Chile as a possible example for Greece?

I know that this post is a dangerous one because I am embarking on the thin ice of praising something which published opinion, for very good reasons, has classified as politically incorrect — the happenings in Chile during the late 1970s/early 1980s. I take the right to embark on this course because I have lived in Chile during those years.

I have talked about the Chilean situation before in this blog. I recently posted another – somewhat daring – article about it. A commentator asked what it was exactly that was good about the policies of the Chicago Boys in Chile. He suggested that, essentially, all it was was an indirect intervention of the US to protect their investments in Chile. Below is my response to him. 

I did NOT say that the US involvement in Chilean affairs during the 1970s had as its goal to save poor Chileans, nor would I think so. That kind of a dreamer I am not. Of course, the US involvement in Chile had geopolitical objectives — Allende/Castro were on their way towards turning Chile into a second Cuba (that was their publicly stated objective) and the US, for understandable reasons, had no interest at all to have more than one Cuba in the Western Hemisphere. Protecting US investments in Chile was not a principal objective because the US had no major investments there at the time.

I know I am moving onto thin ice when I say the following, but bear with me.
Pinochet’s bad luck was that of all the zillions of coups in Latin America in the last couple of centuries, his coup was the one which kicked out the world’s first democratically elected Marxist President. With that handicap, the Chilean coup will forever go down into ivory towers as the most brutal coup in the world.
Any coup is one coup too many and any person killed in a coup is one person too many. Having said that, I was amazed how Argentina – where I lived after Chile – could practically at the same time have a bunch of butchers slaughter off tens of thousands of people while the whole world focused on Chile (and ignored the brutalities of a junta in Argentina). And those butchers left an economic mess behind and not a well-functioning economy!
Mind you, Chile – if I recall correctly – has the most constitutional history of all Latin countries. I believe they had had only one coup before and that had been many decades before. Against that historical background, the idea of a coup was a nightmare, even to the military itself.
What is generally not publicized is that, according to the Constitution, there had actually been the obligation to remove Allende from office. Allende had been in fights with the Supreme Court for some time. On 26 May 1973, the Supreme Court of Chile unanimously denounced the Allende government’s disruption of the legality of the nation in its failure to uphold judicial decisions, because of its continual refusal to permit police execution of judicial decisions contrary to the government’s own measures. According to the Constitution, the President had to be removed from office. The only thing is: after removal, a new election should have been called and the military, as militaries tend to do, forgot about that part. That was the crime of the coup (and the civil rights violations), not Allende’s removal from office!
Now to give you even more of a feeling. Pinochet had been appointed by Allende himself to his post about a year before the coup. The story was that Allende chose Pinochet because he was considered as a weakling. At home, he was under the rule of his tough wife (correct!) and in the military the Head of the Air Force was the power guy. I had met both and I could subscribe to that view.
Chileans had run out of food (except for those close to the Communist Party). It is well documented how housewives would populate the streets of downtown Santiago banging on empty pots and pans. “Do something!” they shouted (meaning the military). The story goes that Pinochet did not have the guts to do anything because, as I said above, a coup was so much against Chilean tradition. It was said that the Head of the Air Force finally gave Pinochet an ultimatum to either do it or to be gone. Within weeks after the coup, Chileans had food again.
Am I supporting the coup? Of course not, but life is full of choices and I can imagine what the choice would have been (in fact, I had talked about this with many Allende followers and they essentially saw it the same way. The owner of the house we rented, a former ambassador of Allende and someone who was pursued by the junta for some time, told me a lot about that). Chile was indeed on its way to become a second Cuba. The political process had lost its self-corrective power. So, if there hadn’t been a coup, Chile today would probably have many similarities with Cuba today (and Allende would probably be glorified for that like Castro still is). Everyone is invited to judge what his/her preference might have been. There was no “third way”.
In the economic area, THE masterstroke of Pinochet & Co. was that they recognized that they didn’t know anything about economic affairs, and that they shouldn’t mess with it. The Chicago-Boys were Chileans who – since the 1950s – had formed a following, principally at the Universidad Catolica, of the Austrian National School of Economy (Hayek, Schumpeter, Mises, etc.). Later, several of them went to study at the University of Chicago where they became favorite students of Milton Friedman (and blind followers of Milton Friedman). The Chicago Boys were brilliantly intelligent people, like many brilliantly intelligent Greeks today. Unfortunately, they based everything on theory and lacked practical experience.

