Pinochet’s economic ‘miracle’

Just when I was thinking I’d like to dance on the old brute’s grave, along comes Greg Palast and does it for me.

The claim that General Pinochet begat an economic powerhouse was one of those utterances whose truth rested entirely on its repetition.

Chile could boast some economic success. But that was the work of Salvador Allende – who saved his nation, miraculously, a decade after his death.

In 1973, the year General Pinochet brutally seized the government, Chile’s unemployment rate was 4.3%. In 1983, after ten years of free-market modernization, unemployment reached 22%. Real wages declined by 40% under military rule.

In 1970, 20% of Chile’s population lived in poverty. By 1990, the year “President” Pinochet left office, the number of destitute had doubled to 40%. Quite a miracle.

Pinochet did not destroy Chile’s economy all alone. It took nine years of hard work by the most brilliant minds in world academia, a gaggle of Milton Friedman’s trainees, the Chicago Boys. Under the spell of their theories, the General abolished the minimum wage, outlawed trade union bargaining rights, privatized the pension system, abolished all taxes on wealth and on business profits, slashed public employment, privatized 212 state industries and 66 banks and ran a fiscal surplus.

Freed of the dead hand of bureaucracy, taxes and union rules, the country took a giant leap forward … into bankruptcy and depression. After nine years of economics Chicago style, Chile’s industry keeled over and died. In 1982 and 1983, GDP dropped 19%. The free-market experiment was kaput, the test tubes shattered. Blood and glass littered the laboratory floor.

Yet, with remarkable chutzpah, the mad scientists of Chicago declared success. In the US, President Ronald Reagan’s State Department issued a report concluding, “Chile is a casebook study in sound economic management.” Milton Friedman himself coined the phrase, “The Miracle of Chile.” Friedman’s sidekick, economist Art Laffer, preened that Pinochet’s Chile was, “a showcase of what supply-side economics can do.”

It certainly was. More exactly, Chile was a showcase of de-regulation gone berserk….

You might argue that Greg Palast is not exactly a dispassionate commentator. But, interestingly, his view is largely supported by Oxford academic Alan Angell’s more detached account:

The second justification is that Pinochet created a model free-market economy. It is certainly true that there was massive privatisation and effective reduction of inflation. But the negative features are huge. The overall growth rate of the seventeen years of his rule was dismal – a little over 2% per annum. He engineered two massive recessions – that of 1975 (which could partly be blamed on the situation he inherited), and one of 1982-83 (which was due entirely to the regime’s economic policies).

There was enormous social suffering – unemployment at its peak was over 30%, and over 40% of the population were in poverty at the end of his regime. His government reduced social spending, with dire consequences for the quality of public health and education. Moreover, despite the commitment to neo-liberalism, the largest state asset, the state copper corporation Codelco, was not privatised, and Pinochet’s regime received colossal financial support from a state company nationalised by the Salvador Allende regime.

I could go on: the much-vaunted pension privatisation is now under attack, the central bank only achieved real independence under democracy. In truth, only after the recession of 1982-83 did the regime adopt sensible macro-economic policies.

It must also be stressed that these economic measures were accompanied by corruption which benefited Pinochet’s supporters – and also, we know now, the man and his family himself. The privatisations were used to reward supporters, and there was little transparency or effective regulation. The rich benefited enormously in Pinochet’s government leaving Chile with the legacy of one of the most unequal income distributions in the world.

The claim that Pinochet ruled for the benefit of the country can no longer be sustained. Undeniably, Chile has seen great economic progress since 1990 but this, I would argue, is the product of the policies of the democratic governments and not the legacy of Pinochet.

Transcript

I’m always intrigued by the way journalists rework interviews to give them a ‘shape’. Sometimes this involves weaving quotations in ways that are (perhaps unintentionally) misleading. So some time back I resolved that I would put up a transcript of every interview I gave, just for the record.

Below is a transcript of an email interview I’ve just given to a journalist on a New Zealand publication.

