New Political Economy

ISSN: 1356-3467 (Print) 1469-9923 (Online) Journal homepage: https://www.tandfonline.com/loi/cnpe20

Transnational Capitalist Classes and the State in

Chile

Anna Kowalczyk

To cite this article: Anna Kowalczyk (2019): Transnational Capitalist Classes and the State in
Chile, New Political Economy, DOI: 10.1080/13563467.2019.1664444

To link to this article: https://doi.org/10.1080/13563467.2019.1664444

Published online: 11 Sep 2019.

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NEW POLITICAL ECONOMY
https://doi.org/10.1080/13563467.2019.1664444

Transnational Capitalist Classes and the State in Chile

Anna Kowalczyk
Institute for Public Affairs, Universidad de Chile, Santiago, Chile

ABSTRACT KEYWORDS
Chile is one of the first countries to adopt, what later became known as Globalisation and domestic
neoliberal policies, and is therefore one of the most cited examples in politics; Chile; dictatorship;
critical IPE literature. The adoption of these reforms in Chile tended to transnational capitalist
classes; state theory
be explained largely as an outcome of interplay between transnational
ideas/culture embodied in Chicago-trained economists and domestic
coercion (armed forces). Far less attention was paid to the
transformation of domestic material interests and the complex domestic
legitimation process which involved material concessions. The article
pays attention to the emergence and strengthening of transnationally
oriented fractions of capital within Chile during the dictatorship and
their articulation within the state apparatus. It shows that
internationalisation of Chile was a highly contested process, which
although occurred in the context of the emergence of powerful global
transformations and forces, essentially depended on the outcome of
struggles within the domestic setting.

Transnational Capitalist Classes in Chile in IPE Literature

Shared ideas and a common ideological project are some of the most often indicated features of
transnational capitalist classes. Its members are taken to have links to key business and economics
schools – strongholds of monetarist theory, share lifestyles and interests, work in transnational cor-
porations or international financial organisations, and participate in policy networks and conferences
such as the Bilderberg Group, the Davos summit, the Trilateral Commission, the Mont Pelerin Society
(MPS) or the European Round Table of Industrialists (Overbeek 1993, van Apeldoorn 1998, van der Pijl
1998, Sklair 2001, Shields 2003, Mirowski and Plehwe 2009, Moro 2015, van der Pijl and Yurchenko
2015, Heemskerk and Takes 2016). Dieter Plehwe (2010) demonstrated that the circles mentioned
above serve for the propagation of knowledge and expertise that favour transnational corporations,
before the orchestration of transnational lobbying and publicity campaigns. It was also suggested
that, as a consequence of these interactions, these forces share common identity and relative ideo-
logical cohesion and that this makes them a ‘community’ (Djelic and Quack 2010, Tsingou 2015).
The Chicago economists responsible for designing reforms in Chile were closely connected to the
transnational circles described above. Most of them were educated in the Economics School of the
University of Chicago, a stronghold of monetarist economics. They had also links to the MPS through
Milton Friedman, their professor and founder of the organisation. Friedman was invited to Chile by his
students after the military coup, met with Pinochet and maintained a correspondence with the
general. Friedrich Heyek, another key figure of the MPS, was also a frequent visitor to Chile during
the dictatorship and he assisted the regime in drafting the new constitution introduced in 1981
(in force until today), which was named after his book The Constitution of Liberty. During the same
year, the MPS held its conference in the coastal resort of Viña del Mar (Fischer 2009).

CONTACT Anna Kowalczyk ania_kowalczyk@hotmail.com

© 2019 Informa UK Limited, trading as Taylor & Francis Group
2 A. KOWALCZYK

Given the important role played by transnationally-connected economists in the implementation

of the neoliberal reforms in Chile, the country tended to be labelled as a laboratory of neoliberalism.
The laboratory-like conditions for the reform were provided by the authoritarian context which sup-
posedly shielded the economists from domestic struggles. This argument has been strengthened by
the fact that unlike the dictatorships in the neighbouring countries, e.g. in Brazil or Argentina, Chilean
armed forces were characterised by a strong hierarchical organisation, discipline and concentration
of power in the figure of one general, which facilitated mobilising the institution in favour of the new
economic policy. But this focus on the ideas coming from the outside and on the disciplined army
meant that broader domestic factors were neglected in the explanations of the transformation.
The role of the armed forces was seen as that of providing support for the transnational classes in
the domestic setting. As a consequence, the reforms in Chile tended to be seen as mainly externally
imposed. Robert W. Cox, for example, explained:
The Chilean coup and assassination of Allende … was a salient but by no means unique instance of how recalci-
trant Third World governments are ultimately removed by violence if they do not conform to minimum standards
of correct world-economy behaviour … [The] internationalisation of the Third World state is externally deter-
mined and imposed, but it attracts internal allies and collaborators. (Cox 1987, p. 261)

The analysis of the internal allies tended to be limited to the armed forces shown to act as supporters
of transnational capitalist classes. William I. Robinson depicts the armed forces as acting according to
the reproductive needs of global capitalism and argues that their task was first to provide political
conditions for neoliberal restructuring in order to withdraw when the task was accomplished (Robin-
son 1996, pp. 146–200). His analysis starts from the assumption that ‘political systems in the periphery
have, seen through the long-historic lens of the modern era, been penetrated and influenced, if not
entirely imposed, by the core’ (Robinson 1996, p. 19).
The complexity of the state in the aforementioned theorizations has rarely been considered. If it
does not disappear from the picture to be replaced by global hegemonic structures, it tends to be
seen as an instrument of transnational capitalist classes which ‘applies’ or ‘transmits’ the policies con-
ductive to their interests. Leslie Sklair argues that ‘there is one central inner circle that makes system-
wide decisions’ and the transnational capitalist class ‘inserts’ state into the global capitalist system
(Sklair 2001, p. 21, 112). William Robinson wrote that it ‘is that [transnational] fraction of capital
that imposes the general direction and character on production worldwide and conditions the
social, political, and cultural character of capitalist society worldwide’ (Robinson 2003, p. 21). And
according to Stephen Gill ‘state policies and institutional arrangements are conditioned and
changed by the power and mobility of transnational factions of capital’ (Gill 1990, p. 261). What is
missing from the picture is the political and conflictive character of these changes: instead of
simply imposing their projects on societies worldwide the transnational capitalist classes must
build alliances, overcome fractional conflicts and provide material concessions to some members
of societies in order to build and reproduce their hegemony.
The role of the state is crucial in this process and it is here were these conflicts play out and
where they are resolved. These complex processes tend to be taken into account in research on
the role of transnational capitalist classes in the core states (e.g. Moran 1997, Baker 1999), but
receive much less attention when investigating the periphery, with one of the exeptions
being A.D. Morton’s analysis of neoliberal transformations in Mexico (Morton 2013, ch.4). The
general tendency is to see the less developed states as lacking complexity, mute, passive, and
subject to external domination or reducing their role to providing coercion to implement the
projects coming from the outside (see also Drainville 1994 and Ling 1996). The question of pol-
itical power tends to be confused with that of sovereignty. While sovereignty in the periphery
has always been limited, dominant classes maintained strong political power. This was especially
the case in enclave economies where the role of state bureaucracy was limited to maintaining
internal peace and collecting taxes while the foreign companies controlled the wealth, while
at the same time domestic dominant classes consolidated their political power in the domestic
 NEW POLITICAL ECONOMY 3

