The Shock Doctrine - The Rise of Disaste Part 2

Lessons in Regime Change: Brazil and Indonesia

There were two models of "regime change" that Allende s opponents had been studying closely as possible approaches. One was in Brazil, the other in Indonesia. When Brazil's U.S.-backed junta, led by General Humberto Castello Branco, seized power in 1964, the military had a plan not merely to reverse Joao Goulart's pro-poor programs but to crack Brazil wide open to foreign investment. At first, the Brazilian generals tried to impose the agenda relatively peacefully-there were no obvious shows of brutality, no ma.s.s arrests, and though it was later discovered that some "subversives" had been brutally tortured during this period, their numbers were small enough (and Brazil so large) that word of their treatment barely escaped the jails. The junta also made a point of keeping some remnants of democracy in place, including limited press freedoms and freedom of a.s.sembly-a so-called gentlemen's coup.

In the late sixties, many citizens decided to use those limited freedoms to express their anger at Brazil's deepening poverty, for which they blamed the junta's pro-business economic program, much of it designed by graduates of the University of Chicago. By 1968 the streets were overrun with antijunta marches, the largest led by students, and the regime was in serious jeopardy. In a desperate bid to hold on to power, the military radically changed tactics: democracy was shut down completely, all civil liberties were crushed, torture became systematic, and, according to Brazil's later-established truth commission, "killings by the state became routine."44 Indonesia's 1965 coup followed a very different trajectory. Since the Second World War, the country had been led by President Sukarno, the Hugo Chavez of his day (though minus Chavez's appet.i.te for elections). Sukarno enraged the rich countries by protecting Indonesia's economy, redistributing wealth and throwing out the International Monetary Fund and the World Bank, which he accused of being facades for the interests of Western multinationals. While Sukarno was a nationalist, not a Communist, he worked closely with the Communist Party, which had 3 million active members. The U.S. and British governments were determined to end Sukarno's rule, and decla.s.sified doc.u.ments show that the CIA had received high-level directions to "liquidate President Sukarno, depending upon the situation and available opportunities."45 After several false starts, the opportunity came in October 1965, when General Suharto, backed by the CIA, began the process of seizing power and eradicating the left. The CIA had been quietly compiling a list of the country's leading leftists, a doc.u.ment that fell into Suharto's hands, while the Pentagon helped out by supplying extra weapons and field radios so Indonesian forces could communicate in the remotest parts of the archipelago. Suharto then sent out his soldiers to hunt down the four to five thousand leftists on his "shooting lists," as the CIA referred to them; the U.S. emba.s.sy received regular reports on their progress.46 As the information came in, the CIA crossed names off their lists until they were satisfied that the Indonesian left had been annihilated. One of the people involved in the operation was Robert J. Martens, who worked for the U.S. emba.s.sy in Jakarta. "It really was a big help to the army," he told the journalist Kathy Kadane twenty-five years later. "They probably killed a lot of people, and I probably have a lot of blood on my hands, but that's not all bad. There's a time when you have to strike hard at a decisive moment." As the information came in, the CIA crossed names off their lists until they were satisfied that the Indonesian left had been annihilated. One of the people involved in the operation was Robert J. Martens, who worked for the U.S. emba.s.sy in Jakarta. "It really was a big help to the army," he told the journalist Kathy Kadane twenty-five years later. "They probably killed a lot of people, and I probably have a lot of blood on my hands, but that's not all bad. There's a time when you have to strike hard at a decisive moment."4'

The shooting lists covered the targeted killing; the more indiscriminate ma.s.sacres for which Suharto is infamous were, for the most part, delegated to religious students. They were quickly trained by the military and then sent into villages on instructions from the chief of the navy to "sweep" the countryside of Communists. "With relish," wrote one reporter, "they called out their followers, stuck their knives and pistols in their waistbands, swung their clubs over their shoulders, and embarked on the a.s.signment for which they had long been hoping."48 In just over a month, at least half a million and possibly as many as 1 million people were killed, "ma.s.sacred by the thousands," according to Tzme. In just over a month, at least half a million and possibly as many as 1 million people were killed, "ma.s.sacred by the thousands," according to Tzme.49 In East Java, "Travelers from those areas tell of small rivers and streams that have been literally clogged with bodies; river transportation has at places been impeded." In East Java, "Travelers from those areas tell of small rivers and streams that have been literally clogged with bodies; river transportation has at places been impeded."50 The Indonesian experience attracted close attention from the individuals and inst.i.tutions plotting the overthrow of Salvador Allende in Was.h.i.+ngton and Santiago. Of interest was not only Suharto's brutality but also the extraordinary role played by a group of Indonesian economists who had been educated at the University of California at Berkeley, known as the Berkeley Mafia. Suharto was effective at getting rid of the left, but it was the Berkeley Mafia who prepared the economic blueprint for the country's future.

The parallels with the Chicago Boys were striking. The Berkeley Mafia had studied in the U.S. as part of a program that began in 1956, funded by the Ford Foundation. They had also returned home to build a faithful copy of a Western-style economics department, theirs at the University of Indonesia's Faculty of Economics. Ford sent American professors to Jakarta to establish the school, just as Chicago profs had gone to help set up the new economics department in Santiago. "Ford felt it was training the guys who would be leading the country when Sukarno got out," John Howard, then director of Ford's International Training and Research Program, bluntly explained.51 Ford-funded students became leaders of the campus groups that partic.i.p.ated in overthrowing Sukarno, and the Berkeley Mafia worked closely with the military in the lead-up to the coup, developing "contingency plans" should the government suddenly fall.652These young economists had enormous influence over General Suharto, who knew nothing of high finance. According to Fortune Fortune magazine, the Berkeley Mafia recorded economics lessons on audiotapes for Suharto to listen to at home. magazine, the Berkeley Mafia recorded economics lessons on audiotapes for Suharto to listen to at home.53 When they met in person, "President Suharto did not merely listen, he took notes," one member of the group recalled with pride. When they met in person, "President Suharto did not merely listen, he took notes," one member of the group recalled with pride.54 Another Berkeley grad described the relations.h.i.+p in this way: we "presented to the Army leaders.h.i.+p-the crucial element in the new order-a 'cookbook' of'recipes' for dealing with Indonesia's serious economic problems. General Suharto as the top Army commander not only accepted the cookbook, but also wanted the authors of the recipes as his economic advisers." Another Berkeley grad described the relations.h.i.+p in this way: we "presented to the Army leaders.h.i.+p-the crucial element in the new order-a 'cookbook' of'recipes' for dealing with Indonesia's serious economic problems. General Suharto as the top Army commander not only accepted the cookbook, but also wanted the authors of the recipes as his economic advisers."55 Indeed he did. Suharto packed his cabinet with members of the Berkeley Mafia, handing them all the key financial posts, including minister of trade and amba.s.sador to Was.h.i.+ngton. Indeed he did. Suharto packed his cabinet with members of the Berkeley Mafia, handing them all the key financial posts, including minister of trade and amba.s.sador to Was.h.i.+ngton.56 This economic team, having studied at a less ideological school, were not antistate radicals like the Chicago Boys. They believed the government had a role to play in managing Indonesia's domestic economy and making sure that basics, like rice, were affordable. However, the Berkeley Mafia could not have been more hospitable to foreign investors wanting to mine Indonesia's immense mineral and oil wealth, described by Richard Nixon as "the greatest prize in the Southeast Asian area."757 They pa.s.sed laws allowing foreign companies to own 100 percent of these resources, handed out "tax holidays," and within two years, Indonesia's natural wealth -copper, nickel, hardwood, rubber and oil-was being divided up among the largest mining and energy companies in the world. They pa.s.sed laws allowing foreign companies to own 100 percent of these resources, handed out "tax holidays," and within two years, Indonesia's natural wealth -copper, nickel, hardwood, rubber and oil-was being divided up among the largest mining and energy companies in the world.

