By José Piñera

In April 1975, when Chile was facing a severe economic and political crisis, a team of classical liberal economists made a "friendly takeover" of the economic policies of the military government that had saved the country from a communist dictatorship.

It is now widely recognized that Chile’s economic success occurred after the nation’s free-market economists won the battle against the hyperinflation they inherited from the Allende regime and then undertook deep structural reforms in the midst of the various economic and political storms that buffeted the country in the late 1970s and early 1980s.

What is less known is that some of us also participated in an unprecedented process of "liberalization from within” that created the conditions for the restoration of democracy in Chile.

Chile’s democratization process faced two simultaneous challenges: first, to construct a democracy with limited powers that would protect liberty, along the lines of the balance of powers consecrated in the United States Constitution; and second, to convince a successful military government to turn over political power peacefully and constitutionally—something that may be unique in history.

The four crucial steps in this process were:

1. The economic model. The most potent force behind Chile’s return to democracy was the free-market economic model, which opened the country to the global economy, expanded the realm of individual liberty, decentralized economic and social power like never before, and created a property-owning middle class that proved to be a crucial ally in the transition to a rule of law and free political elections.

2. Early labor democracy. The first effective step toward democracy was taken in 1979 with the Labor Plan. In effect, the law allowed workers to associate freely with the unions of their choice and to elect their leaders, thereby bringing full democracy to the labor sector. At the time, William Thayer, a minister for former President Eduardo Frei Montalva, called the free election of thousands of union leaders “a dress rehearsal for the return to democracy.” A year later, Thayer affirmed in an interview in Qué Pasa magazine (July 24, 1980), “The Labor Plan was a great act of courage. It has created full labor democracy in a country which is still in a state of political emergency. It is noteworthy that labor should be the sector in which democracy has first been reestablished.”

3. The 1980 Constitution. The free-market economists were key members of the civilian team that achieved the approval of Chile’s Constitution of 1980. The document introduced several innovations which explain the current stability of the country: presidential runoffs that prevent the election of minority governments, effective protection of private property rights, the freedom to work without union restrictions, etc. But it also contained in its transitional procedures a detailed timeline for returning to democracy—a timeline that was followed strictly. I keep a facsimile of the original Law Number 3.464, signed in the special cabinet session of Friday, August 8, 1980, which sealed the return to democracy. It carries the signatures of three classical liberal economists.

4. Building the institutions of liberty. Fareed Zakaria, in his book The Future of Liberty argues that nations should create certain “institutions of liberty” before calling for free elections. Without those institutions, the result is an “illiberal democracy,” such as those which have stained the history of Latin America and the Third World. During Chile’s transition period (1981-1990), the free-market economists achieved, among many other related advances: the free establishment of private universities, the inauguration of an independent central bank (which had been provided for in the Constitution), the transition toward private ownership of television stations, and the constitutional Mining Act, which allowed private property rights to function in a crucial sector of the Chilean economy.

The above elements were not merely a wish list, or a plan of action, but rather, things that were actually achieved, and achieved in some extremely difficult domestic and international circumstances.

The Chilean transition was an emblematic case of virtuous sequencing in the construction of a free society. Regrettably, this history is almost unknown outside of Chile.

(Translation by Tom Jenney.)



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