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Today's
Stories
October
20, 2003
John &
Eileen Mellencamp
Peaceful
World
Elaine
Cassel
God's
General Unmuzzled
October
18 / 19, 2003
Robert
Pollin
Clintonomics:
the Hollow Boom
Gary Leupp
Israel, Syria and Stage Four in the Terror War
Saul Landau
Day of the Gropenfuhrer
Bruce Anderson
The California Recall
John Gershman
Bush in Asia: What a Difference a Decade Makes
Nelson P. Valdes
Bush, Electoral Politics and Cuba's "Illicit Sex Trade"
Kurt Nimmo
Shock Therapy and the Israeli Scenario
Tom Gorman
Al Franken and Al-Shifa
Brian
Cloughley
Public Propaganda and the Iraq War
Joanne Mariner
A New Way to Kill Tigers
Denise
Low
The Cancer of Sprawl
Mickey Z.
The Reverend of Doom
John Chuckman
US Missiles for Israeli Nukes?
George Naggiar
A Veto of Public Diplomacy
Alison
Weir
Death Threats in Berkeley
Benjamin Dangl
Bolivian Govt. Falling Apart
Ron Jacobs
The Politics of Bob Dylan
Fidel Castro
A Review of Garcia Marquez's Memoir
Adam Engel
I Hope My Corpse Gives You the Plague
Poets' Basement
Jones, Albert, Guthrie and Greeder
October
17, 2003
Stan Goff
Piss
On My Leg: Perception Control and the Stage Management of War
Newton
Garver
Bolivia
in Turmoil
Standard
Schaefer
Grocery Unions Under Attack
Ben Terrall
The Ordeal of the Lockheed 52
Ron Jacobs
First Syria, Then Iran
David
Lindorff
Michael
Moore Proclaims Mumia Guilty
October
16, 2003
Marjorie
Cohn
Bush
Gunning for Regime Change in Cuba
Gary Leupp
"Getting Better" in Iraq
Norman
Solomon
The US Press and Israel: Brand Loyalty and the Absence of Remorse
Rush Limbaugh
The 10 Most Overrated Athletes of All Time
Lenni
Brenner
I
Didn't Meet Huey Newton. He Met Me
Website of the Day
Time Tested Books
October
15, 2003
Sunil
Sharma / Josh Frank
The
General and the Governor: Two Measures of American Desperation
Forrest
Hylton
Dispatch
from the Bolivian War: "Like Animals They Kill Us"
Brian
Cloughley
Those
Phony Letters: How Bush Uses GIs to Spread Propaganda About Iraq
Ahmad
Faruqui
Lessons
of the October War
Uri Avnery
Three
Days as a Living Shield
Website
of the Day
Rank and File: the New Unity Partnership Document
JoAnn
Wypijewski
The
New Unity Partnership:
A Manifest Destiny for Labor
October 14, 2003
Eric Ridenour
Qibya
& Sharon: Anniversary of a Massacre
Elaine
Cassel
The
Disgrace That is Guantanamo
Robert
Jensen
What the "Fighting Sioux" Tells Us About White People
David Lindorff
Talking Turkey About Iraq
Patrick
Cockburn
US Troops Bulldoze Crops
VIPS
One Person Can Make a Difference
Toni Solo
The CAFTA Thumbscrews
Peter
Linebaugh
"Remember
Orr!"
Website
of the Day
BRIDGES
October
11 / 13, 2003
Alexander
Cockburn
Kay's
Misleading Report; CIA/MI-6 Syrian Plot; Dershowitz Flaps Broken
Wings
Saul Landau
Contradictions: Pumping Empire and Losing Job Muscles
Phillip Cryan
The War on Human Rights in Colombia
Kurt Nimmo
Cuba and the "Necessary Viciousness" of the Bushites
Nelson P. Valdes
Traveling to Cuba: Where There's a Will, There's a Way
Lisa Viscidi
The Guatemalan Elections: Fraud, Intimidation and Indifference
Maria Trigona and Fabian
Pierucci
Allende Lives
Larry
Tuttle
States of Corruption
William A. Cook
Failing America
Brian
Cloughley
US Economic Space and New Zealand
Adrian Zupp
What Would Buddha Do? Why Won't the Dalai Lama Pick a Fight?
Merlin
Chowkwanyun
The Strange and Tragic Case of Sherman Marlin Austin
Ben Tripp
Screw You Right Back: CIA FU!
Lee Ballinger
Grits Ain't Groceries
Mickey Z.
Not All Italians Love Columbus
Bruce
Jackson
On Charles Burnett's "Warming By the Devil's Fire"
William Benzon
The Door is Open: Scorsese's Blues, 2
Adam Engel
The Eyes of Lora Shelley
Walt Brasch
Facing a McBlimp Attack
Poets'
Basement
Mickey Z, Albert, Kearney
October 10, 2003
John Chuckman
Schwarzenegger
and the Lottery Society
Toni Solo
Trashing
Free Software
Chris
Floyd
Body
Blow: Bush Joins the Worldwide War on Women
October
9, 2003
Jennifer
Loewenstein
Bombing
Syria
Ramzi
Kysia
Seeing
the Iraqi People
Fran Shor
Groping the Body Politic
Mark Hand
President Schwarzenegger?
Alexander
Cockburn
Welcome
to Arnold, King for a Day
Website of the Day
The Awful Truth about Wesley Clark
October
8, 2003
David
Lindorff
Schwarzenegger
and the Failure of the Centrist Dems
Ramzy
Baroud
Israel's
WMDs and the West's Double Standard
John Ross
Mexico
Tilts South
Mokhiber
/ Weissman
Repub Guru Compares Taxes to the Holocaust
James
Bovard
The
Reagan Roadmap for Antiterrorism Disaster
Michael
Neumann
One
State or Two?
A False Dilemma
October
7, 2003
Uri Avnery
Slow-Motion
Ethnic Cleansing
Stan Goff
Lost in the Translation at Camp Delta
Ron Jacobs
Yom Kippurs, Past and Present
David
Lindorff
Coronado in Iraq
Rep. John Conyers, Jr.
Outing a CIA Operative? Why A Special Prosecutor is Required
Cynthia
McKinney
Who Are "We"?
Elaine Cassel
Shock and Awe in the Moussaoui Case
Walter
Lippman
Thoughts on the Cali Recall
Gary Leupp
Israel's
Attack on Syria: Who's on the Wrong Side of History, Now?
Website
of the Day
Cable News Gets in Touch With It's Inner Bigot
October
6, 2003
Robert
Fisk
US
Gave Israel Green Light for Raid on Syria
Forrest
Hylton
Upheaval
in Bolivia: Crisis and Opportunity
Benjamin Dangl
Divisions Deepen in Third Week of Bolivia's Gas War
Bridget
Gibson
Oh, Pioneers!: Bush's New Deal
Bob Fitrakis and Harvey
Wasserman
The Bush-Rove-Schwarzenegger Nazi Nexus
Nicole
Gamble
Rios Montt's Campaign Threatens Genocide Trials
JoAnn
Wypijewski
The
New Unity Partnership:
A Manifest Destiny for Labor
Website
of the Day
Guerrilla Funk
October
3 / 5, 2003
Tim Wise
The
Other Race Card: Rush and the Politics of White Resentment
Peter
Linebaugh
Rhymsters
and Revolutionaries: Joe Hill and the IWW
Gary Leupp
Occupation
as Rape-Marriage
Bruce
Jackson
Addio
Alle Armi
David Krieger
A Nuclear 9/11?