For those plotting the overthrow of Allende just as Suharto's program was kicking in, the experiences of Brazil and Indonesia made for a useful study in contrasts. The Brazilians had made little use of the power of shock, waiting years before demonstrating their appet.i.te for brutality. It was a near-fatal error, since it gave their opponents the chance to regroup and for some to form left-wing guerrilla armies. Although the junta managed to clear the streets, the rising opposition forced it to slow its economic plans.

Suharto, on the other hand, had shown that if ma.s.sive repression was used preemptively, preemptively, the country would go into a kind of shock and resistance could be wiped out before it even took place. His use of terror was so merciless, so far beyond even the worst expectations, that a people who only weeks earlier had been collectively striving to a.s.sert their country's independence were now sufficiently terrified that they ceded total control to Suharto and his henchmen. Ralph McGehee, a senior CIA operations manager during the years of the coup, said Indonesia was a "model operation. . . . You can trace back all major, b.l.o.o.d.y events run from Was.h.i.+ngton to the way Suharto came to power. The success of that meant that it would be repeated, again and the country would go into a kind of shock and resistance could be wiped out before it even took place. His use of terror was so merciless, so far beyond even the worst expectations, that a people who only weeks earlier had been collectively striving to a.s.sert their country's independence were now sufficiently terrified that they ceded total control to Suharto and his henchmen. Ralph McGehee, a senior CIA operations manager during the years of the coup, said Indonesia was a "model operation. . . . You can trace back all major, b.l.o.o.d.y events run from Was.h.i.+ngton to the way Suharto came to power. The success of that meant that it would be repeated, again and * "58 again. ?0 ?0.

The other crucial lesson from Indonesia had to do with the pre-coup partners.h.i.+p between Suharto and the Berkeley Mafia. Because they were ready to take up top "technocratic" positions in the new government and had already converted Suharto to their worldview, the coup did more than just get rid of a nationalist threat; it transformed Indonesia into one of the most welcoming environments for foreign multinationals in the world.

As momentum began to build toward Allende's ouster, a chilling warning began appearing in red paint on the walls of Santiago. It said, "Jakarta is coming."

Shortly after Allende was elected, his opponents inside Chile began to imitate the Indonesia approach with eerie precision. The Catholic University, home of the Chicago Boys, became ground zero for the creation of what the CIA called "a coup climate."59 Many students joined the fascist Patria y Lib-ertad and goose-stepped through the streets in open imitation of Hitler Youth. In September 1971, a year into Allende's mandate, the top business leaders in Chile held an emergency meeting in the seaside city of Vina del Mar to develop a coherent regime-change strategy. According to Orlando Saenz, president of the National a.s.sociation of Manufacturers (generously funded by the CIA and many of the same foreign multinationals doing their own plotting in Was.h.i.+ngton), the gathering decided that "Allende's government was incompatible with freedom in Chile and with the existence of private enterprise, and that the only way to avoid the end was to overthrow the government." The businessmen formed a "war structure," one part of which would liaise with the military; another, according to Saenz, would "prepare specific alternative programs to government programs that would systematically be pa.s.sed on to the Armed Forces." Many students joined the fascist Patria y Lib-ertad and goose-stepped through the streets in open imitation of Hitler Youth. In September 1971, a year into Allende's mandate, the top business leaders in Chile held an emergency meeting in the seaside city of Vina del Mar to develop a coherent regime-change strategy. According to Orlando Saenz, president of the National a.s.sociation of Manufacturers (generously funded by the CIA and many of the same foreign multinationals doing their own plotting in Was.h.i.+ngton), the gathering decided that "Allende's government was incompatible with freedom in Chile and with the existence of private enterprise, and that the only way to avoid the end was to overthrow the government." The businessmen formed a "war structure," one part of which would liaise with the military; another, according to Saenz, would "prepare specific alternative programs to government programs that would systematically be pa.s.sed on to the Armed Forces."60 Saenz recruited several key Chicago Boys to design those alternative programs and set them up in a new office near the Presidential Palace in Santiago.61 The group, led by the Chicago grad Sergio de Castro and by Sergio Undurraga, his colleague at the Catholic University, began holding weekly secret meetings during which they developed detailed proposals for how to radically remake their country along neoliberal lines. The group, led by the Chicago grad Sergio de Castro and by Sergio Undurraga, his colleague at the Catholic University, began holding weekly secret meetings during which they developed detailed proposals for how to radically remake their country along neoliberal lines.62 According to the subsequent U.S. Senate investigation, "over 75 percent" of the funding for this "opposition research organization" was coming directly from the CIA. According to the subsequent U.S. Senate investigation, "over 75 percent" of the funding for this "opposition research organization" was coming directly from the CIA.63 For a time, the coup planning proceeded on two distinct tracks: the military plotted the extermination of Allende and his supporters while the economists plotted the extermination of their ideas. As momentum built for a violent solution, a dialogue was opened between the two camps, with Roberto Kelly, a businessman a.s.sociated with the CIA-financed newspaper El Mercurio, El Mercurio, acting as the go-between. Through Kelly, the Chicago Boys sent a five-page summary of their economic program to the navy admiral in charge. The navy gave the nod, and from then on the Chicago Boys worked frantically to have their program ready by the time of the coup. acting as the go-between. Through Kelly, the Chicago Boys sent a five-page summary of their economic program to the navy admiral in charge. The navy gave the nod, and from then on the Chicago Boys worked frantically to have their program ready by the time of the coup.