Q: Blogs are constantly being talked of as being “on the verge” on mainstream influence. Yet, outside a few cases in the United States (Dan Rather’s “memogate” etc), they don’t seem to have lived up to their promise. Is 2007 the year of the blog, or the year the blog boom finally busted?

A: Silly question — typical of old-media journalism. The significance of blogging isn’t measured by the emergence of publications which have the same clout as old-style media outlets (though the Huffington Post seems to be doing that too), but by the profound change in the media ecosystem brought about by thousands of editorial voices that would hitherto never found a voice or a means of publication. This is a different world from the one in which most journalists were conditioned. So forget the “has blogging peaked?” line; it’s a bit like asking “has oxygen peaked?” The real question is: has old-style print journalism peaked?

Q: Will blogs become (or are they already) recognised news-breakers?

A: Blogs and mainstream journalism have — and will continue to have — a symbiotic relationship: bloggers lack the resources and training to be major news-breakers; what they are good at is informed comment and keeping mainstream journalism honest (see the Trent Lott and Dan Rather cases) and up to the mark.

Q: The Guardian (the UK paper I read most online) seems to have co-opted the blogging model quite well – at least with sports coverage and breaking news like the tube bombings. Can we expect to see more of this cross-pollination by newspapers?

Yep. But the key determinant of success or failure will be the extent to which proprietors and editors understand the profoundly different ecosystem in which they will have to operate. The trick — as the Editor of the Guardian puts it — is not to be ‘on the Web’ but ‘of the Web’.

The most threatened journalistic species right now is the highly-paid, opinionated newspaper columnist. For many of them there are people out there on the Net doing it better — and more cheaply! Note how Time Magazine ‘bought’ Andrew Sullivan’s blog.

Q: Newspaper circulation has declined (according to year-on-year November ABC stats) by another 5 %, on average. To what extent is this due to readers migrating online, and how much is due to a net loss of readers? How ugly do you think these figures will look next year?

A: I’m not an expert on circulation, but the picture varies with different cultures. In Western societies, newspaper circulation is in inexorable decline, mainly because — for whatever reason — young people don’t buy or read papers. My understanding is that newspaper readership is holding up well in Asia, but — as I say — I’m no expert.

Q: Can newspapers and, to a lesser extent broadcasters, make up their lost advertising revenues through online operations?

A: To some extent, but only to some extent. The central strategic problem for print publications is that their classified ad revenues will all be sucked away by the Net. If they were smart they’d have built online advertising businesses like Craigslist years ago. But their managements were too dumb and/or ignorant to understand the threat. They thought it was all about news. It wasn’t and it isn’t.

Q: How much of a threat does YouTube pose to traditional television networks?

Traditional TV networks have their own dire problems — broadcast TV is in inexorable decline because (i) its audiences are fragmenting (because of channel multiplication) and (ii) increased competition for people’s attention from other media and sources. YouTube merely adds to the broadcast TV problem. It might even be part of a solution for some: a few smart TV broadcasters are trying to harness YouTube to widen the ‘reach’ for their products.

Q: And predictions for 2007?

A: If you want to know the future, go buy a crystal ball.

Jailed for a Blogpost

From TCS Daily

In a cramped jail cell in Alexandria, Egypt, sits a soft-spoken 22-year-old student. Kareem Amer was remanded to over a month in prison for allegedly “defaming the President of Egypt” and “highlighting inappropriate aspects that harm the reputation of Egypt.” Where did Amer commit these supposed felonies? On his weblog…

The parallel universe of Rumsfeld/Cheney

There’s a terrific essay by Mark Danner in the current issue of the New York Review of Books

Anyone seeking to understand what has become the central conundrum of the Iraq war—how it is that so many highly accomplished, experienced, and intelligent officials came together to make such monumental, consequential, and, above all, obvious mistakes, mistakes that much of the government knew very well at the time were mistakes—must see beyond what seems to be a simple rhetoric of self-justification and follow it where it leads: toward the War of Imagination that senior officials decided to fight in the spring and summer of 2002 and to whose image they clung long after reality had taken a sharply separate turn. In that War of Imagination victory was to be decisive, overwhelming, evincing a terrible power—enough to wipe out the disgrace of September 11 and remake the threatening world. In State of Denial, Woodward recounts how Michael Gerson, at the time Bush’s chief speechwriter, asked Henry Kissinger why he had supported the Iraq war:

