Predictably, free market ideologues have managed to inject themselves into the latest natural disaster in Chile. It is predictable because Chile was the great testing ground for Milton Friedman and ‘The Chicago Boys’ to experiment with extreme deregulation and laissez faire economics. And at every given opportunity, they will attempt to prove their ideas worked.
In an article in the Wall St Journal, Bret Stephens argues that Milton Friedman style economics made Chile so wealthy that is was able to withstand a devastating earthquake. It’s a nice idea, much like the theory of perfect free markets, but unfortunately, it is complete nonsense and provably false. Firstly, the introduction of free market economics to Chile created a massive crisis with declining wages, unemployment and increased food prices. Contrary to reports of ‘an economic miracle’, Chile was plunged into a deep recession and almost went broke. To combat this, Pinochet was finally forced to nationalize key parts of the economy, notably the banks and the copper industry, to generate enough cash to keep the government operating. Only then did Chile partially recover (but never again did it reach the prosperity pre-Pinochet). Secondly, the stringent building codes that saved Chile from disaster were implemented before Pinochet got into power. Writes Naomi Klein:
There is one rather large problem with this theory: Chile’s modern seismic building code, drafted to resist earthquakes, was adopted in 1972.
That year is enormously significant because it was one year before
Pinochet seized power in a bloody US-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).
Another inconvenient fact that Stephens would most likely rather ignore is that Chile plans on rebuilding the country with the money it has saved from its nationalized copper industry. From the Denver Post:
Finance Minister Andres Velasco said it
was too early to estimate the economic cost of the quake. He said the
Chile’s policy of funneling windfall copper profits into a $14.7
billion rainy-day fiscal savings fund would help shoulder the cost of
“Chile has saved for a very long time in order to have the savings to be able to face situations like this,” he told reporters.
So, not only did Chile survive the earthquake due to stringent regulation (the ultimate curse word in free market circles), but it will rebound because of its heavily regulated economy.
How do you like them apples Mr Stephens?
Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.