improvising a market, making a model: social housing policy in chile

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Improvising a market, making a

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Improvising a market,

making a model: socialhousing policy in Chile

Ignacio Farías

Abstract

This paper explores processes of market creation in Chile, firstly, in the 1980s as

a market for social housing was initially introduced and, 30 years later, as existing

market arrangements were adapted to organize housing reconstruction after the

2010 earthquake. Looking in detail at these two cases, this paper describes a type

of relationship between economics and economic processes which deviatessignificantly from the currently widely discussed performativity of economics.

Instead, a process of economic improvisation is identified that involves the

composition of market arrangements without a pre-existing economic theory or

model of the economic processes at stake. Improvisation, as this paper shows, is a

key under-theorized element of neoliberal transformation processes in Chile and

elsewhere, and crucial to understanding neoliberal action in critical moments.

The paper also proposes distinguishing different modes of economic improvisation

and how these become economic models.

Keywords: marketization; improvisation; performativity; governmentality; housing;disasters.

1. Introduction

Ten years ago, MacKenzie and Millo (2003) observed that while Michel

Callon’s (1998) thesis about the performativity of economics was the most

thought-provoking new idea in economic sociology, there was practically no

empirical research that could sustain it. Callon’s provocation was to suggest

Ignacio Farías, WZB Berlin Social Science Center, Reichpietschufer 50, 10785 Berlin,Germany. E-mail: [email protected]

Economy and Society 2014http://dx.doi.org/10.1080/03085147.2014.881596

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that by focusing on the socio-cultural embeddedness of markets, the so-called

‘new economic sociology’ had gained only little insight into the actual functioning

of markets and economic processes. If embedded at all, markets were embedded

in economics, which would not just describe but perform economic processes. Inthis context, performativity denoted the process whereby an economic proposi-

tion, such as the behavioural model of the homo economicus, is realized or brought

into being in specific market arrangements. MacKenzie and Millo’s (2003) work

on how the option pricing theory proposed by Black and Sholes did not just

describe but shaped financial derivatives exchanges was the first piece of strong

empirical evidence for Callon’s hypothesis.

MacKenzie’s later work has been crucial in proposing a more precise

definition of performativity to describe cases when ‘an aspect of economics

(a procedure, a model, a theory, a data set, or whatever) is used in economicpractice’ (MacKenzie, 2007, pp. 59 – 60). A key contribution is his classification

of different types of performativity. A first distinction is traced between generic

and effective performativity to emphasize that the mere use of ‘an aspect of

economics’ will not necessarily have an effect on the economic processes in

question. A second distinction is proposed with regard to the actual effects of

using an aspect of economics and whether it ‘alter[s] economic processes to make

them more like their depiction by economics’ (p. 67) or makes them deviate from

their economic representation. The first case is called Barnesian performativity,

the second is counter-performativity. Interestingly, MacKenzie shows how all

these forms of performativity shaped the actual entanglement of the Black

Scholes option pricing theory with Chicago Board Option Exchange at different

moments in time. Beyond this, other empirical studies on the performativity of

economics have made at least three key contributions. Firstly, that economics

involves not just the knowledge and models produced by academic economists,

but also those held and elaborated by what Callon calls ‘economists in the wild’

(MacKenzie et al ., 2007; Mitchell, 2005). Secondly, that economics is performed

through economic and market devices, such as exchange quotas (Holm, 2007),

traders’ screens (Knorr-Cetina & Bruegger, 2002) or automated algorithms

(Muniesa, 2007). And, finally, that economic experimentation is also a centralpart of performativity (Muniesa & Callon, 2007).

In such a context, a key question concerns the empirical and analytical limits

of the performativity approach. MacKenzie and Millo emphasized this from

early on, as they spoke of performativity as a ‘helpful addition to economic

sociology’s conceptual tool kit’ (2003, p. 138) and insisted that especially

Granovetter’s notion of embeddedness and his view of markets as cultures

remain crucial to understanding options markets. More recently, Beunza and

Stark (2012) have suggested that distinguishing between the performativity of

economic models and the reflexive performance of actors is essential in orderto understand how arbitrageurs reflect on models to make economic decisions.

In a similar vein, this paper identifies, describes and discusses a relationship

between economic knowledge and economic processes, and more specifically

between economic models and markets, that significantly deviates from the

2 Economy and Society




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performativity case and can be better described as economic improvisation.

Generally speaking, this denotes the not uncommon case where economists, in

the sense of agents involved in the analysis and transformation of the economy

(Callon, 2007), find themselves in situations in which economic policies ormarket arrangements need to be created or adjusted, but no economic theories

or models of the economic processes at stake are available or, if so, are no

longer deemed valid.