Ray McGovern
L'Affaire Wilsons: Wives are Now "Fair Game" in Bush's
War on Whistleblowers
Col. Dan Smith
Why Saddam Didn't Come Clean
Mickey
Z.
In Our Own Image: Teaching Iraq How to Deal with Protest
Roger Burbach
Bush Ideologues v. Big Oil in Iraq
John Chuckman
Wesley Clark is Not Cincinnatus
William S. Lind
Versailles on the Potomac
Glen T.
Martin
The Corruptions of Patriotism
Anat Yisraeli
Bereavement as Israeli Ethos
Wayne
Madsen
Can the Republicans Get Much Worse? Sure, They Can
M. Junaid Alam
The Racism Barrier
William
Benzon
Scorsese's Blues
Adam Engel
The Great American Writing Contest
Poets'
Basement
McNeill, Albert, Guthrie
October
2, 2003
Niranjan
Ramakrishnan
What's
So Great About Gandhi, Anyway?
Amy Goodman
/ Jeremy Scahill
The
Ashcroft-Rove Connection
Doug Giebel
Kiss and Smear: Novak and the Valerie Plame Affair
Hamid
Dabashi
The Moment of Myth: Edward Said (1935-2003)
Elaine Cassel
Chicago Condemns Patriot Act
Saul Landau
Who
Got Us Into This Mess?
Website of the Day
Last Day to Save Beit Arabiya!
October 1, 2003
Joanne
Mariner
Married
with Children: the Supremes and Gay Families
Robert
Fisk
Oil,
War and Panic
Ron Jacobs
Xenophobia
as State Policy
Elaine
Cassel
The
Lamo Case: Secret Subpoenas and the Patriot Act
Shyam
Oberoi
Shooting
a Tiger
Toni Solo
Plan Condor, the Sequel?
Sean Donahue
Wesley
Clark and the "No Fly" List
Website of the Day
Downloader Legal Defense Fund
September
30, 2003
After
Dark
Arnold's
1977 Photo Shoot
Dave Lindorff
The
Poll of the Shirt: Bush Isn't Wearing Well
Tom Crumpacker
The
Cuba Fixation: Shaking Down American Travelers
Robert
Fisk
A
Lesson in Obfuscation
Charles
Sullivan
A
Message to Conservatives
Suren Pillay
Edward Said: a South African Perspective
Naeem
Mohaiemen
Said at Oberlin: Hysteria in the Face of Truth
Amy Goodman
/ Jeremy Scahill
Does
a Felon Rove the White House?
Website
of the Day
The Edward Said Page
September 29, 2003
Robert
Fisk
The
Myths of Western Intelligence Agencies
Iain A. Boal
Turn It Up: Pardon Mzwakhe Mbuli!
Lee Sustar
Paul
Krugman: the Last Liberal?
Wayne Madsen
General Envy? Think Shinseki, Not Clark
Benjamin
Dangl
Bolivia's Gas War
Uri Avnery
The
Magnificent 27
Pledge
Drive of the Day
Antiwar.com
September
26 / 28, 2003
Alexander
Cockburn
Alan
Dershowitz, Plagiarist
David Price
Teaching Suspicions
Saul Landau
Before the Era of Insecurity
Ron Jacobs
The Chicago Conspiracy Trial and
the Patriot Act
Brian
Cloughley
The Strangeloves Win Again
Norman Solomon
Wesley and Me: a Real-Life Docudrama
Robert
Fisk
Bomb Shatters Media Illusions
M. Shahid Alam
A Muslim Sage Visits the USA
John Chuckman
American Psycho: Bush at the UN
Mark Schneider
International Direct Action
The Spanish Revolution to the Palestiniana Intifada
William
S. Lind
How $87 Billion Could Buy Some Real Security
Douglas Valentine
Gold Warriors: the Plundering of Asia
Chris
Floyd
Vanishing Act
Elaine Cassel
Play Cat and Moussaoui
Richard
Manning
A Conservatism that Once Conserved
George Naggiar
The Beautiful Mind of Edward Said
Omar Barghouti
Edward Said: a Corporeal Dream Not Yet Realized
Lenni Brenner
Palestine's Loss is America's Loss
Mickey
Z.
Edward Said: a Well-Reasoned Voice
Tanweer Akram
The Legacy of Edward Said
Adam Engel
War in the Smoking Room
Poets' Basement
Katz, Ford, Albert & Guthrie
Website
of the Weekend
Who the Hell is Stew Albert?
September
25, 2003
Edward
Said
Dignity,
Solidarity and the Penal Colony
Robert
Fisk
Fanning
the Flames of Hatred
Sarah
Ferguson
Wolfowitz at the New School
David
Krieger
The
Second Nuclear Age
Bill Glahn
RIAA Doublespeak
Al Krebs
ADM and the New York Times: Covering Up Corporate Crime
Michael
S. Ladah
The Obvious Solution: Give Iraq Back to the Arabs
Fran Shor
Arnold and Wesley
Mustafa
Barghouthi
Edward Said: a Monument to Justice and Human Rights
Alexander Cockburn
Edward Said: a Mighty and Passionate
Heart
Website
of the Day
Edward Said: a Lecture on the Tragedy of Palestine
The Great Alejandro Escavedo Needs Your Help!
September 24, 2003
Stan Goff
Generational
Casualties: the Toxic Legacy of the Iraq War
William
Blum
Grand Illusions About Wesley Clark
David
Vest
Politics
for Bookies
Jon Brown
Stealing Home: The Real Looting is About to Begin
Robert Fisk
Occupation and Censorship
Latino
Military Families
Bring Our Children Home Now!
Neve Gordon
Sharon's
Preemptive Zeal
Website
of the Day
Bands Against Bush
September
23, 2003
Bernardo
Issel
Dancing
with the Diva: Arianna and Streisand
Gary Leupp
To
Kill a Cat: the Unfortunate Incident at the Baghdad Zoo
Gregory
Wilpert
An
Interview with Hugo Chavez on the CIA in Venezuela
Steven
Higgs
Going to Jail for the Cause--Part 2: Charity Ryerson, Young and
Radical
Stan Cox
The Cheney Tapes: Can You Handle the Truth?
Robert
Fisk
Another Bloody Day in the Death of Iraq
William S. Lind
Learning from Uncle Abe: Sacking the Incompetent
Elaine
Cassel
First They Come for the Lawyers, Then the Ministers
Yigal
Bronner
The
Truth About the Wall
Website
of the Day
The
Baghdad Death Count
September
20 / 22, 2003
Uri Avnery
The
Silliest Show in Town
Alexander
Cockburn
Lighten
Up, America!
