somehow a unique threat to Chile, and Pinochet had overthrown him, and then immediately reinstituted democratic rule, we wouldn't be having this argument. Instead, Pinochet maintained his dictatorship for years, and lost power basically by accident.

[Nick Kaufman]

One thing I forgot. Besides nationalization driving capital away, so do price controls make people stock inventories.

Extensive price controls either cause the economy to contract or force a good chunk of economic activity to the black market.

The alleged sabogages of the middle class is more of an urban myth. The economic answer is satisfactory without having to resort to a political explanation.

[Jon Fernquest]

Andres: "...Allende's platform of breaking up the monopolies in the large business sector, of accelerating land redistribution, and of not providing compensation to the foreign mineral companies for the nationalization of the copper mines, were clear from even before he was elected. And Allende did not subject the Chilean economy to helicopter drops of money. No one _forced_ the price level to spiral: it was done because businessmen reacted negatively to the political and business takeovers by hoarding inventories and drastically reducing production. Not to mention the drastic capital flight that ensued during Allende's years in power..."

Quite unlike Park Chung Hee who under the 40+ year American occupation of South Korea by the United States, took Edmund Burkean sides with the much reviled established business order of the Japanese colonial era, with the help of American military-political protection and massive subsidies, **created an economic miracle**, after about 40 years of backbreaking suffering and human rights violations (See Bruce Cumings, 2005, Korea's Place in the Sun, for Details). I also would not be caught dead the defending a dictator who electrocuted the t*st*cles of my favorite Korean poet, thus permanently preventing him from fatherhood, tragic ironies in history and life, unfortunately, unlikely to be found with three stage least squares, though such noble efforts will surely one day be rewarded.

[Ponzi Q. Globalization]

"This is why I've always been suspicious of right wing thinkers. There's a bloody weakness for the boot and truncheon at the heart of their thinking."

I wouldn't limit it to right wing thinkers. Justifying atrocities by those in your camp seems very common with ideologues of all kinds. When you've fallen under the spell of an ideology or religion, the concrete pain of your fellow human beings today becomes less important than the abstract glorious future.

Look what we got here. People bitching about a democratically elected Socialist because his economic policies allegedly 'sucked' instead of a torturing monster who had the 'right' economic ideas.

By the way, can someone describe just what happened to Allende after the coup?

[andres]

Ponzi: Nobody knows for sure. Some say that he was armed and was killed in a shootout with pro-coup soldiers when defending the presidential palace with his followers. But the most plausible story is that he shot himself rather than surrender to the military and be tortured/disappeared.

[andres]

Nick: I have a different perspective as usual, but I have to run now. Stay tuned...

[wkwillis]

The joke in National Lampoon was that he "shot himself 23 times in the back, pausing once to reload".
The Pinochet dictatorship didn't tell anyone what they did with his body so that's probably as good a guess as anybody else's.

[James Killus]

I offer these stats without comment so that others may draw whatever conclusions they feel appropriate:

Infant Mortality (deaths per 1000 live births) by year

Cuba
1960 1970 1980 1990 2000 2002
39 34 22 12 7 7

Chile
1960 1970 1980 1990 2000 2002
118 78 34 17 11 10

China
1960 1970 1980 1990 2000 2002
150 85 49 38 32 30

Source: http://www.gvu.unu.edu/

[anne]

James, please give the exact infant mortality statistics source if you can.

[christofay]

I don't get the ostracization of Cuba. Not only do they seem to do well with limited resources in infant mortality, but they play America's former favorite pastime very well down there. Is it all due to a tiny immigrant community?

[DRR]

So Hayek deluded himself into thinking the authoritarian situation in Chile was "transitional" (Actally it was, he WAS, VOTED out of his office) and was naive about what the situation was actually like there, which makes him exactly no different from many other smart men who believed some very silly things about the Soviet Union & Maoist China, long after they should have known better, like Arthur Schlesinger & J.K. Galbraith, I would hardly characterize Hayek as a defender of "Throne & Altar" much less deserving the namesake of a brand of "Hayekian" authoritarianism.

From Hayek's "The Road to Serdom" on his book being endorsed by Conservative reactionaries.

"Contrary to my experience in England, in America the kind of people to whom this book was mainly addressed seem to have rejected it out of hand as a malicious and disingenous attack on their finest ideals; they appear never to have paused to examine the argument. But scarcely less surprising to me was the enthusiastic welcome accorded to the book by many whom I never expected to read a volume of this type--and from many more of whom I still doubt whether in fact they ever read it. And I must add that occasionally the manner in which it was used vividly brought home to me the trith of Lord Acton's observation that 'at all times sincere friends of freedom have been rare, and it's triumphs have been due to minorities. that have prevailed by associating themselves with auxiliaries whose objects often differed from their own; and this association which is always dangerous, has sometimes been disastrous."