It is important to stress that improvisation does not denote an incompetent,

unskilled or inexperienced type of economic intervention. Quite the contrary,

improvisation is a highly skilled type of practice. Instead of following a

prefigured plan, theory or model, improvisation involves engaging transaction-

ally with a current situation on the basis of implicit knowledge, intuition and

practical skills (Ingold & Hallam, 2008). In the case of economic improvisation,this is not to be understood as just calibrating economic models, formulae or

devices used in economic policy or other economic practices. Economic

improvisation describes cases in which an economic practice does not follow a

pre-existing theory or model, but creates such models and theories as it unfolds.

Improvisation is thus the opposite of market design. It is a form of live

composition, of ‘composing and performing in the same moment’ (Kamoche

et al ., 2002, cited in Silva, 2011, p. 41). Given that this unfolding is often

irreversible, improvisation is poorly described as a trial-and-error process.

Neither can it be necessarily associated with good or bad results.

Improvisation designates a general mode of acting without following a

prefigured plan, theory or model of action. As such, artistic and especially

musical improvisation cannot be taken to represent the most general mode, for

this only involves a deliberate form of improvisation. To be sure, state officials

in countries like Chile have deliberately decided to improvise policy responses

to for example, future negative consequences of large infrastructure projects, in

order to speed up the commencement of construction (Silva, 2011). However,

improvisation is not always deliberate. Often it is unavoidable, especially as a

response to critical moments. Generally speaking, such moments result from

the opening of a hiatus between what is experienced and what is expected(Koselleck, 1988) or, as Boltanski and Thévenot (1999) more bluntly suggest,

from the realization that something is going wrong. Accordingly, they do not

just involve a practical imperative to critique and justification (Boltanski &

Thévenot, 1999), but also an imperative to act differently. They entail a halt in

a course of action and a search for alternative modes and models of actions.

Thus, critical moments often induce improvisation.

In order to sustain these claims empirically, I propose examining two critical

moments that led to the improvisation of market arrangements for affordable

housing construction in Chile. The first involved the process of creating amarket for social housing during the military dictatorship of Pinochet (1973 –

1990) under the aegis of a neoliberal ‘modernization’ project pushed forward

by the so-called ‘Chicago Boys’. The second moment involves the process of

adjusting market-based policy instruments to create a market for housing

Ignacio Farías: Improvising a market, making a model 3




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reconstruction after the large earthquake and tsunami of 2010. The sudden

introduction of market-based reforms in these types of situation (a military

dictatorship, a highly destructive disaster) is often understood in terms of what

Klein (2007) has called ‘the shock doctrine’. This is how Klein describes thestrategy envisaged by Milton Friedman and which consisted in using critical

societal moments to introduce carefully designed free-market policies: ‘That,

I believe, is our basic function: to develop alternatives to existing policies, to

keep them alive and available until the politically impossible becomes

politically inevitable’ (Friedman quoted in Klein, 2007, p. 6). This, however,

does not reflect the way in which new housing markets were introduced in

Chile at the two critical moments considered in this paper. Perhaps because

housing was not seen as a key area of neoliberal ‘modernization’ and perhaps

because the magnitude of the earthquake’s destruction was never anticipated,the fact is that in neither of these critical moments were there free-market

therapies waiting to be applied. In both cases, as I will illustrate, free market

arrangements were improvised and composed without a plan.

My final preliminary remark addresses the analytical value of studying

economic improvisation in the case of housing markets. These markets are often

imagined as a natural consequence of the existence of houses and the human need

for shelter (for a critique, see Smith et al ., 2006). This could explain why market-

based housing policy and reforms were not led by sophisticated economic theories

and models. After all, one could argue, houses are not financial derivatives, goods

that need to be created by means of complex calculations. Accordingly, social

studies of housing markets tend to emphasize the role of culture, both with regard

to social distinction dynamics, identity and emotions among buyers (Allen, 2008;

Bourdieu, 2005; Munro & Smith, 2008) and to the use of rhetoric, interpretation

and intuition among intermediaries (Bridge, 2001; Pryce & Oates, 2008; Wallace,

2008). But still, houses are not self-evident economic goods. Transactions and

price setting in housing markets are structured by highly sophisticated devices

(Burrows & Gane, 2006) and closely linked with complex systems of consumer

credit, securitization (Langley, 2006) and foreclosure (Fishman, 2012). Taking

this into account, ascertaining the improvised creation of housing marketsbecomes a rather counter-intuitive empirical finding.