Pinochet delegated ALL economic affairs to the Chicago Boys and promised them, so it was said, air cover for 5 years. They needed that because the radical reforms they introduced would not have been possible in a democracy (I fear).
In short, there is no question that neither the military nor the US were driven by boy scouts motives. The military, of course, wanted Chile to become the kind of country they wanted it to be and the US didn’t want to have another Cuba. But that is not the issue which I raised. The issue I raised was that the Chicago Boys had at their core the objective to improve the lot of ALL Chileans.
What did they do?
They opened up the economy so that Chile could make use of its competitive advantages. First, they defined what they saw as Chile’s competitive advantages and then they made plans to make use of them. Chile, formerly an exporter of only copper and an importer of just about everything else, became an important exporter (which generated foreign currency). Foreign investors brought capital to the country because they considered Chile to be a great place for doing business. They freed the economy of excessive rules and regulations but made sure that there was an overall regulatory structure in place. Milton Friedman would have called that: “They established the rules of the game within which the private sector could operate competitively and fairly”. They privatized a lot, not primarily for financial gain but for acquiring private sector (and particularly foreign) know-how.
Their major blunder was fixing the exchange rate which lead to a massive inflow of cheap foreign funding which was misspent by the private sector on consumption and which caused a crash around 1982. The way they handled that crash was a text book case (that was already handled by the successors of the Chicago Boys). Probably the best bank rescue program I have ever seen! Shareholders and institutional investors lost; depositors and tax payers were protected.
In short, the Chicago Boys gave Chileans the opportunity to develop their own creative powers and talents with very little restraint from government. The new business start-up’s were at a phenomenal rate. Here is how Milton Friedman later described it: “The Chilean economy did very well, but more important, in the end the central government, the military junta, was replaced by a democratic society. So the really important thing about the Chilean business is that free markets did work their way in bringing about a free society.” I subscribe to that 100%!
One of the most eloquent spokesmen of the Chicago Boys was the then still very young José Pinera (a brother of today’s President). In debates about whether or not Chile should exploit its natural resources, at the time when he was Secretary of Mining, he often stated a phrase which, to this day, makes my heart feel warm: “We will use our natural resources. Not to waste or to spend them. Instead, we will use them so that we can invest in the only resource which has eternal value — our human capital!” That’s what they did. Later, as Secretary of Labor and Social Security, he privatized the Chilean pension system based on personal retirement accounts.
There is absolutely no doubt in my mind that if Greece had a similar economic team in place, with the necessary powers, the same results would happen in Greece. Chileans are characterized by an extreme love, if not passion for their country; so are Greeks. Chile then had a whole generation of extremely well-educated people who were eager to accomplish something; so does Greece. At the same time, Chile had a large part of the population which was “underdeveloped”, so to speak. Not all that educated; not all that familiar with modern times; in short: ideal targets for populists and demagogues. Greece does, too (in my opinion). The trick was that the Chicago Boys could ignore the populists and demagogues and focus on the job at hand instead.
No doubt about it: the original Chicago Boys failed in 1982 and they were replaced by more down-to-earth economic leaders. But they had instilled into the Chileans a sense of self-determination; a conviction that – regardless how small a country was, how remote and how seemingly short of competitive advantages – the conviction that even such a country could succeed internationally if it only put its mind to it.
Compared to Chile then, Greece today is in much better shape. Chile did not have an extremely rich oligarchy. Greece’s oligarchy, instead, belongs to the richest in the world. Much of Chile’s entrepreneurial talent had left for Spain during the Allende years and they led great lives there. One of them (Jorge Cauas) once told me: “We were having the greatest life in Spain but we were all scared of one thing: that Pinochet would call us and appeal to our loyalty and our responsibility to the ‘patria’. We knew that if he called, we couldn’t say no. But we also knew that we would be leaving a great life and return to a life of uncertainty and to a public servant’s salary with little purchasing power, as well as the risk of immediate termination of contract if we failed”.
Jorge Cauas and many others of his kind received the call and accepted the responsibility (Cauas became Pinochet’s first Finance Minister). Not to their disadvantage in the end, I might add.
So ask yourself the following question: what would it take for a Greek leader to appeal to the country’s economic oligarchy, to their loyalty and their responsibility to the Greek ‘patria’? To make their talents and resources (if only a few billion of the many, many billions they have expatriated from Greece…) available for the turn-around of their home country? If you have an answer to this, you have half the problem’s solution.
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7 Responses to Chile as a possible example for Greece?

