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Chile's Socialist Rebar

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Ever since deregulation caused a worldwide economic meltdown in
September '08 and everyone became a Keynesian again, it hasn't been
easy to be a fanatical fan of the late economist Milton Friedman. So
widely discredited is his brand of free-market fundamentalism that his
followers have become increasingly desperate to claim ideological
victories, however far-fetched.

A particularly distasteful case in point. Just two days after Chile
was struck by a devastating earthquake, Wall Street Journal columnist
Bret Stephens href="http://online.wsj.com/article/SB10001424052748703411304575093572032665414.html?mod=rss_Today's_Most_Popular">informed
his readers that Milton Friedman's "spirit was surely hovering
protectively over Chile" because, "thanks largely to him, the country
has endured a tragedy that elsewhere would have been an apocalypse....
It's not by chance that Chileans were living in houses of brick -- and
Haitians in houses of straw -- when the wolf arrived to try to blow them
down."

According to Stephens, the radical free-market policies prescribed to
Chilean dictator Augusto Pinochet by Milton Friedman and his infamous
"Chicago Boys" are the reason Chile is a prosperous nation with "some
of the world's strictest building codes."

There is one rather large problem with this theory: Chile's modern
seismic building code, drafted to resist earthquakes, was href="http://cat.inist.fr/?aModele=afficheN&cpsidt=1289347">adopted in
1972. That year is enormously significant because it was one year
before Pinochet seized power in a bloody U.S-backed coup. That means
that if one person deserves credit for the law, it is not Friedman, or
Pinochet, but Salvador Allende, Chile's democratically elected
socialist President. (In truth many Chileans deserve credit, since the
laws were a response to a history of quakes, and the first law was
adopted in the 1930s).

It does seem significant, however, that the law was enacted even in
the midst of a crippling economic embargo ("make the economy scream"
Richard Nixon famously growled after Allende won the 1970 elections).
The code was later updated in the nineties, well after Pinochet and
the Chicago Boys were finally out of power and democracy was restored.

Little wonder: href="http://krugman.blogs.nytimes.com/2010/03/03/fantasies-of-the-chicago-boys/">As
Paul Krugman points out, Friedman was ambivalent about building
codes, seeing them as yet another infringement on capitalist freedom.
As for the argument that Friedmanite policies are the reason Chileans
live in "houses of brick" instead of "straw," it's clear that Stephens
knows nothing of pre-coup Chile. The Chile of the 1960s had the best
health and education systems on the continent, as well as a vibrant
industrial sector and rapidly expanding middle class. Chileans
believed in their state, which is why they elected Allende to take the
project even further.

After the coup and the death of Allende, Pinochet and his Chicago Boys
did their best to dismantle Chile's public sphere, auctioning off
state enterprises and slashing financial and trade regulations.
Enormous wealth was created in this period but at a terrible cost: by
the early eighties, Pinochet's Friedman-prescribed policies had caused
rapid de-industrialization, a ten-fold increase in unemployment and an
explosion of distinctly unstable shantytowns. They also led to a
crisis of corruption and debt so severe that, in 1982, Pinochet was
forced to fire his key Chicago Boy advisors and nationalize several of
the large deregulated financial institutions. (Sound familiar?)

Fortunately, the Chicago Boys did not manage to undo everything
Allende accomplished. The National copper company, Codelco, remained
in state hands, pumping wealth into public coffers and preventing the
Chicago Boys from tanking Chile's economy completely. They also never
got around to trashing Allende's tough building code, an ideological
oversight for which we should all be grateful.

Thanks to CEPR for tracking
down the origins of Chile's building code.