The paper is structured in four parts. Following a brief overview of the neo-

liberal governmental project introduced during Pinochet’s military dictator-

ship, I move on to study the creation of a market for social housing

construction. Relying on secondary sources, my analysis focuses on the

performative limits of existing economic models and recipes and the ensuing

processes of improvisation. This section contributes to an agnostic description

of neoliberal policy-making practices in Chile which have often been imagined

as stringent applications of sophisticated neoliberal theories. This will alsoserve as a contextualization for the second moment of economic improvisation

under examination, involving the urgent adaptation of existing market instru-

ments to cope with the massive destruction of housing by the 2010 earthquake

and tsunami. The study is based on interviews with 12 policy-makers, state





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officials, think-tank experts and private actors directly involved in this market,

as well as on participant observation of the new market arrangements put in

place.1 On the basis of the data collected, I show how all the main components

of this market for housing reconstruction, the goods, the actors and thetransactions, were subject to major adaptations and redefinitions based on a

process of improvisation. The concluding section contains some suggestions

for a research programme on economic improvisation. Assuming that

improvisation is part of the normal way of doing things, I discuss the

relationship of improvisation to uncertainty, propose distinguishing between

two modes of economic improvisation and, finally, inquire about the models

emerging from improvisation.

2. Chile’s neoliberal experiment

Chile is known worldwide as the site of one of the most radical neoliberal

experiments ever implemented (Harvey, 2007). During General Pinochet’s

dictatorship (1973 – 1990), a comprehensive transformation of the state and the

country’s political and economic system was carried out. This transformation

was based on two main pillars. On the one hand, the so-called ‘national

reconstruction’ project encompassed not only the macroeconomic transforma-

tion of Chile through price deregulation, liberalization of monetary policy and

tariff reductions, but also the formulation of a new political constitution, which,

among other changes, assigned only a subsidiary role to the state (Ferrada

Bórquez, 2000). On the other hand, the so-called ‘seven modernizations’ aimed

to introduce economic rationality and market efficiency criteria to the most

important areas of the social system: health (Ossandón, 2008), education

(Brunner, 1997), labour (Winn, 2004), pensions (Arenas de Mesa & Montecinos,

1999), agriculture, justice and public administration (Stewart & Ranis, 1994).

The genealogy of this ‘silent revolution’, as it was called by neoliberal

economists, is both lengthy and complex and can certainly not be explained

only by the Pinochet dictatorship. On the one hand, the Chilean state hadalready been in an evident process of technocratization since the 1920s

(Silva, 2008), which had prepared the ground for the appointment of

economists to high-level positions in the state apparatus (Montecinos, 1997).

On the other hand, the so-called ‘Chicago Boys’ – the core group of around

25 economists trained in Chicago who developed the Pinochet dictatorship’s

macroeconomic programme and implemented it from key or top-level positions

in the government – were the product of a longer dissemination project reaching

back to the launch in 1955 of an exchange programme between the University of

Chicago and the Catholic University of Chile (Valdés, 1995).Chile’s neoliberal transformation has been primarily and rightly viewed in

relation to the Chicago school, and thus also to the theories of Friedrich Hayek

and Milton Friedman (Gárate Chateau, 2012). Yet I believe it is important to

draw attention to parallels with the so-called Ordo-liberalism of the Freiburg





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school, as the Chicago Boys in Chile confronted the same fundamental issue of

redefining the relationship between the state and the market. According to

Foucault’s (2008) genealogy of neoliberalism, the politico-economic problem

facing the German Ordo-liberalists following the collapse of the Third Reich wasno longer the classical liberal question as to how the power of the state and its

interference in the free economy could be limited, but whether and how economic

freedom could act as the basis for a valid reconstruction of the state. In this

context, the introduction of a social market economy was aimed not only at

fostering economic growth, but also at legitimizing the state as the guarantor of

the free economy. In a way, and even though the historical context was quite

different, Chile’s neoliberals were faced with the same politico-economic problem,

namely how the neoliberal programme could be designed as a new foundation for

the Chilean state. As Valdivia (2001) has recounted in detail, the original goal of the military coup had not been a neoliberal reconstruction of the state, but rather

a restoration of the country’s economic and social ‘normality’, which involved a

Keynesian understanding of the state and its functions. Thus, when the Chicago

Boys joined the government in 1975 (almost two years after the coup), their major

challenge had been to render their neoliberal macroeconomic programme into a

state and governmental project.

The main neoliberal project in Chile was the implementation of the

aforementioned ‘seven modernizations’, whereby ‘modernization’ meant privati-

zation of state-owned companies and the introduction of market mechanisms for

the provision of social services. While this aimed at a major withdrawal of the

state, it relied on the application of dictatorial state power to intervene and

rearrange socio-political domains to produce the desired effect of competition. In

defining the economic goals of such state interventions, the Chicago Boys relied

not only on the general neoliberal economic principles, but also on ‘El Ladrillo’

(The Brick) – the macroeconomic programme drawn up one year before the

coup. Accordingly, the neoliberal experiments of the ‘seven modernizations’

could be studied in relation to the performativity of economics (Ossandón, 2011).

The key question one then needs to ask is how these economic policy designers

and experts working in key government positions under Pinochet’s dictatorshipmobilized economic theories, models and recipes not merely so as to better

understand economic processes, but in order to transform them. In the next

section, I address this question for the case of social housing markets. However,

and this is the key aspect I would like to stress, the introduction of housing

markets crucially depended on the officials’ capacity to improvise market

arrangements, in order to cope with the crisis of their own theories and models.

