Last week, we commemorated the 50th anniversary of the takeover of power in Chile by Augusto Pinochet. A lot of ink was spilled over this takeover, due in part to the perceived role of foreign intervention by the United States, the subsequent economic reforms initiated by Pinochet and a bevy of Chicago-trained economists, the political violence of the military junta, and the eventual return to democracy that Pinochet was pressured into in the late 1980s.
Many have tried to draw lessons from this historical episode. One is that foreign support coups tend to be counter-productive for both liberal democracy (obviously) and living standards. There is, in that particular regard, strong suggestive evidence that foreign support coups do end up depressing living standards. This evidence, provided by Kevin Grier in his recent work on CIA-supported coups in Latin America, shows that GDP per capita fell 10 percent relative to counterfactuals based on the shared experience of comparable countries that didn’t experience coups.
Another lesson is that rising statism inevitably leads to the end of democracy, while economic liberalization ineluctably fosters it. This is based on the idea that regimes that intervene increasingly in the economy create further complications that require more interventions. These interventions then lead to greater intrusions on personal and political freedoms. Eventually, democracy withers and dies. To some degree, this seems true of the Chilean economy from the 1930s onward, as rising protectionism and state-led industrialization eventually led to further interventions, such as the nationalization of copper production by conservative president Eduardo Frei in 1964. This vicious cycle of rising interventionism, some argue, eventually led to the unexpected electoral victory (by plurality) of the far-left coalition of Salvador Allende in 1970.
I say unexpected because most parties thought the runner-up would win easily. The victory caused important political fears. Because he won the plurality of votes rather than a majority, Allende’s electoral victory needed to be decided in the legislature. One of the parties agreed to support him only if he committed to a democratic charter (essentially, he could not roll back political freedoms and violate the constitution). This was done, and Allende became president.
Allende, however, made clear signs of violating the constitution through nationalizations, violations of press freedoms, and implicitly supporting far-left militia. Combined with economic turmoil from his policies of nationalization, a coup seemed inevitable. As French philosopher Jean-François Revel quipped, “when Pinochet came to kill Chilean democracy, he found an already dead body.”
These lessons obscure a more important one: there is no such thing as a democratic socialist or a liberal dictator. For a socialist to take power by democratic means, the state must have grown well beyond its protective and productive functions. This slows down economic growth and fuels discontent. It also means that the ability to get rich by political entrepreneurship (i.e., rent-seeking) is privileged. In turn, it further fuels resentment by less politically savvy individuals. Voters are more prone to support far-left and far-right parties, even though they make clear signs of despising democracy. In essence, the arrival of an extremist party in power — such as so-called “democratic” socialists — is a sign of a liberal democracy is on its deathbed.
Similarly, there is no such thing as a liberal dictator. The dictator who finishes off democracy is not an enlightened individual. A dictator can then indeed liberalize, but this will not be from a true commitment to political or economic liberty. Had Pinochet been able to avoid liberalizing while remaining in power, he would have done so.
Excusing dictators who liberalize, or even fraternizing with them to enact policy, leads to illiberal outcomes in the long-run. As Sebastian Edwards pointed out in his recent history of the economists who participated in drafting policy for the Pinochet government, those economists forgot that liberal ideals require constant preaching! The potency of liberal democratic institutions to further human progress is tends to be truly visible only in the long-run. Cementing an alliance with an illiberal dictator with some liberal moves is nothing but a Faustian bargain.