In 1972, Chile had the second worst economy in Latin America. Inflation reached 500%. Production lagged due to frequent worker strikes. Nationalization, price controls and high tariffs were the order of the day. The state controlled more than 70% of all economic output. Today Chile is an economic powerhouse. The first “Latin Tiger” has the best long-term development record on the continent and was recently first to join the prestigious Organization of Economic Co-operation and Development (OECD). How did Chile go from basket-case to poster child in the Latin world? All signs point to the courageous free-market reforms designed and executed by several individuals who have continued their work via the think tank Instituto Libertad y Desarrollo (Liberty and Development Institute).
Telling the story of Chile’s success is complicated by the violent aspects of the military coup that ended Salvador Allende’s disastrous socialist experiment. Friends of liberty, of course, will never endorse human rights abuses committed by either the Left or Right. Nevertheless, some troubling aspects of Chile’s liberation from socialism should not obscure the lessons of its reforms, which began in the mid-70s with the appointment to top positions in key ministries of a group of well-educated young professionals; including Hernán Büchi, Carlos Cáceres Contreras, Cristián Larroulet, Hernán Felipe Errázuriz, and Miguel Kast.
Over the course of more than 15 years, state enterprises were privatized, inflation was curbed, pensions reformed, imports and levies slashed and price controls abolished. Slowly, methodically, Chile became a model for reform and economic liberty. It was less a miracle than an incremental application of sound economic principles across all sectors. Knowing that their reforms could always be reversed by future governments, Büchi and company established Libertad y Desarrollo (known as LyD) in 1990 to institutionalize the ideas of freedom in Chile. They traveled to the U.S. seeking knowledge on how to create and develop an effective policy think tank. Atlas’s President, Alex Chafuen answered the call and a partnership was born.
For two decades Atlas has nurtured, advised, and supported LyD via grants and awards programs. With this help, LyD has become the Latin American institute to emulate. It produces popular books, educational seminars, carefully researched studies and in 1999, executive director Larroulet was named top economist in the country by his peers. With the election of Sebastián Piñera in January, the cast from LyD has another opportunity to directly influence public policy in Chile. Five of Piñera’s cabinet members are from the LyD family including Larroulet (Secy. Gen. of Presidency), Juan Andrés Fontaine (Economy), Ena von Baer (Secy. Gen. of Government), Felipe Kast (Planning), and Joaquín Lavín (Education). This crew is familiar with the need to create the proper incentives for cleaning up disasters and setting the country back on track – which is precisely the challenge after the massive earthquake. With résumés like these, it’s safe to say they are up to the task.
In March 2010, to coincide with LyD’s 20th Anniversary, Atlas republished an English edition of Hernán Büchi’s book The Economic Transformation of Chile, a detailed personal account of the implementation of economic reforms to serve as a guide for other Latin American countries. The book is part of a new joint project between Atlas, LyD, and the Hispanic American Center for Economic Research called Transform Americas.
TransformAmericas.org, the project’s website, features more information on the Chilean model, along with policy studies, editorials, articles and videos about economic reform.