More Hayek on Conservatism from the same entry;

"It is true, of course, that in the struggle against the believers in the all-powerful state the true liberal must sometimes make common cause with the conservative, and in some circumstances, as in contemporary Britian, he has hardly any other way of actively working for his ideals. But true liberalism is still distinct from conservatism, and there is danger in the two being confused. Conservatism, though a neccessary element in any stable society, is not a social program; in it's paternalistic, nationalistic, and power-adoring tendencies iti is often closer to socialism than true liberalism; and with it's traditionalistic, anti-intellectual, and often mystical propensities it will never, except in short periods of disillusionment, appeal to the young and all those others who believe that some changes are desirable if this world is to become a better place. A conservative movement, by it's very nature, is bound to be a defender of established privilege and to lean on the power of government for the protection of privilege."

That might be a better indicator of Hayek's actual thoughts.

[Barkley Rosser]

I have never seen any statements by either Friedman or Hayek disavowing their essentially pro-Pinochet statements. Indeed, it would appear that both stopped saying anything after a short period of commenting. I would hope that they became embarrassed, but one does not know.

Regarding Hayek, I must agree with those who argue that he never supported "throne and altar." In his later thought he did support systems that spontaneously and gradually evolve, including moral ones. In that regard he could be regarded as a "social conservative," but this had nothing to do with thrones or altars. For those interested in the most authoritative analysis of his thought I would recommend Bruce Caldwell's book on Hayek.

[bobbyp]

"consider, Friedman would say, that Castro's regime in Cuba is the zenith of what Communist rule can accomplish.)"

And from this ignorant ahistorical statement, I guess one could reposte "consider, that Friedman's thought is the zenith of what blind ideological right wing lunatic libertarian thought can accomplish."

Miltie was a great economist, but really, for shame. This is not thought. It is pure unadulterated ideological predjudice.

[Colin Danby]

What's current thinking about the effects of the U.S. efforts at economic destabilization of Allende that were laid out in this November 9 1970 memo?
http://www.gwu.edu/~nsarchiv
/NSAEBB/NSAEBB8/ch09-01.htm

[Matthew Saroff]

"Like Friedman, Hayek glimpsed in Pinochet the avatar of true freedom, who would rule as a dictator only for a "transitional period," only as long as needed to reverse decades of state regulation."

Is it just me, or does this sound sound suspiciously like the Dictatorship of the Proletariat, a staple of communism?

[Keith]

Of course, we'd be remiss if we forget that Pinochet was one of a handful of authoritarian leaders who guided their country to a successful, stable, and functioning democracy, now led by a moderate social democrat...Maybe the South Korean junta would be another example?

If "free-market" authoritarians tend to lead to democracy more than "anti-market" authoritarians, and especially if those democracies are then more stable, isn't that worth noting?

[andres]

Keith: Come on now. Neither Pinochet, nor Park Jung Hee, nor Franco, nor any other of the right-wing military dictators so in love with uniforms and imperial muscle ever intended to engineer a transition to democracy, but rather a perpetual rule by a military caste who would forever hold at bay communism, atheism, and other forms of subversion.

Franco died without ever having made one move to return Spain to democratic rule. I don't know about Park Jung Hee, but Pinochet had a plebiscite forced upon him by pressure at home and from the US. To say that any of these people, so fond of the use of torture and disappearance, actually wanted a return to democracy is naive at best and dishonest at worst.

[andres]

Nick: again I don't have time to write a hugely extensive argument, so I'll limit myself to the following:

(1) Allende's economic policies, though politically questionable and economically inept, were _legal_, and they were spelled out in Popular Unity's election platform. The takeovers of large businesses were not carried out exclusively by mob tactics--they relied on anti-monopoly laws which had been passed by Congress before 1970 but never broadly or effectively enforced. Similarly, most of the price controls were in place before 1970. And the land redistribution that the government carried out in rural areas was simply a speeded-up version of land reform legislation passed by the previous Christian Democrat government.

(2) A great degree of the panic/paranoia in conservative and upper class families in Chile (many of whom ran the large farm estates and businesses) occurred _before_ shortages and inflation spiraled out of control. Indeed many people talked openly of leaving the country immediately after Allende was elected.

(3) Many of the decisions which brought the economy crashing to a halt were not the mass reaction of small businessmen, but were taken by a handful of large firms. Only a small number of businesses operated the trucking industry, for example, and they greatly exacerbated the shortages (even creating many) by deciding to shut down operations in 1972.