Their five-hundred-page bible-a detailed economic program that would guide the junta from its earliest days-came to be known in Chile as "The Brick." According to a later U.S. Senate Committee, "CIA collaborators were involved in preparing an initial overall economic plan which has served as the basis for the Junta's most important economic decisions."64 Eight of the ten princ.i.p.al authors of "The Brick" had studied economics at the University of Chicago. Eight of the ten princ.i.p.al authors of "The Brick" had studied economics at the University of Chicago.65 Although the overthrow of Allende was universally described as a military coup, Orlando Letelier, Allende's Was.h.i.+ngton amba.s.sador, saw it as an equal partners.h.i.+p between the army and the economists. "The 'Chicago boys,' as they are known in Chile," Letelier wrote, "convinced the generals that they were prepared to supplement the brutality, which the military possessed, with the intellectual a.s.sets it lacked."66 Chile's coup, when it finally came, would feature three distinct forms of shock, a recipe that would be duplicated in neighboring countries and would reemerge, three decades later, in Iraq. The shock of the coup itself was immediately followed by two additional forms of shock. One was Milton Friedman's capitalist "shock treatment," a technique in which hundreds of Latin American economists had by now been trained at the University of Chicago and its various franchise inst.i.tutions. The other was Ewen Cameron's shock, drug and sensory deprivation research, now codified as torture techniques in the Kubark Kubark manual and disseminated through extensive CIA training programs for Latin American police and military. manual and disseminated through extensive CIA training programs for Latin American police and military.

These three forms of shock converged on the bodies of Latin Americans and the body politic of the region, creating an unstoppable hurricane of mutually reinforcing destruction and reconstruction, erasure and creation. The shock of the coup prepared the ground for economic shock therapy; the shock of the torture chamber terrorized anyone thinking of standing in the way of the economic shocks. Out of this live laboratory emerged the first Chicago School state, and the first victory in its global counterrevolution.

PART 2.

THE FIRST TEST.

BIRTH PANGS.

The theories of Milton Friedman gave him the n.o.bel Prize; they gave Chile General Pinochet.

-Eduardo Galeano, Days and Nights of Love and War, Days and Nights of Love and War, 1983 1983.

I don't think I was ever regarded as "evil."

-Milton Friedman, quoted in The Wall Street Journal, The Wall Street Journal, July 22, 2006 July 22, 2006

CHAPTER 3.

STATES OF SHOCK.

THE b.l.o.o.d.y BIRTH OF THE COUNTERREVOLUTION.

For injuries ought to be done all at one time, so that, being tasted less, they offend less.

-Niccolo Machiavelli,The Prince, 1513 15131.

If this shock approach were adopted, I believe that it should be announced publicly in great detail, to take effect at a very close date. The more fully the public is informed, the more will its reactions facilitate the adjustment.

-Milton Friedman in a letter to General Augusto Pinochet, April 21, 19752.

General Augusto Pinochet and his supporters consistently referred to the events of September 11, 1973, not as a coup d'etat but as "a war." Santiago certainly looked like a war zone: tanks fired as they rolled down the boulevards, and government buildings were under air a.s.sault by fighter jets. But there was something strange about this war. It had only one side.

From the start, Pinochet had complete control of the army, navy, marines and police. Meanwhile, President Salvador Allende had refused to organize his supporters into armed defense leagues, so he had no army of his own. The only resistance came from the presidential palace, La Moneda, and the rooftops around it, where Allende and his inner circle made a valiant effort to defend the seat of democracy. It was hardly a fair fight: though there were just thirty-six Allende supporters inside, the military launched twenty-four rockets into the palace.3 Pinochet, the operation's vain and volatile commander (built like one of the tanks he rode in on), clearly wanted the event to be as dramatic and traumatic as possible. Even if the coup was not a war, it was designed to feel like one-a Chilean precursor to Shock and Awe. It could scarcely have been more shocking. Unlike neighboring Argentina, which had been ruled by six military governments in the previous four decades, Chile had no experience with this kind of violence; it had enjoyed 160 years of peaceful democratic rule, the past 41 uninterrupted.

Now the presidential palace was in flames, the president's shrouded body-was being carried out on a stretcher, and his closest colleagues were lying facedown in the street at rifle point.8 A few minutes' drive from the presidential palace, Orlando Letelier, recently returned from Was.h.i.+ngton to take up a new post as Chile's defense minister, had gone to his office that morning in the ministry. As soon as he walked through the front door, he was ambushed by twelve soldiers in combat uniform, all pointing their submachine guns at him. A few minutes' drive from the presidential palace, Orlando Letelier, recently returned from Was.h.i.+ngton to take up a new post as Chile's defense minister, had gone to his office that morning in the ministry. As soon as he walked through the front door, he was ambushed by twelve soldiers in combat uniform, all pointing their submachine guns at him.4 In the years leading up to the coup, U.S. trainers, many from the CIA, had whipped the Chilean military into an anti-Communist frenzy, persuading them that socialists were de facto Russian spies, a force alien to Chilean society-a homegrown "enemy within." In fact, it was the military that had become the true domestic enemy, ready to turn its weapons on the population it was sworn to protect.

With Allende dead, his cabinet in captivity and no ma.s.s resistance in evidence, the junta's grand battle was over by mid-afternoon. Letelier and the other "VIP" prisoners were eventually taken to freezing Dawson Island in the southern Strait of Magellan, Pinochet's approximation of a Siberian work camp. Killing and locking up the government was not enough for Chile's new junta government, however. The generals knew that their hold on power depended on Chileans being truly terrified, as the people had been in Indonesia. In the days that followed, roughly 13,500 civilians were arrested, loaded onto trucks and imprisoned, according to a decla.s.sified CIA report.5 Thousands ended up in the two main football stadiums in Santiago, the Chile Stadium and the huge National Stadium. Inside the National Stadium, death replaced football as the public spectacle. Soldiers prowled the bleachers with hooded collaborators who pointed out "subversives"; the ones who were selected were hauled off to locker rooms and skyboxes transformed into makes.h.i.+ft torture chambers. Hundreds were executed. Lifeless bodies started showing up on the side of major highways or floating in murky urban ca.n.a.ls. Thousands ended up in the two main football stadiums in Santiago, the Chile Stadium and the huge National Stadium. Inside the National Stadium, death replaced football as the public spectacle. Soldiers prowled the bleachers with hooded collaborators who pointed out "subversives"; the ones who were selected were hauled off to locker rooms and skyboxes transformed into makes.h.i.+ft torture chambers. Hundreds were executed. Lifeless bodies started showing up on the side of major highways or floating in murky urban ca.n.a.ls.