setting according to the specificity of the power of other forces and their own contradictions
(Cardoso and Faletto 1977, Osorio 2004, pp. 165–79). At times the predominance of one fraction
over another and the characteristics of the state were the outcome of civil wars between distinct
bourgeois fractions and their allies. At stake was the question over whose behalf the state power
would be used, in the context of contradictory interests related to public policy including taxa-
tion and public investment (see Zeitlin 1984).
In Chile, the union between the armed forces and the economists was not as straightforward as its
subsequent reading indicates. According to the predominant vision, the Chicago economists pre-
pared an economic plan ‘El Ladrillo’ (The Brick) and presented it to the navy during the plotting
for the coup. The regime implemented the reforms after the overthrow of Allende shielding them
from social discontent by heavy repression.
Although this simplified explanation is not false, it ignores some important facts. First, ‘El Ladrillo’
was a general plan which favoured liberalisation of the economy without stating the timing and the
depth of the reforms. In fact, besides the Chicago economists the team which prepared it was also
composed of individuals who advocated corporatist organisation of the economy with strong partici-
pation of workers in the production process and the strengthening of industrial production. The pro-
posals included in the document were broad enough as not to exclude this possibility. Second, the
Chicago economists were marginalised in the economic policy during the first year after the coup
during which Augusto Pinochet, as well as other generals, openly critiqued their proposals. ‘Shock
therapy’ was rejected by generals and major economic groups and their business associations on
grounds that it would negatively affect employment and industrial production (Campero 1984).
Third, when Pinochet began supporting the Chicago economists he faced opposition from some
other generals leading to a struggle within the military bodies among ideologically competing frac-
tions (Valdivia 2003).
Why did Pinochet and some other generals finally concede to the reforms proposed by the econ-
omists? Some authors have pointed to the persuasiveness of their ideas, clear discourse, international
connections, and their claim to scientific authority (Valenzuela 1995). Marcus Taylor (2006, p. 8) points
out that the neoliberal project included not only economic policies but a proposal for the transform-
ation of social institutions which were attractive to the junta: the
appeal of the neoliberal policies to the Chilean authoritarian regime in the mid-1970s … rested primarily on their
promise to provide a far-reaching programme of social transformation that could resolve the underlying crisis of
Chilean society in the post-Second World War period.

Nonetheless, it must be noted that not only that the economists were unable to persuade the junta
during the first year after the coup but also that some generals remained hostile to them even after
this period. They were also unsuccessful upon their return from Chicago in the 1960s when the con-
servative circles and powerful economic groups distanced themselves from their proposals (Vial
Correa 1999, pp. 231–32).
Throughout the article, it will be argued that the Chicago ideas were successful only when they
were able to articulate domestic interests arising in the context of a specific global conjuncture.
Damien Cahill (2014) has already pointed to the error inherent in the tendency to consider funda-
mentalist neoliberal economists as the primary social force responsible for the neoliberal transform-
ation of states and economies. Instead, he argues that neoliberal ideas, which have no strategic
coherence in practice, ‘have been more influential as legitimating framework for neoliberal
agendas rather as the main force driving such agendas’ (p. 31).
What follows studies the emergence in Chile of domestic interests in favour of the neoliberal
restructuring: their material base, historically determined ideas, and expression of their interests
within the structures of the Chilean state. It demonstrates that even in the context of a dictatorship
characterised by strong hierarchisation of power, economic policy was the outcome of social
struggles affected by global transformations of capital accumulation.
4 A. KOWALCZYK

Transformations of the Interests of Chilean Bourgeoisie and Policy Change 1973–

1981
The fact that during the first year and a half after the coup Chicago economists occupied secondary
positions in the economic policy-making was not a coincidence: the regime planned to maintain the
central role of the industrial sector in the national economy. It was expected that by repressing organ-
ised labour, lowering wages and providing favourable tax, tariff and exchange rate conditions for the
remittance of capital and profits for potential foreign investors, the industry would be given an
impetus to modernise, specialise and therefore become more competitive internationally, especially
in the regional Andean market. Tariffs were kept high enough to protect national production, but
they were also lowered to diminish the prices of intermediate goods, while lower employment
costs provided a cushion against increased international competition (Moulian and Vergara 1980,
pp. 79–86, Foxley 1983).
At that time major economic groups and business associations opposed rapid liberalisation of the
economy advocated by Chicago economists who, although did not hold any significant positions in
the economic decision-making, were contracted as advisers. The president of the National Federation
of Industry (SOFOFA), one of the major opponents of the Allende government and a staunch advo-
cate of military intervention, expressed preoccupation about the presence of orthodox liberal thin-
kers among the members of the economic team and called for the combination of a greater
liberalisation of the economy to boost competition, with a concomitant planning to prevent cyclical
crises and promotion of the objectives of social development. The representatives of another power-
ful business association – the National Confederation for Production and Commerce (CPC) – pro-
posed solutions of corporatist nature and these involved the creation of an Economic and Social
Council which would integrate the government, business associations, workers and university stu-
dents.1 The most sympathetic to the ideas of Chicago economists was the Chilean Mortgage Bank
(Banco Hipotecario de Chile, BHC) (Silva 1996, pp. 54–74), but it was by no means the dominant
force in the pro-coup business coalition.
The Chicago economists’ proposals for rapid liberalisation of trade and finance were also met with
resistance if not with outright hostility from the representatives of the military regime. The Minister of
Economy Fernando Léniz, and Augusto Pinochet himself, opposed their neoliberal policy prescrip-
tions on grounds that they would have excessively negative impact on employment and production.
Instead, they stressed the need to develop a ‘truly Chilean’ economic model (Moulian and Vergara
1980, pp. 80–1).

