Lewis Brown, Digital Communications Manager at the CPS, writes on Professor Niall Ferguson's response to a tricky question about the involvement of economist Milton Friedman in General Pinochet's Chile at the 'Friedman at 100' event held this week.
Tuesday night (July 3rd) the CPS hosted a very successful panel event celebrating the 100th anniversary of the birth of influential economist Milton Friedman. The event featured four excellent speakers – historian Niall Ferguson, John Redwood MP, Professor Deepak Lal, and, via video tribute, Professor Richard Epstein of the University of Chicago.
There were too many interesting points made, and questions answered, to go into in one write up, and I invite all readers to visit our YouTube page where you can see the videos from the event. But one of the most interesting question and answer exchanges was directed at Professor Ferguson and pertained to Milton Friedman’s controversial association with the Pinochet regime in Chile in the 1970s.
The question put to Professor Ferguson was: “this is a dark episode from the history of ‘Friedmanism’; the 1973 coup in Chile. Where you have the brutal dictatorship of Pinochet and Friedman sent some of his right-hand men to Chile to conduct the experiment of Monetarism brutally against a repressed population. I find it very paradoxical that on the one hand he spoke about freedom and on the other, this brutal Monetarist experiment carried out in Chile where thousands of people were murdered by the Pinochet regime. As an historian can you answer this?”
Professor Ferguson made a number of great points in response to the question.
Beginning with an acknowledgment that after coming to power in a military junta, Pinochet was responsible for the repression and murder of political opponents, Ferguson stressed that the Pinochet government was responsible for many things that no lover of freedom could condone. He then disputed the facts as the question pertained to Milton Friedman, who himself did not condone these aspects of Pinochet’s rule.
It is important to recall the horrendous state of economic affairs that Salvador Allende’s Socialist government had run Chile in to, which resulted in the Chilean Congress mandating Allende’s removal from power. Allende has overseen the nationalisation of many foreign-owned businesses in a situation reminiscent of Chavez and Kirchner’s madness today. Allende also then increased workers’ wages, while productivity in the nationalised industries dropped dramatically. The country was in shambles as hyperinflation of over 340%, a lack of foreign reserves, a rocketing trade deficit, massive increases in circulating currency, and falling GDP took hold. Allende himself was no democratic flag-bearer – after winning the Presidential vote in Congress by signing a Statute of Constitutional Guarantees proposed by the Christian Democrats, Allende then explicitly disregarded most of this by enacting 1932 Socialist Republic laws to carry out his nationalisations without approval of Congress.
In 1973, prior to the coup d’état, the Chilean Supreme Court denounced the Allende government’s disruption of the legality of the nation in its failure to uphold judicial decisions, and the Congress passed a resolution by 81-47 calling on Allende to ‘redirect the government to the path of law’. Allende responded by calling for workers to join him in defending the ‘revolutionary process’. These facts are little reported when discussing the reasons the junta came into being.
Secondly, Ferguson makes the point that it wasn’t Milton Friedman himself who directed Chilean economic policy, but rather Chileans who had the good fortune to study under Milton Friedman and Arnold Harberger at Chicago. Not all of the so-called ‘Chicago Boys’ had studied under Friedman, Jose Pinera – now of the CATO Institute and often cited as ‘the world's foremost advocate of privatizing public pension systems’ – had studied at the traditional hotbed of modern liberalism, Harvard.
The third point made by Ferguson is that after the initial bloody repressions, the Generals made the conscious decision to reverse the disastrous central management of the economy and turn Chile around. Friedman paid a visit, wrote a letter, and then left the rest to the Chilean ‘Chicago Boys’. The reforms – deregulation of the economy, opening up to the rest of the world and ending protectionism, minimising the role of the state, and introducing rigorous financial equilibrium and free functioning of the market – resulted in massive economic success that have left modern Chile “the most advanced, closest to being an OECD nation, in the entirety of Latin America”, including the much-overrated success of Brazil.
According to the 2012 Index of Economic Freedom, Chile's economy is ranked as the 7th freest. This compares to having previously been one of the most protectionist economies in the world, ranking 71st of 72 in a 1975 Cato/Fraser Institute annual report.
The Chileans did not always follow the policies advocated by Friedman, Minister of Finance de Castro ignoring the free floating exchange rates supported by Friedman and favouring a pegged exchange rate designed to control hyperinflation. This resulted in a 1982-83 recession during a banking crisis, a blip on Chile’s excellent GDP growth record.
Regardless of the poor human rights record of the Pinochet government, Ferguson maintains that it is absolutely right that Friedman advised the government and helped set them on the right path to economic prosperity, raising the living standards for the vast majority of the Chilean people and pulling them out of the poverty they had been plunged into by the Allende government’s Socialist experiment.
Pinochet eventually oversaw the peaceful handover to democracy in 1990. One should never excuse the repression carried out by a government seeking to silence its political opposition; no amount of economic prosperity can forgive murder. But one should also never blur the lines between the wrong done, and the absolutely right and successful economic policies pursued. Do not make the mistake of confusing the authoritarian politics of Pinochet dealing with the Socialist threat with the ideas of Friedman and policies of those who followed him – in Chile in the 70s and 80s, as in the United Kingdom from 1981 until we joined the ERM – Friedman and monetarism were proven correct.
And as Professor Ferguson reminds us, Friedman advised a far more bloodthirsty regime than Pinochet’s, that was responsible for not hundreds, but millions of deaths – the People’s Republic of China. Friedman’s advice to the Communist regime lasted for far longer and was a precursor to their economic success of the 90s & 2000s. As liberalised markets and enriched populations grow, democratic measures and human rights also become more important. These are facts ideological left-wing attacks on Friedman do not recall with regularity.
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