Peter Linebaugh
On the Bicentennial of the Execution of Robert Emmet
Anne Brodsky
Return
to Afghanistan
Saul Landau
Guillermo and Me
Phan Nguyen
Mother Jones Smears Rachel Corrie
Gila Svirsky
Sharon, With Eyes Wide Open
Gary Leupp
On Apache Terrorism
Kurt Nimmo
Colin
Powell: Exploiting the Dead of Halabja
Brian
Cloughley
Colin Powell's Shame
Carol Norris
The Moral Development of George W. Bush
Bill Glahn
The Real Story Behind RIAA Propaganda
Adam Engel
An Interview with Danny Scechter, the News Dissector
Dave Lindorff
Good Morning, Vietnam!
Mark Scaramella
Contracts and Politics in Iraq
John Ross
WTO
Collapses in Cancun: Autopsy of a Fiasco Foretold
Justin Podur
Uribe's Desperate Squeals
Toni Solo
The Colombia Three: an Interview with Caitriona Ruane
Steven Sherman
Workers and Globalization
David
Vest
Masked and Anonymous: Dylan's Elegy for a Lost America
Ron Jacobs
Politics of the Hip-Hop Pimps
Poets
Basement
Krieger, Guthrie and Albert
Website of the Weekend
Ted Honderich:
Terrorism for Humanity?
Hot Stories
Alexander Cockburn
Behold,
the Head of a Neo-Con!
Subcomandante Marcos
The
Death Train of the WTO
Norman Finkelstein
Hitchens
as Model Apostate
Steve Niva
Israel's
Assassination Policy: the Trigger for Suicide Bombings?
Dardagan,
Slobodo and Williams
CounterPunch Exclusive:
20,000 Wounded Iraqi Civilians
Steve
J.B.
Prison Bitch
Sheldon
Rampton and John Stauber
True Lies: the Use of Propaganda
in the Iraq War
Wendell
Berry
Small Destructions Add Up
CounterPunch
Wire
WMD: Who Said What When
Cindy
Corrie
A Mother's Day Talk: the Daughter
I Can't Hear From
Gore Vidal
The
Erosion of the American Dream
Francis Boyle
Impeach
Bush: A Draft Resolution
Click Here
for More Stories.
|
October
20, 2003
Chile's Failed Economic
Laboratory
an
Interview with Michael Hudson
By STANDARD SCHAEFER
In acknowledging the recent thirtieth anniversary
of the US-sponsored coup that brought to General Augosto Pinochet
to power in Chile, a number of articles and opinion pieces have
appeared. The Nation recently cast the incident in somewhat
sentimental terms. Such efforts to turn Salvador Allende's death
into a martyrdom for democratic socialism obscure the most important
legacy of the coup. Not only did it give rise to one of the twentieth
century's most violently repressive regimes, it inspired subsequent
financial dictatorships to use privatization schemes to consolidate
their power.
As economic historian Michael Hudson
pointed out to me, a recent interview in the Moscow Times
(October 1, 2003: "Corruption, Chechnya: The Price We Paid
for '93" by Ruslan Khasbulatov) confirms this. Recalling
the ten-year anniversary of Boris Yeltsin's 1993 attack on Parliament
and his replacement of its rule by his own diktat carrying out
the recommendations of U.S. HIID and AID advisors, Russia's then-head
of Parliament Khasbulatov explained recently:
"Yeltsin's close advisers at the
time were gripped by the Pinochet syndrome. Their strategy was
simple. Yeltsin needed to disband Khasbulatov's parliament, then
concentrate all power in the country in his hands. Having done
so, the president could easily implement economic reforms, including
privatization, and then bestow a new Constitution upon the people.
Overjoyed by their newfound prosperity, the people would greet
their leader with ovations."
In the face of falling wage levels the
junta's austerity program involved higher wage withholding that
was channeled into the stock market, now a model for efforts
to privatize Social Security in the United States. In Chile this
process led to a stock market bubble and provided public resources
freely to General Pinochet's supporters, creating an aggressive
financial elite-the grupos, a harbinger of oligarchies
to come in Russia and elsewhere.
The Chilean experiment originated in
an exchange program of economists between the University of Chicago
and Chile's Catholic University in Santiago. In August 1972,
more than a year before the military coup, the CIA funded a 300-page
economic blueprint which it supplied to the country's military
and some of the most ambitious business families in an effort
to hasten the overthrow of Salvador Allende's socialist government,
which had been elected by a small plurality in 1970.
The Chicago-style monetary plan described
efforts to privatize industry, reign in government spending to
lower inflation, and to create a more active stock market financed
by labor's own forced savings in order to increase stock prices.
The hope was that capital gains would suffice to pay off the
loans that the government gave its supporters and cronies to
buy industrial companies will little or no cash down.
Those privy to the neoliberal plan were
able to use the report to make money for themselves and their
allies under the military junta that seized power in 1974. Contrary
to Augosto Pinochet's avowed dream of "a nation of entrepreneurs,"
their maneuvers led to a consolidation of monopoly power. This
was contrary to the stated goals of his economic advisors, "The
Chicago Boys," educated at the University of Chicago and
devoted to economists Milton Friedman and Friedrick Hayek.  Chile became the first country
subjected to "shock treatment," starting with drastic
reductions in social spending, privatization of industry and
financial control on concessionary credit terms, and the deregulation
of financial institutions. Most notorious of all, however, was
the policy of "disappearing" labor and political opposition
through the secret police, the DINA.
After Pinochet was installed, the IMF
and World Bank restructured Chilean debt on much more favorable
terms than those afforded Allende, and foreign banks returned
almost overnight. For the economy at large, however, living standards
dropped and income inequality became the worst in Latin America.
From 1970 to 1987 the proportion of the population falling below
the poverty line rose from 20 percent to 44.4 percent.
Despite the regime's promise that a market
economy would eliminate homelessness, the percentage of Chileans
without adequate housing grew from 27 to 40 percent from 1972
to 1988. The capital city of Santiago became one of the most
polluted cities in the world, while poverty-related disease such
as typhoid and viral hepatitis increased. Instead of the promised
"nation of entrepreneurs," Chile got a reign of oligarchs
and an unprecedented domestic debt crisis.
Neoliberals call Chile's 1974-90 period
a miracle, but it is best seen as what should have been a warning
against imposing similar policies in other countries. Under what
became known as the Washington Consensus the economy was subjected
to totalitarian libertarian doctrine. Public enterprises were
given away of to the junta's supporters with virtually no money
down. The result was mass bankruptcy, economic collapse, and
a polarization of wealth and political power that transformed
the country that had been one of Latin America's most stable
middle-class democracies.
In the following interview, Michael Hudson
elaborates on the Chicago Boys' economic legacy and its continuing
implications.
SS: What was the economic relationship
between the US and Chile prior to Allende's election?
