The Brooklyn Rail

Read Part I in the April 2026 issue.

A Local Dictatorship

Behind these men, the night entered the house of the Garmendia sisters. Fifteen minutes later, or ten perhaps, when they left, the night left with them. The night came in, and out it went again, swift and efficient. And the bodies were never found; but no, one body, just one, will appear years later in a mass grave, the body of Angélica Garmendia, my adorable, my incomparable Angélica, but only hers, as if to prove that Carlos Wieder is a man and not a god.

Roberto Bolaño, Distant Star ¹

Seen in context, the military coup of 1973 and the subsequent brutal dictatorship were not only a response to the Salvador Allende government, which the Chilean conservative and far-right constituency described as a path towards “totalitarianism”—i.e., an increase in public provisions, a process of nationalizations, and generous wage hikes for workers. It also reflected the fact that Allende was losing the ability to contain the explosion of fierce class antagonism which, while not aiming to overthrow the government,² was pushing further radicalization. With a firm belief in the democratic tradition of the country, its institutions (such as the army) and the constitutional loyalty of many officials, it is beyond doubt that Allende seriously underestimated the approaching threat.³ For the same reasons, however, his government fiercely rejected calls from the workers’ movement to prepare (and be armed) to confront the looming military coup, while urging workers to increase productivity and respect the rule of law.⁴ In a famous speech from 1973, Allende would echo a statement attributed to Juan Perón that “opposition will only be tolerated if it cooperates with the government,”⁵ effectively accusing the radical workers organized in the Cordones Industriales (equivalent to workers’ councils) of constituting a parallel power. ⁶

In this context, the junta did not see its role as limited to overthrowing an elected government, bombing La Moneda, abolishing elections and parliament, persecuting/sending to exile former government officials. As we will see, Jaime Guzmán’s perspective makes it clear that the aim from the very beginning was the complete destruction of the conditions that had allowed significant sections of the working class to unleash such fierce class struggles, posing an existential threat to existing capitalist relations and private property. Even the dictatorship’s first measures then, the devaluation of the escudo and an immediate freeze of wage demands, should not be seen as mere “economic” measures meant to deal with (actually) crippling inflation and other macroeconomic targets. They were political reactions against the way in which a radicalized working class had invaded (and “politicized”) the economic field.

This clarification is crucial for understanding the fundamental framework within which the dictatorship designed and conducted its overall policies, including the economic ones. Rather than an abstract, “depoliticized” attempt to bring economic and financial stability, reduce inflation, re-balance the exchange rate, and restore depleted reserves—as publications by the International Monetary Fund (IMF) and World Bank would claim by technocratically sanitizing them—the dictatorship and its economic decisions represented a clear class offensive. Similarly, the class character of the military rule highlights the misleading approach of the mainstream left-wing anti-dictatorship solidarity framework which was structured around appeals to patriotic sentiments. As Correo Proletario noted in 1975, Augusto Pinochet’s dictatorship did not attack a country but a class. It did not target the state, but a radical social process—one which Allende’s government was also having difficulty in containing.⁷

 

Neoliberalizing the Dictatorship

As noted in Part I, the full process of neoliberalization did not fully begin until 1975, when the majority of the Chicago Boys landed in key decision-making positions. Contrary to Chicago-centric accounts, this was not the result of Milton Friedman’s visit or his open endorsement of “shock therapy.” But not only had the basic structure of the neoliberalization process already been laid out by Chilean economists in El Ladrillo, but its key features and overall framework were already under way by the appointment of Chicago Boy par excellence Sergio de Castro as senior adviser for the Ministry of Economics in September 14, 1973.⁸ Leaving aside the instability generated by the military’s repressive violence and a dual state interregnum, the neoliberal ascension was also delayed, as noted, by conflicts within a junta split between a protectionist/corporatist and a neoliberal political economy.

In any case, we know that among the first economic policies pursued by the junta was the lifting of price controls (put in place by Allende’s government as a means of controlling inflation); the return of nationalized industries to private owners (a selective process benefiting specific factions and a process of accumulation that intensified inequality); drastic reduction of fiscal deficit spending and of the money supply; and, finally, lay-offs of approximately 200,000 public employees. In short, a program of privatization, drastic reduction of public spending, disciplining workers through mass lay-offs, and the liberalization of prices. All of the above were fully concomitant with the outlines of El Ladrillo.