  1. kleingut says:

    Yes, every case is different but please allow me to say, having lived in 8 countries and in 3 totally different cultures (in addition to my wife's Greek culture) that people are more or less the same all over. My experience would suggest that people, as human beings, have a desire to develop some form of personal and individual worth. Some people strive to reach that objective through materialistic things, others through spiritual things; but it's still the same objective.The ideal society, in my view, is the society which allows each and every individual to develop his/her own talents to the fullest extent, in whatever way. The not-so-ideal society is the one which limits its members in doing that.When I speak in Austria about Arnold Schwarzenegger's phenomenal career, I often get as a response: "Ok, but that could happen only in America, in the land of unlimited opportunties". My response to that is: "Shouldn't it be the primary objective of EVERY society to provide unlimited opportunities to its members?" That's generally a discussion-stopper.I feel confident to say that Arnold Schwarzenegger, had he stayed in Austria, would have had a career as a small town policeman; perhaps as a construction worker; perhaps even as a construction supervisor. But no more than that. Why? Because, in the value structure of Austrian society then, "he only had muscles but no brains, and no education". That is how Austrians viewed Schwarzenegger for a long time.After he married a Kennedy, he became a somewhat "civilized person" in the minds of Austrians. Once he became governor of California, the President of Austria, a sophisticated diplomat by training and a member of Austria's elite, was just so happy to receive as his visitor "my good friend Arnie".No one ever in Austria ever seriously asked the question why Arnold Schwarzenegger could not have accomplished anything similar in his home country.

  2. Anonymous says:

    Klaus every case is different depending how people of each society understand or perceive themselves under different influences during time, experiences,important facts, historical memories etc. Also take into consideration, sociologically, the human development, the progress, the enlightment years for each country understand the antilipsis of ours what should be the road to ideal society.This is the one aspect.Close to all these "influences" there are for me some general "rules" which every society approach them with different sentiment,mentality, saying a different truth about eg responsibilities of citizen, duties of citizen etc. This truth is related with the first aspect.For example when Greece gain idependance the first governor Kapodistrias decided to bring potato and make people to start cultivation. But no one have the indention to do that!Kapodistrias then bring potatos in a public place to be seen from most people and put many guards to "watch them".The following days potatos disapeared!Before some days after tax checks in an popular island some people attacked against state, police etc ! The point? The different perception, the different progress or mentallity are the decisive factors and to what extend? Hard to say.Different example, before days a Greek unemployed man found 10k and gave it back.I count 3 or 4 same facts in the news last months.So my point is that people have motives and talents, weaknesses and arogance many seek materialistic thinks others spiritual but in our case the ideal society is not builded upon the same mentality with other countries. Impulsively,trivially not better but differently.About Arnie, trully i don't know the % of talent, smart, luck or need for something different in Hollywood. Might be all of them. I don't know about character, values, no brains, brains, become part of elite, upgrade socially etcBut the question for me is not if he could accomplish in Austria(its difficult for practical reasons, market publicity, marketing)what made in US but if he is in an aspect "a fair character"I have read (don't know if truth) he made several mil $ donation to birthplace. Maybe for tax reasons? Don't know.He could not.So my point is the " good character" which everyone diffently understand it, should make a better society not probably ideal evaluating and balancing fairly the need for materialistic things and spiritual.And he always will make mistakes.So is hard -for us- to help develop talents to fullest and only that.It would be great to change from bad mentalities which are sometimes amusing but with cost.We have not same representations but we have the potential to change many!PS: Kapodistrias was killed!