Emergence of conditions for the growth of finance

The initial hostility towards the neoliberal reforms among the representatives of the major econ-
omic groups and the top echelons of the armed forces is striking, especially given the scale of
the liberalisation of the Chilean economy few years later. A closer look at the process of the
emergence and consolidation of the support for neoliberal restructuring reveals that the trans-
formations of the global political economy combined with the impact of an economic crisis in
Chile paved the way towards the rise of finance capital as the hegemonic bourgeois fraction
and the transformation of its ideological project into the dominant one. As a consequence,
the same actors which earlier criticised the social costs involved in the adoption of policies
favoured by Chicago economists, now were openly in their favour (Moulian and Vergara 1980,
p. 93).
Chilean economy was severely affected by the international economic crisis of 1974–75 which had
negative impact on its key sectors: manufacturing and copper exports, and affected their capacity to
drive economic growth. Global fall in demand for copper affected its prices leading to balance of pay-
ments crisis in Chile. Industrial production, in turn, was severely affected by soaring energy prices
(Chile depended heavily on imported oil) and falling domestic demand for industrial products. As
 NEW POLITICAL ECONOMY 5

a consequence, in October 1974 industrial production fell 12 per cent in comparison with the same
month a year earlier (Edwards and Cox Edwards 1992, pp. 43–6).
At the same time, increase of international liquidity provided enormous possibilities for the
growth of finance and banking and for their transformation into new dynamic sectors of the
economy. Following the 1973 oil crisis the OPEC countries located increased oil revenues in the
largest European and US banks, and these funds could not be invested profitably in the industrialised
world due to a recession. For this reason, banks were looking for credit demand in oil-importing
developing countries by extending offers of cheap loans to their clients in less developed states.
The surge of loans was boosted by the emergence of Eurocurrency market in London which
meant that more money was available to lend out and financial markets had greater autonomy
from national banking systems. The increased availability of loans in Latin America was additionally
facilitated by the opening of the branches of US and European banks in the region in response to the
expansion of their corporate clients (multinational corporations) in order to avoid being replaced by
local credit sources (Stallings 1987, pp. 84–94). As a result, in virtually all borrowing countries the
financial sector grew rapidly at the expense of long-term industrial projects (Stallings 1987, Joyce
2013, pp. 42–6).
In Chile, as financial intermediations became extremely profitable in the context of the economy in
recession, it drew firms previously engaged in other types of economic activity. Access to inter-
national finance meant not only new business opportunities but also provided means (credit) to
adjust economic activities in the midst of the new circumstances characterised by intensifying inter-
national competition. In agriculture, firms took credit to transform their production focusing, in the
context of depressed domestic demand, on international markets using credit to switch to primary
product exportation (especially wood and fruit). Dairy and stockbreeding producers used credit to
invest in new production technology at the same time as they were using their political power to
achieve the establishment of international tariff and non-tariff barriers which protected their
sector (Edwards and Cox Edwards 1992, pp. 124–39).
In short, the internationalisation of finance provided the opportunity for the financial fraction to
rise to the hegemonic position in the power bloc,2 as it appeared to have the potential of leading
economic recuperation in the context of severe recession. However, the final outcome depended
on the ability of this fraction to guide ideologically and politically the rest of the classes in the
bloc, and the state played a crucial role in organising the domination through introducing measures
favouring finance and other compensatory policies to affected sectors, and it was being transformed
in the process. In the end, the legitimacy of the new regime depended on economic recuperation.
It was the domestic coalition, rather than international financial institutions, which was the driving
force behind the push towards financial liberalisation – Chile liberalised its capital account at the time
when International Monetary Fund (IMF) staff favoured the maintenance of capital account controls
and has not yet included liberalisation of capital accounts as part of its conditionality.3

Change of economic policy after 1975

In the midst of the global economic crisis and the expansion of the supply of cheap loans to devel-
oping countries the policy of the regime changed and began to facilitate the growth of finance
capital. In April 1975 the Junta dismissed the previous Minister of the Economy Fernando Léniz
opposed to neoliberal prescriptions and replaced him with Sergio de Castro, a radical Chicago econ-
omist. Soon afterwards the economists completely directed the economic policy: at the end of 1976,
they controlled almost all key economic positions: Ministry of Economy, Ministry of Finance, the
Central Bank and the National Planning Office. Subsequently their power grew even further and
by the end of the decade they controlled the ministries responsible for social policy: labour, edu-
cation and health.
The liberalisation of finance was the cornerstone of the ‘shock treatment’ which replaced in April
1975 the earlier gradualist anti-inflationary approach. The reforms included privatisation of banks
6 A. KOWALCZYK

