stylistic:style_transfer, quality:corruption
Economic policy

The first country in the world to make that momentous break with the past—away from socialism and extreme state capitalism toward more market-oriented structures and policies—was not Deng Xiaoping's China or Margaret Thatcher's Britain in the late 1970s, Ronald Reagan's United States in 1981, or any other country in Latin America or elsewhere. It was Pinochet's Chile in 1975.

In 1973, the Chilean economy was deeply depressed for several reasons. Allende's government had expropriated many Chilean and foreign businesses, including all copper mines, and had controlled prices. Inflation had reached 606%, income per capita had contracted by 7.14% in 1973 alone and 30% compared to 1970, GDP had contracted by 5% in 1973, and public spending rose from 22.6% to 44.9% of GDP between 1970 and 1973, creating a deficit equal to 25% of GDP. While some authors like Peter Kornbluh also argue that economic sanctions by the Nixon administration helped to create the economic crisis, others like Paul Sigmund and Mark Falcoff argue there was no blockade because aid and credit still existed (albeit in smaller quantities), and no formal trade embargo had been declared.

By mid-1975, after two years of Keynesianism, the government set forth an economic policy of free-market reforms that attempted to stop inflation and collapse. Pinochet declared that he wanted "to make Chile not a nation of proletarians, but a nation of proprietors ". To formulate the economic rescue, the government relied on the so-called Chicago Boys and a text called El ladrillo, and although Chile grew very quickly between 1976 and 1981, at an average of 7,2%, it had a large amount of debt which made Chile the most affected nation by the Latin American debt crisis.

In sharp contrast to the privatization done in other areas, Chile's nationalized main copper mines remained in government hands, with the 1980 Constitution later declaring the mines "inalienable". In 1976 the State-owned enterprise Codelco was established to exploit them; a new law in 1982 opened new mineral deposits to private investment. In November 1980, the pension system was restructured from a PAYGO -system to a fully funded capitalization system run by private sector pension funds. Healthcare and education were likewise privatized, and private hospitals and private schools existed alongside free State-run hospitals and schools.

This "dual system" also extended to insurance and social security services, as State-owned FONASA (National Healthcare Fund) was created in 1979 and the private and paid ISAPRES (Institutions of Previsional Health) were created in 1981.

Wages decreased by 8%. Family allowances in 1989 were 28% of what they had been in 1970 and the budgets for education, health and housing had dropped by over 20% on average. The junta relied on the middle class, the oligarchy, foreign corporations, and foreign loans to maintain itself. Businesses recovered most of their lost industrial and agricultural holdings, for the junta returned properties to original owners who had lost them during expropriations, and sold other industries expropriated by Allende's Popular Unity government to private buyers. This period saw the expansion of business and widespread speculation.

Financial conglomerates became major beneficiaries of the liberalized economy and the flood of foreign bank loans. Large foreign banks reinstated the credit cycle, as debt obligations, such as resuming payment of principal and interest installments, were honored. International lending organizations such as the World Bank, the International Monetary Fund, and the Inter-American Development Bank lent vast sums anew. Many foreign multinational corporations such as International Telephone and Telegraph (ITT), Dow Chemical, and Firestone, all expropriated by Allende, returned to Chile. Pinochet's policies eventually led to substantial GDP growth, in contrast to the negative growth seen in the early years of his administration, while public debt also was kept high mostly to finance public spending which even after the privatization of services was kept at high rates (though far less than before privatization), for example, in 1991 after one year of post-Pinochet democracy debt was still at 37.4% of the GDP.

The Pinochet government implemented an economic model that had three main objectives: economic liberalization, privatization of state-owned companies, and stabilization of inflation. In 1985, the government initiated a second round of privatization, revising previously introduced tariff increases and creating a greater supervisory role for the Central Bank. Pinochet's market liberalizations have continued after his death, led by Patricio Aylwin. According to a 2020 study in the Journal of Economic History, Pinochet sold firms at below-market prices to politically connected buyers.

Critics argue the neoliberal economic policies of the Pinochet regime resulted in widening inequality and deepening poverty as they negatively impacted the wages, benefits and working conditions of Chile's working class. According to Chilean economist Alejandro Foxley, by the end of Pinochet's reign around 44% of Chilean families were living below the poverty line. According to The Shock Doctrine by Naomi Klein, by the late 1980s, the economy had stabilized and was growing, but around 45% of the population had fallen into poverty while the wealthiest 10% saw their incomes rise by 83%. But others disagree, Chilean economist José Piñera argues that 2 years after Pinochet took power, poverty was still at 50% and the liberal reforms reduced it to 7.8% in 2013 as well as income per capita rising from US$4.000 in 1975 to US$25.000 in 2015, supporters of the reforms also argue that when Pinochet left power in 1990 poverty had fallen to 38% and some claim that since the consolidation of the neoliberal system inequality has been reducing. Others disagree, as protests erupted in late 2019 in response to growing inequality in the country which can be traced back to the neoliberal policies of the Pinochet dictatorship.

American scholar Nancy MacLean wrote that the concentration of money in the hands of the very rich and the perversion of democracy through the privatization of government was always the goal. She contends this was the effective meaning of the theoretical model known as public choice, whose architect, James M. Buchanan, traveled to Chile and worked closely with the Pinochet regime. MacLean's account, however, has come under scrutiny. Economist Andrew Farrant examined the Chilean constitutional clauses that MacLean attributes to Buchanan and discovered that they pre-dated his visit. He concludes that "evidence suggests that Buchanan's May 1980 visit did not particularly influence the subsequent drafting of the Chilean Constitution" and "there is no evidence to suggest that Buchanan had any kind of audience with Pinochet or corresponded with the Chilean dictator."