At the time, no direct reference to the concept of “neoliberalism” was made. Instead, a different justificatory framework had arisen, that of building a “social market economy”–a concept developed by German neoliberals and inaugurated with the reforms spearheaded by Ludwig Erhard in West Germany in 1948. At the time, Erhard had also implemented a pro-market “shock therapy” program, structured around a currency reform (to destroy “excess” purchasing power and bring down predicted inflation) and a sudden liberalization of prices. And while the reforms would later be canonized as responsible for the West German “economic miracle,”⁹ their immediate consequences had generated massive working-class opposition, with demonstrations and riots, leading to the (last ever) general strike in Germany, met with police and American military repression. It was such fierce opposition that had forced the German neoliberals to promote the concept of the “social market economy,” alluding to the addition of elements of social welfare to mitigate the consequences of a sudden introduction (“Sprung ins Kalte Wasser,” as it was described by a key neoliberal figures) of market conditions.¹⁰

Despite other neoliberals’ rejection of the term, work by German think tanks (funded by the Christian Democratic Union [CDU] and the Free Democratic Party [FDP]) during the 1960s had succeeded in promoting the concept in Chile to such an extent that even Friedman, who was critical of the term and had never used it before, agreed to refer to it positively during his visit to Chile.¹¹ From that moment on, it was consistently utilized as an explanatory framework for the economic policies under way by both Pinochet and other junta officials.¹² Among other reasons, what appealed to Chilean liberals and members of the military regime was the combination of (a) religious undertones of a “miraculous” economic recovery after an abrupt shock; (b) a clear pro-market orientation (marking a differentiation from the nationalist, protectionist, and planning tendencies still present within the armed forces); and (c) a tacit acknowledgement that the enforcement of a market order would be more successful in a social and political framework characterised by the absence of any democratic process or proletarian pressure.¹³

When the Chicago Boys ended up in control of all ministerial positions by April 1975, the process that had already begun was accelerated in ways that even its designers could not have thought possible. The context was clear: with thousands disappeared and executed, locked up in prisons and concentration camps, and more than 250,000 in forced exile, a dark cloud of fear and terror rested above Chile. The military had unhesitantly eliminated its opponents, ended all dissent, and set out to radically free Chilean society and the capitalist economy from any hindrances by democratic, popular, or proletarian demands.

As mentioned, however, dismantling Allende’s policies was not the only aim, no matter how much the junta initially presented itself as a “temporary” necessity to save the country from the “Marxist” destruction of the economy. Rather than a reactive dictatorship meant to restore, the new rulers had much more grandiose plans to alter the political, social, and economic relations of Chile once and for all.

 

Miguel Kast, Jaime Guzmán, and the Neoliberalization of the Dictatorship

We have already seen how the dictatorship inaugurated its rule with drastic cuts of social expenditures, alongside a series of fiscal reforms (including, initially, tax increases) meant to improve state revenue and cover the costs of a military in charge of the country. At the same time, the promise to reduce costs for the private sector and promote investment led to a significant decrease of tax on capital gains—mostly benefiting firms with privileged access to credit. By 1975, even this “mild” approach was abandoned. Switching to indirect taxation and drastically reducing taxes on private capital (i.e., transferring the burden of tax revenue to the working class), the regime introduced a 20 percent VAT. At the same time, public spending was slashed. By 1979, for example, state spending on housing had fallen by 60 percent, on health care by 40 percent, and on education by an astonishing 73 percent. This sharp reduction of the social wage was simultaneous with a major decrease in real wages and a surge in unemployment, the combined effects of which appear to have escaped the attention of mainstream economists celebrating the “success” of deficit reduction.

Miguel Kast was at the epicenter of these developments. Under the leadership and guidance of Sergio de Castro and other Chicago-gremialistas, Kast’s first official position was at the state’s planning ministry (ODEPLAN), in charge of overseeing a program of social expenditure cuts structured around the neoliberal euphemism of fighting “extreme poverty.” Designing a system of “targeted social transfers,” Kast established a technically-oriented, means-tested and “depoliticized” structure meant to replace previous welfare payments. Echoing textbook German neoliberal analyses on social welfare, Kast and his colleagues would describe the previous system as one reflective of the power of “interest groups” to force concessions (“tearing the state apart,” Walter Eucken would say) on a state unable to impose its will (a “total state,” Carl Schmitt would add).

