The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism, by Sebastian Edwards (Princeton University Press, 376 pp., $32)

This year marks the 50th anniversary of the overthrow of Salvador Allende’s leftist government by the Chilean military and the beginning of General Augusto Pinochet’s 17-year military regime. Yet the intervening half-century also witnessed the implementation of economic policies that turned a country with dirigiste arrangements into an open, competitive economy with Latin America’s lowest poverty rate.

It was thus with shock that the world witnessed an explosion of civil unrest known as the Estallido Social in 2019 and the subsequent election to the Chilean presidency of the hard-left Gabriel Boric in 2021. The 35-year-old politician’s program included eradicating “the neoliberal model” and drafting a new constitution designed to take Chile in a distinctly leftward direction. What happened?

The Chilean-born UCLA economist Sebastian Edwards addresses this question in The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism. On one level, the book explores how intellectuals and ideas can drive real economic change. But Edwards also illustrates that Chile’s march toward markets was more complicated than commonly realized.

The central players in this story are the “Chicago Boys": a small group of Chileans who studied economics at the University of Chicago from 1957 onward under economists such as Milton Friedman and the Spanish-fluent Arnold Harberger. The Chicago Boys coalesced around a reform program famously detailed in a book-length document called El ladrillo (“the Brick”), and they persuaded the military regime, much of which had nationalist-corporatist economic inclinations, to dismantle Chile’s dirigiste structures and replace them with some of the world’s freest economic arrangements.

This transformation has been documented in works like Manuel Gárate Chateau’s La revolución capitalista de Chile, 1973-2003. Edwards’s achievement is to take us behind the scenes of these changes. This includes detailing just what a mess Allende’s government made of Chile’s economy. Edwards also outlines the three distinct stages in which market liberalization occurred, chronicles the often-intense arguments that raged within the free-market camp, and illustrates why center-left administrations extended the market agenda following the transition to democracy in 1990.

Free-marketers of all stripes can learn much from Edwards’s account. One lesson is that free market theorists and those economic liberalizers with more pragmatic instincts have their own distinct roles to play in effecting change. While the first group helps establish intellectual ascendancy over interventionists, the second is more effective in bringing about actual policy change.

Consider the respective contributions of Friedman, Harberger, and F. A. Hayek to Chile’s economic miracle. Friedman certainly helped persuade Pinochet to embrace the Chicago Boys’ program rather than the interventionism favored by other prominent military officers and the head of the junta’s dreaded secret police. But Edwards shows that Friedman’s role was not as consequential in policy terms as is often supposed.

If anything, Hayek emerges as an even less influential figure. Chileans studying at Chicago in the late 1950s had little contact with him. Hayek was not in the economics department; few Chicago Boys, it turns out, had read his books. Though Hayek visited Chile several times after 1973, met Pinochet, and was associated with a Chilean free-market think tank, his impact on the economic changes was, at best, subliminal.

Harberger, by contrast, played a less public but more significant role in shaping the reforms. In the first place, he had directly taught many of Chile’s market liberals and kept in touch with his students. Moreover, Harberger was always more pragmatic than most of his Chicago colleagues when it came to promoting change.

This proved important in the second reform phase that began after Chile’s severe 1982 recession. The Chicago Boys who replaced those dismissed by Pinochet following the crisis were equally committed to liberalization, but their political temperament mirrored Harberger’s. Those advancing market reforms in the 1980s consequently made fewer errors and attracted less opposition from skeptics within the regime.

This helps explain why successive center-left governments from 1990 onward extended market liberalization deeper into the economy. More social spending helped to defuse opposition, as did the world’s overall turn to markets after 1991. But the case for markets lacked the hard ideological edge associated with the first reform phase. Instead, third-phase free-market policies were primarily associated with delivering concrete results—especially steady poverty reduction—and creating that Latin American oddity: a high-growth, developed economy.

Why did Chileans suddenly and furiously turn against free-market ideas in 2019 and elect a hard-left president committed to dismantling the model? Edwards identifies several factors that played a role. One is what he calls the reforms’ “original sin”—their association with a regime that engaged in extensive repression. This created ongoing legitimacy problems for market liberalism.

This, however, is not the main reason that Edwards offers for the turn against the model. Market liberalization bestowed tremendous material benefits upon Chileans, but material well-being is not a universal solvent for all problems. Considerable social and class fissures persisted in Chile—a tendency, Edwards notes, that worried Harberger. Indeed, Harberger believed that Chile’s post-1990 political and business establishments remained oblivious to these challenges.

Another problem, Edwards contends, was that many Chileans “lived in fear of retrogressing both socially and economically.” In countries where the breakthrough to economic modernity is still relatively new, worries about potential regression are more acute. That makes abrupt rushes toward the illusionary security offered by populists more likely.

But a primary culprit, Edwards maintains, was growing awareness of collusion involving political leaders (including center-left politicians) and prominent businessmen from the mid-2000s onward. A succession of business, bribery, tax-evasion, and corruption scandals fed the impression that the free-market model was rigged.

Widespread perceptions of cronyism and fraud ended up inflicting enormous damage on the credibility of free markets. Fewer Chileans subsequently believed that market competition was real, or that merit and hard work were the path to upward economic mobility. The irony is that extensive regulation creates opportunities for cronyism. Sometimes, however, perceptions are more important than reality.

That especially mattered, Edwards states, in light of what he considers the Chicago Boys’ biggest mistake: their assumption that they had won the intellectual battle because (in their view) the results of economic liberalization spoke for themselves. By Edward’s account, they never developed a powerful normative narrative, capable of countering the tale of oppression constructed by leftists like Boric, who studied the writings of Antonio Gramsci and Jürgen Habermas in Chilean universities in the 2000s and 2010s and then relentlessly propagated their narrative via activism and social media. Most Chilean economic liberalizers found themselves at sea when it became apparent that neither economic growth nor sound economics sufficed to persuade.

In other words, free-market policy successes must be accompanied by arguments for markets that go beyond economics and data-crunching to embrace political economy and even philosophy. The war of ideas never ends. That is all the more reason to make the case for economic freedom and limited government as comprehensively as possible—for absent such depth, the durability of free-market successes will remain in doubt.

Photo by Lucas Aguayo Araos/Anadolu Agency via Getty Images


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