3. Creating a market for social housing: from performativity toimprovisation

In adherence to a decree issued by Chile’s former National Planning Office

(ODEPLAN) in 1974, which encouraged all ministerial departments and





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government bodies to develop new, market-based policies, a market-based

social housing policy was drawn up between 1975 and 1978 in the Ministry of

Urban Development and Housing (MINVU). Under this policy, housing

construction and its financing were henceforth to be left to the private sector,whereas the government would be assigned only a subsidiary role (Gilbert,

2002). Consequently, the state-centred housing policy previously followed

would become obsolete. Until 1973, the state had fulfilled a leading role in the

planning, organization and financing of social housing through direct building

contracts, low-interest loans and fixed prices (Rojas, 1999). In the formulation

of the new policy, the failure of the previous approach to overcome the

historical housing shortage was attributed to the weak purchasing power of

poorer households and to the lack of a market mechanism. Consequently, the

role of the state in the new system was now to be limited to allocating home-buyer allowances. The intention was that the resulting higher demand would

lead to more cost-effective housing construction than under the previous

system and, at the same time, provide the possibility of free choice of housing

for lower-income households.

The formulation of this policy not only involved general adherence to neo-

liberal Chicago recipes. A decisive role was also played by an economic study

carried out by the Department of Economics of the University of Chile on

behalf of the Chilean Central Bank (Morandé & García, 2004). In this study, a

mixed financing system consisting of both home-buyer allowances and private

loans with a maturity of between 12 and 20 years was drawn up for different

socio-economic groups. The study recommended a model with progressive

allowances, so that the higher the cost of the new home, the lower would be

the allowance as a share of the total costs. These home-buyer allowances not

only had to be supplemented by additional loans from private banks, but also –

and this was the crucial point – by personal savings. Only those households

that could show proof of having savings of their own were eligible for the

allowance. A data sheet for socio-economic classification called the Ficha CAS

was also developed, which was used to calculate not only the poverty level of

households, but also their capacity to save. The home-buyer allowances werethus not defined as a social entitlement, but as a reward for the efforts of low-

income households to escape poverty. The CAS data sheet ‘introduced the

idea that housing was a good that could only be obtained through one’s own

efforts’ (Chilean Chamber of Construction, cited in Gilbert, 2002, p. 313).

On the basis of this new framework for housing policy, it was possible

significantly to reduce Chile’s historical housing deficit within 20 years. Up

until 2000, the building sector showed an extremely high business volume and

annual output rate per capita – a development comparable to the post-war

years in Europe (Rodríguez & Sugranyes, 2005). A superficial analysis of thissuccess could take it as clear evidence of the policy’s Barnesian performativity

and of its capacity to transform economic realities in accordance with its own

assumptions and postulates. Nonetheless, the development of the Chilean

social housing market was characterized by significant deviations from the





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original model. In practice the model was abandoned and substituted by a

pragmatic improvisation of market arrangements to cope with changing social,

political and economic circumstances.

From the outset, the performativity of the housing market model wassubstantially limited by two false starts, which thus opened up scope for

improvisation. The first false start was based on the difficulties encountered in

convincing the private building sector of the new framework so as to ensure its

participation in the market. It proved difficult to win over private construction

companies, notwithstanding the radical deregulation of the property market

that gave them access to favourably priced property through the abolition of

growth limits on towns (Sabatini, 2000). The lack of private suppliers rapidly

led to the improvisation of alternative market arrangements not originally

foreseen. One example was the temporary authorization granted to municip-alities to plan and implement construction projects for social housing in 1982

(Rodríguez & Icaza, 1993). The aim of the temporary permit was not only to

kick-start the market, but also to strengthen the policy of eviction of

campamentos – informal settlements in central residential areas – introduced

in 1979 (Sugranyes, 2005). At the same time, the families affected by the

compulsory evictions were actually forced to participate in this market. The

system for the allocation of allowances, which was modelled as based on

voluntary applications from the future beneficiaries, was temporarily sus-

pended and the allowances imposed on the families (Sugranyes, 2005).

Another example of not originally planned measures that actually contradicted

the model was the allocation of allowances to households with medium

incomes. The aim was to maintain the demand for privately built housing and

save the market from doom regardless of the fact that the new housing policy

was to focus on low-income population segments (Rojas, 1999).

