How does the Chilean experience explain the rise and fall of neoliberalism?

The Chilean experience offers a unique perspective on the rise and fall of neoliberalism.In the 1970s, a group of Chilean economists known as the “Chicago Boys” applied the neoliberal economic theories they had learned at the University of Chicago to Chile and initiated a profound economic reform. The reforms led to significant economic growth in the early years, which became known as the “Chilean Miracle,” but also led to a series of social problems, culminating in the massive protests of 2019.

The Rise of Neoliberalism in Chile

Cold War context

Cold War context: During the U.S.-Soviet Cold War, the U.S. aided neutral countries, including Chile, to counter Soviet influence. The U.S. saw a lack of economics professionals in Chile and funded Chilean students to study economics in the United States.

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Influence of the Chicago School: These students were sent to the University of Chicago, whose economics department at the time was known for its critique of Keynesianism and its promotion of free markets. These students became the “testing ground” for the ideas of the Chicago School and brought these theories back to Chile.

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Pinochet's Coup d'état and the “Brick Case”: In 1973, General Pinochet staged a coup d'état to overthrow the Allende government. In order to revitalize the economy, Pinochet adopted the economic reforms drafted by the Chicago Boys, known as the Brick Proposal, which advocated radical measures such as privatization, de-regulation, and tariff reductions.

Friedman's support

Friedman's support: Nobel Prize-winning economist Milton Friedman strongly supported the Chicago Kid and the Brick Case, arguing that Chile needed radical free-market reforms to get out of its economic difficulties.

"Achievements and Problems of the Chilean Model

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“ Shock therapy: The Chicago Kid implemented “shock therapy” by drastically cutting the public budget and eliminating support for state-owned enterprises, which led to a spike in unemployment, but at the same time lowered the fiscal deficit. deficit.

Trade and Financial Liberalization

Trade and Financial Liberalization: The Chilean government adopted a policy of trade liberalization, lowering import tariffs while encouraging exports, and financial liberalization, allowing banks to borrow from abroad.

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Privatization: The Chilean government privatized most of the state-owned enterprises, retaining only a few strategic ones.

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Pension System Reform: The Chilean government reformed the pension system by introducing individual accounts and market-based investments.

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Economic Growth and Social Problems: These reforms stimulated economic growth in the short term, but they also led to problems such as a widening gap between rich and poor and a decline in social mobility. The cost of living for low-income groups is rising, and pensions are not able to protect their lives after retirement.

The decline of neoliberalism and reflection

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Massive Protests in 2019: In 2019, massive protests erupted in Chile, with protesters targeting neoliberal economic policies, arguing that they have led to social injustice and a widening gap between rich and poor.

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Rethinking the Chilean Miracle: Protests forced people to reflect on the true costs of the Chilean Miracle, and people began to question whether neoliberal economics could actually solve social problems.

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Questioning market fundamentalism: The Chilean experience has shown that market fundamentalism cannot solve all problems and that governments need to play a more active role in economic development.

Conclusion.

The Chilean experience provides us with an important lesson: economic development should not only pursue the growth of economic indicators, but also pay more attention to social justice and people's well-being. Neoliberal economics has promoted Chile's economic development to a certain extent, but it has also revealed its own limitations. The formulation of economic policies needed to be adapted to the specific situation of the country and could not be copied from any one theoretical model.

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The policies pursued by the “Chicago Kid” had a profound impact on Chilean society, both positive and negative.

Positive effects:

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Rapid economic growth: Under the leadership of the Chicago Kid, Chile implemented a series of free market economic policies, including privatization, trade liberalization, financial liberalization, etc. These policies contributed to the rapid growth of the Chilean economy. Starting from 1983, Chile's economy resumed growth, with a GDP growth rate as high as 12.5% at one time.

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Inflation under control: The “shock therapy” implemented by the “Chicago Kid” was brutal, but effective in reducing the deficit rate and controlling inflation in the short term.

Negative Effects:

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Widening of the gap between rich and poor: Neoliberal economic policies led to a widening of the gap between rich and poor in Chile and an increase in social inequality. The richest 1% of the population owns 48% of the country's wealth, and extreme poverty has never been below 10%.

:: Inadequate social welfare

Inadequate Social Benefits: Unemployment remains high due to cuts in government subsidies and benefits, and the reform of the pension system has not had the desired effect, with pensions equal to only 25% of pre-retirement wages.

● High cost of living

High cost of living: The industrialization of higher education has resulted in heavy student loan debt, and private sector-run public transportation has increased commuting costs for low-income groups.

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Inadequate Social Mobility: Social stratification and inadequate social mobility due to education and income disparities.

In conclusion, the “Chicago Kid” policy has contributed to the rapid development of Chile's economy, but it has also exacerbated social inequality, making it difficult to solve many social problems. The outbreak of protests in Chile in 2019 is a concentrated manifestation of the public's dissatisfaction with neoliberal economic policies.

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The limitations of neoliberal theory and practice are mainly reflected in the following aspects:

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Neglect of social equity and distribution issues: Neoliberalism emphasizes market freedom and efficiency, but neglects social equity and distribution issues. In Chile, neoliberal policies have led to problems such as the wide gap between the rich and the poor and the lack of social mobility. The richest 1% of Chile's population owns 48% of the country's wealth, and the extreme poverty rate has never been below 10%.

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Theoretical models are too abstract and divorced from reality: neoliberal theoretical models are too abstract and divorced from reality, ignoring the complexity of economic activity and the human factor. The “Chicago Kid” focused on abstract concepts such as markets, liberalization, and the money supply when formulating policy, while ignoring the effects of shock therapy on ordinary people, such as unemployment and bankruptcy.

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Excessive restrictions on the role of government: neoliberalism excessively restricts the role of government, arguing that government intervention undermines market efficiency and advocating that the government should intervene in the economy as little as possible. However, in reality, the government plays an important role in regulating the market, ensuring social equity, and providing public services.

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Policy effects are erratic: The effects of neoliberal policies are err atic in practice; they may bring about economic growth in the short term, but in the long term they may lead to debt crises, financial risks, and other problems. Chile experienced rapid economic growth in 1977, but a serious debt crisis broke out in 1982.

All in all, the limitation of neoliberal theory and practice is that it overemphasizes the role of the market and ignores social equity and distribution, the role of the government, and the complexity of economic activities. Chile's experience shows that neoliberal policies are not a panacea and that the economic growth they bring is often accompanied by social problems and economic risks.