MH: It was positive, reflecting the close
linkage between the American mining companies and their banks
with Chilean copper production. By the early 1960s, however,
Chileans came to see that international commodity markets were
structured in a way that exploited them. Under the practice of
"producer pricing" the export price to the parent U.S.
companies for the copper that their Chilean branches produced
was held steady at something like 34 cents per pound, while the
open market price in London soared to more than twice this amount.
Chile got only a fraction of the market value of its exports,
and its politicians understandably wanted to take control of
the mines.
U.S. companies saw the handwriting on
the wall and wanted to disinvest in Latin America and other third
world regions. They worked with their bankers to devise a way
in which the mines could be sold and financed in a mutually agreeable
way. Chase Manhattan was the banker for Anaconda, and Citibank
for Kennecott. They drew up a Chileanization plan and put it
in the hands of Eduardo Frei and his government, calling for
Chile to take over Anaconda's Chuquicamata mine and the mines
of other U.S. companies. The idea was for the companies to be
bought out at a price that would be paid by sales of the increased
copper output resulting from investment financed by the Chilean
government with funds borrowed internationally.
This was not a hostile nationalization
at all. In fact, when I joined Chase in 1964 my major task was
to calculate the economics of Chileanization. Based on how much
money Chile could expect to gain from its additional copper exports,
my job was to calculate how much Chile could afford to pay for
the cost of buying out the U.S. companies and expanding their
mines.
What the copper companies wanted above
all was long-term security of supply. They wanted to keep their
customers secure and to convince them not to shift to aluminum
and other raw materials for electrical wiring and building. To
guarantee supply they were willing to pay the going world price,
which rose to nearly a dollar as the Vietnam War created an unprecedented
demand for copper. The average U.S. soldier over there used a
ton of copper per year. As the military buildup accelerated,
it was easy to forecast that the demand would outstrip supply,
pushing up prices. In fact there was a question of whether the
major copper users companies needing copper for wiring,
as well as construction companies needing copper for building
materials could get copper at any price.
This is where Allende made a fatal mistake
one that most political analysts have missed. He made a
grandstand speech that Chile would sell its copper to whomever
it wanted, explaining that it was not a matter of price but of
national sovereignty. The American companies feared that his
anti-Americanism would lead him to prefer to sell Chile's copper
to foreign countries, leaving them with insufficient supplies
to meet the needs of their customers. This threatened to spur
a shift to rival materials.
Allende could have made a concession
that would not have been a sacrifice. He could have put economics
first and seen that it was in Chile's interest, as well as that
of Zambia and other copper producers, to hold onto existing copper
markets by assuring stability of supply. He could have got the
going London market price for exports rather than selling to
the U.S. companies at long-term guaranteed prices. But he wanted
to control just where the copper would be sold.
SS: One of the mechanisms of leverage
over Chile was through the World Bank and the IMF. Can you describe
the structural problems built into such institutions that facilitated
the squeeze?
MH: The United States emerged from World
War II with the lion's share of gold reserves, and obtained enough
shares in the World Bank and IMF to give it a 25% veto power.
No other country could afford to com it as much money. America's
veto power has enabled U.S. diplomats to blackball loans to any
government with whose policies they disagree. The effect has
been to turn the IMF and World Bank (along with regional institutions
such as the Inter-American Development Bank) into vehicles to
impose economic sanctions on countries taking policies deemed
at odds with U.S. national interests.
SS: In Super Imperialism you describe
how the United States orchestrated a number of aid packages to
countries like Chile that were not at all altruistic. How did
the US devise a way to benefit from this aid?
MH:As the Vietnam War forced the U.S.
balance of payments into deficit in the 1960s, all requests for
foreign aid defined as any loans or gifts to foreign governments
for whatever purpose had to be accompanied by a balance-of-payments
analysis showing that the U.S. payments position would gain as
a result of the policy. This normally required foreign aid and
dollar loans be tied to the purchase of U.S. exports, so that
U.S. "foreign aid" would not entail a non-dollar cost.
In fact, the U.S. Government received
back the cost of "aid loans," gaining dollars on balance.
Even for gifts such as P.L. 480 food aid, the State Department
was given "counterpart funds," a local-currency equivalence
of the value of the food. U.S. Government agencies used these
funds for whatever they wished. They even sought to sell local
currencies to U.S. firms operating in these countries, so that
the firms would not have to use dollars to buy these currencies
on the foreign-exchange market. The effect was to depress the
value of foreign currencies against the dollar, supporting its
exchange rate and hence the U.S. terms of trade.
On the broad strategic level U.S. aid
promotes loans for raw materials exports, but not for agricultural
modernization or any form of economic growth that would displace
imports from the United States. The aim of American foreign aid
is thus to improve America's terms of trade on a supply-and-demand
basis as well as in the world's foreign currency markets. Lending
for projects to expand raw-materials exports contributed to a
global oversupply, depressing prices for commodities which the
United States imported. Meanwhile, subsidizing foreign dependency
on U.S. food exports helped support grain prices.
This policy is well illustrated by Chile's
experience. The country's greatest natural endowment is copper,
and its second is nitrate, a natural fertilizer in the form of
guano bird droppings. The irony is that Chile has long
had one of the most backward land tenure systems in the world.
Much less noticed than the country's increase in copper exports
is the fact that growth in its copper export earnings has been
absorbed entirely by food import costs, mainly from the United
States.
The agricultural sections of nearly every
World Bank mission report to its client countries have pointed
to the backward state of agriculture as a result of concentrated
landholding. Chile had the most notorious disparity between great
latifundia and microfundia (uneconomic smallholdings)
of any country. But prior to 1980 the World Bank said that it
could not interfere with the domestic policies of its members
in making loans.
The Bank made an about-face as it began
to force countries to privatize their public domain, including
the land. After 1980, Chile did indeed begin to break up its
large landholdings, but in a way dictated by Chicago monetarists
emphasizing export crops wine and vegetables rather
than grain to feed its population by a policy of import displacement.
From the U.S. vantage point this is the perfect pattern of growth:
countries become more dependent on supplying the American economy
with what it needs, at falling world prices, and buying what
U.S. producers can supply, at rising terms of trade.
SS: Regarding land distribution, some
historians on both the left and right point out that Allende
had attempted land reform, angering owners. Is this the case
essentially?
MH:Allende's attempts at land reform
were half-hearted. He focused on urban problems, not agriculture.
Chile's problem was vast underutilized tracts of land the
latifundia I mentioned earlier, which were ruining Chile
just as Pliny the Elder said that they had ruined ancient Rome.
Allende did not have a coherent economic program to provide this
land to smallholders who would use them. He was so anti-business
that he did not think of opening up rural credit banks to finance
agricultural modernization.
It does not seem to have occurred to
Allende that rather than threatening to nationalize these estates
outright, he could have used the tax system to break them up.
He could have proposed a rent tax on the potential value of this
land. That would have obliged the large landowners either to
use their land efficiently or pay the government a tax as if
they had done so. The landowners might have yelled "confiscation,"
but a property tax is normal for any country to levy.
