Life in Debt. Clara Han
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economicus, and the autoregulation of the market. The elaboration of these natural laws was based on the empirical testing of economic theory and the coherence of economic models to “reality.” Economics, from this perspective, was not a domain apart from the social. Rather, economics encompassed all of human action and sociality, and economic science was the analysis of and intervention into this reality (Burchell 1991; Lemke 2001).
As Milton Friedman states, “In discussions of economic science, ‘Chicago’ stands for an approach that takes seriously the use of economic theory as a tool for analyzing a startlingly wide range of concrete problems, rather than as an abstract mathematical structure of great beauty but little power; for an approach that insists on empirical testing of theoretical generalizations and rejects alike facts without theory and theory without facts” (quoted in Valdés 1995, 65). According to Friedman, more than a description of reality, economic models had explanatory power if they were predictive and could model a reality construed as what should be natural. As political scientist Juan Valdés remarks, “As a consequence, one of the central functions of theoretical analysis was in their [the Chicago school's] view the formulation of normative rules” (Valdés 1995, 65). Thus, the Chicago school's approach to neoliberalism was based not on predetermined human nature, but on the construction of the “natural” rational-economic being through normative rules that were defined through economic science.
With the golpe del estado in 1973, Chile became a testing ground for this normative economic approach. Scientific expertise, embodied in the Chicago Boys, combined with authoritarianism informed a new experimental and technified reality for state actors and institutions. The market, according to Minister of Economic Affairs Pablo Baraona, was the “economic manifestation of freedom and the impersonality of authority.” As such, it combined freedom's normative principles with the neutral and objective practice of economic science (Valdés 1995, 31).
Viewed as the structuring principle for life itself, the market became the primary mode of governance, and the social became a terrain in which economic rational actors made choices in their own self-interest.3 “Nature,” in terms of homo economicus, was not an a priori given, but instead needed specific technical conditions under which it could emerge. As Baraona remarked, “The new democracy, imbued with true nationalism, will have to be authoritarian, in the sense that the rules needed for the system's stability cannot be subject to political processes, and that compliance with these measures can be guaranteed by our armed forces; impersonal, in the sense that the regulations apply equally to everyone; libertarian, in the sense that subsidiarity is an essential principle for achieving the common good; technified, in the sense that political bodies should not decide technical issues but restrict themselves to evaluating results, leaving to the technocracy the responsibility of using logical procedures for resolving problems or offering alternative solutions” (quoted in Valdés 1995, 33).
The Chicago Boys and the Pinochet regime contrasted this “new democracy” to the Allende government, which they diagnosed as causing an “immoral” and “sick” state of the economy. According to the military regime, the previous epoch of state intervention and centralization had produced a situation in which the economy, and by extension individual rational actors, had become obstructed from their “normal” or “natural” functioning. These obstructions were, in the words of Undersecretary of Economic Affairs Alvaro Bardón, “perverse” (quoted in Silva 1996, 29) and had led to a balance-of-payments crisis and soaring inflation. As the words of Minister of Economy Sergio de Castro suggest, this perversity was attributable to “the result of the years of demagogy and erroneous economic policies, the consequence of an exaggerated statism, the result of exaggerated protectionism that guaranteed monopoly profits” (quoted in Loveman 1988). The military regime therefore called for a “normalization” and “saneamiento” (healing) of the economy. Such normalization would be brought about through the “shock treatment” of structural adjustment.
In the Government Economic Recovery Program of 1975, Minister of Finance Jorge Cauas reiterates Friedman's emphasis on “normalization”: “The purpose of the recovery program which we are discussing in general terms today is to bring about the definitive normalization of the economy by means of a drastic reduction in inflation” (Cauas 1975, 159). The military government drastically reduced fiscal spending by 25 percent, devalued the currency, and removed price controls on almost all commodities. The regime also privatized almost all state-owned enterprises, except for copper mining, and deregulated the interest rates of banks so that they could charge their clients according to their own economic measurements. Public infrastructure such as health care and education were severely curtailed and semiprivatized. And the economy was opened up to the global market by reducing trade barriers and passing new foreign investment laws that gave equal treatment to both foreign and domestic investors (Loveman 1988, 159). Between 1975 and 1979, foreign loans flooded the Chilean economy. This expansion of credit from private international banks, amounting to more than USD 6,120.9 million, allowed the regime to service Chile's public debt, which at the time was the highest in the world on a per capita basis, representing 45–50 percent of all export earnings. The costs of such measures were felt throughout the population, but especially by the urban and rural poor, who saw the minimum wage drop by 50 percent during the first two years of the military regime and the loss of disposable income sharpened by the reduction in social expenditures by the state (Petras et al. 1994, 21).
By the end of 1982, in the wake of the debt crisis that swept across Latin America, the private financial system was on the verge of collapse. The state, via the Central Bank, stepped in to bail out the private sector. This bailout—on the order of USD 6 billion, representing 30 percent of GDP each year—ushered in a new round of structural adjustment, this time promoted by the World Bank. In 1985, Chile received a three-year structural adjustment loan from the World Bank and made a three-year agreement with the International Monetary Fund. By the end of the 1980s, the payments the Pinochet regime was making to service the foreign debt amounted to USD 800 million a year, representing 3–4 percent of GDP and 18 percent of exports (Meller 1996).
With banks and their debtor companies under the control of the Central Bank, the regime initiated a new wave of privatizations of these now public properties and companies—which it sold at much reduced prices to national and international conglomerates, turning public assets into private wealth. With these privatizations also came an influx of transnational corporations that entered into partnerships with several Chilean conglomerates, since these conglomerates could not absorb the heavy debts acquired with their new companies. Transnational corporations bought heavily into public utilities, such as telephone and electricity companies, and bought significant shares of pharmaceutical and nitrite-based chemical industries, steel, and coal mines (Fazio 1997).
With such measures, the regime managed to pay off USD 9 billion of the 19 billion that it owed to external creditors. The “fiscal responsibility” of the state—itself now heavily privatized—was celebrated by the World Bank, International Monetary Fund, and Inter-American Development Bank, which together annually provided loans averaging USD 760 million between 1983 and 1987. With British Prime Minister Margaret Thatcher and President Ronald Reagan supporting the regime, the “Chilean miracle” was advanced as an argument for structural adjustment across Latin America and for neoliberal reforms in both Europe and the United States. With these economic reforms, the state itself would transform from a welfare state to a subsidiary state that addressed the inevitable generation of “extreme poverty” produced by the market. This “extreme poverty” would be addressed by focalized programs aimed at sustaining minimum requirements for biological survival.
These reforms were advanced through state violence, by disarticulating labor unions and political movements through torture and disappearances. And they produced not only a structural adjustment of the economic system but also, as literary scholar Luis Cárcamo-Huechante suggests, a profound cultural adjustment of the Chilean population (Cárcamo-Huechante 2007). As the 1974 Declaration of Principles makes clear, the military regime viewed itself as installing new “healthy” norms and value systems in the Chilean population: “The government of the Armed Forces and of Order aspires to initiate a new stage in national destiny, opening the way to new generations of Chileans formed in a school of healthy civic habits” (Junta Militar quoted in Vergara 1984). The exercise of