This book begins with an odd contrast: while the recent emergence of many “free market democracies” in Latin America and much of the rest of the underdeveloped world is not in doubt, this outcome stands in marked conflict with almost two decades of scholarship that suggested that the process of free market democratization should at best be difficult and conflictual and at worst be impossible. However stable an equilibrium liberal capitalist democracy might be in both political and economic terms, the costs of transition, particularly among the historically statist and inward-oriented late developers, ought be very high. Economically, the abandonment of import substitution policies induces unemployment, uncertainty, mass bankruptcies, and increases in inequality and poverty. Politically, processes of economic reform typically entail attacks on a broad swath of powerful vested interests, including protected industrialists, organized labor, peasants, and even the state bureaucracy. Yet despite these challenges – huge economic costs and politically powerful opponents – free market democracy has sometimes emerged in the unlikeliest of settings, often with a minimum of instability and upheaval.

Chile, long one of the most statist political economies and stable democracies on the South American continent, had by 1970 elected a Marxist president and launched a peaceful transition to socialism. Three years later the military seized power in the context of hyper-mobilization and paralyzed politics (Valenzuela 1978), eventually setting the stage for radical economic transformation.