Foundations of the American Century

by Inderjeet Parmar

  The Chicago boys, of course, ended up advising Pinochet’s military regime—an unintended consequence of Ford’s promotion of pluralism in Chile. To the left (and center), Ford scholars were variously persecuted—dismissed from their posts, exiled, and marginalized by the military regime. Ford’s investments in economists—on right, left, and center—were, however, protected by the foundation in various ways. Ford continued to fund economics at Catholic University for four years after the military coup. Ford also developed programs to rescue its investments and “rehouse” them until better days, when military repression waned. Importantly, however, it should be noted that the foundation did not accept that it was generating two mutually exclusive wings of economics—always stressing the political-ideological overlaps between students and staff.

  Behind this entire technocratic agenda lay a profound assumption: that the findings and discoveries of rational social science, especially economics with a mathematical base, were universally applicable, everywhere, all the time. This approach allowed for some level of pragmatic refinement to suit local conditions, but the general model held true. Economics was scientific, its findings were laws, and there could be little fundamental argument. This clearly also reflected a general assumption about the kind of economy that was “normal”—an open economy producing what it did best, reflecting “comparative advantage,” promoting relatively free trade and reciprocity. This was the official version of what the General Agreement on Tariffs and Trade (GATT) stood for: equality of nations in an open world system.51

  The next section outlines the development and impact of the Chicago boys and the role of American foundations. It then explores the foundations’ complementary support for dependista economics and its effects. Both programs strongly reflect the foundations’ main, usually unstated, preoccupations: constructing powerful technocratic networks that endure over time and have an effect on national economic policy and the promotion, through such networks, of American hegemony. As Peter Bell, Ford’s Santiago representative noted in 1970, in the case of grants to agricultural development, despite a $1.5m expenditure, there had been “a proliferation of effort” and “a welter of interchange” but little development.52

  However, Ford was a “thinking organization” that permitted (some) room for discussion and debate. As Osvaldo Sunkel, the dependista economist, noted at a Ford Foundation “soul-searching” conference in December 1973, in the wake of the military coup in Chile, the Vietnam War, the Watergate scandal, and the general failure of the development agenda: “When an imperialist power begins to have difficulty, it begins to study itself.”53 This aspect of Ford will be explored, as it had consequences for its programs for Chilean scholars marginalized by the Pinochet regime.

  THE CHICAGO BOYS

  The sense of belonging to a “small beleaguered minority” frequently results in the creation of inward-looking close-knit groupings that can become almost fanatical or cultish in form and self-immersed in a group norm. That is the way the “Chicago boys” and their Chicago mentors, credited with transforming Chile in the 1970s into a laboratory for neoliberal experimentation, are frequently seen and, indeed, saw themselves.54 This was also certainly the case for the “Berkeley boys” at the University of Indonesia. The latter—operating as an “alien” group committed to free markets and privatization in an environment of statism and opposition to free-enterprise capitalism—developed an almost caste-like mentality that sustained them during the 1950s and 1960s, until the rise of Suharto. Even under Suharto, however, the Berkeley boys remained very close and generally failed to renew their group’s membership with new blood, so powerful were their in-group ties.

  As the general outlines of the story of the Chicago boys is well known, their construction and influence will be described only briefly and principally with a view to demonstrating a larger point not often made: that the foundations were instrumental in fostering technocratic economists of both left and right in Chile from which, in the long run, developed a general consensus on economic strategies in the era of neoliberal globalization.

  The Chicago boys’ construction was a key project of the American state and the major foundations. Valdes argues that central to the plan was the dislodging of the hegemony of dependista thought in Chile and, by extension, the whole of Latin America, by the creation of an “organic intellectual elite” linked with the Chilean entrepreneurial class, which had been incorporated into the statist coalition alongside organized labor and justified by Prebischian economic theory. The “project” was initiated by Albion Patterson, the head of the ICA in Latin America. Rejected by the economists of the University of Chile,55 Patterson persuaded Catholic University to sign a contract with University of Chicago economists, to train over several years the best Chilean students up to the doctoral level. After training at Chicago, graduates would return to Catholic and build its own Chicago-oriented economics. Chicago also sent several professors to Santiago to advise on and conduct research on the Chilean economy.56

  Between 1956 and 1964, ICA/USAID granted over $800,000 to the Catholic-Chicago program, principally to finance Chicago economists stationed in Santiago and pay the tuition and maintenance costs of Chilean graduate students at Chicago.57 By 1963, of the thirteen full-time economists at Catholic, twelve had been Chicago trained.58 Their training was intensive and personal: Ted Schultz, Milton Friedman, and Arnold Harberger, among others, took deep interest in their students’ welfare, families, and intellectual development. Students on the program were, unusually, given desk space to work and a weekly seminar to discuss the latest research on Chilean economic problems and solutions. Harberger invited students to his home. Graduate students were retained as research assistants so they would learn at first hand the problems of the Chilean economy and the “right” way to think about solving them, i.e., through market solutions. As one of their number said: trained in Chicago meant “correct knowledge [to] make correct decisions.” Chile was a “laboratory” for studying under-development—especially in studying the sources and solutions to inflation, issues related to money supply, and problems of agriculture, exchange rates, trade controls, and so on. Despite admissions by some Chicago economists that they “knew nothing” about Chile, their zeal for promoting free-market solutions to economic problems was unlimited.59

