How did Chile's economic experiment reshape global economic thinking, and what can it teach us about the future of neoliberalism and populism in Latin America and beyond?
Sebastián Edwards is a professor of international economics at UCLA and writes about Latin American history, economics, and politics. His books include Left Behind: Latin America and the False Promise of Populism, American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold, and most recently The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism.
Sebastián and Greg chat about the remarkable economic transformation in Chile over the last seven decades, the roots of neoliberalism and its global implications, the contemporary challenges facing Argentina, and what lessons can be gleaned from historical economic events like the U.S.’s default during the FDR era.
*unSILOed Podcast is produced by University FM.*
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Why could the U.S. justify a default while Argentina couldn't?
48:11: I think that the notion of excusable default is important. If there is an act of God, and the Great Depression was thought to be, in part at least, an act of God, that was one element. The other one is that I think the Supreme Court rulings were very detailed and pedagogical, and they explained that aspect of the justifiable default in a clear way. And the third one is that the devaluation was very large, from $20.67 to $35. So, the problem with Latin America is that most devaluation crises are very timid.
On Chile's horizontal inequality
56:01: Chile is one of the most unequal countries in terms of income, but also it's very segregated. [56:37] So, there is this horizontal inequality that I think is also important, and as the country developed and people got out of poverty, being treated in a disrespectful way by whiter citizens—there's also a racial component, but in Chile, it's not acknowledged all the time—but being treated without respect is not acceptable anymore. People get resentful, right? So, I think that all of that added to this quite unstable cocktail.
How inequality and slow growth created Chile's deadly cocktail
04:11: When you combine inequality with slower growth, then you have a really deadly cocktail. And that happened after 2014, and it made the criticism higher. And the third point is that there were some implicit promises that the supporters of the model made that did not happen. And that's mostly related to pensions—the fully privately run (not anymore, but originally) pension system based on individual savings accounts. The idea was that if things worked the way people thought they were going to work, workers would get a rate of replacement of about 70 to 80 percent of their income. It turns out they get about 25 percent instead of 70 or 75 percent, and people feel betrayed.