To make sure that the terror extended beyond the capital city, Pinochet sent his most ruthless commander, General Sergio Arellano Stark, on a helicopter mission to the northern provinces to visit a string of prisons where "subversives" were being held. At each city and town, Stark and his roving death squad singled out the highest-profile prisoners, as many as twenty-six at a time, who were subsequently executed. The trail of blood left behind over those four days came to be known as the Caravan of Death.6In short order, the entire country had gotten the message: resistance is deadly.

Even though Pinochet's battle was one-sided, its effects were as real as any civil war or foreign invasion: in all, more than 3,200 people were disappeared or executed, at least 80,000 were imprisoned, and 200,000 fled the country for political reasons.7

The Economic Front

For the Chicago Boys, September 11 was a day of giddy antic.i.p.ation and deadline adrenalin. Sergio de Castro had been working down to the wire with his contact in the navy, getting the final sections of "The Brick" approved page by page. Now, on the day of the coup, several Chicago Boys were camped out at the printing presses of the right-wing El Mercurio El Mercurio newspaper. As shots were being fired in the streets outside, they frantically tried to get the doc.u.ment printed in time for the junta's first day on the job. Arturo Fontaine, one of the newspaper's editors, recalled that the machines "worked non-stop to duplicate copies of this long doc.u.ment." And they made it-just barely. "Before midday on Wednesday, September 12, 1973, the General Officers of the Armed Forces who performed government duties had the Plan on their desks." newspaper. As shots were being fired in the streets outside, they frantically tried to get the doc.u.ment printed in time for the junta's first day on the job. Arturo Fontaine, one of the newspaper's editors, recalled that the machines "worked non-stop to duplicate copies of this long doc.u.ment." And they made it-just barely. "Before midday on Wednesday, September 12, 1973, the General Officers of the Armed Forces who performed government duties had the Plan on their desks."8 The proposals in the final doc.u.ment bore a striking resemblance to those found in Milton Friedman's Capitalism and Freedom: Capitalism and Freedom: privatization, deregulation and cuts to social spending-the free-market trinity. Chile's U.S.-trained economists had tried to introduce these ideas peacefully, within the confines of a democratic debate, but they had been overwhelmingly rejected. Now the Chicago Boys and their plans were back, in a climate distinctly more conducive to their radical vision. In this new era, no one besides a handful of men in uniform needed to agree with them. Their staunchest political opponents were either in jail, dead or fleeing for cover; the spectacle of fighter jets and caravans of death was keeping everyone else in line. privatization, deregulation and cuts to social spending-the free-market trinity. Chile's U.S.-trained economists had tried to introduce these ideas peacefully, within the confines of a democratic debate, but they had been overwhelmingly rejected. Now the Chicago Boys and their plans were back, in a climate distinctly more conducive to their radical vision. In this new era, no one besides a handful of men in uniform needed to agree with them. Their staunchest political opponents were either in jail, dead or fleeing for cover; the spectacle of fighter jets and caravans of death was keeping everyone else in line.

"To us, it was a revolution," said Cristian Larroulet, one of Pinochet's economic aides.9It was a fair description. September 11, 1973, was far more than the violent end of Allende's peaceful socialist revolution; it was the beginning of what The Economist The Economist would later describe as a "counterrevolution"-the first concrete victory in the Chicago School campaign to seize back the gains that had been won under developmentalism and Keynesian-ism. would later describe as a "counterrevolution"-the first concrete victory in the Chicago School campaign to seize back the gains that had been won under developmentalism and Keynesian-ism.10 Unlike Allende's partial revolution, tempered and compromised by the push and pull of democracy, this revolt, imposed through brute force, was free to go all the way. In the coming years, the same policies laid out in "The Brick" would be imposed in dozens of other countries under cover of a wide range of crises. But Chile was the counterrevolution's genesis-a genesis of terror. Unlike Allende's partial revolution, tempered and compromised by the push and pull of democracy, this revolt, imposed through brute force, was free to go all the way. In the coming years, the same policies laid out in "The Brick" would be imposed in dozens of other countries under cover of a wide range of crises. But Chile was the counterrevolution's genesis-a genesis of terror.

Jose Pinera, an alumnus of the economics department at the Catholic University and a self-described Chicago Boy, was doing graduate work at Harvard at the time of the coup. On hearing the good news, he returned home "to help found a new country, dedicated to liberty, from the ashes of the old one." According to Pinera, who would eventually become Pinochet's minister of labor and mining, this was "the real revolution ... a radical, comprehensive, and sustained move toward free markets."11 Before the coup, Augusto Pinochet had a reputation for deference that bordered on the obsequious, forever flattering and agreeing with his civilian commanders. As a dictator, Pinochet found new facets of his character. He took to power with unseemly relish, adopting the airs of a monarch and claiming that "destiny" had given him the job. In short order, he staged a coup within a coup to unseat the other three military leaders with whom he had agreed to share power and named himself Supreme Chief of the Nation as well as president. He basked in pomp and ceremony, proof of his right to rule, never missing an opportunity to put on his Prussian dress uniform, complete with cape. To get around Santiago, he chose a caravan of gold bulletproof Mercedes-Benzes.12 Pinochet had a knack for authoritarian rule, but, like Suharto, he knew next to nothing about economics. That was a problem because the campaign of corporate sabotage spearheaded by ITT had done an effective job of sending the economy into a tailspin, and Pinochet had a full-fledged crisis on his hands. From the start, there was a power struggle within the junta between those who simply wanted to reinstate the pre-Allende status quo and return quickly to democracy, and the Chicago Boys, who were pus.h.i.+ng for a head-to-toe free-market makeover that would take years to impose. Pinochet, enjoying his new powers, intensely disliked the idea that his destiny was a mere cleanup operation-there to "restore order" and then get out. "We are not a vacuum cleaner that swept out Marxism to give back power to those Mr. Politicians," he would say.13 It was the Chicago Boys' vision of a total country overhaul that appealed to his newly unleashed ambition, and, like Suharto with his Berkeley Mafia, he immediately named several Chicago grads as senior economic advisers, including Sergio de Castro, the movement's de facto leader and the main author of "The Brick." He called them the It was the Chicago Boys' vision of a total country overhaul that appealed to his newly unleashed ambition, and, like Suharto with his Berkeley Mafia, he immediately named several Chicago grads as senior economic advisers, including Sergio de Castro, the movement's de facto leader and the main author of "The Brick." He called them the technos- technos-the technicians-which appealed to the Chicago pretension that fixing an economy was a matter of science, not of subjective human choices.