“Because Afghanistan wasn’t enough,” Kissinger answered. In the conflict with radical Islam, he said, they want to humiliate us. “And we need to humiliate them.” The American response to 9/11 had essentially to be more than proportionate—on a larger scale than simply invading Afghanistan and overthrowing the Taliban. Something else was essential. The Iraq war was essential to send a larger message, “in order to make a point that we’re not going to live in this world that they want for us.”

For anyone who hasn’t the time (or the stomach) for Bob Woodward’s State of Denial, Danner’s essay provides an excellent crib. He picks out the pivotal moment in the narrative.

Consider, for example, this striking but typical discussion in the White House in April 2003 just as the Iraq occupation, the vital first step in President Bush’s plan “to transform the Middle East,” was getting underway. American forces are in Baghdad but the capital is engulfed by a wave of looting and disorder, with General Tommy Franks’s troops standing by. The man in charge of the occupation, Lt. Gen. (ret.) Jay Garner, has just arrived “in-country.” Secretary of State Colin Powell has come to the Oval Office to discuss the occupation with the President, who is joined by Condoleezza Rice, then his national security adviser. Powell began, writes Woodward, by raising “the question of unity of command” in Iraq:

There are two chains of command, Powell told the president. Garner reports to Rumsfeld and Franks reports to Rumsfeld.

The president looked surprised.

“That’s not right,” Rice said. “That’s not right.”

Powell thought Rice could at times be pretty sure of herself, but he was pretty sure he was right. “Yes, it is,” Powell insisted.

“Wait a minute,” Bush interrupted, taking Rice’s side. “That doesn’t sound right.”

Rice got up and went to her office to check. When she came back, Powell thought she looked a little sheepish. “That’s right,” she said.

What might [George] Kennan, the consummate diplomatic professional, have thought of such a discussion between president, secretary of state, and national security adviser, had he lived to read of it? He would have grasped its implications instantly, as the President and his national security adviser apparently did not. Which leads to Powell’s patient—too patient—explanation to the President:

…You have to understand that when you have two chains of command and you don’t have a common superior in the theater, it means that every little half-assed fight they have out there, if they can’t work it out, comes out to one place to be resolved. And that’s in the Pentagon. Not in the NSC or the State Department, but in the Pentagon.

The kernel of an answer to what is the most painful and intractable question about the Iraq war—how could US officials repeatedly and consistently make such ill-advised and improbably stupid decisions, beginning with their lack of planning for “the postwar”— can be found in this little chamber play in the Oval Office, and in the fact that at least two thirds of the cast seem wholly incapable of comprehending the script. In Woodward’s account, Rice, who was then the official responsible for coordinating the national security bureaucracies of the US government, found what was being said “a rather theoretical discussion,” somehow managing to miss the fact that she and the National Security Council she headed had been cut out of decision-making on the Iraq war—and cut out, further, in favor of an official, Secretary of Defense Rumsfeld, who, if we are to believe Woodward, did not bother even to return her telephone calls….

Of course hindsight is a wonderful thing, but the clear import of Woodward’s narrative is that people on the ground in Iraq knew that what they were being ordered to do (by Rumsfeld, who was running the show from the Pentagon) would have catastrophic consequences. The first blunder was “Coalition Provisional Authority Order Number 1—De-Baathification of Iraqi Society,” an order to remove immediately from their posts all “full members” of the Baath Party. These were to be banned from working in any government job. In every ministry the top three levels of managers would be investigated for crimes. The CIA chief on the ground said:

“If you put this out, you’re going to drive between 30,000 and 50,000 Baathists underground before nightfall,” Charlie said…. “You will put 50,000 people on the street, underground and mad at Americans.” And these 50,000 were the most powerful, well-connected elites from all walks of life.

