Politics & Policy

Chile Effect

Are Pinochet and Thatcher guilty of the same sins?

Editor’s note: This piece by John O’Sullivan appeared in the November 23, 1998, issue of National Review.

When Lady Thatcher sent her recent letter to the London Times urging that General Pinochet be allowed to return to Chile, she made a very limited case. Far from exonerating the former Chilean dictator of human-rights abuses, she explicitly stated that there had been such abuses (although, as she added, these were not all on one side). That said, she pointed out that the General had helped save the lives of British soldiers during the Falklands War — with the clear implication that if Britain betrayed those who had assisted it in previous crises, it would not find many friends in future ones — and she warned that Britain should not risk upsetting the Chilean settlement that had restored democracy.

The nervous pleas for Pinochet’s release from his political opponents in Chile and from President Menem in Argentina suggested they shared at least the second of those views. After one week, the British government’s dramatic arrest of the General, which had at first looked like a splendid gesture of legal humanitarianism (or a shrewd move to please the European Left), seemed a thoughtlessly imprudent move by inexperienced ministers reliving their youthful “idealism.” As Mao Tse-tung said, an eight-year-old should never be made Foreign Secretary, no matter how brilliant.

As far as the British and foreign media were concerned, however, Lady Thatcher’s narrow-crafted arguments were beside the point. She might as well have launched a full-blooded defense of every action taken by Pinochet’s secret police — and by his finance and economic ministers. “THATCHER-PINOCHET’S ALLY,” shrieked the BBC’s website in full tabloid style, adding that she had long been an “admirer” of the General and that her economic reforms were “to some extent” an “emulation” of the Pinochet policy. Other journalists took up the cry and had soon revived a thesis that, like General Pinochet himself, harked back to the half-forgotten ideological battles of the Seventies. They constructed an apostolic succession of world monetarism, according to which Milton Friedman had invented monetarism (“Let there be darkness!”) and taught it to Pinochet; then the General had imposed a monetarist experiment on Chile by torture and the secret police; and, finally, Lady Thatcher, having carefully studied his policy, had “emulated” it in Britain. So monetarism is fascism disguised as accountancy. QED.

Unfortunately for this theory, all the known facts contradict it. In the first place, Friedman was never an advisor to Pinochet, and while he praised Pinochet’s economic policies, he was critical of the General’s human-rights record. Other economists from the University of Chicago were appointed as economic advisors, and by and large they gave excellent advice. The result was that, in less than two decades, Chile went from a bankrupt socialist Third World country to the most successful economy in Latin America with a growth rate three times the continental average. It soon left the Third World altogether.

As it happens, the Pinochet government sometimes pursued policies that departed from Professor Friedman’s views — and, by a nice coincidence, those were the occasions when the economy floundered. Friedman is famous for his advocacy of floating exchange rates. But in the 1980s, Pinochet pegged the Chilean peso to the U.S. dollar. When the dollar rose, it priced Chilean exports out of world markets and inflicted a severe recession on the economy. At the time, several journalists who knew nothing of Friedman (or monetarism) triumphantly declared that the recession proved monetarism didn’t work. Of course, as soon as the peso was floated, the Chilean economy resumed its upward swing.


Faced with Chile’s undeniable economic success since then, the Left falls back on the claim that this was the result of Pinochet’s authoritarianism. Monetarism is inherently fascist, goes the argument, because it can only be imposed by state repression. Given that, however, any economic policy could succeed. No less distinguished a democrat than Mario Vargas Llosa, the Peruvian novelist who ran for his country’s presidency in 1990 and has since vigorously opposed the authoritarianism of Fujimori, denounced this argument in Time magazine as not only false but as likely to give an undeserved prestige to authoritarianism. If authoritarianism were the ticket to prosperity, he pointed out, then Latin America would be the most prosperous continent in the world. But if authoritarianism is not sufficient to ensure the success of economic policy, might it not still be necessary to the specific success of monetarism — allowing a government to ride out the temporary unemployment that attends ending inflation? Perhaps you can see where this argument is heading in relation to Thatcherism: Was the Tory government’s defeat of the miners’ strike — in which the police fought pitched battles with striking miners-Lady T’s emulation of Pinochet’s authoritarianism?

Even if this general argument were valid, the miners’ strike would not be an example of it. The strike occurred when the economy was improving, three years after the rising unemployment of the 1980-82 recession. And it took place because the miners’ Marxist leader, Arthur Scargill, finally managed to evade the union rules mandating a ballot before a national strike by calling a series of regional strikes and sending violent pickets into moderate areas to ensure compliance. So it was the anti-monetarist Scargill, not Thatcher, who employed violent and authoritarian methods.

But the general argument is false anyway, as the example of New Zealand shows. In 1984, a Labour government was elected under a mildly left-wing Prime Minister, David Lange, who was initially famous for refusing to admit U.S. warships into New Zealand ports if they might be carrying nuclear weapons. While the Left went on an anti-American rampage, reformist ministers pushed through one of the most thorough-going free-market revolutions of the last fifty years. They almost abolished subsidies and tariffs, cut spending and taxes sharply, and imposed strict monetary rules (among others, reducing the salary of the central bank governor if inflation rises.) And all this was accomplished without repression.

No one has ever suggested that the New Zealand Labour Party was emulating Pinochet. And the suggestion that Lady Thatcher was emulating Pinochet probably began either as a malicious slur by the Left or as a mild expression of vanity on the General’s part in a New Yorker interview.

Almost twenty years later, we are all monetarists — at least in the colloquial sense of favoring anti-inflationary market economics. New Labour, Tony Blair, and his finance minister, Gordon Brown, are especially eager to demonstrate their economic respectability. They have granted independent status to the Bank of England; they tailor their spending policies to the capital markets; and they loudly praise market mechanisms as socially beneficial. In all these things, they are closer to Pinochet than to their old Seventies’ selves.

Indeed, if the true disciple is one who imitates the master’s failures as well as his successes, then Pinochet’s strictest emulators would include John Major, who took the pound into the Exchange Rate Mechanism from the fixed exchange rate system, and Tony Blair, who wants to take the pound into the euro.

Still more striking is the interest taken by New Labour in the Chilean pension plan, which allows workers to own an individual pension account and to choose its managers from among twenty competing systems. Frank Field, until recently Social Security Minister, went to Chile to see it in practice, and after the election met its architect, former Pinochet minister Jose Pinera. When Labour ministers meet former colleagues of Pinochet to discuss borrowing their policy ideas, we are living in a different world from that of the ideologically charged Seventies.

Or so we seemed to be. Then Pinochet was arrested! Old memories stirred, old passions revived, ministers recalled their youthful “idealism,” and before long BBC journalists could be heard baying at the moon. It is not the elephant, but the Left, that never forgets.


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