nationalised during Allende, reduction of obligatory bank reserves, facilitation of the operation of
foreign banks, permission for the operation of financial non-banking institutions, liberalisation of
banks’ interest rates and elimination of restrictions on bank credit. These reforms further intensified
in 1979 when Chile liberalised its capital account and eliminated restrictions on the proportion of
external bank obligations (Edwards and Cox Edwards 1992, pp. 69–105, Meller 1996, p. 190). Domestic
financiers were especially privileged by the liberalisation of finance because it was combined with
restrictions on foreign ownership and operation of domestic financial institutions, which allowed
them to reap benefits of liberalisation while being shielded from foreign competition.4
What followed was a golden era for banking and finance lasting until the economic crisis of 1982.
The profits came mainly from credits as interest rates in Chile were very high in comparison to inter-
national interest rates and therefore banks could make extremely high profits. The average cost of
peso-denominated credit averaged 28 per cent between 1977 and 1981 while the real domestic-cur-
rency cost of foreign-currency credit averaged less than 1 per cent (Frieden 1991, pp. 143–77,
Edwards and Cox Edwards 1992, pp. 78–87). Speculation was also an important source of earnings
(Meller 1996, pp. 196–7, 209).
Greater availability of credit created opportunities for other economic sectors to grow, as the
newly available funds could be used to invest in new technology or change economic activities
into more profitable ones. This applied mainly to firms which were in position to access foreign
credit, which tended to be, in Chile and in the rest of Latin America, the biggest economic groups
(Maxfield 1989).
Credits (together with the facilities to dismiss labour and trade liberalisation) were used by former
manufacturers to transform their economic activity to imports of substitute products they used to
produce. Their knowledge of the market and control of commercialisation channels made it possible
for them to become commercial intermediaries (Ffrench-Davis 2018, pp. 146–7) – the commercialisa-
tion of imported goods together with the financial sector were the most dynamic economic sectors
until 1981 (Ffrench-Davis 2018, p. 198).
The newly available credit was also used to buy up state companies and banks which were being
sold off at fraction of their value. The consequence was an enormous concentration of economic
activity and wealth. By the end of 1978, nine economic groups controlled 82 per cent of the
assets of the Chilean banking system. More than half of the largest 250 companies were controlled
by five of these groups (Foxley 1983, pp. 80–4). Although some anti-concentration measures were in
place, their violation was ignored by the authorities. Economic groups tended to establish a multi-
plicity of interconnected companies which bought fractions of bank assets (Edwards and Cox
Edwards 1992, p. 70).
Sectors which did not have access to credit (i.e. found themselves outside of dependence on
finance capital), such as peasant agricultural production, stagnated as they had no choice but to con-
tinue production for the depressed domestic market (characterised by falling wages, growing unem-
ployment and depressed prices of goods for internal consumption) while reaping very low profits
(Crispi 1981).

Chilean Dominant Classes and the State

Investigations of Chile’s dominant classes during the decades leading to the military coup, have docu-
mented significant degree of concentration of economic activity in the hands of few families whose
representatives had also important ties to the major political parties and to the parliament. As a con-
sequence, it tended to be argued that fractional conflicts were relatively smoothly resolved taking
into account the long-term interest of the dominant classes as a whole, and this in part explains
the permanence of parliamentary democracy in Chile in the twentieth century, rather unusual at
that time in the region where military coups were a commonplace. E. Reimann and F. Rivas argue
that ‘these [were] not the soldiers but the Chilean bourgeoisie that constitute[d] an exceptional
case’ (Reimann and Rivas 1976, p. 236).
 NEW POLITICAL ECONOMY 7

In his study of Chile’s economic groups at the end of the 1950s, Ricardo Lagos Escobar (1965)
identified eleven of such groups and demonstrated that they diversified their interests across
various sectors of the economy and the members of their boards of directors had links to the parlia-
ment. Maurice Zeitlin and Richard Ratcliff (1988) in their seminal work on Chile’s dominant classes in
the 1960s, showed that a cluster of interrelated families owned much of Chile’s land, principal non-
financial corporations and banks. The representatives of these powerful families occupied key pos-
itions in the directorates of firms from distinct economic sectors where they strove to harmonize
their policies and to reconcile their contradictory interests ‘in order to maximize the entire
system’s profits, irrespective of the profits earned by each of its separate financial, industrial, and
commercial units’ (116). These ‘kinecon groups’ had also their representatives in Congress who
worked to conciliate the interests of various economic sectors in the design of public policies. One
of the examples of the reconciliation of interests between distinct fractions has been an agreement
between landlords and the bourgeoisie: the contradictions between these two sectors were resolved
by the exclusion of the peasantry from the political system through landowner’s control of rural vote
and by the maintenance of quasi-feudal relations of production in the countryside (see Cardoso and
Faletto 1977). The idea that Chile’s dominant classes were able to identify their common long-term
interest and promote it in the political system also emerges from Sofía Correa’s study of Chile’s pol-
itical right before the military coup of 1973. She argues that
despite the inevitable existence of minor sectoral conflicts and doctrinaire differences, the whole economic direc-
tive together with right-wing political parties shared the same vision of the state. For this reason, the long-term
interest of the upper class took precedence over the immediate economic interests of any of its sectors. (Correa
Sutil 2011, pp. 64–65, own translation)

Yet, the evidence from the study of the military dictatorship suggests that at the time of turmoil in
domestic and international political economy, Chile’s dominant classes had difficulties in defining the
‘long-term interests’ of capital accumulation and class domination in Chile, beyond the need to
protect property rights and disciplining labour.
The policies adopted were often contradictory reflecting conflicts in the political class struggle,
which were also inscribed within the state itself resulting in contradictions between distinct state
branches and apparatuses. The struggle which ensued was not only about policies but also about
the hierarchy of distinct apparatuses and branches of the state.

Dominant and popular classes

The coalition which favoured the overthrow of the government of Salvador Allende was heteroge-
nous and united much more by its hostility to socialism than by a common ideological, economic
or political project. Although the tendency is to emphasise the neoliberal forces which subsequently
largely defined the direction of Chilean political economy, initially it was far from clear which political
and ideological strand of the coalition would be able to impose the general ideological direction on
the dictatorship. The coalition included conservatives and liberals, nationalist ultra-right and centre of
Christian Democracy, supporters of corporatism and individualism, those who favoured the abolition
of political parties and those who argued for their maintenance, admirers of Francisco Franco and the
nostalgic for an idealised version of Spanish lordly rule in Latin America (see Cristi 2015a). The con-
servative-liberal synthesis which emerged in the 1970s and was exposed in the thought of one of the
main ideologues of the regime, Jaime Guzmán, combined: first, the economic liberalism of Friedrich
von Hayek; second, the social doctrine of the Church which proposed the ontological superiority of
the individual over society and was divulged in the encyclical Mater et magistra written by Pope John
XXIII and promulgated in 1961, and, finally, Carlism, the antimodern and antidemocratic political
movement originating in Spain, which saw the modern state (and the idea of popular sovereignty)
as altering the natural order of society and its spontaneous hierarchies; the circles of supporters of
Carlism were growing in Chile in the 1950s together with corporativist ideas and they had important
8 A. KOWALCZYK

