INTERVIEWER: It seems to us that Chile deserves a place in history because it's the first country to put Chicago theory into practice. Do you agree?
MILTON FRIEDMAN: No, no, no. Not at all. After all, Great Britain put Chicago theory in practice in the 19th century. (amused) The United States put the Chicago theory in practice in the 19th and 20th century. I don't believe that's right.
INTERVIEWER: You don't see Chile as a small turning point, then?
MILTON FRIEDMAN: It may have been a turning point, but not because it was the first place to put the Chicago theory in practice. It was important on the political side, not so much on the economic side. Here was the first case in which you had a movement toward communism that was replaced by a movement toward free markets. See, the really extraordinary thing about the Chilean case was that a military government followed the opposite of military policies. The military is distinguished from the ordinary economy by the fact that it's a top-down organization. The general tells the colonel, the colonel tells the captain, and so on down, whereas a market is a bottom-up organization. The customer goes into the store and tells the retailer what he wants; the retailer sends it back up the line to the manufacturer and so on. So the basic organizational principles in the military are almost the opposite of the basic organizational principles of a free market and a free society. And the really remarkable thing about Chile is that the military adopted the free-market arrangements instead of the military arrangements.
During the 19th century, Great Britain had secured a vast portion of the world's land and resources, as well as a great deal of its population as both cheap labor and insured markets. As this excellent article illustrates, under British domination, the Indian share of the global economy fell precipitously. Previously, India had had a developed industrial base far beyond that of any European country. That base collapsed. The wealth of India disappeared. Where did it go?
Is that what Friedman means by saying that 19th-century Britain employed the Chicago Theory?
More on Chile:
INTERVIEWER: When you were down in Chile you spoke to some students in Santiago. In your own words, can you tell me about that speech in Santiago?
MILTON FRIEDMAN: Sure. While I was in Santiago, Chile, I gave a talk at the Catholic University of Chile. Now, I should explain that the University of Chicago had had an arrangement for years with the Catholic University of Chile, whereby they send students to us and we send people down there to help them reorganize their economics department. And I gave a talk at the Catholic University of Chile under the title "The Fragility of Freedom." The essence of the talk was that freedom was a very fragile thing and that what destroyed it more than anything else was central control; that in order to maintain freedom, you had to have free markets, and that free markets would work best if you had political freedom. So it was essentially an anti-totalitarian talk. (amused)
INTERVIEWER: So you envisaged, therefore, that the free markets ultimately would undermine Pinochet?
MILTON FRIEDMAN: Oh, absolutely. The emphasis of that talk was that free markets would undermine political centralization and political control. And incidentally, I should say that I was not in Chile as a guest of the government. I was in Chile as the guest of a private organization.
Of course, Chile had developed democratic institutions and a flourishing political climate over a century before the US-supported coup that was the culmination of Mr. Friedman's (and General Pinochet's) career.
INTERVIEWER: In the end, the Chilean [economy] did quite well, didn't it?
MILTON FRIEDMAN: Oh, very well. Extremely well. The Chilean economy did very well, but more important, in the end the central government, the military junta, was replaced by a democratic society. So the really important thing about the Chilean business is that free markets did work their way in bringing about a free society.
As Walden Bello writes, the Chilean economy did not do well at all. One of the only reasons that the economy didn't go completely under, of course, was the state-controlled copper industry, always so integral to the Chilean economy.
Indeed, the rising poverty during the dictatorship was a major reason that Pinochet was overthrown.
What a delicious layer-cake of irony!