Date: Wed, 10 Nov 1999 19:02:43 -0500 To: INTERNATIONAL POLITICAL ECONOMY <ipe at csf.colorado.edu> From: "Jeffrey L. Beatty" <Beatty.4 at osu.edu>
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Actually, there was some noticeable Hayekian influence as well. Alfred Stepan writes (1985, 322-323):
"Furthermore, whereas the initial control of working-class collectivities came about by direct coercion by the [Chilean] state, after 1978 there emerged a much more sophisticated attempt at policy-induced structural fragmentation of existing and potential oppositional collectivities. These policies reflected the ideas of Friedrich A. Hayek, the author of _The Road to Serfdom_, and such radical libertarian, antistatist, "public-choice" political economists as James Buchanan and Gordon Tullock. In fact, the continuing labeling of the regime's theorists as "Chicago boys" missed important theoretical, historical, and political nuances. The Chicago school of economics was most influential in 1973-78. In 1979-81 the "Virginia school" of political economy (Buchanan, Tullock, and to a lesser extent Brunner) had the most impact. The major preoccupation was with the "marketization" of the state, with turning the state into a firm, and with atomizing civil society into an apolitical market. For their part, the "Santiago boys" went beyond the Virginia school in praxis. They represented a new phase in rightist political economy in the world, in that they actually used their privileged positions in the state apparatus to devise and apply a policy package aimed at dismantling, and then restructuring, civil society in accordance with their radical market views."
The policy package included the famous privatization of the social security system, and its fragmentation among multiple private firms, each with slightly different programs. The architects of the program believed groups in civil society would have reduced incentives to organize against the state. It also included a union code restricting collective bargaining to the plant level, and forbidding closed shops. This was also aimed at reducing the capacity of "collectivities" to organize against the state (Stepan 1985, 323).
Stepan continues in a footnote (1985, 341):
"[Hayek, Buchanan, and Tullock] were frequent visitors to Chile and were closely associated with the regime's "anticollectivities" think tank, Centro de Estudios Publicos. The first issue of the center's journal, _Estudios Publicos_, was devoted to the theme "Liberty and Leviathan" and featured articles by Buchanan, Tullock, Hayek, Karl Brunner, and Milton Friedman."
Stepan's analysis concludes that state power relative to that of civil society actually _grew_ between 1973 and 1981. "By focusing on the problem of domination and carefully designing its efforts at economic transformation so that their primary effect would be to reinforce the project of domination, the Chilean state managed to enhance its power over civil society" (1985: 319-320). Ironically, the policies of the libertarians, supposedly aimed at limiting the Leviathan state, actually ended up strengthening it against its people!
I might add in passing that the degree to which radical libertarian economics provided a theoretical underpinning for the policies of the Pinochet regime becomes strikingly clear when the essays in Buchanan, Tellison and Tullock (1980), with their attacks upon special interests seeking favors, are juxtaposed with Stepan's article.
Another recent work on Austrian economics in practice is Hindmoor (1999). He notes the influence of Austrian economics on Thatcherism in Britain.
"Three different ways in which Thatcherism may have been imbued with an Austrian spirit can be identified. First, and most directly, there was Margaret Thatcher's own `candle-end reading' of Hayek's The Road to Serfdom as an adolescent.64 Second, there was the impact of think-tanks like the Centre for Policy Studies and the Institute for Economic Affairs which published and popularised the work of Austrian economists, principally but not exclusively Hayek.65 These think-tanks. it can be argued, were important in turning the intellectual tide against socialism? Finally, and most indirectly, it is sometimes suggested that Austrian economics was an essential ingredient of the New Right ideology which provided Thatcherism's intellectual fiamework.67"
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Hindmoor argues that, contrary to libertarian interpretations of Austrian economics, the tradition can be used to justify certain forms of government intervention. Why? The Austrians argue that maximization of production and sale of goods and services at the lowest possible prices requires "rivalrous" competition that induces entrepreneurs to take advantage of opportunities for profit-making. The precondition for such competition is complete freedom of entry into all kinds of market activity. According to Hindmoor, "freedom" for the Austrians is strictly freedom in the negative sense--absence of coercion preventing entry into a market. If, however, freedom is thought of in a positive sense, as possession of resources, the Austrian argument can justify government intervention aimed at eliminating positive barriers to entry into a market--e.g., discrimination against new entrepreneurs by capital markets. In fact, claims Hindmoor, the effort of the Thatcher government to create an "enterprise economy" based upon small businesses engaged in just such intervention. The government's Business Expansion Scheme provided tax relief to investors in an attempt to make investment in a firm lacking an established track record more appealing. Its Loan Guarantee Scheme provided banks and other financial institutions with guarantees of loans for small businesses with viable business proposals which had tried and failed to obtain a conventional loan because of a lack of security. These programs, believes Hindmoor, "resulted in more entrepreneurs entering the market than would otherwise have done so." He concludes, "In other words, the effort to create an enterprise culture may have been a battle fought on behalf of the market, but it was a battle won not by the market but by government intervention."
The salient point: in the Chilean and British cases, both of which seem to represent self-conscious attempts at implementing the Austrian program, in actual practice required government intervention and strengthened the role of government in society (cf. Polanyi . In the Chilean case, state suppression of labor was required, as well as an attempt to use public policy to fragment civil society. In the British case, state efforts to give entrepreneurs the capacity to enter markets were required. These efforts were part of a dramatic expansion of small business policy under the Thatcher government (Goss 1991). (I might add that the Thatcher program, like Pinochet's, included a crackdown on unions).
In light of this list's having been continuously bludgeoned with _a priori_ arguments for the virtues of Austrian economics over the last three years, I found these case studies interesting. In the immortal words of Paul Harvey, _now_ you know at least some of "the rest of the story!"
REFERENCES
Buchanan, James M., Robert D. Tellison, and Gordon Tullock. Toward a theory of the rent-seeking society. College Station : Texas A & M University, 1980.
Goss, David. Small business and society. London ; New York : Routledge, 1991.
Hindmoor, Andrew. "Austrian economics, thatcherism and barriers to entry." _New Political Economy_ 4, no. 2 (July 1999): 251-265.
Polanyi, Karl. The great transformation. New York and Toronto: Farrar and Rinehart, Inc., 1944.
Stepan, Alfred. "State Power and the Strength of Civil Society in the Southern Cone of Latin America." Chap. in _Bringing the State Back In_, ed. Peter B. Evans, Dietrcih Rueschemeyer, and Theda Skocpol. Cambridge and New York: Cambridge University Press, 1985.
-- Jeffrey L. Beatty Doctoral Student Department of Political Science The Ohio State University 2140 Derby Hall 154 North Oval Mall Columbus, Ohio 43210
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