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I. Introduction
THIS GOVERNMENT will be austere, uncompromising, and unpopular if that is what is required to achieve economic recovery," declared Mario Soares in 1983 upon taking office as prime minister of Portugal.l This kind of talk is music to the ears of economists. Reform requires austere policies which respect budget constraints. It also precludes compromising with the narrow, special interest groups that have been the beneficiaries of the deleterious policies of the past. Policy makers who have courageously taken on such interest groups and pursued market-oriented policies are the heroes of the economics profession (see Arnold C. Harberger 1993). That such policies should also be unpopular (as Soares feared they would), however, requires a lot more explaining. What is the point of loudly proclaiming reforms if these are not aimed at improving the well-being of a large majority of the population? And if that is their goal, why should reforms be unpopular?
In many areas of policy, there may exist "technical" uncertainty as to what the appropriate solution is to the problems at hand. Think of President Clinton's health care plan, for example, or of global warming. Consequently, reforms will arouse opposition if they are viewed as applying the wrong fix or if they are perceived as being primarily redistributive (that is, zero-sum). What is remarkable about current fashions in economic development policy (as applied to both developing and transitional economies), however, is the extent of convergence that has developed on the broad outlines of what constitutes an appropriate economic strategy. This strategy emphasizes fiscal rectitude, competitive exchange rates, free trade, privatization, undistorted market prices, and limited intervention (save for encouraging exports, education, and infrastructure). Faith in the desirability and efficacy of these policies unites the vast majority of professional economists in the developed world who are concerned with issues of development.2
Hence economists are often torn between two conflicting perspectives: on the one hand, good economic policy should produce favorable outcomes and therefore should prove also to be good politics; on the other hand, the implementation of good economic policy is often viewed as requiring "strong" and "autonomous" (not to say authoritarian) leadership. The experience of Chile, a country which has perhaps gone further than any other in implementing liberal economic policies, provides...