Eye of the Hurricane: Milton Friedman
and the Global South
by Walden Bello
www.zmag.org/, 11/27/06
While economists laud the recently deceased
Milton Friedman for being "a champion of freedom whose work
transformed economics and changed the world," as a full-page
advertisement in the New York Times put it, people in the South
will remember the University of Chicago professor as the eye of
a human hurricane that cut a swath of destruction through their
economies. For them, Friedman will long be associated with two
things: free-market reform in Chile and "structural adjustment"
in the developing world.
Soon after the coup against the government of Salvador Allende
on September 11, 1973, Chilean graduates of Friedman's economics
department, who were soon dubbed the "Chicago Boys,"
took over the helm of the economy and launched a program of economic
transformation with doctrinal vengeance. In light of his much-quoted
assertion about political freedom going hand-in-hand with free
markets, the irony that in Chile a free market paradise was being
imposed with the bayonets of one of Latin America's most bloodstained
dictatorships could not have escaped the guru.
Yet Friedman visited Chile during the dictatorship, anointing
the radical free-market, export-oriented thrust of the regime,
praising Chilean dictator General Augusto Pinochet for his commitment
to a "fully free market as a matter of principle," and
delivering talks with a title "The Fragility of Freedom"
that could only be ironic in the Chilean context. Even as he
accused his critics of being bent on "tarring and feathering"
him with the regime's human rights abuses, Friedman took pride
in his doctrinal inspiration of what he described as the "Chilean
Miracle."
The Chilean Experiment
After his disciples were done with it,
Chile was indeed radically transformedfor the worse.
Free market policies subjected the country to two major depressions
twice in one decade, first in 1974-75, when GDP fell by 12 per
cent, then again in 1982-83, when it dropped by 15 per cent.
Contrary to ideological expectations about free markets and robust
growth, average GDP growth in the period 1974-89--the radical
Jacobin phase of the Friedman-Pinochet revolution--was only 2.6
per cent, compared to over 4 per cent a year in the period 1951-71,
when there was a much greater role of the state in the economy.
By the end of the radical free-market
period, both poverty and inequality had increased significantly.
The proportion of families living below the "line of destitution"
had risen from 12 to 15 per cent between 1980 and 1990, and the
percentage living below the poverty line, but above the line of
destitution, had increased from 24 to 26 per cent. This meant
that at the end of the Pinochet regime, some 40 per cent of Chile's
population, or 5.2 million of a population of 13 million, were
poor.
In terms of income distribution, the share of the national income
going to the poorest 50 per cent of the population declined from
20.4 per cent to 16.8 per cent, while the share going to the richest
ten per cent rose dramatically from 36.5 per cent to 46.8 per
cent.
In terms of the structure of the economy,
the combination of erratic growth and radical trade liberalization
resulted in "deindustrialization in the name of efficiency
and avoiding inflation," as one economist described it, with
manufacturing's share of of GDP declining from an average of 26
per cent in the late 1960's to 20 per cent in the late eighties.
Many metalworking and related manufacturing industries went under
in an export-oriented economy that favored agricultural production
and resource extraction.
Mitigating Friedmanism
The radical Friedman-Pinochet phase of the Chilean economic counterrevolution
came to an end in the early 1990's, after the Concertacion came
to power. In violation of classic Friedmanism, this center-left
coalition increased social spending to improve Chile's income
distribution, bringing down the proportion of people living in
poverty from 40 per cent to 20 per cent of the population. This
modification, which increased internal purchasing power, contributed
to the post-Pinochet average yearly growth rate of six per cent
a year.
However, with the social democratic regime unwilling to challenge
the upper classes, the basic neoliberal contours of economic policy
were kept, including the emphasis on agricultural and natural
resource exports. This focus on primary product exports has created
tremendous environmental stresses. Overfishing along Chile's
coasts has gone hand in hand with ecological destabilization from
the spread of the fresh salmon and mussel farms inland. A booming
wood export industry has promoted the growth of tree plantations
at the expense of natural forests, resulting in Chile becoming
the second most deforested area in Latin America after Brazil.
Environmental management is widely acknowledged to be ineffective,
being consistently subverted by the imperatives of export-oriented
growth.
Exporting the "Revolution"
Chile was the guinea pig of a free market paradigm that was foisted
on other third world countries beginning in the early 1980's through
the agency of the International Monetary Fund and the World Bank.
Some 90 developing and post-socialist economies were eventually
subjected to free-market, "structural adjustment."
From Ghana to Argentina, state participation in the economy was
drastically curtailed, government enterprises passed to private
hands in the name of efficiency, protectionist barriers on Northern
imports were eliminated wholesale, restrictions on foreign investment
were lifted, and, through export-first policies, the domestic
economy was more tightly integrated into the capitalist world
market.
Structural adjustment policies (SAPs), which set the stage for
the accelerated globalization of developing country economies
during the 1990's, created the same poverty, inequality, and environmental
crisis in most countries that free-market policies did in Chile,
minus the moderate growth of the post-Friedman-Pinochet phase.
As the World Bank chief economist for Africa admitted, "We
did not think the human costs of these programs could be so great,
and the economic gains so slow in coming." So discredited
were SAPs that the World Bank and IMF soon changed their names
to "Poverty Reduction Strategy Papers" in the late 1990's.
Yet free-market and structural adjustment policies have been institutionalized
so thoroughly that, despite their being now universally seen as
dysfunctional, they continue to reign. The legacy of Milton Friedman
will be with the developing world for a long time to come. Indeed,
there is probably no more appropriate inscription for Friedman's
gravestone than what William Shakespeare wrote in Julius Caesar:
"The evil that men do lives after them, the good is oft
interred with their bones."
*Walden Bello is professor of sociology at the University of the
Philippines and executive director of the Bangkok-based institute
Focus on the Global South.
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