While at ODEPLAN, Kast would also prove pivotal in designing the reform of the pension system. Following on from his earlier proposals in El Ladrillo, Kast would furiously promote the replacement of the existing state-backed pay-as-you-go pension system (consistently but falsely portrayed by financial conglomerates, newspapers like El Mercurio, and other beneficiaries of the new system as “on the brink of collapse”) with one based on “individual capitalization” managed by private companies. Once again, although a conflict erupted with the corporatist/nationalist elements of the junta¹⁴ and specific private organisations (such as mutual insurance companies and funds) which saw the reform as a threat to their profits, Kast’s neoliberal proposals would win the day. A secret session of the junta in November 1980 voted Decree Law 3500, turning Kast’s vision into official law.

Facilitating the creation of AFPs (private insurance companies), DL 3500 obliged workers to give 10 percent of their income towards the individual savings accounts, while the private AFPs could use the income (as well as state subsidies) to invest in debt instruments issued by their banks and shares issued by their companies. At the same time, DL 3500 legislated the elimination of employers’ contributions, a point consistently insisted upon by Miguel Kast.¹⁵

It is hardly surprising that the reform would prove exponentially beneficial and profitable for particular economic and financial conglomerates (such as the Edwards Group, Vial and Curtaz-Larrain),¹⁶ which had also been direct participants in and interlocutors with the drafting process and, thereby, well positioned to create the first AFPs.¹⁷ But it is crucial to note that this collaboration between the neoliberals committed to the market society and the financial conglomerates should not be reduced to a case of corruption—while some key figures in the process enjoyed positions in both government advisory roles and in the private sector benefiting from it, neoliberals like Kast and Castro did not make direct personal gains from the reform. Their commitment was ideological.

That the reform aimed at a transformation way beyond corruption and personal enrichment is further evidenced by the fact that when Pinochet raised a similar last-minute concern, José Piñera reminded him of the overall framework which was at stake. In a secret session of the junta and in lockstep with Jaime Guzmán’s vision, Piñera pointed out the reform’s long-term objective of generating path-dependent structures capable of neutralizing class conflict which would remain binding even after a potential democratic transition. As he indicatively argued, with the new pension system,

the worker will necessarily be interested in having an efficient and responsible Minister of Finance, parliaments not committed to partisan politicking, and in avoiding violent revolutions, because each worker will become an owner with a direct interest in the general performance of the economy. In this way, strikes will also diminish.¹⁸

Publicly, of course, the pension reform was presented as the optimal replacement for a failing system, a superior alternative for achieving significantly higher rewards. As its public spokesperson, Piñera engaged in incessant promotion, each time pointing out that the expected returns would be, on average, 75 percent of one’s wage labour income. The reality was, as usual, quite different: the first to receive a pension based on the AFP system would realize, in the mid-2000s, that the average pay out was around 25 percent—something that can explain the persistence of pensioners in all of Chile’s social movements ever since.

Pensions were not the only target of such wide-ranging transformations. The mantra of privatization (supported by state subsidies) was spread to all fields of social welfare, most strikingly in the cases of education and health care—alongside the equally crucial labor reforms of the 1979 Labor Plan which destroyed workers’ and unions’ power, abolished collective bargaining, and individualized labor contracts.¹⁹ Overall, the compounded goals were to promote the private sector (or, to use the euphemistic coinage, to”‘de-centralize” the state), to embed individualism through new institutional and administrative means and to cripple any potential for collective struggle or experience.²⁰

 

Constitutionalizing the Neoliberal Class Offensive

While individualism was at the epicenter of the neoliberal reforms, the wider framework was further justified with the concept of “subsidiarity,” a pivotal concept in Guzmán’s theory.²¹ This was a Catholic-inspired term which understood society as an order based on a hierarchy of social bodies or structures (from the family and the university to the state) governed by relations of natural authority. While these social structures are interconnected “relational entities” (creating an “interdependence of orders,” as the German ordoliberals would say), they do not arise “spontaneously” but are mediated by an authority. “Subsidiarity,” in this context, meant guaranteeing that each body follows the authority which governs it (i.e., the patriarch in the family, the Dean at the University, etc.), only accepting a higher authority if it cannot fulfill its tasks alone. In the same way that individuals create families to manage tasks that are beyond their capacities, it was argued, there is a “natural” creation of other relational entities—none of which is meant to take over functions which can be fulfilled by other social forms. In this hierarchy, each relational entity has a “subsidiary” role to the next.