Even if Pinochet understood little about inflation and interest rates, the technos technos spoke a language he did understand. Economics for them meant forces of nature that needed to be respected and obeyed because "to act against nature is counter-productive and self-deceiving," as Pinera explained. spoke a language he did understand. Economics for them meant forces of nature that needed to be respected and obeyed because "to act against nature is counter-productive and self-deceiving," as Pinera explained.14 Pinochet agreed: people, he once wrote, must submit to structure because "nature shows us basic order and hierarchy are necessary." Pinochet agreed: people, he once wrote, must submit to structure because "nature shows us basic order and hierarchy are necessary."15 This mutual claim to be taking orders from higher natural laws formed the basis of the Pinochet-Chicago alliance. This mutual claim to be taking orders from higher natural laws formed the basis of the Pinochet-Chicago alliance.

For the first year and a half, Pinochet faithfully followed the Chicago rules: he privatized some, though not all, state-owned companies (including several banks); he allowed cutting-edge new forms of speculative finance; he flung open the borders to foreign imports, tearing down the barriers that had long protected Chilean manufacturers; and he cut government spending by 10 percent-except the military, which received a significant increase.16 He also eliminated price controls -a radical move in a country that had been regulating the cost of necessities such as bread and cooking oil for decades. He also eliminated price controls -a radical move in a country that had been regulating the cost of necessities such as bread and cooking oil for decades.

The Chicago Boys had confidently a.s.sured Pinochet that if he suddenly withdrew government involvement from these areas all at once, the "natural" laws of economics would rediscover their equilibrium, and inflation-which they viewed as a kind of economic fever indicating the presence of unhealthy organisms in the market-would magically go down. They were mistaken. In 1974, inflation reached 375 percent-the highest rate in the world and almost twice the top level under Allende.17 The cost of basics such as bread went through the roof. At the same time, Chileans were being thrown out of work because Pinochet s experiment with "free trade" was flooding the country with cheap imports. Local businesses were closing, unable to compete, unemployment hit record levels and hunger became rampant. The Chicago School's first laboratory was a debacle. The cost of basics such as bread went through the roof. At the same time, Chileans were being thrown out of work because Pinochet s experiment with "free trade" was flooding the country with cheap imports. Local businesses were closing, unable to compete, unemployment hit record levels and hunger became rampant. The Chicago School's first laboratory was a debacle.

Sergio de Castro and the other Chicago Boys argued (in true Chicago fas.h.i.+on) that the problem didn't lie with their theory but with the fact that it wasn't being applied with sufficient strictness. The economy had failed to correct itself and return to harmonious balance because there were still "distortions" left over from nearly half a century of government interference. For the experiment to work, Pinochet had to strip these distortions away-more cuts, more privatization, more speed.

In that year and a half, many of the country's business elite had had their fill of the Chicago Boys' adventures in extreme capitalism. The only people benefiting were foreign companies and a small clique of financiers known as the "piranhas," who were making a killing on speculation. The nuts-and-bolts manufacturers who had strongly supported the coup were getting wiped out. Orlando Saenz-the president of the National a.s.sociation of Manufacturers, who had brought the Chicago Boys into the coup plot in the first place-declared the results of the experiment "one of the greatest failures of our economic history."18 The manufacturers hadn't wanted Allende's socialism but had liked a managed economy just fine. "It is not possible to continue with the financial chaos that dominates in Chile," Saenz said. "It is necessary to channel into productive investments the millions and millions of financial resources that are now being used in wild-cat speculative operations before the very eyes of those who don't even have a job." The manufacturers hadn't wanted Allende's socialism but had liked a managed economy just fine. "It is not possible to continue with the financial chaos that dominates in Chile," Saenz said. "It is necessary to channel into productive investments the millions and millions of financial resources that are now being used in wild-cat speculative operations before the very eyes of those who don't even have a job."19 Their agenda now in grave danger, the Chicago Boys and the piranhas (and there was a great deal of overlap between the two) decided it was time to call in the big guns. In March 1975, Milton Friedman and Arnold Harberger flew to Santiago at the invitation of a major bank to help save the experiment.

Friedman was greeted by the junta-controlled press as something of a rock star, the guru of the new order. Each of his p.r.o.nouncements made headlines, his academic lectures were broadcast on national television and he had the most important audience of all: a private meeting with General Pinochet.