Overall, the opposition to Allende was faced with a fait accompli after 1970. They knew precisely what the next six years of government policy were going to be, given that the government was still committed to operating within the law. They knew that thanks to government takeovers they would lose a significant share of their previous wealth. They thus had one of two broad options left to them (a) either accept the economic policies provided that the government worked within the law, thus preserving both democracy and some semblance of a private sector, or (b) go on a production/investment strike combined with capital flight in an attempt to both save their wealth and bring the government down.

The second course led to more polarization and to Pinochet. The first course, though it would not have led to the post-1982 growth that Chile experienced, would have preserved democracy regardless of right-wing paranoia--with the Christian Democrats and Conservatives having mended their differences, Popular Unity would most likely have been voted out of power in 1976. It is best to keep in mind that no violent left-wing takeover in Latin America has ever overthrown a democratic government--the Huertas, Batistas, and Somozas were and always will be the prerequisites for communist takeover in the region's countries. This clearly wasn't going to happen in Chile.

So anyway, Allende's policies _were_ an economic disaster, but mostly, though not entirely, because he politically miscalculated the reaction of Chile's wealthy families and business sector. But the opposition only wanted to overthrow him without regards as to using democratic means to do so. Only a few days before his overthrow, Allende was persuaded to organize a national plebiscite on his presidency. On hearing this, the military moved up the date of the coup before the plebiscite could be announced. The rest is history.

[Nick Kaufman]

1. Andres. Yes, they were legal and that's not debatable. From what I gather the crux of our disagreement is which was the biggest culprit: Allende's failed policies or the oppositions unmeasured reaction to Allende.

I will dispute one thing you say on this point; the fact that price controls existed before 1970. They did, but their extent matters. There were two more rounds after 1972 and they look much more strict to me.

2. Saying that a "great degree of panic/paranoia existed in the upper classes, before shortages and inflation took over", doesn't contradict what I am arguing. The crucial question is whether they withdrew after and because of specific economic measures like price control and nationalization or whether they withdrew independently of the measures just because of their paranoia. I don't think that the latter is the case.

I think the economic turn of events proves my point of view. First, Allende forced the economy into steroids by boosting demand. Then because of the resulting gaping deficit, inflation started spiraling out of control. Then, instead of dealing with the deficit, the Allende polyannas started imposing heavy price controls. That's when the shortages started. That's very consistent with simple economic theory and I don't think that it needs a political explanation or refuge in hyped myths like the CIA sabotages.

3. I am not aware of the details of the truck strike or its cause. I would love to hear more about it. I don't think however that the fact that we re talking about big business as opposed to small business makes a difference. You re a big company owner. You start living in a climate where other companies are nationalized left and right. Legally or not legally, mob rule or no mob rule (although mob rule is worse) doesn't matter. Of course you re going to be concerned about your capital and property and you re going to take corresponding measures.

As far as the legal argument goes. Their reaction -save the coup- was legal. As much as labor has a right to strike, capital has the right to fly. And boy does it fly, not only in Chile but in all kind of countries. Moreover, legalisms don't supersede economics. Rational people will try to protect their interests. I think and insist that it's a mistake to view the shortages and the capital flight as the massive implementation of a political strategy. Were it be the case, it would be an extremely large and difficult form of collective action we haven't witnessed before.

In essence, what you re telling me is that just because Allende measures were legal, big business owners should take their chances while running the danger of the uncompensated nationalization (also called state theft) lightly so that democracy can survive. Of course, such a move would have strengthened Allende's hand and he could have gone much further.

As for the two ways you describe, that takes me to another point I made. While macroeconomically, there were a couple of mistakes and a big blunder, microeconomically, the Pinochet years were a success. Without Pinochet, it's very doubtful that Chile would have implemented true blue reforms it did in the 70s. It would probably have flirted with a failed Keynesian strategy for a while, only to have the Washington Consensus forced on her throat some time after 1982. Needless to say, it's not a given that it would be implemented with the same zeal and success that it was in the 70s. That zeal of course, gave Chile a very nice economic legacy upon which it based her prosperity in the past 15 years.

[Barkley Rosser]

Keith,

Most of the former Soviet bloc has transitioned to democracy without internal violence and not too much current instability, although there are exceptions both on actually transitioning to democracy, as well as the violence and stability issues. But that is a lot of countries, even if one sticks to the unequivocal successes.

N. Kaufman,

The initial period of reforms pushed by the Chicago Boys did not work well. It was only later that there were adjustments, some of them looking rather "Keynesian," after which the Chilean economic performance improved.

[andres]

Just one last point:

"In essence, what you re telling me is that just because Allende measures were legal, big business owners should take their chances while running the danger of the uncompensated nationalization (also called state theft) lightly so that democracy can survive. Of course, such a move would have strengthened Allende's hand and he could have gone much further."