The large-scale construction of social housing with the help of home-buyer

allowances, which still characterizes the Chilean model today, did not begin

until the mid-1980s. In order to guarantee the participation of private

construction companies in this market, not only were unmistakable political

signals sent out, such as the appointment of a representative of the buildingsector as the Minister for Housing and Urban Development (MINVU), but

other market arrangements were also adapted accordingly. The most important

change was perhaps the fact that the Ministry took over responsibility for

organizing demand and acted as a direct contracting body to private

construction companies for social housing projects. At the same time, in its

invitations to tender, the Ministry entirely dispensed with specifications

regarding the location of the social housing projects, with the result that

construction companies were able to build favourably priced properties on the

peripheries of towns and beyond. As Sugranyes (2005) has demonstrated,these adjustments involved two radical reversals of the model. In the first

place, a demand-side subsidy was turned, in practice, into a subsidy for the

supply side. Even though home-buyer allowances were granted to households,

there was little competition for them between the construction companies





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which were thus spared financial risks. In the second place, the ostensible

possibility of free choice of housing for low-income households was heavily

limited by a system that favoured construction on town peripheries, where

property prices were lowest (cf. Sabatini, 2000).The second false start was due to the fact that private banks, contrary to

expectations, would not give loans to low-income households. This again led to

significant inversions of the model. First, a system was established whereby the

state would underwrite the loans extended by private banks so that it paid for

the risk of private lending (Rodríguez & Sugranyes, 2005). In addition, the

state took over responsibility for extending credit to low-income households.

This was viewed by development bodies such as the World Bank as the

greatest failing of the Chilean model, which was even described as a private

market farce (Gilbert, 2002). Even today, the problem with the model is notonly that, contrary to the original concept, up to 40 per cent of the financing of

social housing is carried out by the state, but also that there are substantial

arrears in repayments regarding all the lending institutions involved, and

especially the state. Moreover, instead of actively proceeding against those

borrowers in arrears, in the 1980s and 1990s the Ministry repeatedly

implemented debt-relief measures. In 2003, a national association of mortgage

debtors (ANDHA) was created, and has since then actively demanded further

debt-reliefs. All in all, the financing model based on progressive home-buyer

allowances gradually became a model with regressive home-buyer allowances,

because the unpaid loans in practice amount to allowances. When the allowances

granted and the unpaid loans are added together, it turns out that the lower the

household income, the lower the total amount granted.

Thus, transformations introduced in the early years, so that the private

building sector and the banks would participate in this market, led to a crass

divergence between theory and practice, between the economic model and the

reality of the housing market. Certainly, it is still possible to speak of generic

performativity to the extent that without the Chicago Boys and their neo-

liberal theories and models, this market would never have been created

(cf. Ossandón, 2012). But the process observed here is still a long way awayfrom economic performativity in the narrow Barnesian sense, where the market

would have adapted to the economic representation of it. One could analyse

this story as a case of ‘counter-performativity’ (MacKenzie, 2006), as actual

economic processes radically diverged from their economic representation.

Indeed, in place of progressive allowances, free choice or demand-side

subsidies, as the model promised, in practice, the installed housing market

produced regressive allowances, forced segregation and supply-side subsidies.

But the key point is that these results were not a consequence of using an

aspect of economics. Instead, in the face of the inefficacy of the model to alterthe economic processes at stake and create a market, the responsible officials

and decision-makers abandoned the original model and improvised alternative

market arrangements. This practical improvisation followed a simple principle,

which was to constitute a supply and a demand side at whatever costs, even if





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this meant evicting campamentos at gun point or eliminating restrictions

regarding the location of social housing. How the market encounter exactly

works, and which externalities and distortions the market produces, became

secondary in the event of such improvised practice.With this in mind, it becomes possible to identify other cases of economic

improvisation by the implementation of the ‘seven modernizations’ mentioned

above. In fact, there is considerable evidence to suggest that these enormous

neoliberal reforms were not, in fact, sustained by economic theories and

models specific to the different economic sectors involved, but only by very

general, indeed rudimentary, neoliberal premises concerning markets as the

encounter of supply and demand (Markoff & Montecinos, 1993; Ossandón,

2011; Valdivia, 2001). In this sense, one of the most important Chicago Boys,

José Piñera, who was the architect of the Chilean pension system and heldseveral top ministerial positions, declared that ‘[t]he players on the Chilean

Team were not, after all, sophisticated monetarists a la Milton Friedman. We

simply applied the basic laws’ (Markoff & Montecinos, 1993, p. 48). Even the last

finance minister of the Pinochet government, in his book on Chile as a model of

progress, wrote that the secret of success was acting flexibly on the basis of very

general principles, which would be the only replicable elements of the Chilean

model (Büchi, 2008). Taking these declarations seriously, as I think we should,

means that we need to examine more generally the role of improvisation in the

formulation of other neoliberal policies and discuss its role with regard to the

development of new economic models. In the next section, I would also like to

stress the centrality of economic improvisation in post-disaster situations by

analysing how housing markets were created in Chile to respond to the

destruction caused by the huge earthquake and tsunami of 2010.