Throughout his stay, Friedman hammered at a single theme: the junta was off to a good start, but it needed to embrace the free market with greater abandon. In speeches and interviews, he used a term that had never before been publicly applied to a real-world economic crisis: he called for "shock treatment." He said it was "the only medicine. Absolutely. There is no other. There is no other long-term solution."20 When a Chilean reporter pointed out that even Richard Nixon, then president of the U.S., imposed controls to temper the free market, Friedman snapped, "I don't approve of them. I believe we should not apply them. I am against economic intervention by the government, in my own country, as well as in Chile." When a Chilean reporter pointed out that even Richard Nixon, then president of the U.S., imposed controls to temper the free market, Friedman snapped, "I don't approve of them. I believe we should not apply them. I am against economic intervention by the government, in my own country, as well as in Chile."21 After his meeting with Pinochet, Friedman made some personal notes about the encounter, which he reproduced decades later in his memoirs. He observed that the general "was sympathetically attracted to the idea of a shock treatment but was clearly distressed at the possible temporary unemployment that might be caused."22 At this point, Pinochet was already notorious the world over for ordering ma.s.sacres in football stadiums; that the dictator was "distressed" by the human cost of shock therapy might have given Friedman pause. Instead, he pressed the point in a follow-up letter in which he praised the general's "extremely wise" decisions but urged Pinochet to cut government spending much further, "by 25 per cent within six months. . . across-the-board," while simultaneously adopting a package of pro-business policies moving toward "complete free trade." Friedman predicted that the hundreds of thousands of people who would be fired from the public sector would quickly get new jobs in the private sector, soon to be booming thanks to Pinochet's removal of "as many obstacles as possible that now hinder the private market." At this point, Pinochet was already notorious the world over for ordering ma.s.sacres in football stadiums; that the dictator was "distressed" by the human cost of shock therapy might have given Friedman pause. Instead, he pressed the point in a follow-up letter in which he praised the general's "extremely wise" decisions but urged Pinochet to cut government spending much further, "by 25 per cent within six months. . . across-the-board," while simultaneously adopting a package of pro-business policies moving toward "complete free trade." Friedman predicted that the hundreds of thousands of people who would be fired from the public sector would quickly get new jobs in the private sector, soon to be booming thanks to Pinochet's removal of "as many obstacles as possible that now hinder the private market."23 Friedman a.s.sured the general that if he followed this advice, he would be able to take credit for an "economic miracle"; he "could end inflation in months" while the unemployment problem would be equally "brief-measured in months-and that subsequent recovery would be rapid." Pinochet would need to act fast and decisively; Friedman emphasized the importance of "shock" repeatedly, using the word three times and underlining that "gradualism is not feasible."24 Pinochet was converted. In his letter of response, Chile's supreme chief expressed "my highest and most respectful regard for you," a.s.suring Friedman that "the Plan is being fully applied at the present time."25 Immediately after Friedman's visit, Pinochet fired his economic minister and handed the job to Sergio de Castro, whom he later promoted to finance minister. De Castro stacked the government with his fellow Chicago Boys, appointing one of them to head the central bank. Orlando Saenz, who had objected to the ma.s.s layoffs and plant closures, was replaced as head of the a.s.sociation of Manufacturers by someone with a more shock-friendly att.i.tude. "If there are industrialists who complain because of this, let them 'go to h.e.l.l.' I won't defend them," the new director announced. Immediately after Friedman's visit, Pinochet fired his economic minister and handed the job to Sergio de Castro, whom he later promoted to finance minister. De Castro stacked the government with his fellow Chicago Boys, appointing one of them to head the central bank. Orlando Saenz, who had objected to the ma.s.s layoffs and plant closures, was replaced as head of the a.s.sociation of Manufacturers by someone with a more shock-friendly att.i.tude. "If there are industrialists who complain because of this, let them 'go to h.e.l.l.' I won't defend them," the new director announced.26 Freed of the naysayers, Pinochet and de Castro got to work stripping away the welfare state to arrive at their pure capitalist Utopia. In 1975, they cut public spending by 27 percent in one blow-and they kept cutting until, by 1980, it was half of what it had been under Allende.27 Health and education took the heaviest hits. Even Health and education took the heaviest hits. Even The Economist, The Economist, a free-market cheerleader, called it "an orgy of self-mutilation." a free-market cheerleader, called it "an orgy of self-mutilation."28 De Castro privatized almost five hundred state-owned companies and banks, practically giving many of them away, since the point was to get them as quickly as possible into their rightful place in the economic order. De Castro privatized almost five hundred state-owned companies and banks, practically giving many of them away, since the point was to get them as quickly as possible into their rightful place in the economic order.29 He took no pity on local companies and removed even more trade barriers; the result was the loss of 177,000 industrial jobs between 1973 and 1983. He took no pity on local companies and removed even more trade barriers; the result was the loss of 177,000 industrial jobs between 1973 and 1983.30 By the mid-eighties, manufacturing as a percentage of the economy dropped to levels last seen during the Second World War. By the mid-eighties, manufacturing as a percentage of the economy dropped to levels last seen during the Second World War.31 Shock treatment was an apt description for what Friedman had prescribed. Pinochet had deliberately sent his country into a deep recession, based on the untested theory that the sudden contraction would jolt the economy into health. In its logic, it was strikingly similar to that of the psychiatrists who started ma.s.s-prescribing ECT in the 1940s and 1950s, convinced that deliberately induced grand mal seizures would magically reboot their patients' brains.

The theory of economic shock therapy relies in part on the role of expectations in feeding an inflationary process. Reining in inflation requires not only changing monetary policy but also changing the behavior of consumers, employers and workers. The role of a sudden, jarring policy s.h.i.+ft is that it quickly alters expectations, signaling to the public that the rules of the game have changed dramatically-prices will not keep rising, nor will wages. According to this theory, the faster expectations of inflation are driven down, the shorter the painful period of recession and high unemployment will be. However, particularly in countries where the political cla.s.s has lost its credibility with the public, only a major, decisive policy shock is said to have the power to "teach" the public these harsh lessons.*

Causing a recession or a depression is a brutal idea, since it necessarily creates ma.s.s poverty, which is why no political leader had until this point been willing to test the theory. Who wants to be responsible for what Business-Week Business-Week described as a "Dr. Strangelove world of deliberately induced depression"? described as a "Dr. Strangelove world of deliberately induced depression"?32Pinochet did. In the first year of Friedman-prescribed shock therapy, Chile's economy contracted by 15 percent, and unemployment-only 3 percent under Allende -reached 20 percent, a rate unheard of in Chile at the time.33 The country was certainly convulsing under its "treatments." And contrary to Friedman's sunny predictions, the unemployment crisis lasted for years, not months. The country was certainly convulsing under its "treatments." And contrary to Friedman's sunny predictions, the unemployment crisis lasted for years, not months.34The junta, which had instantly taken to Friedman's illness metaphors, was unapologetic, explaining that "this path was chosen because it is the only one that goes directly to the sickness."35 Friedman concurred. When asked by a reporter "whether the social cost of his policies would be excessive," he responded, "Silly question." Friedman concurred. When asked by a reporter "whether the social cost of his policies would be excessive," he responded, "Silly question."36 To another reporter he said, "My only concern is that they push it long enough and hard enough." To another reporter he said, "My only concern is that they push it long enough and hard enough."37 Interestingly, the most powerful criticism of shock therapy came from one of Friedman's own former students, Andre Gunder Frank. During his time at the University of Chicago in the fifties, Gunder Frank-originally from Germany-had heard so much about Chile that when he graduated with a PhD in economics, he decided to go see for himself the country his professors had portrayed as a mismanaged developmentalist dystopia. He liked what he saw and ended up teaching at the University of Chile, then serving as an economic adviser to the government of Salvador Allende, for whom he developed a great respect. As a Chicago Boy in Chile who had defected from the school's free-market orthodoxy, Gunder Frank had a unique perspective on the country's economic adventure. One year after Friedman prescribed maximum shock, he wrote a rage-fueled "Open Letter to Arnold Harberger and Milton Friedman" in which he used his Chicago School education "to examine how the Chilean patient has responded to your treatment."38 He calculated what it meant for a Chilean family to try to survive on what Pinochet claimed was a "living wage." Roughly 74 percent of its income went simply to buying bread, forcing the family to cut out such "luxury items" as milk and bus fare to get to work. By comparison, under Allende, bread, milk and bus fare took up 17 percent of a public employee's salary.39 Many children weren't getting milk at school either, since one of the junta's first moves had been to eliminate the school milk program. As a result of this cut compounding the desperation at home, more and more students were fainting in cla.s.s, and many stopped going altogether. Many children weren't getting milk at school either, since one of the junta's first moves had been to eliminate the school milk program. As a result of this cut compounding the desperation at home, more and more students were fainting in cla.s.s, and many stopped going altogether.40 Gunder Frank saw a direct connection between the brutal economic policies imposed by his former cla.s.smates and the violence Pinochet had unleashed on the country. Friedman's prescriptions were so wrenching, the disaffected Chicago Boy wrote, that they could not "be imposed or carried out without the twin elements that underlie them all: military force and political terror." Gunder Frank saw a direct connection between the brutal economic policies imposed by his former cla.s.smates and the violence Pinochet had unleashed on the country. Friedman's prescriptions were so wrenching, the disaffected Chicago Boy wrote, that they could not "be imposed or carried out without the twin elements that underlie them all: military force and political terror."41 Undeterred, Pinochet's economic team went into more experimental territory, introducing Friedman's most vanguard policies: the public school system was replaced by vouchers and charter schools, health care became pay-as-you-go, and kindergartens and cemeteries were privatized. Most radical of all, they privatized Chile's social security system. Jose Pinera, who brought in the program, said that he got the idea from reading Capitalism and Freedom.* Capitalism and Freedom.*2 George W. Bush's administration is usually credited with pioneering "the owners.h.i.+p society," but in fact it was Pinochet's government, thirty years earlier, that first introduced the idea of "a nation of owners." George W. Bush's administration is usually credited with pioneering "the owners.h.i.+p society," but in fact it was Pinochet's government, thirty years earlier, that first introduced the idea of "a nation of owners."