influence in the Navy (Cristi 2015b, p. 157). This at times contradictory idiosyncrasy was evolving with
the changes in political circumstances: after 1978 Guzmán abandoned corporativist ideas and
retained the aspects which could be reconciled with neoliberalism (Cristi 2015b, p. 170).
The consolidation of this ‘conservative synthesis’ was accompanied by the emergence of finance
capital to the hegemonic position in the Chilean power bloc. Just as other fractions were increasingly
dependent on finance, its ideological dispositions (neoliberalism) were transforming into a new com-
prehensive concept of control (van del Pijl 1998, pp. 49–63). Thy hybrid nature of this final synthesis
reflected the ideological concessions which were conceded in the course of the political process.
The political stance of the dominant classes and their relationship to the popular classes was
influenced by the transformations of their main economic activities. The re-orientation of assets
towards banking and finance, commercial intermediation of imports and export-oriented production
based on natural resources, weakened the dependence of domestic economic activity on popular
classes. Unlike manufacturing focused on the domestic market which benefits from increased pur-
chasing power of the population, export-oriented production relied on low wages and deregulated
labour market for its competitiveness, was less labour-intensive and did not benefit from the expan-
sion of the domestic market. Financial capital, in turn, favoured lower inflation over the maintenance
of high levels of employment. The emergent hegemonic fraction (finance capital and export-oriented
production based on natural resources) falls into the category of what Nicos Poulantzas (1975, p. 71)
terms comprador bourgeoisie, in his distinction of capital fraction in terms of the degree of their
dependence on foreign capital and domestic popular classes, which influences the political position
of the bourgeoisie. 5 We can also distinguish producers for domestic market who increasingly
depended on foreign credit and technology therefore becoming, according to the classification
developed by Poulantzas, domestic (or interior) bourgeoisie as opposed to national bourgeoisie
without such dependence (this category would include especially peasants who, without access to
credit, continued producing cereals for the depressed domestic market at very low prices). According
to Poulantzas the relationship of the domestic bourgeoisie with the popular classes is much more
ambivalent due to their reliance both on domestic market and on foreign technology. The tensions
between domestic and comprador might have contributed to the tensions within the military appar-
atus discussed in the following sections.
The implementation of neoliberal reforms instead of being a pre-determined objective of Chile’s
dominant classes or of the military authorities, emerged as a result of trial and error experimentation,
opportunities created by the transformations of the global political economy, memory of class
struggle in Chile (hostility towards organised labour) and the characteristics of Chile’s dominant
classes (concentration of economic activity). Changes in policy stances were made according to
what seemed to be rational at a particular time.

The state
The survival and performance of the capitalist state depends on the revenue generated from econ-
omic activity and it therefore has a mandate to create and sustain conditions for capitalist accumu-
lation and tends to privilege the interests of the dominant classes (see Offe 1984). However,
conditions necessary for capitalist accumulation may be secured in various, and often contradictory,
ways and they are worked out through political struggle which also transforms the state itself. The
configuration of state branches, apparatuses and institutions, their prerogatives of action and hierar-
chies, result from the struggle and they constitute the manner in which political class domination is
inscribe within the state. The resultant ‘strategic selectivity’ of the state means that
the state is not equally accessible to all social forces, cannot be controlled or resisted to the same extent by all
strategies, and is not equally available for all purposes. Different political regimes inevitably favour the access of
some forces, the conduct of some strategies, and the pursuit of some objectives over others. (Jessop 1990, pp.
316–17)
 NEW POLITICAL ECONOMY 9

Throughout the duration of the dictatorship political struggles were also transforming the structure
of the state, although the mechanisms of transformation were different than they would be in a
democratic regime. First, popular classes were largely excluded from the state (the dictatorship
was established largely in response to the increased organisation of the popular classes and the rela-
tive disorganisation of the dominant ones; it re-established the ‘normality’ through the relative exclu-
sion of the popular classes from the political system). Second, earlier mechanisms for the resolution of
conflicts, reaching of agreements and presenting particular interests as the general interests of the
society, such as the parliament and the political parties, were dissolved; as a consequence, the domi-
nant classes found themselves deprived of important mechanisms for conflict resolution.6
This relative inflexibility of the Chilean dictatorship contributed to the explosion of massive pro-
tests in the mid-1980s, which brought together the popular classes with some sectors of the domi-
nant ones and threatened the continuation of the dictatorship. One of the main triggers of the
discontent of bourgeois sectors, as will be explained in more detail in the following sections, was
the inability to influence the policies in response to the 1982–3 economic crisis, which were
largely dominated by the dogmatic prescriptions of Chicago economists which privileged banking
and finance at the expense of non-traditional sectors both during and before the economic crisis.
By the end of the 1970s, combating inflation, essential for the growth of banking and finance,
became one of the principle goals of economic policy and it was done in part through fixing the
exchange rate, which additionally gave security to banks and non-financial corporations whose
levels of foreign indebtedness were extremely high. At the same time, overvalued peso meant
that exports were losing their competitiveness and export-oriented firms pressured for devaluation,
which was opposed by Chicago-educated Minister of Finance, Sergio de Castro (Edwards and Cox
Edwards 1992, pp. 52–64).