The second blunder was Coalition Provisional Authority Order number 2, which required disbanding the Iraqi ministries of Defense and Interior, the entire Iraqi military, and all of Saddam’s bodyguard and special paramilitary organizations:

Garner was stunned. The de-Baathification order was dumb, but this was a disaster. Garner had told the president and the whole National Security Council explicitly that they planned to use the Iraqi military—at least 200,000 to 300,000 troops—as the backbone of the corps to rebuild the country and provide security. And he’d been giving regular secure video reports to Rumsfeld and Washington on the plan.

Garner woke up the next day (May 17), says Woodward, reflecting that “the US now had at least 350,000 more enemies than it had the day before—the 50,000 Baathists [and] the 300,000 officially unemployed soldiers”.

The stupidity, ignorance and incompetence of the Bush administration in relation to Iraq beggars belief.

Danner opens his essay with a quote from George Kennan, the architect of the policy of containing the Soviet Union, and a wise old bird. On September 26, 2002, sitting in a nursing home in Washington, he said: “Today, if we went into Iraq, like the president would like us to do, you know where you begin. You never know where you are going to end.” Which in turns brings up another thought: compared with Kennan, Truman, Acheson, General George Marshall, Attlee and the other architects of the post-war world, Bush, Rice, Rumsfeld, Cheney and Blair look like one-dimensional halfwits.

The Gowers Report

This morning’s Observer column

So far, IP lawmaking has been an evidence-free area. In virtually every other area of public policy, lawmakers seek evidence from interested parties before legislating and try to assess where the public interest lies. But IP law has traditionally been made simply by conceding the demands of content owners for ever-greater extensions of their rights, leading to the absurd duration of copyright protection. Every time Mickey Mouse is about to run out of copyright, Disney & Co go to Congress and get an extension – ‘infinity on the instalment plan’, as one wag dubs it. Europe follows suit, and the world marches to the beat of the Disney drum.

Given this background, Tuesday’s publication of the Gowers Report on Intellectual Property is a truly memorable event. Andrew Gowers – the former FT editor I quoted earlier – was asked by Gordon Brown to conduct ‘an independent review into the UK Intellectual Property Framework’, and he has done better than most of us expected. It’s available online and should be a set text for legislators…

Bear Stearns and the Long Tail

I know — it sounds like the title of a kids’ fairy tale, but Bear Stearns is an investment bank and they’s just published an interesting report on how the long tail phenomenon will affect the media business. In a nutshell, they conclude that “Aggregation and Context and (Not Necessarily) Content Are King”.

Actually, the report is a lot better than you might think from that headline. Among other things, it looks at the evolution of the TV cable industry as an example of a long tail development.

So much for Moore’s Law

From Chris Anderson

Pixar Quiz

I recently had coffee with a friend at Pixar and he mentioned a surprising stat, which I’ll phrase here in the form of a quiz:

Q: On 1995 computer hardware, the average frame of Toy Story took two hours to render. A decade later on 2005 hardware, how long did it take the average frame of Cars to render?

A: 30 minutes
B: 1 hour
C: 2 hours
D: 15 hours

(Hint: designer ambitions always expand to fill the computational space available.)

Google’s Big Five

Nick Carr’s been brooding about Google’s long-term product strategy. Here’s what he predicts:

  • Google Search (“Google” goes back to meaning just search: for all information types, on all devices, personalized)
  • AdMarket (a unified market place for buyers and sellers, spanning web text, web video, web banners, print, radio, TV)
  • YouTube (YouTube expands from video to become the common interface for all media sharing)
  • YouTools (what Apps for Your Domain morphs into, with different tool sets for businesses, families, universities, and hospitals)
  • YouFile (a personal information management service, covering health data, finances, etc.)
  • Left hand down a bit

    From today’s New York Times

    “I’m used to being in companies where I am in a rowboat and I stick an oar in the water to change direction,” said Mr. Berkowitz, who ran the Ask Jeeves search engine until Microsoft hired him away in April to run its online services unit. “Now I’m in a cruise ship and I have to call down, ‘Hello, engine room!’ ” he adds with an echo in his voice. “Sometimes the connections to the engine room aren’t there.”