In Guzmán’s understanding, which he transcribed into the junta’s 1974 Declaration of Principles, the individual has an ontological priority over the social whole as it, and only it, has substance which grounds “individual freedom.”²² Relational entities (such as the state or a university), on the other hand, are accidental and historically perishable. While individuals need such relational entities to organize the overall social form and perform tasks which the individual cannot, they remain mere instruments for serving and maintaining what is substantial (i.e., the individual). And while the state (the “legally superior form of association”²³ between individuals) is tasked with securing the whole, its powers should not assume any authority over that of other social spheres when these can be performed by the latter. Combined with the neoliberal outlook, which promoted the individual and private property, the result assigned specific tasks (such as pensions, education, or health care) to the private sector and prevented the state from interfering within social forms that could “govern themselves” (such as traditional hierarchies within the family). Encompassing all the above was a clear embrace of capitalist social relations as reflecting a natural order of things, with individual freedom and property conceived as “pre-political” (natural) rights.

In Guzmán’s approach, the origin of authority is less important than its exercise. As he pointed out, a legitimately generated form of authority (such as Allende’s elected government) could end up acting ”illegitimately” towards “relational entities,” whereas an illegitimately generated authority (say, Pinochet’s dictatorship) can be legitimate vis-à-vis this order. In this context, Guzmán would quickly abandon the pretense that the 1973 coup aimed at restoring the 1925 constitution supposedly betrayed by Allende’s regime, effectively arguing that the whole previous institutional order had encouraged “demagoguery and bad political habits” long before Allende.²⁴ To remedy this long-standing quagmire and in pure Schmittian fashion, the goal was to transfer the 1925 constitution’s “derivative” constituent power (“the people”) to an “original” constituent power (the military dictatorship) which would “not recognise any formal limitation on its exercise.”

Guzmán’s approach unequivocally rejected mass (or “broad”) democracy—just as ordoliberals had done in the interwar period. His innovative approach, however, was the recognition that beyond a justification of the dictatorship and its brutality, a particular form of “restricted” or “protected” democracy could effectively function as an appropriate (secondary) legitimating mechanism after the crisis had been overcome. Whether his perspective was influenced by Friedrich Hayek’s or James Buchanan’s “limited democracy” theories or developed independently is besides the point—Pinochet’s dictatorship became, in any case, the first testing ground for the practical (and, unfortunately, successful) implementation of such visions.

Carl Schmitt has been called the “Crown Jurist” of the Nazi dictatorship. His trajectory, however, indicates that he recalibrated his thinking to fit into the Nazi framework. The case of Guzmán is different. In the context of the junta, Guzmán has been more accurately described as “the one wearing the crown.” ²⁵ Rather than submitting to the higher authority of Pinochet (as Schmitt did with Hitler), Guzmán had (and took) the opportunity to further develop and operationalize his thinking not merely as a means of justifying horror but for creating conditions for the longevity of its results and consequences. Reading the protocols of the (secret) sessions of the constituent commission makes this abundantly clear: as Guzmán noted in a session as early as April 1974, it was necessary “to differentiate that which would translate into the permanent intention of the [future] governments, from that which should serve to implement or carry out [the junta’s] policies”.²⁶ As Robert Barros rightly points out, “the principal concern [was] to assure the identity of those decree-laws which … would be binding upon future majorities after the period of military rule ended … in order to bind civilian actors in the future to the terms of the dictatorship’s impositions.” ²⁷

Guzmán’s vision went beyond the immediate existence of dictatorial rule. He was as much driven by the wish to cement the economic reforms; to preempt potential internal conflicts within the army; to undermine potential future retribution against the dictatorship’s officials;²⁸ and, lastly, to generate new subjects and to inaugurate a new institutional order whose structure would remain binding even after a democratic transition—as it did. This new institutional order became codified in the 1980 constitution, “legitimized” by a cosmetic referendum.²⁹

 

Cambiar Para Que Nada Cambie

In 1982, a serious economic crisis and recession appeared to threaten the neoliberal economic reforms accelerated after 1975. Beyond the guarantee of (real and social) wage decline and the absence of contestation, a regulated “deregulation” of financial markets, the liberalization of capital inflows, and Friedman’s monetarist policies (complemented by fixing the exchange rate as a tool for fighting inflation in 1979, which was not Friedman’s idea) had generated a general economic decline. Despite celebratory reports by the IMF and the World Bank, the neoliberalization process had led to a doubling of external debt, a 17 percent GDP drop, and more than 20 percent unemployment. The idea that fixing the exchange rate would work like the gold standard and force domestic inflation to converge with international levels proved radically false.