Chile's landowners had a stranglehold
on the government that was not much different from that which
the Roman Senate had in the closing centuries of the Roman Empire.
They had managed to avoid paying taxes, and were quite passionate
about holding their property. Allende's response was a crude
one of confiscation rather than using the country's existing
fiscal system to legally accomplish the same end. He seems to
have thought that the idea of collective farming or simply redistributing
the land would solve Chile's food production problem.
The problem was that like most politicians,
Allende was not sophisticated about economic policy. He took
a crude "command economy" approach.
SS: Still, it doesn't sound like Allende's
nationalist policies should have led to a serious concern that
the rest of Latin America would fall to communism in a domino
effect, as Henry Kissenger worried at the time.
MH:What seems to have upset Mr. Kissinger
was the fact that socialism came to power through democratic
election. It was a basic axiom of right-wing "free market"
philosophy that socialism could only take over by dictatorship.
Allende's victory showed this premise to be wrong. So a theory
of society and doctrine of the global future was being threatened.
A second axiom was that socialist planning
could not provide a prosperous economic environment, and especially
that prosperity could not be gained by breaking away from what
now is called the Washington Consensus. Under Allende, Chile
sustained a hefty 8.9 percent increase in its GNP and at first
succeeded in reducing the country's inflation rate. During his
nearly three years in office he gained support by providing the
poor with better access to housing, education, food and health
care than previously.
Kissinger felt that the United States
needed to show that socialism was bound to fail economically.
Rather than leaving this to the "free market," America
used the famous "invisible hand" not Adam Smith's
invisible hand of free enterprise, but the covert hand of CIA
destabilization.
One remaining problem had to be countered.
That was the threat that Chile's army might obey its constitution
and promote the country's independence rather than favoring U.S.
policies. The leading Chilean general was a constitutionalist
who believed that the army should stay out of politics. He had
to be murdered in order to replace him with a more U.S.-oriented
general, who turned out to be Augusto Pinochet who quickly
became an acolyte of the Chicago Boys.
SS: In 1974 the junta began compensating
businesses such as Anaconda and the Oversees Private Investment
Corporation for Allende's partial nationalizations. The IMF,
Inter-American Development Bank and World Bank immediately renegotiated
Chile's debt on terms favorable to the junta.
MH:The World Bank and IMF were eager
to show that obedience to U.S. economic dictates and Chicago
School monetarism brought prosperity rather than dependency,
so they tried to make Pinochet's dictatorship an economic showcase,
as they earlier had done with Colombia.
Chile was broke at the time the coup
occurred. Its wealthy families had moved much of their capital
abroad. Led by Arnold Harberger (who spoke Spanish and had married
a Chilean), the Chicago Boys set out to make socialism irreversible
by selling off as many state enterprises as possible. But there
was little money to buy them, so the government sold them on
credit, accepting IOUs instead of money.
As would become the case in Russia in
the 1990s, the aim was simply to get property into private hands,
regardless of how this occurred. So the government gave away
companies for no money down. The idea was that the buyers would
pay the government out of their earnings, ending up with the
companies without having to put up money but paying money into
the national treasury rather than draining it, on the theory
that government enterprise was inherently bureaucratic and money-losing.
The theory had no counterpart in reality,
but was a figment of the neoliberal imagination. Most of the
sales naturally were to cronies of the military, who took over
the companies and simply kept the income for themselves. They
sent as much of it abroad as they could, and then let the companies
go bankrupt. Their objective was a short-term gain, because they
lived in the short run. So by 1980, within about five years,
most of the companies reverted to government ownership.
The first wave of privatization thus
ended in collapse. It was a dress rehearsal for what happened
in Russia under Yeltsin what became the Washington Consensus
after 1980.
SS: During Pinochet's privatization of
industry he kept control CODELCO, the huge and highly profitable
state-owned copper producer. Under Pinochet, it began to produce
more than ever before, becoming one of the most profitable companies
in the world, according to Fortune magazine. How did this
jibe with the neo-liberal ideology?
MH:Chile's mineral-rents are so high
that their privatization would bring a price that would provide
the government with so much money that it could not use it productively
without becoming essentially a public-sector economy, which is
just what the Chicago monetarists do not want to see. They are
against seeing governments control vast amounts of money, on
the premise that it would be squandered on bureaucracies and
insider dealings. In Chile's post-Pinochet case this fear does
not seem unrealistic, given the experience of its privatizations
to date.
Meanwhile, even Friedman has noted the
difference between economic rent a free ride and
profit earned from active investment, when he said that a rent
tax is the "least bad" tax. The world market price
of copper is substantially above Chile's costs of production,
at least its direct costs before being loaded down with crypto-costs
that absorb revenue in tax-deductible ways such as interest,
insurance, re-insurance, management fees, dividends and so forth.
Privatization would turn over this "free lunch" to
private buyers.
SS: During the first stage of the 1975
Economic Recovery Program the IMF offered $7.7 billion in loans,
about 3 percent of Chile's GNP for three years. A number of commentators
have argued the Chicago policy makers should have seen that was
too large a package. Neoliberal economists say that looking at
debt as a percentage of GNP is the wrong way to determine whether
it is excessive. Is there a lesson in Chile about how to spot
excessive debt?
MH:The first question to ask is what
the foreign loans are used for. Most IMF loans in recent decades
have been to subsidize capital flight. They enable governments
to support their currency's exchange rate relative to the dollar,
enabling oligarchs to exchange it for more dollars than otherwise
would be the case. Russia for instance, had to use its oil export
proceeds to repay the IMF for the 1996 loan that went into the
hands of Yeltsin's banking insiders.
The debt burden is measured not merely
by the volume of debt but by how much needs to be repaid in a
given period, relative to the resources to pay. Foreign debt
service needs to be compared to the foreign-exchange surplus
being generated by exports, tourism and immigrants' remittances.
The IMF would add the inflow of funds on capital account.
In the late 1920s, after Germany's balance
of payments buckled under the burden of reparations, the Young
Plan defined the ability to pay as the amount that could be transferred
without having to devalue the currency or sell off assets. But
creditors prefer not to t recognize any limit to what can be
paid. Their approach may be likened to calculating how much blood
a person can donate by measuring the total amount in his or her
body, without considering how much can be given without falling
ill or dying.
If countries have to privatize their
public domain and sell off natural monopolies traditionally owned
and operated by the state, then they obviously are effectively
insolvent and indulging in the equivalent of a bankruptcy sale
under distress conditions. Yet countries are sovereign and don't
really have to submit to this sort of financial blackmail. So
the debt burden rests ultimately on their own behavior and how
they manage their financial diplomacy, subject to coercive measures
taken by the creditor nations.
Privatizations leads to Speculative
Excesses
SS: In mid-1976 the Chicago Boys celebrated
when Chile's GNP grew by an impressive 6.6 percent. Suggesting
this marked a recovery, they lifted nearly every restriction
on foreign direct investment and loans. What was the effect?
