Guardians of the Nation? Economists, General, and Economic Reform in Latin America

Published by EH.NET (May 2004)

Glen Biglaiser, Guardians of the Nation? Economists, General, and Economic Reform in Latin America. Notre Dame, IN: University of Notre Dame Press, 2002. xi + 239 pp. $23.50 (paperback), ISBN: 0-268-03875-9; $45 (cloth), 0-268-03874-0.

Reviewed for EH.NET by William McGreevey, Director, Development Economics, Futures Group.

For Latin America and the Caribbean (LAC) taken as a whole, GDP in real terms grew cumulatively by 1.6 percent per annum in the 1980s and 3.7 percent per annum in the 1990s. In contrast, Chile, the country best typifying the arguments set forth by Glen Biglaiser in his book, Guardians of the Nation?, grew by 4.2 percent per annum and 7.9 percent per annum in those same decades (World Bank, World Development Report 1999/2000, pp. 250-51). Chilean growth rates were more than double those of its neighbors in both decades. At least part of the reason for that difference lies in the happy conjuncture of sound economic advice and politico/military leadership willing to listen.

The book focuses particularly on Chile and the rise of economists as a share of decisionmakers in Chilean governments. With the overthrow of Salvador Allende in 1973, General Augusto Pinochet succeeded to the Chilean presidency via military coup, a common mode of promotion in the LAC region for more than a century. He called on two U.S.-trained economists, Jorge Cauas (Columbia University) and Sergio de Castro (University of Chicago), to manage economic policy of his government. In short order, the former students of Milton Friedman and his associates were putting market-friendly policies into practice.

Biglaiser writes, “Over the next few years, ‘Chicago Boys’ – economists trained in neoliberal doctrine at the University of Chicago – invited more economists into all levels of economic policy making. The proportion of neoliberal economists in economic policy-making positions jumped from 21.4 percent in 1973-74 to 77.8 percent in 1975-83, with most having earned advanced degrees in the United States” (pp. 95-96). By the late 1980s 94 percent of policymaking positions affecting the economy were held by economists (Chart 4.1, p. 96).

The author looked closely at economic policymaking in two other Southern Cone countries, Argentina and Uruguay. In those countries, his data show a far less widespread presence of economists in policymaking positions. Between 1966 and 1983, the economists’ share of these key jobs exceeded fifty percent only briefly and not by much (Chart 4.2, p. 103). In Uruguay, a small economy largely dependent on its ties to Argentina and secondarily to European markets, economists got but 10 percent of the key jobs through the early 1980s (Chart 4.3, p. 107).

By the 1990s, in the age of the Washington Consensus, an allegedly near universal agreement about the Magic of the Market, the Argentine governments gave more and more key positions to economists, 83 percent of the total in the mid-1990s (Chart 7.1, p. 167). Biglaiser shows that Colombia and Mexico similarly handed over the reins of policymaking largely to economists. (Uruguay, in contrast, continued to keep the neoliberal wave at bay, granting less than half the key jobs to economists.)

Biglaiser is interested in whether economists, when ‘insulated’ from politics (read for the word politics, demands of articulate business and labor groups seeking a larger share of the pie) by a strong man, can have their way with government. Can they reduce the role of state-owned enterprises by privatization of state assets? Can they achieve labor market flexibility that might be opposed by the so-called labor aristocracy of urban, formal sector workers? Can they break down high-cost local monopolies by promotion of free trade via globalization?

His analysis shows variable results.

Where economists came into full flower in Chile, the Chicago Boys did free markets on many relevant dimensions. They did so, however, within an environment sensitive to the need to protect less-favored groups. Reforms of the pension system, now both admired and replicated in many other countries, constituted a variant on privatization, but also included a safety net for the poor. Reforms of health care, criticized in some respects for moving too far in the direction of private provision of services, still offered basic care through the public sector for those in need. Schooling reforms, still ongoing, also have aimed to increase quality and protect those most in need. There has been no Scrooge-like element in the Chilean version of that Washington Consensus.

