Milton Friedman and Latin America

Their talk was mainly focused on the impact of both A Monetary History of the United States, 1867-1960 [co-written ] with Anna Schwartz, and Capitalism and Freedom on the 20th century’s intellectual landscape. You can listen to the two-part podcast conversation on EconTalk. Part II specifically deals with Mr. Friedman’s ideas on capitalism and freedom.

The transcripts of this conversation surely make fascinating reading. Here we have one of last century’s most uncompromising economic minds still advocating—with stunning depth, disarmingly logic and enlightening wit—for smaller government and more individual freedom. Still optimistically hinting at the myriad of possibilities for free markets and freedom the world over.

Ever a man of realities, at a given moment of their lively conversation, Mr. Friedman told Mr. Roberts,

We have to keep ourselves open to the facts. The facts are that the world has become better and better over time. The 19th century was better than the 18th Century. The 20th Century was better than the 19th Century. The 21st Century is going to be better than the 20th Century. There was once an article back in, oh, 1780 or something, which said how many people lived in free countries and how many lived in the rest—non-free.

And the ratio of people who live in free countries to the total population of the world has surely been going up throughout this whole—these past two centuries. It went up most dramatically recently when the Berlin Wall fell, when the Soviet Union went out of existence. So there’s reason to be optimistic.

I was in Bogotá, Colombia, when I learned of Mr. Friedman’s decease. I was there attending a conference of Latin American freelance writers and magazine contributors. During recesses in between the conferences, I took to asking my fellow conferees what, if any, have been Milton Friedman’s ideas’ impact in Latin America.

Save for a handful of people my age, most of the conferees were born this side of the 1970s. Most of them are college educated, have taken long stints of work abroad, and are endowed with a rare mixture of suspiciousness and candor that have brought out superb chronicles, reportages and essays on Latin American realities, written with courage and truthfulness, often delving deeply in this continent’s modern myths and paradoxes with unprejudiced minds.

Yet I must say I was not in the least surprised by the galvanic skin responses prompted by my question. I was meticulously informed several times about the U.S. involvement in the military coup that overthrew Chile’s socialist president Salvador Allende in 1973. I was also told—erroneously—about Mr. Friedman’s being the unofficial adviser of a team of economists—the so-called “Chicago Boys”—that ran Chilean economy under a murdering dictatorship.

Indeed, the ruthless military regimen that followed Mr. Allende’s downfall ranks high among the most haunting episodes of Latin American 20th-century political history. It was partly an outcome of the most ferociously fought periods of the Cold War. But it was also the ultimate result of many decades of economic policies, widely popular among Latin American governments, that emphasize “growth” and income distribution while dismissing the risks of inflation and deficit finance.

Mr. Allende’s “experiment” in attaining a Communist society by electoral consensus quintessentially embodied that Latin American populist paradigm. It reflected in erratic, aggressive non-market economic policies during his tenure. These policies inevitably unleashed internal forces that ultimately brought about a major political change—though not the one Mr. Allende and his followers pursued—as hyperinflation and the Chilean middle class reaction to it sanctioned a growing threat of total social chaos.

Paul Rosenstein-Rodan crassly “legitimized” the military coup when he wrote “Salvador Allende died not because he was a socialist, but because he was an incompetent.” Still, to many Latin American intellectuals, Milton Friedman is as murky and hideous a character as any torturer can be.

With his urbane and charming style, Mr. Friedman’s writes in his autobiography about what his attitude was in face of the vicious worldwide campaign against him that developed as result of his advising Chile’s economic authorities:

“What annoyed me more than anything else was the pusillanimity of so many academics. The dedicated socialists and communists were one thing; other academics a very different thing. There were some notable exceptions […], but for the most part, academics waffled, wanting to be on the ‘right,’ i.e., ‘progresssive’ side, even when they did not condemn me outright.