4. After the earthquake: housing or market reconstruction?

In the middle of the night of 27 February 2010, central and southern Chile was

rocked by the sixth-largest earthquake ever recorded. During the hours thatfollowed, tsunami waves of up to ten metres in height struck several coastal

cities and smaller towns. The Chilean government classified as severely

damaged five medium-sized cities, 45 small towns and around 1,000 villages

located mainly along the coast; in some cases, the urban matrix was actually

entirely swept away. A total of 220,000 homes required repair or reconstruc-

tion (MINVU, 2010). In addition to providing temporary accommodation for

the hundreds of thousands of people left homeless, the greatest challenge for

Chile’s state officials and policy-makers subsequent to the disaster was

organizing the reconstruction of towns and homes. Regarding the housingproblem, state officials and policy-makers responsible for drawing up the

reconstruction policy repeatedly referred in our interviews to a strategic

decision taken only a few days after the natural disaster: Should we develop a

complete new set of specific policy instruments for housing reconstruction,





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which would result in a longer response time, or should we adapt existing

policy instruments to the new situation, even if these are inefficient? This key

decision was made swiftly: ‘We chose the second option for the simple reason

that there were already well-laid structures, processes and lots of things, whichwere certainly perfectible, but it was the easiest way to tackle the issue’ (Officer

#1, Reconstruction Commission, 9 October 2010). The argument of these

policy-makers was that Chile’s housing policy, despite a few shortcomings, was

one of the world’s most modern and progressive.

The next crucial question was which of the pre-existing policy instruments

was suited to which new problems occasioned by the earthquake and tsunami

and how exactly these instruments should be adapted. It quickly became clear

that the Housing Solidarity Fund created in the early 2000s would be the key

policy instrument for the reconstruction. The great advantage was that thisfund had been conceived for supporting housing construction on properties

that were already owned by the beneficiaries of the fund – which, of course,

corresponded to the most common situation following the catastrophe. In fact,

most of those affected by the earthquake and tsunami owned their own land

and only needed a new house (MINVU, 2010). All in all, this fund was to be

used to rebuild over 80,000 homes, channelling around 80% of the total

investment in housing reconstruction.

Interestingly, the main problem with the Housing Solidarity Fund in the

eyes of the MINVU officials was not the fact that it had functioned up to then

only on a relatively small scale, but that there was no market competition to

speak of. The use of this fund had mainly been based on mediation through

social real-estate agencies (EGIS), which would put together a group of

between 10 and 100 applicants, buy a plot of land, develop an architectonic

project, apply for funding and commission construction of the housing. There

was no competition between construction companies or between social housing

agencies, whose role was largely limited to the management of a complicated

bureaucratic application procedure. If this fund was to become the instrument

for distributing the bulk of the money earmarked for those affected by the

earthquake, then there had to be a guarantee that there was a market thatwould react efficiently and effectively to it. Thus, the greatest challenge from

the point of view of MINVU officials was not the enormous amount of

destruction, the huge number of homeless households or the extremely large

scale of the reconstruction programme, but a problem that primarily concerned

the operation of markets: the lack of competition. And it was also clear to

the MINVU officials that, in order to resolve this problem, strengthening the

purchasing power of the homeless households via vouchers would not

be sufficient. In addition, the relevant market arrangements would have to be

adjusted.The analysis of this process of adjustment indicates that the original

alternative between new instruments and minimal adaptation had been false. A

close look at the process of market creation confirms an apparent contradiction:

almost nothing was changed, but that changed everything. As is known from





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economic sociology, markets are constituted by means of very precise and

mutually dependent arrangements. Therefore, it is very difficult to predict in

advance what the effects of a change might be, because it all depends on how

the adjusted component will interact with many other elements. Just like thebutterfly effect in chaos theory, minimal changes in markets can have huge

consequences, which, in turn, require improvised interventions. In order to

describe the way such improvisation occurred, I draw on the research

programme developed by Çalışkan and Callon (2010) for the study of markets.

Instead of assuming pre-existing economic entities, actors or situations, this

programme allows for an examination of the complicated socio-material work

through which goods, consumers, producers and market-places are constituted

in the first place. Indeed, this is exactly what state officials responsible for

the housing reconstruction programme did during the first months after thecatastrophe. They were not just doing nothing, as the media and the public

often criticized, but exploring and experimenting how to economize the entities

and situations involved in the reconstruction, so that market competition

could take place. To this end, not only did houses have to become comparable

goods and those needing them entitled consumers, but ways of bringing

these entities together, of connecting homeless people with new homes, had to

be designed.

