Chicago Boys

Who were the Chicago Boys?

"Chicago Boys" is the nickname of a group of Chilean economists educated at the University of Chicago's Department of Economics or its academic partner, the Pontifical Catholic University of Chile. The best known is Sergio de Castro, who took the Ministry of Economics in 1975 and served as finance minister until 1982; José Piñera, architect of pension privatisation, studied at Harvard but is usually counted among them. Their teachers were Milton Friedman, founder of monetarism, and his disciple Arnold Harberger. The name is also extended to Chicago graduates in Mexico, Argentina, Brazil and elsewhere.

Put simply, they held that markets put resources to their best use and that state economic planning and the welfare state get in the way. In Chile this view stayed on the fringes of politics until the early 1970s.

Why did the United States send Chilean students to Chicago?

It began with American aid policy in the 1950s. The State Department organised the "Chile Project" under the Point Four Program, funded by the Ford and Rockefeller Foundations, to reshape Chilean economic thought. Between 1955 and 1973, 126 selected Chilean students were trained, first in Chile and then in postgraduate study at Chicago. After the Cuban Revolution of 1959, the project became an important part of Washington's Cold War strategy in the hemisphere.

How did they come to run the economy after the coup?

Some of them prepared an economic blueprint for the 1969 presidential campaign, which the candidate Jorge Alessandri rejected. The plan was carried on in private seminars under Salvador Allende and finished a few weeks before the 1973 coup as El ladrillo, "the brick", so called for its thickness. A 1975 US Senate Intelligence Committee report stated that the Chilean economic plan was prepared in collaboration with the CIA.

Even after the coup it was not clear that Pinochet would take this path. In March 1975, with the Chilean economy in severe crisis, Friedman and Harberger visited. Friedman met Pinochet in person, and in a letter of 21 April wrote that "there is only one way to end inflation: by drastically reducing the rate of increase of the quantity of money", and that cutting government spending was by far the most desirable way to reduce the deficit. Pinochet soon announced a version of "shock treatment", accepting high unemployment, and put de Castro at the Ministry of Economics.

What did they change?

After Chile's Popular Unity Government and the 1973 Coup, the regime pursued stabilisation of inflation, economic liberalisation and the privatisation of state companies. Tariffs were cut to 10 percent, forcing Chilean firms to compete with imports; banks and state industries were sold; the central bank was made independent and taxes reduced. The copper company Codelco, nationalised by Allende, stayed in government hands.

Social institutions changed too. Piñera rewrote trade union law in 1979, and on 4 November 1980 the state pension system was changed to privately managed personal accounts. The 1980 Constitution made it illegal for public sector workers to strike and laid down that the state should not provide services the market might address. Education also moved towards privatisation.

What was the "Miracle of Chile" really like?

Friedman proclaimed the "Miracle of Chile" in 1982. Inflation had fallen from over 600 percent in 1974 to below 10 percent just before the crisis of 1982. But the crisis came right after. Departing from Friedman's support for floating rates, de Castro pegged the peso at 39 to the dollar in June 1979. As Chilean inflation outpaced American inflation, the peso became overvalued and a trade problem grew; foreign loans began to decline in late 1981 and had become negligible a year later. In 1982 GDP fell 14.3 percent and unemployment rose to 23.7 percent. On 13 January 1983 the government bailed out five banks and dissolved three others. At this point the regime walked back bank deregulation.

Amartya Sen and others read this as a failure of economic liberalism: there was little net growth in 1975–82, the "pure Monetarist experiment", and after the banking crisis of 1982 the state controlled more of the economy than it had under the socialist government. Sustained growth, on this account, came after later reforms from 1985 under Finance Minister Hernán Büchi. Poverty remained severe: 48 percent of Chileans lived below the poverty line in 1988, falling to 20 percent by 2000. The centre-left coalition after military rule restored labour rights and expanded social programmes under the banner of growth with equity, but kept the constitution and the market-centred framework largely in place.

How do positions divide?

Friedman said he was never an adviser to Pinochet, and defended free markets as having undermined political centralisation and prepared the way to democracy. Sebastian Edwards, an economist of the same school, links the reforms to Chile's relative prosperity in his 2023 book The Chile Project, while conceding that unemployment from the 1975 shock was higher than expected and that Pinochet's seventeen years were "not impressive" taken as a whole. His critic Vincent Bevins points to Edwards's concession that privatisation amounted to the transfer of national assets to the regime's cronies at fire-sale prices.

Orlando Letelier, defence minister under Allende, argued in The Nation in 1976 that repression for the majorities and "economic freedom" for small privileged groups are in Chile two sides of the same coin. He was murdered in the middle of Washington, D.C., the same year. The Marxist geographer David Harvey sees Chile as "the first experiment with neoliberal state formation", which gave helpful evidence for the later turn in Britain and the United States. It was Chilean opposition scholars, criticising the regime's reforms, who gave the word "neoliberalism" its present meaning. These policies later influenced the governments of Reagan and Thatcher; see the neoliberal turn.