The Military Apparatus

The military rule in Chile is typically characterised as personalist given Pinochet’s holding of the titles
of the President, besides that of commander in chief of the army, and his permanence in office during
sixteen and a half years. As a consequence, the dictatorship is commonly portrayed as a ‘one-man
rule’ whereby Pinochet, associated with neoliberal economists, attains policy control and moulds
the army checking internal challenges to his dominance. Once the regime is represented as
largely reducible to one actor, there seems to be no point in examining the decision-making
process within the military apparatus and the conflicts surrounding it.
However, a closer examination of the top echelons of the military demonstrates the existence of
severe conflicts regarding competing visions of the desired socioeconomic order and a complex
system of internal rules and procedures which regulated the legislative process. Robert Barros
argues that these rules, which were codified by mid-1975, responded both to conflicts within
the junta over competing policy visions and to Pinochet’s attempts to centralise power. The
Statue of the Junta, the Secretary of Legislation and the Legislative Commissions separated the
executive and legislative functions preventing Pinochet from dominating in lawmaking, structured
the legislative system around the principle of unanimity, codified the terms of resolution of
conflicts – each commander was provided with an institutionally protected channel of voice
and veto in lawmaking, and rationalised the legislative process in response to the earlier enact-
ment of a multitude of contradictory decree-laws and subsequent need to give more cohesion
to legislation (Barros 2002, pp. 36–83).
The difficulty associated with learning about competing policy stances results from the secret
nature of deliberations and measures taken to prevent policy divergences from spilling into the
public domain and be politicised, which could affect the credibility of the armed forces and have
a profound impact on discipline within the institution. The Junta’s civilian press secretary, Frederico
Willoughby, was responsible for the preparation of general’s to interviews making sure that the con-
tradictory opinions on the same issue would not be channelled to the press (Spooner 1994, p. 87).
10 A. KOWALCZYK

Among the main points of contention were substantive policy differences: for example, the navy
was responsible for bringing in the civilian neoliberal economists while the economists associated
with the army were pro-statist and nationalist (Barros 2002, pp. 64–5). Air Force General Nicanor
Díaz Estrada, appointed Minister of Labour in mid-1974, had a relationship of animosity with the neo-
liberal economists and argued that he was unable to reach understanding with the economic team.
He called the economists the ‘Chicago Gang’. When the Ministry of Finance wanted to assign a bud-
getary overseer to each government ministry in order to control expenditures, Díaz opposed the pro-
posal and finally resigned (Spooner 1994, pp. 108–9). In 1974 the Ministers of Labour and Agriculture
favoured corporatist organisation in the countryside, which was to be structured around the Socie-
dades de Cooperación Agrícola (SOCAs, or agricultural cooperation societies); the societies were to
be organised for the management of collective goods, such as machinery, irrigation waters and build-
ings, and as channels for public credit; they aimed at consolidating the support of successful capitalist
peasant middle class (Kurtz 2004, pp. 75–9).
Another important issue was that of the hierarchy between different policy areas: the legislative
commissions established in mid-1975 were to prepare projects in their respective areas of exper-
tise and they each one was presided by a Junta member. The Navy was responsible for Finance,
Economics, Development and Reconstruction, Mining, and Foreign Relations; the Air Force was in
charge of Interior, Labour and Social Welfare, Education, Public Health, and Justice; the National
Police was responsible for Agriculture, Land and Settlement, Public Works, Housing, Urbanisation,
and Transportation. The commissions became the central working organs through which each
commander elaborated a concrete position on a myriad of legislative proposals before the
Junta. They functioned as legal councils to Junta members and generals consistently defended
the autonomy of their service and were hostile to their subordination to other branches (Barros
2002, pp. 61–8).
One of the principal conflicts took place between general Gustavo Leigh, commander-in chief of
the Air Force and responsible for social policy area, and general Pinochet. Leigh favoured the incor-
poration of the popular classes with the end of countering Marxism, he opposed neoliberal policies
and frequently blocked structural reforms (Valdivia 2003, pp. 97–202). For example, in September
1976 he vetoed proposals that were to open the door to the privatisation of education and
mining (Barros 2002, p. 186). To a great extent he promoted the policies initially proposed by indus-
trial business associations (SFF, ASIMET) and the agricultural association SNA. These supported the
objective of social development which should be conducted by the private sector via, for
example, some kind of integration of the workers to the production process. In response to these
pressures, the regime promulgated in 1975 the social status of the companies and created the
COPROCO corporation of social development (Campero 1984, pp. 112–16).
The forced retirement of General Leigh in 1979 coincided with consolidation of the neoliberal line
of regime policy: during the same year the regime implemented a highly restrictive Labour Code and
a year later social security system was reformed, replacing the earlier one proposed by Leigh and
Díaz; the new social security system enhanced the role of the private sector in the administration
of the funds and eliminated the portion of social security tax paid by the employer (Borzutzky 2005).
The strengthening position of finance in Chilean economy was accompanied not only by trans-
formations, described in the previous section, within the ministries responsible for economic and
financial policy, but also by the increasing subordination of most policy areas to the decisions ema-
nating from the Ministry of Finance. During the first months of the regime many of the decisions
regarding economic and social policy were contradictory. But by the early 1975, just as the finance
was growing in strength in the economic system, the predominance of the Ministry of Finance
was consolidated. In April 1975 Jorge Cauas was appointed the Minister of Finance and soon was
given faculties that extended his influence to other related areas. The policies adopted in, among
other, Ministry of Economics, Agriculture, Labour, Public Works, Mining, Housing and Transportation,
were to be synchronised with the decisions made by the Ministry of Finance (Cavallo et al. 1997, pp.
117–18).
 NEW POLITICAL ECONOMY 11

The Economic Crisis and the Relative Autonomy of the State

During the 1982–3 economic crisis, the greatest experiences in Chile since the Great Depression, the
Chilean state acted against short-term interests of finance capital, puzzling those who took the
regime to be just the political appendage of powerful economic groups: banks were intervened or
nationalised, some of its key figures incarcerated and the key representatives of Chicago economists
were dismissed. Those who spoke of the autonomy of the regime from economic groups pointed to
these events as a confirmation of their arguments (e.g. Pion-Berlin 1986). However, although some
short-term interests of finance were affected by government policy, the dictatorship continued to
favour finance and the intervention was aimed at resolving contradictions between distinct econ-
omic sectors which threatened to destabilise the political system.
The term of the ‘relative autonomy of the state’ as defined by Nicos Poulantzas (2000, pp. 127–45)
aptly describes this nature of this apparent contradiction: although the state in a capitalist society
advances long-term interests of capitalists as a whole, and it is therefore not autonomous from
them, in order to assure this long-term interest it must act against some short-term interests of
capital or fractions of capital.7
Poulantzas opposed the conception of the state as an instrument completely manipulated by the
dominant class or fraction on account that it ignores the importance of the specific materiality of the
state and assumes that the class deploys its political unity prior to state action. He argued that
although a capitalist state does favour the interests of the bourgeoisie, it has an opacity of its own:
change in the class relationship of forces always affects the State; but it does not find expression in the State in a
direct and immediate fashion. It adapts itself exactly to the materiality of the various state apparatuses, only
becoming crystallized in the State in a refracted form that varies according to the apparatuses. (2000, pp. 130–1)

