Is Pinochet the Model?

Angelo M. Codevilla

From Foreign Affairs, November/December 1993

Summary:  The "Pinochet model," a potent mixture of authoritarianism and liberal economic reform, is sold as the elixir to nearly any country ailing under socialist transition. But the years of improvisation by Chile's reformers actually leave scant recipe to follow. The secret of Chile's turnabout, if any can be found, was simply the inspiration to shrink the state. Any country can do it, without a caudillo in charge.

The similarities between prosperous societies from Switzerland to Singapore are undeniable: order and as little interference as possible with the rewards of hard work. Other countries, notably in Asia, have leaped into export-led prosperity even faster than Chile. And countries the world over search for the key to rapid development and this kind of economic success. While Chile's experience under Pinochet provides no blueprint, the end result of Pinochet's rule offers valuable lessons.

First, cultural differences matter. The Japanese or Korean economies, for example, can be managed successfully as if they belonged to large clans because these societies seem to accept that the rulers will shift massive amounts of privilege between social sectors. In societies based on Christian individualism, however, light-handed and impartial administration is the key to success. If there is a Chilean model, it consists of the orderly reduction of statist privileges-a goal and a process that do not take a military regime to bring about.

Second, timing and a number of special circumstances contributed greatly to Pinochet's success. For most of its tenure, the military regime was lucky enough to receive no foreign aid, and especially no American aid. This helped convince interest groups that it was no use asking for money from the government. Chilean policymakers also were spared the pressure for negotiated compromises among opposing parties and interest groups that usually accompanies being on America's dole. Had Chile made such compromises, it would be poorer for it today. The Chilean experience clearly teaches that deprivation of foreign aid can have a bracing effect.

Moreover, the accident of time helped. When the Chilean military moved against socialism in 1973, the Soviet Union and communists from Vietnam to Europe had the wind in their sails, the patron saint of Latin American collectivism, Juan Perón, was making a comeback in Argentina and even the United States had price controls. But as the military government drew to a close, the Soviet Union was dying, Chilean socialists had been chastened by actually living in socialist countries, Argentineans were already talking about copying Chile, and the world was talking about the successes du jour of Margaret Thatcher and Ronald Reagan. By 1990, then, both supporters and opponents of Pinochet had a host of reasons beyond Chile's own domestic circumstances for supporting political moderation and economic freedom.

Third, while the strength of Chile's reforms lay in their intellectual coherence, their weakness lay in implementation. For the most part, Chile's reformers knew where they wanted to go but not exactly how to get there. The military rulers' learning process and backsliding wasted time and political capital. Thus the reforms did not occur according to any logical schedule, but rather came primarily in short bursts in 1975, 1978-81 and 1987-88. Time and again, the regime made hard decisions only when pushed. It promulgated its labor law in 1979, for example, only when faced with the prospect of nationwide strikes. In other instances, the regime never carried out reforms it thought necessary and proper, like privatizing the state copper company, because circumstances never forced its hand.

Moreover, the reformers learned the hard way no shortcuts can raise a nation out of poverty. Beginning in 1979 the economic team set the exchange rate at 39 pesos to the dollar, and kept it there for three years despite a glaring disproportion between inflation in Chile and the United States. When the global recession of the 1980s brought on the debt crisis, Chile was devastated by failures of banks, mutual funds and businesses. Some middle-class retirees lost their life savings. One fourth of the labor force was unemployed, and GDP dropped by 14 percent. "What Allende could not manage, the Chicago boys did" was a quip common at the time. The government was forced to assume mountains of debt and temporarily resumed old-style industrial policies. The regime and all its works were well-nigh discredited. Thereafter, Chilean economics was forced to return to basics. Real wages did not again reach their 1982 levels until June 1988.

Finally, the regime's undemocratic nature and the length of time it held power were detrimental to the success of the reforms. Chile's hard-liners had convinced Pinochet of the need to lengthen and retain draconian control of the transitional period. But the conflict between a constitution aimed at diminishing state power and rulers who, as a practical matter, sought to hang on to unelected power that they often exercised brutally, ultimately made it harder for the regime and more difficult for the new constitution to take root.

The popular rejection of reformist politicians in Poland and elsewhere in the former communist world has led some to conclude that only regimes like Chile's, which do not have to answer to the people, can do the job. But these critics are mistaken. The military's strength came from its success in identifying itself as the defender of ordinary individuals. Many post-communist politicians have raised taxes and frozen wages to reduce government deficits, all the while maintaining huge public sectors. Pinochet, on the other hand, never tried to balance the budget on the backs of taxpayers or consumers. Instead he fired bureaucrats, cut subsidies and tariffs and let the market pile the pains of transition on the remnants of the old regime.

So long as it continued a process of liberalization, the Pinochet regime did not need dictatorial powers. A duly elected government in control of both the legislative and executive branches for five years could have instituted all the constitutional, legal and economic reforms that Pinochet did. However, when the 1982-84 recession forced the Chilean people to bear the cruel consequences of the economic team's mistakes, the Pinochet dictatorship was able to put off the day of reckoning with the people only until 1988-the date specified by the constitution. The point is this: dictatorial power is useful only as a highly imperfect shield against incompetent performance.

The difference between Chile's success and the lack of it in former communist lands lies not in any superiority of dictatorship over democracy but rather in the content of policy. Chile's reforms had nothing in common with the statist, austerity, aid and managed-trade packages that Poles, Russians and others have negotiated with the International Monetary Fund, the ec and the Group of Seven leading industrialized nations. The Chilean reforms succeeded politically and economically for one reason: they shrank the state.