Far less successful have been free market adventures in some other settings examined by Biglaiser. As a World Bank economist, Desmond McCarthy (schooled at MIT, not Chicago!) told me some years ago, “In Argentina, everything has been tried twice and failed both times.” No Argentine government has existed independent of a Peronist legacy. The government of Carlos Menem flirted with many neoliberal or ‘orthodox’ ideas, the worst of which was the strange notion of Professor Stephen Hanke (Johns Hopkins, not Chicago) that a Monetary Policy Board could manage a fixed dollar-peso exchange rate, come what may. The disaster that ensued is still in the mop-up stages.

Uruguay, so dependent on its neighbor, can hardly be expected to operate independent economic policies, no matter how sound they may be.

Biglaiser, it seems to this reviewer, avoids the larger question, “Can these neoliberal policies succeed in achieving objectives of economic growth and stability?” The tepid progress of LAC region economies over the past quarter century is dispiriting. China and some of its neighbors have regularly achieved per capita product increases of five percent per annum and more. Why not Brazil? Mexico? Argentina? Colombia?

The East Asia and Pacific region (EAP) had gross national income per capita of US$900 in 2001; the LAC region’s was US$3,580, four times as high. EAP’s trade in goods as a share of GDP was 61 percent; the LAC region’s was 38 percent. EAP’s manufactured exports were 32 percent of the region’s total exports (the World Bank indicators refer to these as ‘high-technology’ exports). The LAC region’s manufactured exports were 15 percent of its total exports (all figures from World Bank, “Little Data Book 2003,” pp. 9, 11).

The EAP region, far poorer in terms of income than the LAC region, does remarkably better in opening up to active trade and in succeeding outside the traditional area of primary product exports. Greater equality, openness of opportunity, and a readiness to compete actively in the global system have set the East Asian countries on a course toward successful development. In contrast, the LAC region seems unable to seize what opportunities come its way.

The inability of LAC region economists to break the grip of vested economic interests, namely the manufacturers aiming to keep the home market to themselves, and the urban labor aristocracy fearful of the costs of adjustment, is part of the story. The lack of progress, of the kind Chile has made, to extend benefits of education and health care beyond privileged groups is another part of the story.

Biglaiser doubts that the neoliberal recipe offers a sound treatment for the LAC region. The independence of Pinochet from both the military and commercial groups offered him the chance to listen to reason. Other leaders were not so lucky; other countries and their governments’ policies were tightly woven compromises between capital and labor, owners and workers. In most cases, populist rhetoric supported a status quo that left little help for the growing flow of poor rural workers heading into cities and finding limited opportunities barely better than near-subsistence agriculture.

In the past year Bolivian protesters succeeding in ousting the government of Gonzalo Sanchez Lozada, principally because he had the temerity to propose selling natural gas to the U.S. after shipping it across Chilean territory. Thoughtful observers surely thought such sales would redound to the benefit of Bolivia and its people, perhaps especially the least advantaged. Populist rhetoric can readily drown out reason on such matters.

Biglaiser generously provides a vision of what was in twentieth century Latin America an oft-repeated story. Government incompetence leads to military coup. Military coup can lead to paradigm shift but only when the Maximum Leader enjoys, as Pinochet did, unusual independence from other influences. Military coup then eventually gives way to a democracy of the few, often beneficiaries of a closed economy. Washington Consensus or no, populist sentiments often support further restive discontent.

Will the twenty-first century also be a time of democratic failure and ineffective military reaction? Perhaps not. With luck, the Biglaiser story may be a story of the past and not of the future. Better economic training and especially the demonstration effect of success in East Asia, now South Asia, and perhaps even in Eastern Europe, may shock Latin Americans into changed economic policies. They will need to emulate two characteristics of the Chilean experience. They will need to open their economies to trade and exchange. With equal importance, they must open opportunities within their societies to the millions of rural and urban marginal peoples who have yet to benefit from what economic development the region has achieved.

William McGreevey taught economic and social history of Latin America many years ago at UC- Berkeley (1965-71). He worked on social sector projects, especially health care financing, at the World Bank (1980-97) and has more recently focused on the economics of reproductive health and HIV/AIDS with Futures Group (1997-present) — 1050 17th Street NW, Washington, DC 20036. He can be contacted at w.mcgreevey@tfgi.com. Like his teacher, Charles P. Kindleberger, he recognizes the need to adjust professional interests with the passage of time.