  Despite the general image of an exclusive link between Catholic and Chicago, however, Valdes points out that there were outliers: not all Catholic University students went to Chicago (a few went to Columbia and Harvard, for example). He also points out that some Chicago boys were also based at the University of Chile, rather than at Catholic. Hence, from the earliest days of the program, the effort to transplant a specific economic ideology through training cadres of Chilean neoliberal economists was broader than is often appreciated.60

  A point that Valdes does not develop relates to the purposive role of American foundations. In Valdes’s account, the foundations are “present” in the background rather than conscious actors in their own right. This is consistent with his view that the foundations were largely ignorant of what ICA/USAID were doing, i.e., combating ECLA’s statist ideas. The foundations’ records do not bear out this interpretation. The Rockefeller Foundation, for example, granted $500,000 to Catholic University economics programs from 1956. At the same time, RF awarded $1 million to economics programs at the University of Chile. More is written on the latter program below.

  The key concept that unified Chicago economists, the ICA, and private foundations was “human capital development,” which was thought to be the key to economic development. The idea was simple: investment in people generated returns, because educated people created wealth and solved problems. The idea was hardly new, of course, but it coincided with the interests of Chicago economists and ICA administrators, who wanted to marginalize dependency theory from Latin America as one basis of resurrecting market economies there, and with the interests of the major foundations, which already believed in the importance of educat
ion in transforming developing societies. The consequence was the production of cadres of neoliberal Chilean economists who owed more loyalty to their Chicago mentors than their compatriots—including economists—at Catholic University and looked more to the logics of the International Monetary Fund than to nationalist economic strategies. Their economic ideas elicited hostility from their fellow economists in Santiago, further alienating the Chicago boys and accentuating their “autonomy from internal interest groups,” as Valdes puts it. The Chicago boys clung even more to their “economic science,” their truth, and alma mater. When Pinochet came to power, the Chicago boys took their opportunity to transform the economy and ignore everything else. Their time had come.61

  By 1963, the Chicago boys had wrested control of economics at Catholic University, preventing the recruitment of economists of other traditions to “balance” their influence. Dean Chana was replaced by Sergio de Castro, the virtually unchallenged leader of the Chicago boys, along with Carlos Massad. Massad, a Christian Democrat, returned to work at the University of Chile, indicating that the Chicago program transferred economic techniques that were capable of adaptation and use regardless of an individual’s party preferences. The University of Chile saw the Chicago boys as essential to continued foundation funding and backed them to the hilt. The Ford Foundation obliged by backing plans to transform the economics department at Catholic into a training center for the whole region. Even further, Arnold Harberger won acceptance for his plan of spreading the Chicago boys’ influence through sending them to a regional network of free-market economics training facilities. Hence, the programs expanded to include the Cuyo Project, in Argentina, and the University del Valle, in Colombia.

  Valdes shows that American foundations exercised “enormous influence” on the development of economics in Chile. For example, Ford and Rockefeller were jointly responsible for increasing the number of economists in Chile from 121 in 1960 to 727 by 1970. Relatedly, the number of institutes of economics in Chile increased from four in 1960 to ten a decade later.62 The economists in question were also better trained than previously, particularly in quantitative techniques. Ford had granted $552,000 to Catholic University economists and $1.3 million to their counterparts at the University of Chile.

  Valdes draws two conclusions that I challenge here: first, that Ford “had no perception” that there was a battle being waged by ICA/Chicago against ECLA’s ideas, and second, that Ford was ideologically neutral in its approach to funding economics in Chile, hence the funding pattern above. On the first point, Valdes acknowledges Ford officials’ awareness of the ideological bias of the Chicago boys but that they expressed no opposition. That conclusion emphasizes Valdes’s relatively narrow idea of “ideology.” Valdes sets up left/dependista economics against right/neoliberal economics and sees only ideological neutrality in foundations that backed both horses. Instructively, he acknowledges that combating Marxism was a key objective in Latin America and, therefore, Ford was reticent to confront the Chicago program when it was generating rational analytical techniques that challenged Marxian approaches. Additionally, Valdes does not mention the role of the Rockefeller Foundation in this matter. RF records show that officials met with Albion Patterson, head of the U.S. Operations Mission in Chile, in October 1956, to discuss the Chicago–Catholic University economics program. At one meeting, Patterson pointed out the advantages of linking the universities: Chicago, he suggested, “is on the one hand strongly theoretical in its approach, and on policy lines it is a vigorous proponent of the virtues of the market price system as against state socialism. AWP feels that this is a point of view which badly needs emphasis in Chile” (emphasis added). When Patterson pointed up his “fear” that “the people trained under the Chicago–Catholic University program may be drawn off into business instead of staying on at the University in teaching and research,” the RF official replied that he “had already discussed the problem with T. W. Schultz [the head of economics] at Chicago” and that RF would complement ICA’s program by providing research funding for Chicago returnees.63 In fact, at the meeting with Ted Schultz, RF officials had felt that RF would have liked to be even more involved in the Chicago-Catholic program, but the ICA had already “so well worked out” the arrangements. RF looked for “big returns” on its research funding.64 As if to drive home the point, Schultz denied a desire to “sell” any ideology but reiterated to RF officials that the principal problem in Latin America was “the indiscriminate intervention of governments… and their tendency to rank the inflationary problem below that of economic growth.”65