If you call uncompensated nationalization by the name of state theft, even though it's legal, you're opening up a huge can of worms. There are lots of private and public decisions that could be called theft whether or not they're legal. Allende argued that the huge profits made by the foreign copper companies, thanks to grossly inadequate wages and benefits and thanks to very low or almost no profit taxes, were in effect a form of theft. If we leave the law out of it, who's to contradict him?

And again, you're assuming that Allende could have "gone much further". I don't think so. He had no armed force of his own (contrary to the hysterical suspicions of the right wing), he had alienated the middle class and united the Conservative and Christian Democrat opposition. He and his coalition would have lost the 1976 elections. End of story.

[andres]

Just one last point:

"In essence, what you re telling me is that just because Allende measures were legal, big business owners should take their chances while running the danger of the uncompensated nationalization (also called state theft) lightly so that democracy can survive. Of course, such a move would have strengthened Allende's hand and he could have gone much further."

If you call uncompensated nationalization by the name of state theft, even though it's legal, you're opening up a huge can of worms. There are lots of private and public decisions that could be called theft whether or not they're legal. Allende argued that the huge profits made by the foreign copper companies, thanks to grossly inadequate wages and benefits and thanks to very low or almost no profit taxes, were in effect a form of theft. If we leave the law out of it, who's to contradict him?

And again, you're assuming that Allende could have "gone much further". I don't think so. He had no armed force of his own (contrary to the hysterical suspicions of the right wing), he had alienated the middle class and united the Conservative and Christian Democrat opposition. He and his coalition would have lost the 1976 elections. End of story.

[nemo]

"Is it just me, or does this ["transitional period"] sound sound suspiciously like the Dictatorship of the Proletariat, a staple of communism?"

Absolutely. It was the first thought that leapt to mind. And this kind of thinking from someone who already had the benefit of seeing the Soviet Union's failure to move past its "transtional period" of dictatorship. Maybe Hayek thought it would turn out differently when the dictatorship was conservative.

[nemo]

Thanks to DRR for quoting Hayek's thoughts on "The Road to Serdom" being endorsed by conservative reactionaries.

I spent some time reading Hayek and Adam Smith in the 1980s, when I repeatedly saw their names invoked in admiring tones in the pages of the National Review. (My loving but reactionary grandfather had bought me a subscription.)

My reaction was that the writers at the National Review must have only read the Cliffs Notes versions of Hayek and Adam Smith, and even then not very carefully.

American conservatives take a highly selective approach to the writings of their intellectual heroes, just as their theocratic friends take a highly selective approach to the Bible.

[d'Nile]

christofay: Cuba's isolation is because of the exiles only. These are families who had power and privilege over Cuba in the pre-Castro days and they _want it back_ above all else.

[Jon Fernquest]

Unlike Friedman's "Chicago Boys" the "Berkeley Mafia" in Suharto's Indonesia only came after the well-known massacres of up to 1 million people after the Indonesian revolution of 1965:

"On economic matters, the New Order tended to rely on a group of American-educated economists, nicknamed the 'Berkeley Mafia,' to set policy. Soon after coming to power, he [Suharto] passed a number of reforms meant to establish Indonesia as a center of foreign investment. These included the privatization of its natural resources to promote their exploitation by industrialized nations, labour laws favorable to multinational corporations, and soliciting funds for development from institutions including the World Bank, Western banks, and friendly governments ...These policies were widely credited for having alleviated absolute poverty in Indonesia, and for having established Indonesia as an industrializing nation."
http://en.wikipedia.org/wiki/New_Order_(Indonesia)#.22Asian_Tiger.22_Economy

[Jon Fernquest]

Another critical difference is that the economists were all Indonesians themselves:

http://en.wikipedia.org/wiki/Berkeley_Mafia

[James Killus]

Anne,

Here's a link to the Cuba data:

http://globalis.gvu.unu.edu/indicator_detail.cfm?IndicatorID=25&Country=CU

From there, the other data are available just from a "select country" dropdown.

The ultimate source cited is the UN Common Database / UNICEF

[Neil']

Just a reminder again of the general falseness of right/libertarian thinking: Libertariansm is an intellectual fraud. It is based on a logical fallacy. That is the idea that the economy and existing property claims are natural; a priori defaults that the government interferes in. That's rubbish. The government has imposed property claims and rules to begin with (what little percentage of land now claimed was really originally farmed etc. and passed down without interruption?), fiddles with the money supply (the way that impacts employment would deserve compensatory damages in any other case), the other part of which increases money in a way that allows taking of interest that wouldn't otherwise be possible in a hard-currency regime, etc.