Contradictions between classes and fractions play out within the state and take the form of internal
contradictions between and within various apparatuses and branches: ‘The policy of the State is thus
established through a real process of intra-state contradictions’ (2000, p. 134).
They play out in the context of a specific apparatus unity of the state (centralisation), related to the
unity of state power which is established in a complex process and ‘finds expression in the fact that its
global policy is massively oriented in favour of the hegemonic class or fraction’ (136). But this unity is
not established through the cohesive will of the bearers of the dominant fraction or of their hold on
power but rather ‘is written into the capitalist State’s hierarchic-bureaucratized framework’ (136) and
is achieved, among others, through a chain of hierarchy between apparatuses and branches.
The contradictions between finance capital and export-oriented producers were visible through-
out the 1970s but they proved irreconcilable when the economic crisis struck in 1982. Until then, the
regime’s economic policy privileged finance and introduced some compensatory measures to favour
the growth of export-oriented producers. Between 1978 and 1982 the macroeconomic policy was
focused on fighting inflation by regulating exchange rate, which worked to the disadvantage of
exports (Moulian and Vergara 1980, pp. 99–101).8 The competitiveness of exports was boosted, in
turn, by a new Labour Code, which went into effect in 1979, and reduced the effective cost of con-
tracting labour force: firms were benefited by the flexibility to fire labour force, limitations on union
activity and absence of labour conflicts (Foxley 1983, Edwards and Cox Edwards 1992, pp. 123–48).
The financial liberalisation in the 1970s was not accompanied by adequate regulatory mechanisms
and as a consequence firms accumulated large debts and banks were lending almost without restric-
tions, until the situation became unsustainable. In 1982 firms began to announce bankruptcies
endangering the existence of the whole Chilean financial system. This situation was aggravated by
the fall of the prices of commodities. When the signs of crisis made themselves visible, the regime
followed the advice of Chicago economists which essentially meant waiting until the forces of the
market reach equilibrium. This meant that the overvalued currency would be maintained what
favoured finance as it kept down inflation and foreign debt (mostly kept in US dollars) payments
manageable.
12 A. KOWALCZYK

Chicago economists in the Central Bank and in the Ministry of Finance (first Sergio de Castro and
later Sergio de la Cuadra) proposed to resolve the contradiction by lowering wages. But fall in wages,
Pinochet and some of his collaborators believed, could seriously endanger the continuity of the
regime given the already heated situation in the streets (Cavallo et al. 1997, pp. 522–4).
Beginning in 1982, and unable to influence government policy through institutional mechanisms,
farmers, truck owners, and merchants carried out a number of joint activities and demanded the
replacement of civilians who directed the nation’s economic policy. In their Declaration of Valdivia
of October 1982, they held economic policy makers responsible for the destruction of national pro-
ductive apparatus and for the transfer of resources from the productive to the financial system
(Campero 1984, pp. 135–6). In addition, the domestic bourgeoisie aimed at strengthening their
organisations through incorporating opposition labour unions, which contributed to the reemer-
gence and strengthening of popular mobilisations. It not only called for ‘political opening’ to
ensure citizen participation in economic decisions (Campero 1984, pp. 136–7) but also invited
union leaders to discuss the ‘social partnership’ between workers and entrepreneurs that would
achieve ‘social harmony’ through favourable environment for private enterprise and increases in
salary and employment levels (Campero 1995, pp. 142–3). Encouraged by massive bourgeois and
petty-bourgeois protests, workers staged massive strikes; in May 1983 the copper workers’ union
called for a national ‘day of protest,’ which was attended by various sectors of workers, students,
and shanty town dwellers. Despite government’s repression protests became a monthly event and
sponsorship spread to political parties with the issue of the return to democracy becoming the
central one (Stallings 1989, p. 189).9
Intervention into the private banks, held responsible for the worsening of the crisis, and selective
concessions to protesters were some of the measures by which the dictatorship could save its legiti-
macy. Sergio de Castro, staunch defendant of the maintenance of overvalued currency was dismissed
from the Ministry of Finance in April 1982 and few months later the newly appointed Sergio de la
Cuadra devalued peso. More restrictive bank regulations were drafted (Silva 1995, p. 114–18) and
in the early 1983 the regime took over five banks, closed three others, other two were subject to
its direct supervision, and the key figures of many of them were jailed for illegal activities; the
largest Chilean private banks, which formed part of the country’s biggest economic groups, were
among those that were taken over (Foxley 1983, p. 29). Macroeconomic policy began to stress a reor-
ientation of production towards exports, construction benefited from subsidies offered to home-
buyers (Stallings 1989, pp. 186–7, 190–3), and beginning in 1983, agriculture and industry received
protection from international competition (Kurtz 2004, pp. 58–60, Winn 2004, p. 130). In the
second half of the 1980s Chile’s exporting firms (mainly tied to natural resources) rose exponentially,
a process helped by the fall in real wages – the average real wage was cut by 20 per cent and the net
minimum wage fell by 40 per cent (Meller 1996, pp. 255–7). In addition, the regime facilitated the
participation of the representatives of distinct business associations in economic policy-making by
creating new mechanisms that enabled them to participate in drafting decrees, ordinances and legis-
lations pertinent to their sectors of interest (Silva 1995, p. 118).
Although some financial magnates heavily critiqued regime’s decision to devalue the currency, for
example Javier Vial who was later called by Pinochet ‘antipatriotic’ and it was suggested that he could
be thrown out of the country (see Cavallo et al. 1997, pp. 525–27), finance in general maintained its
dominant position in the Chilean economic system. This was partly due to the maintenance of the
predominance of Chicago economists in the Ministry of Finance, which considered a priority the
payment of foreign debt as not doing so could endanger the Chilean financial system (Meller
1996, pp. 233–65). Even when at the high point of popular protests Pinochet appointed Manuel
Martín as the Minister of the Economy – Marin was critical of Chicago economists and was in
favour of increasing fiscal deficit and abandoning the agreements reached with the IMF (Cavallo
et al. 1997, p. 563) – the Ministry of the Economy was subordinated to the Ministry of Finance and
Chicago economists could impose their policy preferences.
 NEW POLITICAL ECONOMY 13

Private banks received significant support from the Central Bank, and the regime helped debtors
through redistributing the losses among the rest of the society. The journal of Chilean Central Bank
calculates that government’s programme of help to banks and local debtors had the estimated cost
of 35 per cent of annual GDP (G.Sanhueza, c.f. Ffrench-Davis 2018, p. 225).