Some years later, on returning form a trip to China, I wrote a letter, out of sheer deviltry, to the Stanford Daily noting that I had just returned from China, clearly a more repressive state than Chile, that I had given the same advice as I had in Chile, and asking whether I should expect the same protests as were directed at me after I returned from Chile, and, if not, why not.[…]

The announcement of the Nobel award on October 14, 1976, raised the controversy to a new level. The catalyst was two letters criticizing the award that were published in the New York Times on October 24, both dated October 14 and both from Cambridge, Massachusetts, each signed by two Nobel laureates: one, by David Baltimore and S. E. Luria, who had received Nobel prizes for medicine, the other, by George Wald, who had received his prize in medicine, and Linus Pauling, who had received two prizes in chemistry and peace.

On the day that I accepted the [Nobel] prize in Stockholm (December 19, 1975), the Wall Street Journal concluded an editorial, titled “Nobels and Smears”, as follows: ‘Given any remote chance to gun down an affective spokesman for conservative economics as a secret fascist and torturer, even Nobel Laureates can, we see, succumb to an itchy trigger finger. With so powerful a compulsion at work, the myth about Mr. Friedman in no doubt in a good many minds. But anyone who takes the time to learn the facts should recognize the smear as McCarthysm of the left.’

That powerful compulsion notwithstanding, the stubborn fact is that Friedman’s legacy will not be easy to erase, at least not from what he would have called the “economic memory” of our region.

Of course, heated discussions on the feasibility of implementing strong market reforms in a democracy went on in Latin America’s decision-making circles for quite a while during the 1970s and well into the 1980s. The brutality of the Pinochet regime had made Chile an unlikely role model for the rest of Latin America.

Then, in 1985, Bolivia’s freely elected government, paradoxically led by a former diehard populist politician, successfully tackled hyperinflation by combining economical and political liberalization and showed other democracies in the region that market reforms aimed at reducing inflation and busting employment were feasible in a freedom context.

By the end of 1980s, Chile’s reforms were strongly working, despite a short downturn linked to a collapse of the world copper prices. In 1990, Chile elected his first democratic president after Pinochet.

How this came to be belongs in a study of Chilean domestic politics. Any such study, however, would have to deal at length in how macroeconomic stability became an important element of the compromising political atmosphere that made transition from military rule to democracy possible.

President Patricio Aylwin not only maintained the reforms but intently did much to improve them, always keeping the economy open. So have the presidents who have followed him, all of them members of Chile’s Socialist Party. As a result, today’s Chile, with its GDP’s growth rate at 6.3% for 2005, is indisputably both a thriving economy and a true democracy.

Many of the region’s countries departed long ago from the market reforms half-heartedly attempted in the 1990’s. Instead of boosting free economy and individual freedoms, these “reforms”, plagued by lack of transparency, cronyism, mismanagement and sheer corruption, were obviously doomed to fail. This failure greatly fueled the current wave of political populism and zealotry of strict state intervention that not only hampers Latin American economic growth but endangers individual freedoms and democracy.

Which reminds me that, during his short visit to Santiago de Chile in 1975, Mr. Friedman gave a talk to a group of students at the Catholic University of Chile under the title “The Fragility of Freedom.” The emphasis of that talk was that free markets would ultimately undermine political centralization and political control. History was to vindicate his words.

During a PBS debate titled “Reform Without Liberty: Chile’s Ambiguous Legacy”, aired in 2003, Mr. Friedman adamantly rejected the interviewer’s idea that Chile deserves a place in history because it was the first country to put Chicago theory in practice. “No, no, no. Not at all,” Mr. Friedman retorted, “After all, Great Britain put Chicago theory in practice in the 19th century. The United States put the Chicago theory in the 19th and 20th century.[…] The Chilean economy did very well, but there is something more important: in the end, the central government, a military junta, was replaced by a democratic society. So the really important thing about the Chilean business in that free markets did work their way in bringing about a free society”.