The immediate response was framed within orthodox idiocy. The junta blamed salaries for the failed adjustment and, despite their being lower than 1970 levels, attempted to lower them even further—entirely ignoring the fixed exchange rate. As a result, continued deterioration forced an inevitable devaluation of the overvalued escudo (more than 70 percent between June and October 1982), something which further accelerated inflation (the consumer price index saw a 32 percent increase).³⁰ More importantly, the devaluation decimated the financial groups and commercial banks which had been dependent on foreign debt and whose attempts to secure more loans were rejected by foreign banks, causing a 60 percent drop in net capital flows. Within a very short time, a major banking crisis occurred, generating bankruptcies and a massive recession.

Miguel Kast spent his last remaining days in office as president of the Central Bank of Chile, following his appointment in April 1982. In this short time, he defended the fixed exchange rate alongside Sergio de Castro (who had even welcomed the crisis as a case of “creative destruction”)³¹. Within a short period, both de Castro and Kast would “resign” (for all purposes, these resignations were commanded by Pinochet), in a transformation that has been described as an “ousting” of the Chicago Boys from positions of power.³²

This change has led commentators to propose a periodization of the neoliberalization process, with an early “radical” neoliberal era (from 1975 to 1982) replaced by a more “pragmatic” neoliberalism (from 1983 until 1989).³³ Yet, while key figures of the Chicago Boys did find themselves outside of the regime’s cabinet offices, such an approach fails to understand both the continuity between these two periods and the longevity of the established neoliberal framework after the democratic transition, as evidenced by the remarkable continuity ever since.³⁴

Reducing the neoliberal paradigm to the monetarist prescriptions of Friedman and introducing a selective Chicago-centric approach, such a perspective ignores the foundational transformations generated by Guzmán and his colleagues and a conceptualization of neoliberalism not as a restricted “market fundamentalism” (with elements of personal corruption) but as a state theory primarily focused on recalibrating labor/capital relations. Rather than a competent (or incompetent, according to Keynesians) structure for ensuring macroeconomic targets, neoliberalization aims at creating the necessary conditions for capitalist accumulation by recasting future expectations and behavior, recomposing the legal framework of social relations as centered between individuals and firms, and, finally, undermining socialized forms of contestation. Reconstituting the field of labor relations or social services as structured between individuals and private firms does not only worsen the services provided and make CEOs rich. It replaces socialized forms of contestation with individual responsibility.

 

Epilogue

Chile’s current president, José Antonio Kast, builds on the solid foundations of this long trajectory. If there is something novel about his rule, it is merely a discursive update that aligns this history with the obsessions of the contemporary far-right/authoritarian shift—namely, replacing the “communist” threat that once animated his family’s convictions with an equally dehumanizing depiction of migrants and a selective obsession with “crime.”³⁵  Along with these, a typical list of far-right talking points: hatred of gender equality and the “gay lobby”; the expansion of police and military powers to allow the persecution of “radicalized agitators”; climate and COVID denialism; delusional hammering against the supposed “sanitary,” “media,” or “cultural” “dictatorships”;³⁶ the dehumanization and promised persecution of opponents, side by side with publicly proclaimed plans to pardon perpetrators of human rights violations during the dictatorship. In a nutshell, an uninhibited celebration of violence and terrorism when it comes from the state and an equally unhinged demonization of any real or imaginary obstacle to such a vision. In a country like Chile, it is not hard to detect the ominous significance of using a language of “emergency” and the targets it aims to crush.

Alongside this libidinal institutionalization and celebration of cruelty, however, one is not hard-pressed to find the familiar embrace of the neoliberal economic framework. To take the most recent example, Kast’s appointment of Joaquín Cortez—an associate of Miguel Kast in ODEPLAN, with positions in the Ministry of Finance and the central bank during Pinochet and an extensive career in the financial system and the Provida AFP—as superintendent of the pension system leaves little to the imagination.³⁷ The legacy of the Kast family’s tradition appears to be in safe hands.