The 1973 Chilean Coup and the Rise of Neoliberalism

The 1973 Chilean Coup and the Rise of Neoliberalism

Overview In September 1973, a military coup led by General Augusto Pinochet overthrew the democratically elected government of President Salvador Allende in Chile. This event marked the beginning of a global shift towards neoliberal economic policies, which would have far-reaching consequences for the world economy. The coup was a response to the country’s economic crisis, characterized by high inflation and output collapse. Neoliberalism, an ideology that advocates for free market principles and limited government intervention in the economy, emerged as a key factor in shaping the post-coup policies.

Context In the 1960s and 1970s, many countries in Latin America, including Chile, experienced rapid economic growth fueled by foreign investment and state-led development. However, this growth was accompanied by increasing inequality and social unrest. The Welfare State, a system of social protection and public services, became a contentious issue as governments struggled to balance economic growth with social welfare. In Chile, the New Economic Model (NEM) implemented in 1965 aimed to promote economic development through state-led investment and industrialization.

Timeline

• 1958: The Christian Democratic Party comes to power in Chile, introducing a new constitution that establishes a mixed economy.
• 1964: Salvador Allende wins the presidential election, marking the beginning of a socialist government in Chile.
• 1970: Allende nationalizes key industries, including copper mining and banking, leading to increased tensions with foreign investors and the US government.
• September 11, 1973: A military coup led by General Augusto Pinochet overthrows Allende’s government.
• 1975: The Chicago Boys, a group of Chilean economists trained in the United States under Milton Friedman’s tutelage, begin to implement neoliberal reforms.

Key Terms and Concepts

• Neoliberalism: An economic ideology that advocates for free market principles and limited government intervention in the economy.
• Welfare State: A system of social protection and public services, including universal benefits and state pensions.
• New Economic Model (NEM): A development strategy implemented in Chile in 1965, emphasizing state-led investment and industrialization.
• Monetarism: An economic theory that emphasizes the control of money supply as a means to stabilize prices and promote economic growth.
• Shock Therapy: A policy approach characterized by rapid and drastic reforms aimed at stabilizing the economy.

Key Figures and Groups

• Salvador Allende: The democratically elected president of Chile who implemented socialist policies, leading to increased tensions with foreign investors and the US government.
• Augusto Pinochet: The military general who led the coup against Allende’s government and implemented neoliberal reforms in Chile.
• Milton Friedman: An American economist who advocated for monetarism and neoclassical economic principles, influencing the development of neoliberalism.
• The Chicago Boys: A group of Chilean economists trained in the United States under Milton Friedman’s tutelage, who implemented neoliberal reforms in Chile.

Mechanisms and Processes

• Allende’s government implemented socialist policies, including nationalization of key industries, leading to increased tensions with foreign investors and the US government. → This created a crisis of confidence among foreign investors, exacerbating the economic situation.
• The military coup overthrew Allende’s government, paving the way for neoliberal reforms. → The Chicago Boys, under Milton Friedman’s influence, implemented monetarist policies to stabilize prices and promote economic growth.

Deep Background

The development of neoliberalism can be traced back to the 1940s and 1950s, when economists such as Friedrich Hayek and Ludwig von Mises began to challenge the dominant Keynesian economic paradigm. The Mont Pelerin Society, founded in 1947, brought together influential thinkers who advocated for free market principles and limited government intervention in the economy.

Explanation and Importance

The 1973 Chilean coup marked a turning point in the development of neoliberalism. The implementation of monetarist policies under General Pinochet’s regime led to a significant reduction in inflation, but also had far-reaching social consequences, including increased inequality and repression. The success of these reforms in stabilizing prices and promoting economic growth led to their adoption by other countries, contributing to the global spread of neoliberalism.

Comparative Insight

The Chilean experience can be compared with the Mexican Economic Miracle of the 1940s and 1950s, which was characterized by rapid industrialization and economic growth fueled by state-led investment. However, this growth was accompanied by increased inequality and social unrest, ultimately leading to a crisis that required radical reforms.

Extended Analysis

• The Role of Ideology: Neoliberalism emerged as a key factor in shaping the post-coup policies in Chile. The influence of Milton Friedman’s monetarist ideas can be seen in the implementation of shock therapy policies.
  • Monetarism and Inflation: Monetarists argue that high inflation is caused by excessive money supply, rather than external factors such as economic growth or employment levels.
  • Shock Therapy and Economic Reforms: Shock therapy policies involve rapid and drastic reforms aimed at stabilizing the economy. This approach has been criticized for its social costs and long-term consequences.
• The Impact on Society: The implementation of neoliberal reforms in Chile had far-reaching social consequences, including increased inequality and repression. This highlights the need for careful consideration of the social implications of economic policies.

Open Thinking Questions

• What are the key factors that contributed to the success of neoliberal reforms in Chile? • How did the influence of Milton Friedman’s monetarist ideas shape the implementation of shock therapy policies? • What are the long-term consequences of implementing neoliberal reforms, and how can their social costs be mitigated?

Conclusion The 1973 Chilean coup marked a turning point in the development of neoliberalism. The implementation of monetarist policies under General Pinochet’s regime led to a significant reduction in inflation, but also had far-reaching social consequences. As we reflect on this moment in history, it is essential to consider the complex interplay between economic and social factors that shaped the outcome.