Conclusions
The dominant reading of the implementation of neoliberal reforms in Chile (and elsewhere) gives the
impression that what takes place is a process led by the representatives of neoliberal think tanks,
transnational capital and their allies in national states, who play a crucial role in defining and imple-
menting neoliberal policy proposals. The transformations taking place since the 1970s seem to be
primarily driven by fundamentalist neoliberal intellectuals who are responsible for transformation
of states and economies.
This seems to be especially the case in the periphery, where states seem to be much more prone
to external influence given their economic and political dependency on the centre. As a conse-
quence, states in the periphery seem to be less powerful and more prone to external manipulation,
politically (foreign integration and military coups supported by foreign powers), ideologically (adop-
tion of ideologies coming from the outside) and economically (dependence on foreign markets).
In fact, the sovereignty of peripheral states historically tended to be much more limited than that
of the central states. However, this has not meant that they have been weaker as centres of political
power. On the contrary
both in the imperialist world and in the periphery, those who hold power entrench themselves in the State and
through this they manage to present their interests as the interests of ‘the nation’ if not as those of the humanity,
and from there to boost their strength to implement them. (Osorio 2004, p. 158, own translation)

The case of the neoliberal restructuring in Chile demonstrates that the adoption of neoliberal policies
was triggered by transnational processes to the extent that they provided impetus for the growth of
domestic interests (finance capital), which stood to benefit from the new circumstances. The interna-
tionalisation of finance, and particularly the boom of the branches of foreign banks in Latin America,
created new possibilities for growth for domestic financiers, just as the global economic crisis of the
mid-1970s was disadvantageous for industrial production. The neoliberal ideas ‘have been more
influential as legitimating framework for neoliberal agendas rather than as the main force driving
such agendas’ (Cahill 2014, p. 31).
The policies finally implemented, even though this happened in an authoritarian context, were the
result of a struggle fought out within the domestic setting and within the apparatuses of the Chilean
state. The consolidation of finance as the hegemonic fraction depended on its ability to present itself
as the engine for growth of the rest of the economy. The neoliberal restructuring was initially resisted
even by the top echelons of the armed forces and the process of its adoption included ideological
and material concessions such as providing a cushion or compensation for sectors not directly
benefited by the expansion of the financial sector. In the process of struggle, the material structure
of the Chilean state was transformed (state apparatuses closest to the new dominant fraction were
gaining predominance: Ministry of Hacienda – Treasury – became the seat of the supporters of
financial liberalisation and its growing power over other ministries) creating structural limitations
for future struggles.
The process was ridden by dismissals, retirements, assassinations, and concessions to dominant
and to dominated classes which resulted in a particular ‘conservative synthesis’ of Chilean
neoliberalism.

Notes
1. Initial business opposition to neoliberal policies in Chile is discussed in Silva (1996) and Campero (1984).
14 A. KOWALCZYK

2. I use the concept ‘power bloc’ following the definition by Nicos Poulantzas as a specific alliance of dominant
classes and fractions on the terrain of political domination, which generally functions under the leadership of
one of the dominant classes or fractions, the hegemonic class or fraction (1975, p. 93).
3. This stance reflected lack of agreement among the main stakeholders of the Fund. In the end the question of
capital account liberalisation was dealt with individually on ad hoc basis depending on the domestic support
for this reform (Joyce 2013, pp. 35–51). See also Chwieroth (2010).
4. These policies were characteristic of capital account liberalisation in many other less developed countries
(Pepinsky 2013).
5. These classifications have some similarities to that used by Eduardo Silva (1996) who wrote about ‘internationally
competitive producers for the domestic market’ or ‘producers for international market in fixed and liquid asset
sectors’ with the difference that Silva defines these classes only in relation to the international market (and
not also to popular classes).
6. This rigidity of the state during an authoritarian regime in its response to crises, conflicts and contradictions was
analysed by Nicos Poulantzas (1976) in his study of dictatorships in Greece, Spain and Portugal. Poulantzas con-
cluded that this makes authoritarian regimes relatively inflexible and inadequate to the task of political rule in
capitalist societies (see also Jessop 1990, 64–6). This is in line with Poulantzas’ theorisation of the state as a
‘social relation’ (Poulantzas 2000), which contrasts with the dominant theorisations of the state in Marxist and
neo-Weberian theories which abstract the state from the realm of social relations. On the discussion of the ten-
dency to reify the state see Bratsis (2006).
7. Despite some important insights this view also lends itself to functionalism – capitalist state is seen as existing in
the function of the interests of capitalists. Nonetheless Poulantzas’ conceptual framework is extremely helpful to
the understanding of the relationship between global processes and domestic politics. See especially Jessop
(2002), Kalyvas (2002), Thomas (2002).
8. Economic groups, which tended to operate both within finance and exports, were divided on the question of
devaluation depending on the predominance of firms from one sector over another under their control
(Edwards and Cox Edwards 1992, 57–9).
9. One may wonder whether the inter-bourgeois conflicts opened a breach for the organisation of the popular
classes or was it rather that these very organisations created tensions within the dominant classes. The
process certainly consisted of elements from both above and below. See also Przeworski (1991, 56–7).

Acknowledgements
I would like to thank Peter Bratsis for discussions and comments on the subject of this article and to Stuart Shields for
introducing me to the subject of transnational capitalist classes. All errors and shortcomings are the responsibility of the
author.

Disclosure statement
No potential conflict of interest was reported by the author.

Notes on contributor
Anna Kowalczyk teaches Political Economy in the Institute of Public Affairs, Universidad de Chile. She has published in
Latin American Perspectives, Historical Materialism and Demarcaciones.

ORCID
Anna Kowalczyk http://orcid.org/0000-0002-3150-6034

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