MH:That depends on how you choose to
measure growth. Is it real growth when the increase in output
is being exported while living standards fall and Chileans consume
and invest less? There was a statistical impression of growth,
but property was becoming enormously concentrated through financial
means, while the domestic economy ran deeply into debt.
SS: This was corporate debt, not government
debt. How did Chile's shifting of the debt to private interests
change the political landscape?
MH: The Chicago Boys main links were
not with industry as such but with the emerging financial sector
and the conglomerates it facilitated. The resulting privatization
policy did not steer money into direct industrial investment
but into financial speculation. A few families dominated the
administration of industrial and agricultural sectors through
banking and finance grupos, which were deregulated and
became monopolies.
This contradicted Pinochet's lip service
about wanting Chile to be "a nation of entrepreneurs."
It pushed aside the smaller firms who supported his rise, but
wanted protectionist trade policies.
The irony is that a program of financial
sector privatization and deregulation led to a de facto
subsidy, even more government control, and a ballooning national
debt. By 1977, just three years after the coup, interest rates
hit 51 percent, the result of an orgy of loans. The financial
service sector began to collapse, and by 1985 it was bankrupt
and reverted to government hands.
Chile's ensuing debt crisis differed
from that of the rest of Latin America because most of the country's
foreign debt was owed by private companies, not by the government.
The fact that the government was not legally responsible for
repayment was an important source of bargaining power when it
entered into negotiations with the IMF over the conditions attached
to new loans to help pay back the old. But as matters turned
out, the government needlessly paid back the private debt as
the central bank took over many bad loans made during grupo
control. Control of the banks again was sold off, this time to
foreigners rather than to the military insiders and kleptocrats,
but again at bargain prices.
How Labor's Forced Savings were transferred
to the Financial Classes and then wiped out
SS: The rising stock market that resulted
from the Chicago Boy's reforms was seen as a way to inflate asset
prices the capital gains of which would be used to pay off debts.
Why couldn't the market sustain this cycle?
MH:Quite simply, as Luders and other
participants have described, the reason was that too many individuals
who bought companies with no money down took the revenue and
ran, or else bought yet more companies on credit. The revenue
was not enough to pay the carrying charges on the debts they
had taken on.
SS: The stock market collapse destroyed
the pensions that were privatized under Pinochet. Can you explain
how those pensions related to the speculative excess and transformed
the managerial class?
MH:The IMF has done a study of this question
but has not made it public, so I cannot give you specific details.
The essence is what is happening now across Latin America. Labor's
savings were the only available source of funding for stock purchases.
The money was withheld from paychecks and turned over to employers
and financial management companies to "endow" a financial
class of insiders who moved as much of their money as possible
out of the country.
The result was much like telecoms throughout
the world in the late 1990s. They bought each other with borrowed
credit that was out of proportion to the revenue being generated
to pay their debts.
What happened is that the early privatizers
bled their companies while selling shares to the workers at prices
that were being inflated by the flow of wage set-asides into
the stock market. This is just what the U.S. money managers would
like to do with America's Social Security system to create a
stock market boom today. In Chile's case the companies were allowed
to collapse after their managers had unloaded their stock holdings
to the workers' pension funds.
Pinochet and his Chicago advisors called
this "Labor Capitalism," and the term was picked up
by Mrs. Thatcher in Britain. But of course it was not designed
to benefit labor at all. Rather, labor was left holding the bag
when the stock market collapsed.
I also should point out that management
fees for labor's forced savings were so high that they absorbed
the entire flow of dividends. Thus, labor was not able to reinvest
the earnings on its savings to grow and multiply. The financial
sector got the benefit of this principle of compound interest,
not the employee-contributors.
SS: Can you elaborate on how today's
proposals to privatize Social Security in the United States are
kindred to Pinochet's Chicago version of Labor Capitalism?
MH: The Social Security System's vast
holdings of U.S Treasury bonds are to be sold and the proceeds
steered into the stock market. This will create a financial bubble
in which Wall Street and foreign institutional investors will
reap quick capital gains while management fees absorb the dividends
being paid by these stocks. Meanwhile, the Federal Reserve will
buy the Treasury bonds being sold, pumping credit into the financial
system to fuel asset-price inflation. All this will be called
"wealth creation."
At the point where more workers retire
than are being employed, the stock-market inflow of savings will
turn into an outflow. Stock market professionals will bail out,
leaving workers holding stocks whose price has plummeted.
Politicians will wring their hands and
refer to the madness of crowds and the short-sightedness of greed,
blaming the hapless workers whose forced savings were mismanaged
rather than seeing how the bubble and its collapse were orchestrated
from the outset.
SS: In previous interviews you've mentioned
your preference for the pay-as-you-go pension system in Germany
which was like that of Allende's. The benefit of these systems
is that it gives "ownership" to the workers. Can you
elaborate on the advantages?
MH:Under Allende the workers' paychecks
were not docked and turned over to their employers to manage
(or later to American insurance companies and other foreign financial
institutions). This meant that labor could spend its entire wages
on current output, creating a thriving domestic market for Chilean
output. This is necessary to help the economy grow by the feedback
between demand and new investment and employment.
Diverting wage income into the stock
market and other forced saving slows the growth of spending.
This is antithetical to Keynesian-type market stimulus. It may
promote a financial bubble but at the cost of austerity for consumption
and direct investment. That is the basic folly which underlies
IMF austerity plans and neoliberal Chicago planning generally.
SS: People were given a choice to stay
in the public pension system or switch to the private one. Ninety
percent switched. But Pinochet's army and police were allowed
to maintain very generous public pensions. What are we to conclude
from this?
MH:Most workers, especially the younger
ones, were told that if they stayed in the public system they
wouldn't get much. But the military were well aware that what
was being created was a bubble, and they insulated themselves
from it. The analysis is clear if you take a who/whom approach.
What Chile reveals about Chicago School
Theory
SS: According to Chicago-style theory
Chile's soaring equity markets should be seen as providing price
signals leading to efficient allocation of capital. Is there
any evidence that markets provided signals for meaningful long-term
investment under the Chicago Boys?
MH:The Chicago approach ignored the fact
that what was pushing up the stock market was not an inflow of
funds from intelligent investors evaluating how much money the
companies could make. These companies were being bled, so it
didn't make much difference how inherently profitable they might
have been.
Chilean stocks rose because labor's savings
were being channeled into a rather small number of stocks in
the large companies controlled by the oligarchy. Companies steered
the savings of their workers into their own stocks. But these
savings were not used to finance long-term capital investment
in new plant and equipment, research or development. The financial
bubble was decoupled from the "real" economy. That
was the essence of Pinochet's "labor capitalism."
It is in the nature of financial markets
that ready cash is the name of the game. When investors can get
something for nothing, they will take it by the path of least
resistance. Why go to all the trouble of tying up one's own capital
to produce and market goods and services when you can leapfrog
the process by making money in purely financial ways?
