shock therapy

Relation between privatisation and adult male mortality rates in post-communist countries, 1992–94

The transition from communism to capitalism in Europe and central Asia during the early to mid-1990s has had devastating consequences for health: UNICEF attributes more than 3 million premature deaths to transition; the UN Development Programme estimates over 10 million missing men because of system change; and more than 15 years after these transitions began, only a little over half of the ex-communist countries have regained their pre-transition life-expectancy levels...

Our study has shown that mass privatisation programmes were associated with a short-term increase in mortality rates in working-aged men. Furthermore, increased unemployment rates during this time were strongly associated with mortality in countries of the former Soviet Union.

Our results accord with other data... Overall, countries that pursued mass privatisation in the early to mid-1990s had sharp drops in life expectancy; in those that did not, life expectancy dipped modestly, but then steadily improved. Unemployment rates followed a similar trend: increases were pronounced in countries that privatised rapidly but much more modest in countries that privatised more slowly. Four of the five worst countries, in terms of life expectancy, had implemented mass privatisation, whereas only one of the five best performers had done so.

What Chile pioneered under Pinochet was an evolution of corporatism: a mutually supporting alliance between a police state and large corporations, joining forces to wage all-out was on the third power sector - the workers - thereby drastically increasing the alliance's share of the national wealth.

That war - what many Chileans understandably see as a war of the rich against the poor and middle class - is the real story of Chile's economic 'miracle'. By 1988, when the economy had stabilised and was growing rapidly, 45 per cent of the population had fallen below the poverty line. The riches 10 per cent of Chileans, however, had seen their incomes increase by 83 per cent. Even in 2007, Chile remained one of the most unequal societies in the world - out of 123 countries in which the United Nations tracks inequality, Chile ranked 116th, making it the 8th most unequal country on the list.

Pinochet held power for 17 years, and during that time he changed political direction several times. The country's period of steady growth that is held up as proof of its miraculous success did not begin until the mid-eighties - a full decade after the Chicago Boys implemented shock therapy and well after Pinochet was forced to make a radical course correction. Chile's economy crashed: its debt exploded, it faced hyperinflation once again and unemployment hit 30 per cent - ten times higher than it was under Allende. The main cause was that the piranhas, the Enron-style financial houses that the Chicago Boys had freed from all regulation, had bought up the country's assets on borrowed money and run up an enormous debt of $14 billion.