4.1. New market things: redefining goods and agents

The greatest challenge facing the state officials concerned the redefinition of

the goods that were to be traded. Unlike those usually traded on Chile’s social

housing markets since the 1980s, in which a house together with a plot of land

constituted an indivisible unit, the goods under the new system were the

houses alone. Separating the houses from the land renders the market less

attractive for large real-estate agencies, especially because it had been the

cheaply bought land on the outskirts of the towns that had yielded the higher

profits. This decoupling of the houses from the land also means that thehouses on offer cannot, as in the past, be built on one large site. They are

distributed as individual units around different locations, depending on where

the land of the allowance recipient happens to be. Building houses under such

conditions is accompanied by higher production costs and is therefore less

lucrative for the construction companies. Thus, the question was how the

goods for this market could be specified further, so that the market would

become attractive for construction companies. A range of strategies was

developed, which first had to be tested in practice and often required the

improvisation of further market arrangements.The key decision was that only standardized house types could be traded on

this market, that is, projects for homes that had first been authorized by the

Ministry. The new system thus deviated substantially from the previous

model, in which an architectonic project had to be developed for every new





15/26

housing project. The house types under the new system were developed by

construction companies for no specific site, had to satisfy certain technical

specifications and be sold at a fixed price (the same amount granted as an

allowance). Some specifications were relaxed as far as possible, however, inorder to facilitate variation among house types. The spatial layout, for example,

was rendered flexible so as to ensure a more varied supply and thus strengthen

competition, especially with regard to the size of the houses. The minimum

size was still a surface area of 40 m2, but homes no longer necessarily had to

have two bedrooms, for instance. The intention was that the construction

companies could thus save costs on the internal layout and offer houses with a

larger overall surface area that could be restructured internally at a later date. If

all the provisions were fulfilled, the houses were entered into a database of

house types from which those buyers eligible for subsidies could make theirchoice. The aim of the database, which could be consulted on the Internet, was

to guarantee access to information and to promote competition between the

construction companies:

What we do is to put them all into a kind of display window […]. There’s

somebody offering his house type, but somebody else is offering his too. The

family chooses the other one and the first guy has a look around to see why his

wasn’t chosen. And he realizes that the other house type was better. ‘So I have

to make mine look better,’ he says, and that competitive atmosphere develops

which benefits the families because now they have alternatives. (Officer #1,

Reconstruction Commission, 9 October 2010)

It quickly became clear in the initial months that this redefinition of the goods

had a series of far-reaching consequences for the constitution of the market

actors, especially on the supply side, so that instead of simply creating

favourable conditions for competition between already existing market actors,

new actors had to be created. The problem was that the redefinition of the

goods rendered the market particularly unattractive for those large construc-

tion companies that had been major actors in the previous system. The mainchallenge facing these large companies was that the construction of solitary,

geographically scattered houses did not allow the use of traditional building

methods such as masonry, so that the usual cost savings through mass

production would be lost. This situation even led to a public controversy

between the Ministry, which had recommended building methods based on

prefabricated modules, and the representatives of the large-scale construction

industry, who felt they were being cut out of the market because the houses

had to be built on existing plots (El Mostrador , 20 May 2010). From their

perspective, the government strategy could only be deemed as positive if oneassumed that people have local networks worth maintaining, an assumption

that in their view is highly debatable. But if the aim was to reconstruct

efficiently, they argued, it would be clearly a bad strategy. The result was that

the overall supply structure changed radically. Large construction companies





16/26

who use traditional building methods were disadvantaged, whereas smaller,

local building firms, who could operate more flexibly in co-operation with local

architectural offices, were in a somewhat more favourable position. This,

however, meant that a very large number of such smaller, but alsoinexperienced, building companies needed to be attracted so that the market

could operate. These actors were new to the social housing market and

proposed houses they had never built before. In some cases, these new

suppliers, before applying to the Ministry for the technical permit, had first

actually to build test houses in order to evaluate whether it was worthwhile for

them to build the project types for the amount of money granted to the buyers.

Apart from this, the redefinition of the goods, and especially the decoupling

of the houses from the land, also had significant consequences for the

constitution of demand. Whereas supply required the official approval of house types, demand was constituted through the official acknowledgement

that a house had been destroyed on a plot of land owned by the recipient of the

allowance. The most important thing, therefore, was clarifying the ownership

of the land, as well as ascertaining that the house was destroyed by the

earthquake or tsunami. The greatest difficulties were thus actually presented

by the fact that in some cases several families lived on the same land, without

having any title deeds, or by very basic problems such as the difficulty of

determining the boundaries of plots because of the devastation. This was

particularly true of the coastal areas, where the tsunami swept away entire

stretches of land. In order to constitute this market, therefore, further

measures became necessary so as to simplify and accelerate the clarification

of ownership, as well as regulations regarding the exceptional allocation of

allowances during the process. All of this amounted to a complete transforma-

tion of the old system, since home-buyer allowances were previously granted

on the basis of the households’ socio-economic situation and their ability to

accumulate savings. Under the new system, the evaluation process did not

examine the family’s financial situation, but the ownership of the land. Just as

construction companies became market participants not on the basis of their

willingness and ability to build, but on the basis of a certified object, likewiseallowance recipients were market actors constituted by means of material

objects, in this case, particular plots of land. Thus, this market was not so

much based on the willingness to pay and the willingness to sell of different

human actors, buyers and sellers, but on strictly qualified non-human actors,

house types and plots of land.