SS: You've pointed out that Chicago monetarists
deny the "free lunch" in relation to natural resources
and financial maneuvering. What other things do they overlook?
MH: They are quite willing to see capital
assets sold off on the cheap. They also ignore the role of debt
leveraging. In Chile's case they said nothing about the way this
transferred risk from the private to the public sector, even
though they defended high rates of return as a reward for the
private sector ostensibly taking risks.
The effect of their monetarist policy
is not to increase competition by a proliferation of small firms
as they allege, but to promote large monopolies financed on credit.
And the effect of shunning government planning is to put the
economy in the hands of foreign finance capital. Planning remains,
but it takes place far from the source and at the expense of
the middle class and labor.
Something that neither they nor Karl
Marx foresaw has occurred. Labor is being exploited by its savings
as well as its wages. Chilean wages long remained lower than
their 1974 level. Far from being a miracle, Chile was an embarrassment.
Yet the neoliberals did not seem to care. They went on to repeat
their monetarist program in other countries, most notoriously
in Russia.
SS: Despite all the evidence contrary
to their theory, how can they continue to argue that Chile was
a miracle?
MH:Like lawyers defending a guilty client,
the Chicago Boys only look for good things to say about their
pet project. They want to portray Chile in as good a light as
possible. They really are using a public relations cover story
as an excuse to give away government enterprise on the cheap
to their backers. This is why they need to censor any criticism
or alternative proposals. It also is why the IMF does not release
its critical reports on Chile's Social Security privatization.
The policy is generating billions of dollars for financial managers
across Latin America. The Chicago Boys don't care about labor's
savings that are being dissipated.
One of the most time-tested tactics of
defense lawyers is to mount a character assassination on the
accusers and witnesses. This is what the Chicago monetarists
do in claiming that government regulation and taxation lead to
serfdom. They repeat over and over again that public planning
leads to disaster, as if this implies that the private-sector
financial planning that takes its place does not lead even more
quickly, more directly and more inevitably to economic disaster,
poverty and polarization.
Like stage magicians, such economists
distract their audience's attention from the topic at hand
in this case, the tendency for privatizations to turn control
over to financial managers and foreign owners to somewhere
that they can distract the audience's attention from the "invisible
hand" of corruption and political manipulation.
In this sense Chicago economics remains
all about the "invisible hand," in the sense that their
doctrine makes this hand "invisible" to the students
that they are turning into "useful idiots" for the
financial sector to hire to promote its policies. If they were
to permit an open discussion of alternatives, their opponents
would point out the shortcomings of their policies. A cloak of
invisibility is essential as far as these problems are concerned.
The term "democracy" these
days has lost its original meaning of majority rule. It has become
a code-word for pro-American policies and hence a dictatorship
by the banking and financial interests. To "promote democracy"
is what America claims to do in overthrowing elected governments
and turning planning over to unelected bankers and money managers.
Such is the Orwellian semantics of today's global political economy.
SS: Despite the Friedmanite proclamations
that economic and political freedom are closely linked, the main
architect of Pinochet's policies, Sergio de Castro, is on record
as saying democracy never could have been stable nor efficient
enough to support the reforms. Was Friedman was being insincere,
or did de Castro have an on-the-ground perspective that Friedman
could have learned from?
MH:Considering the Chicago School's behavior
in trying to ban any economic theorizing that does not conform
to its monetarism, I would say that Friedman and his colleagues
either are deliberately dishonest or simply have their heads
in the clouds. I went to the University of Chicago as an undergraduate,
and I can assure you that those who questioned their agenda were
treated as pariahs. So de Castro had it right.
But I don't think you could say that
Mr. Friedman and his students would have "benefited"
from this knowledge. They know on just what side their bread
is buttered on. It pays well to be a useful idiot in today's
world. Students don't enroll in the University of Chicago's business
school to make the world a better place and raise living standards.
They enroll because they want to make money for themselves. The
way they are taught to do this is to make money financially,
not by industrial engineering or social reform.
SS: Much of Chile's financial sector
is now foreign owned, so that its profits don't remain in Chile.
What does this suggest about the nation's economic future?
MH:Chile doesn't have that much industry
or generate profit in the technical sense that economists use
the term. What it does generate are economic rents on natural
resources and land), monopoly rents, interest, and management
fees. With regard to its privatization of social security. U.S.
and European banks and insurance companies have gained ownership
of these funds, so that the revenue they earn is removed from
the domestic economy rather than being part of its circular flow.
This slows Chilean growth, which prompts the oligarchs to take
their money out of the country by converting it into dollars.
The globalization and financialization
of Chile's economy means that its economic surplus is remitted
abroad rather than recycled into domestic investment to increase
domestic production and living standards. Instead of finding
"profit" in Chile's national income accounts you will
find that globalization transforms it into crypto-costs
interest, rent, insurance, reinsurance, transfer pricing to offshore
banking centers and "management" fees.
SS: When mainstream economists do admit
that Chile was a failure, they often blame Pinochet's repressive
military regime for undermining the political freedom that laissez
faire economists espouse. How do you respond? What can we conclude
about such economists' understanding about the nature of freedom?
MH:Chicago-style laissez faire can only
be imposed at gunpoint, in conjunction with academic censorship
of empirical economic study and history. Political dictatorship
is an inherent "externality" of "free markets,"
because it is only a rhetorical wrapping for centralized financial
and political coercion.
SS:Chile maintains one of the largest
national debts in the world and yet remains a darling of the
IMF and World Bank. What does this tell us about those institutions
and their notion of "austerity"?
MH:Chile has become the test case for
the paternalistic Washington Consensus. These institutions want
to make Chile an object lesson to show that financial dictatorships
run by client oligarchies "work," and that America
was right to save Chile from its voters who elected a socialist
regime. It goes hand in hand with U.S. attempts to destabilize
Venezuela's economy under Hugo Chavez, and Cuba after that.
To the IMF and World Bank, "austerity"
means cutting back domestic income mainly wages to
pay foreign creditors. Their error lies in the failure to recognize
that imposing austerity destroys the domestic market. This reduces
domestic investment, thereby increasing foreign dependency. This
turns out to be inflationary when the currency collapses as a
result of a worsening trade balance and capital flight. So rather
than stabilizing the economy "austerity" should be
seen as a destabilization plan. That is why the English language
has been expanded to include the term "IMF riot." The
phenomenon is now recognized as an inherent stage of austerity
programs.
SS: When Chile is held up as a success,
economists point out the boom of the late 1970s and another boom
in the late '80s. What can we surmise about the role the depressions
that preceded these booms?
MH: There was no boom in the late 1970s.
Chile's privatized sector went bankrupt and reverted to state
control. Social Security was re-privatized and turned over to
large oligarchic firms and U.S. insurance companies to manage.
The so-called boom that ensued was a stock-market bubble created
by channeling wage withholding into shares of the companies taken
over by Chile's kleptocrats. They got rich at the expense of
the rest of society.
The fact that the Chicago Boys called
this a boom shows how narrow-minded their set of values is. It
was not a boom in the sense of rising output and living standards.
