Ambiguous agreement aroud the “regulatory state”: How the resolution of an academic controversy impacted on state-building in Chile

In Chile and elsewhere, economists are famous for how they acted as creators and later guardians of a neoliberal market economy. But if you flip that coin, their role in the kind of state-building that post-dictatorship governments have undertaken is also very important.

Our study analyzes a process that begins when economists from different generations and backgrounds gathered together around the concept of “regulatory state” in Chile. In the specific context of political transition, this concept becomes a political tool that can be envisioned as an “ambiguous agreement”. In this sense, it first permitted the coexistence among policy-involved economists of different understandings of state intervention, until the most liberal side prevailed, with huge consequences on policy-making.

When the Concertation became government, the coalition faced very little state capacities in the markets that Chicago boys earlier created. As a consequence, their first move was to restore some of this power, trying to fill the vacuum of the ghost institutions the dictatorship had created. This process was led by economists who usually have already been politically active under Allende’s UP government. Eventhough they had undergone a process of intellectual renewal after the democratic breakdown, they still shared an academic background favorable to some state intervention, as neo-structuralism would prescribe.

At the same time, new generations of economists, usually trained in the US, made their first step in Chilean politics and policy-making. Fed with the critic of rent-seeking bureaucrats, they were much less prone to state intervention, eventhough they shared the idea that it might sometimes be needed, in cases of clear market failures. This situation gave rise to an “ambiguous agreement” that would last until the symbolic victory of the more liberal ones, which would have a massive impact on the policies undertaken during the 2000s.