Chile was now in bold new territory, and free-market fans the world over, accustomed to debating the merits of such policies in purely academic settings, were paying close attention. "Economics textbooks say that's the way the world should work, but where else do they practice it?" marveled the U.S. business magazine Barron's Barron's,43 In an article headlined "Chile, Lab Test for a Theorist," In an article headlined "Chile, Lab Test for a Theorist," The New York Times The New York Times noted that "it is not often that a leading economist with strong views is given a chance to test specific prescriptions for a very sick economy. It is even more unusual when the economist's client happens to be a country other than his own." noted that "it is not often that a leading economist with strong views is given a chance to test specific prescriptions for a very sick economy. It is even more unusual when the economist's client happens to be a country other than his own."44 Many came for an up-close look at the Chilean laboratory, including Friedrich Hayek himself, who traveled to Pinochet's Chile several times and in 1981 selected Vina del Mar Many came for an up-close look at the Chilean laboratory, including Friedrich Hayek himself, who traveled to Pinochet's Chile several times and in 1981 selected Vina del Mar (the city where the coup had been plotted) to hold the regional meeting of the Mont Pelerin Society, the brain trust of the counterrevolution.

The Myth of the Chilean Miracle

Even three decades later, Chile is still held up by free-market enthusiasts as proof that Friedmanism works. When Pinochet died in December 2006 (one month after Friedman), The New York Times The New York Times praised him for "transforming a bankrupt economy into the most prosperous in Latin America," while a praised him for "transforming a bankrupt economy into the most prosperous in Latin America," while a Was.h.i.+ngton Post Was.h.i.+ngton Post editorial said he had "introduced the free-market policies that produced the Chilean economic miracle." editorial said he had "introduced the free-market policies that produced the Chilean economic miracle."45 The facts behind the "Chilean miracle" remain a matter of intense debate. The facts behind the "Chilean miracle" remain a matter of intense debate.

Pinochet held power for seventeen years, and during that time he changed political direction several times. The country's period of steady growth that is held up as proof of its miraculous success did not begin until the mid-eighties-a full decade after the Chicago Boys implemented shock therapy and well after Pinochet was forced to make a radical course correction. That's because in 1982, despite its strict adherence to Chicago doctrine, Chile's economy crashed: its debt exploded, it faced hyperinflation once again and unemployment hit 30 percent-ten times higher than it was under Allende 46 46 The main cause was that the piranhas, the Enron-style financial houses that the Chicago Boys had freed from all regulation, had bought up the country's a.s.sets on borrowed money and run up an enormous debt of $14 billion The main cause was that the piranhas, the Enron-style financial houses that the Chicago Boys had freed from all regulation, had bought up the country's a.s.sets on borrowed money and run up an enormous debt of $14 billion 47 47 The situation was so unstable that Pinochet was forced to do exactly what Allende had done: he nationalized many of these companies.48 In the face of the debacle, almost all the Chicago Boys lost their influential government posts, including Sergio de Castro. Several other Chicago graduates held prominent posts with the piranhas and came under investigation for fraud, stripping away the carefully cultivated facade of scientific neutrality so central to the Chicago Boy ident.i.ty. In the face of the debacle, almost all the Chicago Boys lost their influential government posts, including Sergio de Castro. Several other Chicago graduates held prominent posts with the piranhas and came under investigation for fraud, stripping away the carefully cultivated facade of scientific neutrality so central to the Chicago Boy ident.i.ty.

The only thing that protected Chile from complete economic collapse in the early eighties was that Pinochet had never privatized Codelco, the state copper mine company nationalized by Allende. That one company generated 85 percent of Chile's export revenues, which meant that when the financial bubble burst, the state still had a steady source of funds 49 49 It's clear that Chile never was the laboratory of "pure" free markets that its cheerleaders claimed. Instead, it was a country where a small elite leapt from wealthy to super-rich in extremely short order-a highly profitable formula bankrolled by debt and heavily subsidized (then bailed out) with public funds. When the hype and salesmans.h.i.+p behind the miracle are stripped away, Chile under Pinochet and the Chicago Boys was not a capitalist state featuring a liberated market but a corporatist one. Corporatism, or "corporativism," originally referred to Mussolini's model of a police state run as an alliance of the three major power sources in society-government, businesses and trade unions-all collaborating to guarantee order in the name of nationalism. What Chile pioneered under Pinochet was an evolution of corporatism: a mutually supporting alliance between a police state and large corporations, joining forces to wage all-out war on the third power sector- the workers-thereby drastically increasing the alliance's share of the national wealth.

That war-what many Chileans understandably see as a war of the rich against the poor and middle cla.s.s -is the real story of Chile's economic "miracle." By 1988, when the economy had stabilized and was growing rapidly, 45 percent of the population had fallen below the poverty line.50 The richest 10 percent of Chileans, however, had seen their incomes increase by 83 percent. The richest 10 percent of Chileans, however, had seen their incomes increase by 83 percent.51 Even in 2007, Chile remained one of the most unequal societies in the world -out of 123 countries in which the United Nations tracks inequality, Chile ranked 116th, making it the 8th most unequal country on the list. Even in 2007, Chile remained one of the most unequal societies in the world -out of 123 countries in which the United Nations tracks inequality, Chile ranked 116th, making it the 8th most unequal country on the list.52 If that track record qualifies Chile as a miracle for Chicago school economists, perhaps shock treatment was never really about jolting the economy into health. Perhaps it was meant to do exactly what it did-hoover wealth up to the top and shock much of the middle cla.s.s out of existence.