Wage levels and social infrastructure spending fell from the
levels achieved under Allende or his predecessor, Frei. The economy
became unbalanced and polarized.
SS: The Chicago School sometimes defends
the Chilean adventure's unsavory aspects by saying the programs
were "born of pain." Are there examples of economic
transformation that do not start with "shock" and end
in pain? Isn't the real question one of how recoveries can be
brought about without making things worse?
MH: I guess this is what Stalin meant
when he said that "You can't make an omelet without breaking
eggs." The question is, whose eggs are you going to break?
And who's going to eat the omelet?
If you're talking about Chicago-style
free-market economics, it only can work at gunpoint, by taking
total control of the educational system. The doctrine is so narrow-minded
that once you permit a non-autistic economic curriculum based
on empirical experience and actual history, you are not going
to have students accepting the self-destructive financial doctrines
of the Chicago Boys. Free enterprise of the type that replaces
government planning with that of large global financial institutions
requires totalitarian governments to enforce. That's what Harberger
and Pinochet recognized when they closed down the economics departments
at every university in Chile except for their bastion at the
Catholic University. They drove non-monetarists into exile or
arrested or "disappeared" them. This is why Chicago-style
anti-government doctrine represents today's new road to serfdom.
There is no intrinsic need for such shock.
At least there would not be if it were not necessary to defend
against U.S. and European covert destabilization plans using
terrorism. Germany's Christian Democrats were equally guilty
with the Americans in opposing Allende. So the world is being
confronted with "painful" transitions not because of
their intrinsic character, but because property owners, especially
the financial sector, will not tolerate any threat to their position
without fighting back violently.
The Roman Republic provides a good parallel.
When the Gracchi brothers promoted land and debt reform after
133 BC, the oligarchs fought back and murdered the leading democratic
politicians. The problem of violence stems from the counter-revolutionaries
much more than from reformers.
Most reformers recognize what Gandhi
understood: Property owners control the state and its police.
So violence cannot be a winning policy for economic reform. But
violence is the last resort of the anti-reformers. It worked
in Iran against Mossedegh in 1964, in Guatamala against Arbenz,
and in many other countries.
The Pinochet regime is gone as a political
and military force, but it has left a residue of unequal wealth
distribution. Ownership of Chilean business is now in the hands
of an oligarchy rather than being widely distributed. The press
and media are owned by the oligarchy. Socially, Chile is plagued
with what might be called "wealth pollution" in the
form of an economically inequitable society. The "cleanup
costs" of these developments have not been calculated.
Chile formerly was Latin America's most
middle-class country, one in which the military supported rather
than threatened democracy. But it no longer is socially free.
It is the only country in Latin America that does not permit
divorce, for instance, as the oligarchy has supported the Catholic
Church and vice versa. How do you rebuild a democratic society
whose leading intellectuals, artists and other creative people
have been driven abroad or otherwise wiped out? Their social
traditions have been destroyed and the nation's culture has been
pulled up by the roots. It is a travesty to call this "wealth
creation."
SS:To close, what lessons from Chile
seem most relevant today?
MH:Chile still provides the basic privatization
model. It provides an object lesson for the fallacy of creating
capital by giving public enterprise away to insiders, and of
getting rich by merely financial means without underlying industrial
investment.
The country's "Labor Capitalism"
is worth studying as a dress rehearsal for neoliberal plans for
privatization of Social Security in the United States. The Chicago
Boys' misadventures reveal the folly of trying to create wealth
purely by monetary and financial means rather than by tangible
investment to produce output and raise living standards. Basically
the result was a bubble, but one which had hard economic consequences
by transferring wealth to financial insiders and money managers.
This was done on terms which deprived the savers of the dividends
and interest that were being paid on their savings. This income
was taken by the money managers as administrative fees. In the
end, the insiders sold out at the top of the market, leaving
pension-fund investors with stocks whose prices were falling
and bonds that were losing their prospects of being paid off.
This is the failing of most privatization.
Chile was the dress rehearsal for Mrs. Thatcher's privatizations
and later for Yeltsin's. In fact, Harvard's Institute for International
Development first tried to appoint as its head the intellectual
butcher of Chile, Harberger. It was only when Harvard's students
raised a passionate protest that a character seemingly without
baggage, Jeffrey Sachs, was appointed instead.
The upshot was Russia's even more devastating
privatizations. After the 1996 giveaways Russia's oligarchs created
the Union of Right Forces, the party of Chubais and other kleptocrats
who based their program explicitly on Pinochet's Chilean policies.
They were quite open in saying that they wanted to apply the
Pinochet model to Russia. Far from being an embarrassment to
be swept under the rug, the Chicago School monetarist model remains
alive and kicking in Russia today. This very month, I am told,
Russia's Union of Right Forces is financing a visit from Prof.
Harberger to teach them how to re-create Chile's model in Russia.
This model secures its adherents by offering
them insider dealings as they carve up the public domain, with
the obligatory slice afforded to U.S. companies to join in the
free ride. Tax laws then free these nouveaux rentiers
from taxation, while borrowing IMF funds to subsidize their capital
flight.
Professor Michael Hudson is an independent Wall Street financial economist.
After working as a balance-of-payments economist for the Chase
Manhattan Bank and Arthur Anderson in the 1960s, he taught international
finance at the New School in New York. Presently, he is Distinguished
Professor of Economics at the University of Missouri (Kansas
City). He has published widely on the topic of US financial dominance.
He has also been an economic adviser to the Canadian, Mexican,
Russian and US governments. His books include Trade, Development,
and Foreign Debt (Pluto, 1992, 2 vols.). He is the author of
Super
Imperialism.
Standard Schaefer is a freelance journalist. He can be reached
at ssschaefer@earthlink.net.
Weekend
Edition Features for Oct. 18 / 19, 2003
Robert
Pollin
Clintonomics:
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Gary Leupp
Israel, Syria and Stage Four in the Terror War
Saul Landau
Day of the Gropenfuhrer
Bruce Anderson
The California Recall
John Gershman
Bush in Asia: What a Difference a Decade Makes
Nelson P. Valdes
Bush, Electoral Politics and Cuba's "Illicit Sex Trade"
Kurt Nimmo
Shock Therapy and the Israeli Scenario
Tom Gorman
Al Franken and Al-Shifa
Brian
Cloughley
Public Propaganda and the Iraq War
Joanne Mariner
A New Way to Kill Tigers
Denise
Low
The Cancer of Sprawl
Mickey Z.
The Reverend of Doom
John Chuckman
US Missiles for Israeli Nukes?
George Naggiar
A Veto of Public Diplomacy
Alison
Weir
Death Threats in Berkeley
Benjamin Dangl
Bolivian Govt. Falling Apart
Ron Jacobs
The Politics of Bob Dylan
Fidel Castro
A Review of Garcia Marquez's Memoir
Adam Engel
I Hope My Corpse Gives You the Plague
Poets' Basement
Jones, Albert, Guthrie and Greeder
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