Arnold Harberger on the Chicago Boys

In my Econ 100 class, we discussed Milton Friedman and monetarism on Thursday. Some of my students mentioned Naomi Klein’s The Shock Doctrine, and I emailed everyone links to Robert Lawson’s and my paper “Human Rights and Economic Liberalization” and my review essay on Klein’s book. After I distributed the published version of my paper with Robert Lawson, I got the following email from Arnold Harberger. He has graciously allowed me to share it as he considers it to be in the public domain.

Dear Art:

Thanks for sending me your recent paper, which I found very interesting. It really consists of two quite distinct parts—one focused on Chile during the Pinochet period, the other reporting a series of regressions demonstrating a negative causal relation going from human rights violations to free-market policies. I found the latter quite interesting, though not surprising, but this note deals with the former, on which I can give personal testimony.

In the first place I know of no instance in which any of the so-called Chicago boys were implicated in any violations of human rights. In fact, several of them, including Rolf Luders and Ricardo Marin, were jailed for periods of several months (though they were never tried and convicted), in the wake of the 1982-3 debt and financial crisis.

Secondly, the Chicago faculty took pains to keep a good distance between themselves and the Chilean military regime. I went to Chile mainly under the auspices of private foundations, of USAID, and of the Banco Concepcion, whose top executives were mostly linked to the Christian Democratic Party, which was in opposition to the military regime after its first year or so. I happened to be friends with Chile’s former President, Eduardo Frei Montalva, who was also in opposition after the first year or so, and I visited him maybe eight or ten times during that period. I had no personal relations with any of the Chilean military. I made it a point to refuse requests to be a consultant to the Chilean government for something like five years after the coup. During this period I checked regularly with the American Ambassador and with the officials in the embassy who kept tabs on disappearances and other human rights violations. I only relaxed my “boycott” after, sometime around l978, the embassy reported zero disappearances. In the subsequent years. My consulting consisted of three days of advising at the Central Bank in the turmoil of the financial crisis, plus organizing a conference on public finance issues for the Planning Ministry, which was headed by my former student Alvaro Donoso, plus giving seminars on electricity economics in both of Chile’s public sector electricity companies—Endesa and Chilectra. All in all, probably two weeks of work, at a maximum three weeks, over the dozen years from 1978 to the end of the military government. In adopting this rather minimal relaxation of my boycott, I was mindful of the human rights situations in countries like Korea, Pakistan, Guatemala, El Salvador, the Philippines and others, where many well-known economists had worked for extended periods to help improve the economic situation.

Finally, looking back at the evolution of the Chilean economy and polity, I have often said that there were two miracles. The first was the economic miracle of bringing a relatively free-market revolution to Chile. This was done by the Chicago boys in two waves—one from 1975-81 and the other from l984-89. People should realize that not all the top leaders of this transformation were former University of Chicago students. Notable among the others were Hernan Buchi and Jorge Cauas (both from Columbia University) and José Piñera (Harvard). The reforms made by these people under the military government were subsequently widely imitated in many other countries with democratically-elected governments. Most significant was the way in which Chile’s economic teams pursued the same general “model” of economic policy, during the democratically-elected presidencies of Aylwin, Frei, Lagos and Bachillet. Many of us who watched that evolution closely have attributed it to the “triumph of good economics”. In recent Chilean elections, the economic platforms of the various parties differed in the degree of emphasis given to different aspects, but not on the broad philosophy governing economic policy in general. In my opinion, the degree of economic understanding shown by the various parties in these elections, and by the various administrations once they took power, is a marvel to behold, certainly in comparison with most developing countries, and also compared to many in the industrialized world. In telling the story of Chile, people should pay more attention both to.its successful transition form authoritarian rule to democracy, and to the virtually seamless continuity and continuing evolution of its economic policies in the process.

Sorry for the length of this note. These are matters on which I only rarely perceive the “right” opportunity to express my views.

Best wishes, Al Harberger