Pakistan has lessons to learn from Chile – hopefully the right ones

The ‘Miracle of Chile,’ a set of economic reforms implemented in Chile during the 1970s and 1980s under the authoritarian regime of General Augusto Pinochet, is often celebrated among proponents of economic liberalization as a success story for free-market principles and a model that Pakistan should replicate. However, the economic success came at a high human cost. The repression and human rights abuses that accompanied Pinochet’s policies should serve as a cautionary tale for policymakers, highlighting the inherent ethical perils of divorcing economics and policy-making from humanity.

Pinochet’s economic reforms, often associated with the “Chicago Boys” – a group of economists trained under the influence of Milton Friedman and other prominent free-market advocates – entailed a swift and radical transition from a state-controlled economy to one marked by deregulation, privatization, and trade liberalization. The prioritization of GDP growth over societal well-being led to economic growth, but one that disproportionately benefited the wealthy, exacerbating income inequality. The focus on market-driven economic reforms also disregarded environmental costs, reflecting a lack of concern for the long-term well-being of both the environment and the people who depend on it. More directly, the elimination of social protection measures led to mass demonstrations and social unrest that revealed popular discontent and political fracture.

The Pinochet regime responded by resorting to widespread human rights violations, as it had done during the 1973 military coup. Political opponents were systematically targeted, arrested, and tortured. The ruthless suppression of dissent undermined what little remained of the principles of democracy and individual freedom. Although the authoritarian regime had constitutional cover through the adoption of a new constitution in 1980, the governance model stood in stark contrast to the values of individual dignity and freedom that underpin not only democratic societies but are also one of the foremost purposes of economic development. 

While growth is indispensable for economic success and poverty reduction, it is not enough. 

Javed Hassan

Economic policies are inextricably intertwined with the well-being of individuals and societies. They have far-reaching implications for human lives, welfare, and social progress. They must be viewed in terms of their impact over an extended period. The narrow focus on economic growth might have succeeded in taking Chile from being in the middle of the Latin American league by GDP per capita in the 1970s to being one of the richest Latin American countries, but the fragility of its success was exposed in the upheaval that gripped the country starting in the mid-2000s. 

Various groups led by the youth as well as pension beneficiaries and feminist social movements turned to the streets. Mobilization and violent protests were seen as the only viable way to elicit concrete responses from the establishment. The underlying patterns of socioeconomic exclusion, political stasis, and institutional delegitimization exploded into massive protests in 2019. This culminated in 2021, with the leftist leader, Gabriel Boric, being elected as Chile’s president with a manifesto to ‘bury’ the neoliberal economic legacy of Pinochet’s 1973-1990 dictatorship. He promised to raise taxes on the ‘super-rich’ to expand social services, fight inequality, and boost protections of the environment.

Ironically, in Pakistan, despite not having undertaken reforms as drastic as Pinochet’s ‘miracle’, the half-hearted efforts of implementing structural changes set by the IMF as part of various bailout packages have resulted in familiar unfavorable consequences without the benefits of enhancing productivity and growth. For instance, the greatest burden of the limited reforms has invariably been borne by the lower and middle classes, leading to ever-widening income inequality and increased levels of poverty. While privileged groups benefit from each new facility provided by the Fund, there have been only limited market-oriented reforms aimed at efficient resource allocation and creating a more competitive economy. 

The justification often given by successive governments for not undertaking the fundamental reforms required to stabilize the economy and promote sustainable growth is that the state, unlike Pinochet’s Chile, lacks sufficient coercive powers to implement harsh measures. Unfortunately, entirely the wrong conclusion is being drawn from Pinochet’s experiment.

Amartya Sen, a prominent figure in the field of welfare economics, said, “It is unthinkable to analyze economics without human welfare at its core.” Human development cannot be adequately assessed solely through economic indicators like GDP; instead, it should be evaluated based on “people’s ability to lead lives they value.” 

The foundational motivating principle has to be the expansion of individual freedoms and opportunities. While growth is indispensable for economic success and poverty reduction, it is not enough. If, as in the case of Chile, economic growth increases income and material wealth for the few but results in denying this fundamental tenet of society, then such a model is neither acceptable nor sustainable in the long run. Without social justice and a minimum of social cohesion, the effects of growth dissolve into political instability and a reversal of hard-won economic gains.

– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.

Twitter: @javedhassan