How we rebuilt democracy in Chile, a note.

by José Piñera

In his visionary letter dated December 21, 1975, Milton Friedman said to President Pinochet that "if Chile today takes the right path I believe it can achieve a economic miracle: to take off to a sustained growth that will provide a widely shared prosperity." As the world knows, this 'miracle' happened after Chile's team of free market economists carried out transcendental structural reforms in the seventies and eighties.

Years later, the Nobel laureate wrote that the "Chilean miracle" was not so much that the free-market economy had caused an explosion of prosperity, but that the free market economists could have convinced dozens of generals and admirals, so accustomed to central planning in their activities and subject to statism in their daily lives, to accept a development strategy based on personal freedom, private enterprise, limited government and openness to the world.

But there was a "third miracle" in Chile: the free market economists, together with other civilians, engineered an original process of "democratization from inside" that transformed a military government that arose from exceptional historic circumstances into a government that founded a democracy in the service of freedom.

Basically there were the two simultaneous feats: To convince a successful military government of the urgency of peacefully handing over political power, something unique in history, and then to construct a democracy with limited powers, in line with the madisonian philosophy enshrined in the US Constitution. There were four milestones in this epic:

1. THE ECONOMIC MODEL OF 1975. The most powerful force behind the dynamic of the return to democracy was the economic model of free markets and openness to the world, which extended the scope of individual freedom, decentralized radically economic and social power, and finally created a middle class that was crucial in the transition to democracy. In fact, to raise the rate of GDP growth per capita from 0.9% annually (1810-1983) to 4.3% annually (1984-2004) was not only a great economic achievement but also a huge contribution to democracy. "The Chilean model enables the grandchildren to aspire to be 8.2 times richer than their grandparents", calculates economist Alvaro Donoso, and thus strengthens enormously that civic fabric of society that fosters a stable democracy.

2. THE LABOR DEMOCRACY OF 1979. The first effective step towards democracy occurred in 1979 with the so called "Plan Laboral". In effect, the trade union law approved in June of 1979 established in Chile free trade unionism and full labor democracy. In those days, William Thayer, former Minister of Labor of President Eduardo Frei Montalva, called the free election of thousands of union leaders, "a general rehearsal for the return to democracy". A year later Thayer affirmed in an interview: "It is remarkable that it has been in the labor area where democracy in Chile was first restored."

3. THE CONSTITUTION OF 1980. The free market economists were key members of the civil team that argued for the approval of the Constitution of 1980. This new Constitution not only introduced some key innovations (second round presidential elections, exclusive initiative of the Executive branch in budgetary matters, full protection of property rights, freedom to work without guild restrictions, etc.), but contained in its transitory provisions a detailed schedule for the return to democracy, which was strictly fulfilled.

4. THE INSTITUTIONS OF LIBERTY OF 1981-89. Fareed Zakaria, in his acclaimed book "The Future of Freedom," argued in favor of creating what he called "institutions of liberty" before calling free elections, because without them, it's only possible to have an "illiberal democracy", such as those that have marked the history of Latin America and the Third World. During the transition period (1981-1989), the free market economists managed, among other developments of this nature, the free establishment of private universities, the implementation of an autonomous Central Bank, the opening of private television and the Constitutional mining law.

This "third" Chilean miracle has not yet been recognized. Zakaria is an exception in that he recognizes the Chilean process as an emblematic case in a virtuous sequence in the building of a democracy and concludes that a process like the one described here is urgently needed in more than a hundred countries.



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