That was the way Orlando Letelier, Allende's former defense minister, saw it. After spending a year in Pinochet's prisons, Letelier managed to escape Chile, thanks to an intensive international lobbying campaign. Watching from exile the rapid impoverishment of his country, Letelier wrote in 1976 that "during the last three years several billions of dollars were taken from the pockets of wage earners and placed in those of capitalists and landowners. . . concentration of wealth is no accident, but a rule; it is not the marginal outcome of a difficult situation -as the junta would like the world to believe-but the base for a social project; it is not an economic liability but a temporary political success."53 What Letelier could not know at the time was that Chile under Chicago School rule was offering a glimpse of the future of the global economy, a pattern that would repeat again and again, from Russia to South Africa to Argentina: an urban bubble of frenetic speculation and dubious accounting fueling superprofits and frantic consumerism, ringed by the ghostly factories and rotting infrastructure of a development past; roughly half the population excluded from the economy altogether; out-of-control corruption and cronyism; decimation of nationally owned small and medium-sized businesses; a huge transfer of wealth from public to private hands, followed by a huge transfer of private debts into public hands. In Chile, if you were outside the wealth bubble, the miracle looked like the Great Depression, but inside its airtight coc.o.o.n the profits flowed so free and fast that the easy wealth made possible by shock therapy-style "reforms" have been the crack cocaine of financial markets ever since. And that is why the financial world did not respond to the obvious contradictions of the Chile experiment by rea.s.sessing the basic a.s.sumptions of laissez-faire. Instead, it reacted with the junkie's logic: Where is the next fix?

The Revolution Spreads, the People Vanish

For a time, the next fix came from other countries in Latin America's Southern Cone, where the Chicago School counterrevolution quickly spread. Brazil was already under the control of a U.S.-supported junta, and several of Friedman's Brazilian students held key positions. Friedman traveled to Brazil in 1973, at the height of the regime's brutality, and declared the economic experiment "a miracle."54 In Uruguay the military had staged a coup in 1973 and the following year decided to go the Chicago route. Lacking sufficient numbers of Uruguayans who had graduated from the University of Chicago, the generals invited "Arnold Harberger and [economics professor] Larry Sjaastad from the University of Chicago and their team, which included former Chicago students from Argentina, Chile, and Brazil, to reform Uruguay's tax system and commercial policy." In Uruguay the military had staged a coup in 1973 and the following year decided to go the Chicago route. Lacking sufficient numbers of Uruguayans who had graduated from the University of Chicago, the generals invited "Arnold Harberger and [economics professor] Larry Sjaastad from the University of Chicago and their team, which included former Chicago students from Argentina, Chile, and Brazil, to reform Uruguay's tax system and commercial policy."55 The effects on Uruguay's previously egalitarian society were immediate: real wages dropped by 28 percent, and hordes of scavengers appeared on the streets of Montevideo for the first time. The effects on Uruguay's previously egalitarian society were immediate: real wages dropped by 28 percent, and hordes of scavengers appeared on the streets of Montevideo for the first time.56 Next to join the experiment was Argentina in 1976, when a junta seized power from Isabel Peron. That meant that Argentina, Chile, Uruguay and Brazil-the countries that had been showcases of developmentalism-were now all run by U.S.-backed military governments and were living laboratories of Chicago School economics.

According to decla.s.sified Brazilian doc.u.ments just released in March 2007, weeks before the Argentine generals seized power, they contacted Pinochet and the Brazilian junta and "outlined the main steps to be taken by the future regime."57 Despite this close collaboration, Argentina's military government did not go quite as far into neoliberal experimentation as Pinochet had; it did not privatize the country's oil reserves or social security, for instance (that would come later). However, when it came to attacking the policies and inst.i.tutions that had lifted Argentina's poor into the middle cla.s.s, the junta faithfully followed Pinochet, thanks in part to the abundance of Argentine economists who had gone through the Chicago program.

Argentina's newly minted Chicago Boys landed key economic posts in the junta government-as secretary of finance, president of the central bank and research director for the Treasury Department of the Finance Ministry, as well as several other lower-level economic posts.58 But while the Argentine Chicago Boys were enthusiastic partic.i.p.ants in the military government, the top economic job went not to one of them but to Jose Alfredo Martinez de Hoz. He was part of the landed gentry that belonged to the Sociedad Rural, the cattle-ranchers' a.s.sociation that had long controlled the country's export economy. These families, the closest thing to an aristocracy that Argentina possessed, had liked the feudal economic order just fine -a time when they didn't have to worry about their land being redistributed to peasants or the price of meat being lowered to make sure everyone could eat. But while the Argentine Chicago Boys were enthusiastic partic.i.p.ants in the military government, the top economic job went not to one of them but to Jose Alfredo Martinez de Hoz. He was part of the landed gentry that belonged to the Sociedad Rural, the cattle-ranchers' a.s.sociation that had long controlled the country's export economy. These families, the closest thing to an aristocracy that Argentina possessed, had liked the feudal economic order just fine -a time when they didn't have to worry about their land being redistributed to peasants or the price of meat being lowered to make sure everyone could eat.

Martinez de Hoz had been president of the Sociedad Rural, as had his father and grandfather before him; he also sat on the boards of several multinational corporations, including Pan American Airways and ITT. When he took up his post in the junta government, there was no mistaking the fact that the coup represented a revolt of the elites, a counterrevolution against forty years of gains by Argentina's workers.

Martinez de Hoz's first act as minister of the economy was to ban strikes and allow employers to fire workers at will. He lifted price controls, sending the cost of food soaring. He was also determined to make Argentina once again a hospitable place for foreign multinationals. He lifted restrictions on foreign owners.h.i.+p and in the first few years sold off hundreds of state companies.59These measures earned him powerful fans in Was.h.i.+ngton. Decla.s.sified doc.u.ments show William Rogers, a.s.sistant secretary of state for Latin America, telling his boss, Henry Kissinger, shortly after the coup that "Martinez de Hoz is a good man. We have been in close consultations throughout." Kissinger was so impressed that he arranged to have a high-profile meeting with Martinez de Hoz when he visited Was.h.i.+ngton "as a symbolic gesture." He also offered to make a couple of calls to help along Argentina's economic efforts: "I will call David Rockefeller," Kissinger told the junta's foreign minister, a reference to the president of Chase Manhattan Bank. "And I will call his brother, the Vice President [of the United States, Nelson Rockefeller]."60 To attract investment, Argentina took out a thirty-one-page advertising supplement in BusinessWeek, BusinessWeek, produced by the PR giant Burson-Marsteller, declaring that "few governments in history have been as encouraging to private investment. . . . We are in a true social revolution, and we seek partners. We are unburdening ourselves of statism, and believe firmly