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Chile’s 9/11

Ichiro Suzuki This September 11 marks the 50th anniversary of a military coup in Chile that overthrew a democratically elected president. On November 3, 1970, Chile narrowly elected socialist Salvador Allende as president, and it didn’t please the United States at the height of the Cold War. President Allende immediately went onto nationalization of major industries, expropriation of farmland while massively boosting fiscal spending on social programs as well as raising pension spending and minimum wage substantially, especially for blue collar workers. On the foreign policy front, he tried to get close to Cuba, not surprisingly. President Allende’s policies began to unravel in his second year. Excessively expansionary fiscal and monetary policies hit back against the president, as the economy lost equilibriums. In 1973, Chile’s economy was in tatters as the government’s coffer was depleted. The Chilean peso collapsed and inflation was running well above 200%. Amid a deepening chaos, the armed forces led by General Augusto Pinochet pulled off a coup successfully. Having refused to surrender, President Allende shot himself at the palace. It was widely suspected that the Central Intelligence Agency was behind General Pinochet. Author Walter Issacson, however, flatly denied such speculation in his biography on Dr. Henry Kissinger, who was Secretary of State at the time of the coup. Chile’s economy was in such shambles that the military didn’t need any external help to overthrow the president, the CIA or else, he said. Secretary Kissinger said nothing about the coup, as opposed to harshly denouncing the general for his conduct, which would have been offered under the normal circumstance. In the next 16 years, General Pionocchet ruled Chile as a dictator, fiercely repressing those who didn’t agree with him politically. Reportedly, thousands of people were taken by the police and never came back. About the ruined economy of Chile, on the other hand, admitting that was not an area of his expertise, he hired an outside advisor. And the man was Professor Milton Friedman, who would soon be awarded the Nobel Prize in economics in 1976. Professor Friedman then brought in a few young Chilean scholars who were studying under him at the University of Chicago. With the ‘Chicago boys’ Professor Friedman embarked on an experiment of supply side reform, ahead of Prime Minister Margaret Thatcher and President Ronald Reagan, aiming at three main objectives: economic liberalization, privatization of state-owned enterprises and stabilization of inflation. It took over a decade before Professor Friedman’s efforts produced visible results. Indian economist Amartya Sen, also a Nobel laureate, didn’t speak highly of what he did in Chile. At the very least, those were really tough times globally. Inflation was not a unique problem only in Chile though President Allende made it a great deal worse with his misguided policies. President Richard Nixon was fighting a war on inflation by the time of the coup in Santiago. Then, the OPEC’s oil embargo caused a supply shock, fueling global inflation further. Interest rates shot up to levels never been witnessed in the U.S. and around the developed world. It took time but by the latter half of the 1980s, Chile’s restructured economy began to excel, standing out in Latin American that suffered a lost decade, being mired in a debt crisis. Wishing to be president for life, General Pinochet asked the Chilean people in a referendum, and the people didn’t give him what he wanted. He would remain in politics as a senator for life. When he resigned, he was wanted by the International Court of Criminals for serious human rights violations and would remain so until his death in 2006. With economic prosperity, Chilean people wanted democracy, denying the dictator’s wish despite his achievement, and the dictator listened to the people. In Asia, a man with a similar track record with General Pinochet was South Korean President Park Chung Hee. He was also an army general who rose to power through a coup in 1961 and remained as president until he was assassinated in 1979. While his reign was highly repressive, he sawed the seeds of South Korea’s economic development that became visible after he was gone. After his assassination, two more army generals rose to presidency, and the Korean economy continued to prosper. Toward the end of the 20th century, Korean people sought greater political freedom. In 1993, Kim Young-Sam became the first fully democratically elected president of the Republic of Korea. After General Chian Kai-shek fled to Taiwan in 1949, driven out of the mainland China by the Communists, Taiwan stayed under marshal law for 38 years, which outlasted Chiang by 12 years. By then, Taiwan’s economy took off. While Taiwan’s presidency used to be strictly in the hands of Chiang’s Nationalists, two out of three presidents in the 21st century belonged to the Democratic Progressive Party, including the current president Tsai Ing-wen. It is from these episodes in Chile and the Far East, the West began to flirt with a thought that economic prosperity leads to political freedom. Based on this assumption, the West welcomed China’s entry into the global economic system. Since the late 20th century, per capita income in China grew rapidly. That made, unsurprisingly, Chinese people aspire for political freedom. Unlike General Pinochet or South Korean presidents, however, the Chinese Communist Party has no intention of liberalizing the political system, refusing to give an inch. Holding on to power is the primary objective of the party. They are tightening grips. The West has recently given up a hope that China moves toward democracy. It remains to be seen if the Chinese economy suffers a backlash in an intensified totalitarian state.

About the author: Mr. Suzuki is a retired banking executive based in Tokyo, Japan.


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