A group of some 25 like-minded Chilean economists trained mainly at the School of Economy at the Pontifical Catholic University (Pontificia Universidad Católica de Chile) in Santiago, and, steeped in the free-market theories of U.S. economist and Nobel laureate Milton Friedman and the Chicago School of Economics, the “Chicago Boys” played a pivotal role in transforming Chile’s economy during the dictatorship of General Augusto Pinochet. Chicago School economists were influential throughout much of Latin America in the 1980s and 1990s, a period witnessing the growing influence of neoliberalism as espoused by the International Monetary Fund (IMF) and other U.S.-dominated transnational financial institutions. The Chicago Boys, like the IMF, decried the fiscal excesses of populist and socialist governments and promoted open markets, privatization of state-owned industries, reduced government expenditures, deregulation, limiting the rights and bargaining power of labor unions, and increased foreign investment as ways to promote economic growth and national development. These years saw similar developments in the United States and Europe, personified in U.S. president Ronald Reagan and British prime minister Margaret Thatcher.
Among the most influential of the Chicago Boys were Jorge Cauas, minister of finance (MF), 1975–77; Sergio de Castro (MF), 1977–82; Pablo Baraona, minister of economy (ME), 1976–79; Roberto Kelly, ME, 1978–79; José Piñera, minister of labor and pensions, 1978–80, and minister of mining, 1980–81; Álvaro Bardón, ME, 1982–83; Hernán Büchi, MF, 1985–89; Juan Carlos Méndez, Budget Director (BD), 1975–81; Emilio Sanfuentes, adviser to Central Bank; Juan Villarzú, BD, 1974–75; and Sergio de la Cuadra, MF, 1982–83. Following their policy prescriptions, the Chilean government under Pinochet privatized social security, pensions, banks, and most state industries; slashed public subsidies and services; and cut taxes, especially for upper-income brackets. Their reforms generated a severe economic contraction and sharply curtailed inflation in the mid-1970s, followed by robust growth in the late 1970s, a deep recession (following a broader global economic downturn) in the early 1980s, and renewed growth in the mid- and late 1980s. The average growth rate from 1973 to 1990 was 3.5 percent, nominally higher than in most Latin American countries. By 1990 the economy was growing rapidly, though economic inequality had increased, along with economic hardship among the bottom income brackets, with 44 percent of families living below the poverty line.
These and related results of the Chicago Boys’ radical laissez-faire economic restructurings have sparked wide-ranging debates among scholars, while Chileans have continued to grapple with the effects of the free-market reforms. Neoliberalism’s defenders looked to Chile’s privatization of social security as a model for other countries, for example, while its critics pointed to the system’s gaps and insufficient coverage for roughly half of the country’s labor force. In early 2005 all of the candidates in Chile’s presidential campaign agreed that “the country’s much vaunted and much copied privatized pension system needs immediate repair.”