Economics

Ascendant Chile Joins OECD: A Triumph of Liberty

Given the high drama of the ongoing healthcare debate and new fears about al Qaeda, it would be easy to have missed a triumph for liberty and prosperity this week south of the equator. On January 11, Chile became the first South American country to join the Organization for Economic Cooperation and Development (OECD). At first glance, I know it may not sound all that exciting that a Paris-based multilateral institution has welcomed Chile to its ranks, given everything else going on in the world. But with its accession to the OECD, which is effectively the club of the world’s 30 developed nations, Chile has laid down an important milestone for anyone who cares about growth and freedom. Why?800px-080722-valparaiso_at_night

First, Chile was experimental like no other country when it comes to economic liberalization, and it has benefited as a result. The legendary “Chicago boys,” a group of 30 Chileans who studied under Milton Friedman at the University of Chicago, spent more than a decade in the 1970s and ’80s liberalizing trade, deregulating markets, de-politicizing the economy, and implementing a host of other free-market reforms. Given that these reforms occurred under General Augusto Pinochet, they have received some understandable criticism. Pinochet’s oppression and violence are well-known, and history has now judged him. Any attempt to implement sensible market reforms under a corrupt dictator is going to be messy and subject to grave abuse. However, given these obvious limitations, it is nevertheless hard not to argue that when Pinochet effectively handed over the economy to the Chicago boys, the seeds of Chile’s economic revival were sown. Chile’s resulting positive economic trajectory over the past several decades is a big part of why the OECD has admitted the nation. How ironic that while the OECD was busy admitting Chile to its ranks, Hugo Chavez devalued Venezuela’s currency by half.

Second, by 2004, Chile had returned to the top rating in the Freedom House’s index of political and civil liberties after its recovery from the long and dark years under Pinochet. Before its worst trials began a generation ago, Chile enjoyed a fairly durable democracy, which then went through a terrible trial. But the country recovered the best of its past and began running ahead of its neighbors. In the Legatum Institute’s Prosperity Index, Chile tops the list of South America’s largest countries (those with populations over 10 million), buoyed by its high scores in governance, safety, and security, and the contribution of its policies to economic growth. No other South American country has a higher governance ranking than Chile in the index. The lesson in all of this is that, together with its economic reforms, Chile has taken democratic governance seriously, creating an environment in which economic transactions are depoliticized, the rule of law is effective, and citizens are safe and free to choose their path.

Third, Chile stands as a clear reminder of the underpinnings of growth and progress to which many in the West have grown so accustomed that they may likely not recognize them anymore. As the United States engages with the likes of China, Iran, Russia, and Venezuela—all of which have grown more repressive this past year, as today’s Wall Street Journal astutely editorializes—policy makers would do well to look at Chile’s example. It stands as a case study of liberalization, something that America still stands for, even if the current administration’s tone on the issue has not been right. Engagement with unstable powers today needs to be littered with more, rather than fewer, references to liberalization, not only so that the OECD can welcome more members in the future, but because America’s security and continued prosperity are at stake.

Ryan Streeter is senior fellow at the London-based Legatum Institute and can be followed on Twitter here.

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