  Ahead of the meetings described above, RF officials had received the first report by Chicago on the collaborative program. The contents of the report are clear: Chicago was organizing the development of a research community that would also educate the broader citizenry, through publications ranging from working papers and journal articles to a “Series on Popular Economics Education” on topics close to neoliberals’ hearts: “money and inflation… the economics of price control,” among others. The report noted that the program’s advisory committee, which included Joseph Grunwald, director of the Institute of Economics at the University of Chile, and Jose A. Mayobre, ECLA’s Chile representative, had “thought well of the plan.”66 If the point had not already been made that Chicago was going to be engaged in a serious program of shifting attitudes through policy-relevant research that would inevitably draw it into political controversy, the report spelled out the “dilemma”: Chilean economic problems required “impartial research” but at the same time were politically controversial. Catholic’s economists, therefore, had to tread a fine line between “highly relevant economic research” and the production of “political tracts.” The solution was to focus on impartial “fact-finding” to produce usable data from which economic discussion in Chile could proceed.67 In sum, the aim of engaging in a political battle of economic ideas could hardly have been more clearly advanced, while the RF officials’ response was to support the program by agreeing to recommend complementary funding to build Catholic University’s economics department.

  In addition, the economists at the University of Chile—the dependistas—were not as radical as Valdes implies. In combination and in a broader context, the programs at Catholic and the University of Chile were complementary, not competitive, and were seen as such by Ford. Indeed, that so many University of Chile economists entered the Frei administration—one favored by Ford, the CIA, and the Catholic Church and that was overtly reformist and opposed to the left—is direct evidence that there was no fundamental ideological divide between the two schools of economic thought.68

  Furthermore, Valdes suggests that Ford was naïve in its assessment of pluralism at Catholic. However, Ford and Rockefeller saw pluralism in the fact of relatively separate and autonomous sets of economists at different institutions, which they constantly sought to bring together and build effective relationships between. The principal barrier to their effective unity as economists was their degree of partisanship—their attachment to specific rival political parties. Much later, after the military coup, the problem of partisanship was “solved.”

  The ascent of the Chicago boys to the pinnacle of their influence, however, did not end with their effective takeover of the faculty of economics at Catholic. They had still to persuade the Chilean business community of their credibility and become what the ICA program intended them to be: the business class’s intellectuals. This they did by their ability to hold their own during student unrest in the late 1960s, when the rest of the university system was paralyzed by protests. In addition, the increasing political polarization of Chilean society under the Frei administration forced into one camp practically all forces opposed to state intervention, including elements of the Christian Democratic Party. With Allende’s election and the failure of constitutional attempts to unseat him, the previously alien ideas of the Chicago boys came to sound increasingly realistic to Chilean entrepreneurs: political crisis brought w
ith it clarity. The Chicago boys were being taken seriously by the very community their economic theories placed in the vanguard of a free economy. Hence, they engaged in open political propaganda through the mass media and conspired behind closed doors to develop secret plans for economic change under a military government. As Arnold Harberger noted in September 1970, there was serious talk among Chilean elites of a military coup as the only way to stop Allende’s “Marxist” plans. The Chicago boys were central figures during the entire period as well as planners of the military’s future economic thinking and policies.69

  DEPENDISTA ECONOMICS AND THE FOUNDATIONS

  As noted earlier, Ford and Rockefeller granted more funding to economics at the University of Chile than they did to Catholic University, undermining the idea that the Chicago boys were their sole interest in that country. Narrowly conceived complementarity and pluralism were the buzzwords within the foundations in regard to economics at Santiago’s foremost academic institutions. Additionally, foundation records show that from the mid-1950s, economics at the University of Chile (UC) was developing along technocratic lines too—attempting in teaching and research to provide a “sound” basis for “independent” judgment. In contrast to the general view that UC economists were opposed to capitalism per se, the department’s members conducted research not only for government consumption but also on a contractual basis for several large multinational and other private corporations, including the Ford Motor Company.70 Finally, and most instructively, the character of economics at UC was described as approximating the production of research at the U.S. National Bureau of Economic Research (NBER), precisely what Chicago’s Ted Schultz claimed was occurring at Catholic University’s economics initiatives.71 The head of the faculty of economics at UC, Luis Escobar, was appointed Pinochet’s finance minister (1984–1985); he had served as President Alessandri’s minister of economy from 1961 to 1963.72 What follows is the presentation of evidence from the foundations’ records demonstrating overlaps in the technocratic orientation of the two major sets of economists in Santiago.