  3. The three big copper mines nationalised under Campo & then Allende, were Chuquicamata, El Salvador, and El Teniente. They were owned by Anaconda Mining and Kennecott Copper Corporation, both were US corporations at the time. Anaconda was part of the Rockefeller empire, and the Guggenheim's had a major slice of the Kennecott pie. Today those mines are owned by CODELCO, the worlds biggest copper miner – CODELCO is an Chilean SOE. I find it ironic that the free-enterpise heros – Pinochet & The Chicago Boys – failed to de-nationalise CODELCO. Could it be they knew they were onto a good thing, in other words who was buttering their bread. Same could be said of their successors of course. Post Pinochet Chile set up a couple of SWF's based on the Norwegian model.The overthrow of Mossadeq (1953) and Sukarno (1970) were precursors to what happened to Allende in 1973. Lets not quibble about which label they carried – Marxist, Troskyite or Maoist – they were all left wing nationalists. Mossadeq was elected, Sukarno wasn't but his NASAKOM brand confected from NASionalisme + Agama ('religion') + KOMunisme.As well as mineral resources Chile has other things that Greece does not have, like its own sovereign currency, and its political independence. Under Pinochet the peso was either pegged to the US$ or allowed to float within a narrow band. It was almost a decade (1999) after Pinochet left office when it was finally deregulated and allowed to float free. Much (most ?) of the structural de-regulation in Chile also occurred post Pinochet. This includes the crackdown on the cartels, which existed before Allende took office and were thriving when Pinochet left office – Allende wanted to nationalise them.Tourists are fickle, "Let's give Greece a miss, Morocco looks nice, and Croatia has some good deals". House builders don't care where there copper pipes are mined, but tourists do care about uncollected garbage, beggars, pickpockets, getting ripped off and riots. Without those mineral resources Chile would probably be more like Uruguay. Although UY is another Latin country Greece could emulate, its GDP PPP is not much lower than Chile, its unemployment is about the same < 7%, although its currency is a bit of a problem. Greece may have more in common with UY than CL, in that its economy is not dominated by non-renewable resources.If Greece was an independent state then there are many countries that it might might look towards for ideas, including its immediate neighbour Turkey. But whilst ever it's under "EU House Arrest" it will falter. Greece does not have the mindset of a 'European Union state', it has the mindset of a former colony of the Ottoman Empire. Let's not forget that most the Ottoman administrative practices were 'inherited' from the Byzantine Greeks. CK

  4. Gemma says:

    Herr Kastner.This was a very interesting article, thankyou.You say "people, as human beings, have a desire to develop some form of personal and individual worth"Cultures across the world are very different. I too have lived in different parts of the world, and understand this as well as anyone can. The issue you raise is not an easy one to answer, whilst what you say is true, each culture will do it in its own manner. The fundamental "mechanics" of economy are just that, mechanics. Physical commodities, industry and so-on. What makes countries different is the way they go about dealing with these things. In each case it is different. You know well enough that to speak English, you have to think in English – and the same goes for German. You cannot think in German and speak good English. The different styles of thinking are fundamental, and lead to (or from) different cultures. You say "They freed the economy of excessive rules and regulations but made sure that there was an overall regulatory structure in place."What I mean to say in this disorganized comment is that whilst people have individuality, they do it as a Greek, Chilean or Brit. They do it within their culture. Whilst American culture is markedly different from Chilean culture, the regulation of economic mechanics should be much the same in each case.

  5. Anonymous says:

    Countries do not have a 'mindset'. People do. What is perceived as country 'mindset' has to do with the government and what it enforces or tolerates. For instance the Simitis logic "if someone has evidence, let him go to the district attorney". Which means if you know someone who is cheating the state for instance, it's your job asa citizen to go after him at your time, money and risk(since greek courts routinely rule that pigs can fly) and not the job of the minister and his staff who have sworn and are well-paid to look after the country's interests(as well as having immunity and police protection). What you see as 'ottoman administrative practices' has to do with the government, not some mentality. You may say the government is elected, but it's always a choice of very closely matched evils.As for CHile: Free markets bringing about a free society? I think time(and Pinochet's retirement due to age, just as Franco's death) brings change. No different than the Soviet Union.Privatization for acquiring know-how is a baffling concept to me. Know how of how to run a business? We are not talking about building nuclear weapons here. Lots of people could do that without being schooled(Onasis for example)."They established the rules of the game within which the private sector could operate competitively and fairly"And in the case in hand in Greece that would be-state intervening to change existing private contracts-state intervening to change employer-employee agreements-state intervening to change existing contracts with citizens(e.g. solar energy producers) whom it had encouraged to invest (some had actually borrowed to do so)just so it can go on paying good salaries to- judges who rule that pigs can fly, prosecutors who release arrested fugitives on thegrounds that they are not suspect of fleeing-correction officers judging that convicted murderers serving life sentences should get a second furlough although they had never returned from the first one-ministries violating their wone (and troikas rules) to appoint corrupt people whith connections-the political elite who takes no hit for the mess the country is inas well as spend 15mil plus donnate government land to build a mosque (and of course the same for every other religion) and pay a mufti for eternity?

  6. Anonymous says:

    @CK There are indications, even proves that people, individually, society as a synolon,quality of political dialoque-system and antilipsis about what is bad plus old fashioned "mindset", is a reality.But people change AND understand the situation.And if you understand the problem, is matter of time to be solved

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