Beyond this, the aggregation of the demand also had to be changed. Under

the old system, the demand was organized by a social real estate agency

(EGIS), which put together a group of households interested in the home-

buyer allowance. The recipients of the allowance thus constituted an interestgroup and even a legal entity with respect to the construction company, as well

as the Ministry, which was responsible for authorizing the subsidy for the

group. Under the new system, the support was not paid to a group, but to

single owners, who then participated individually in the market. Nonetheless,





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the market still had to be subdivided into separate market areas, because the

construction firms were not able to offer their house types in all the regions

affected or to all the recipients of the allowance. In the first months after the

catastrophe, it was assumed that these populations could be defined on thebasis of municipal boundaries. However, it quickly became clear that this

definition led to the establishment of populations that were highly unattractive

for construction companies because they were located in remote rural areas.

The challenge for the Ministry officials, therefore, was to redefine the

territorial boundaries so as to create populations of land-owners who would

be equally attractive for the market. A new market geography thus had to be

swiftly created so that rural and remote areas could be brought together with

densely populated urban areas in common market areas.

All of this meant a transition from subsidy allocation to defined groups tothe government of ‘populations’ (Foucault, 2007). Unlike the previous groups

of recipients, these populations did not have a fixed number of members nor

were they represented by a legal entity. The population of allowance recipients

was more similar to an undifferentiated mass of individuals that appears as a

‘natural’ entity on the basis of a shared territory. Its size could change

organically, depending on how the territory was demarcated, and also over

time, as new people were granted allowances. From the point of view of the

Ministry, this made a huge difference, because instead of dealing directly with

each individual group, governmental interventions were oriented towards a

contextual steering based on figures and statistical values that provide

information about the population as a whole.

4.2. Bringing things together: redefining market encounters

Markets do not occur in abstract spaces. The redefinition of goods, producers

and consumers is not sufficient to induce transactions. These are, of course,

indispensable prerequisites, but equally necessary is the precise configuration

of locations and mechanisms that enable market encounters between actors andgoods. In the case under study, the concrete organization of market encounters

became the object of an intensive process of experimentation and adaptation,

with the aim of creating competition. It was a particularly challenging goal

because the price of the houses could not function as a competitive mechanism,

given that it had to equal the amount of the allowance. In the absence of a

variable price, the form of the market encounter then became decisive as the

means to enable comparability and competition between the goods on offer.

The Ministry developed two strategies for creating a competitive market

encounter, one for pilot schemes and one for the general plan.The pilot schemes were used to test the functioning of this market and

acquire information about how it worked and whether or not the desired

competition between suppliers came about. These pilot schemes were also

intended to act as demonstrations or proof that the market functioned and was





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attractive for construction companies. Pilot schemes of this kind were carried

out especially in areas in which the recipients of the allowance could be quickly

identified and thus a demand population could be constituted. For example,

two pilot schemes were carried out in Chillán, a city with a population of around 170,000. In both cases, the Ministry’s Regional Service of Housing and

Urban Development (SERVIU) first sent out a public call for bids to

interested construction companies. Following the receipt of the bids, each

population of allowance recipients was invited to a large venue where SERVIU

employees presented the bids. Each meeting ended with a vote, whereby the

majority decided which type of house should be built for all the recipients.

Thus, in this case, the market was structured as an electoral process.

We spoke with allowance recipients from both pilot schemes when they

were at one of SERVIU’s offices to meet their chosen construction company:

I return to SERVIU shortly before 3 p.m. […]. A few people are already

waiting in a corridor […]. I speak to two men, an old man and a younger one,

and ask them do they know each other already. No, they both reply, but they

say they have already participated in the vote [ …]. They tell me that the vote

took place in a sports hall and was a lengthy and tedious process. I ask them if

they campaigned for a particular house. First they say no, but then they

remember that they ‘cheered on’ some house or other because they wanted it all

to be over soon. They recount this as a strategy for accelerating the votingprocess, because by then all they wanted to do was leave. (Field notes

Biedermann, 24 November 2010)

This and similar stories raise questions as to the consequences of this electoral

structuring of the market. The original idea was that the buyers and SERVIU

employees would discuss the advantages and disadvantages of each type of

house, and also that those eligible for the allowances would confer amongst

themselves and agree on which type was best for all. The idea was that a form of

economic rationality would thus ensue that was not based on monetary oregoistic considerations, but on a process whereby one’s own purchase decision

was adapted to the decisions of relevant others (cf. Cochoy, 2008). However,

there are only a few reports of this nature. It seems to be much more the case

that the introduction of an electoral technology in the form of a secret

vote actually undermined the emergence of a deliberated and collective

purchase decision. The vote forced a collective decision only by means of a

simple majority, while it isolated and anonymized the decisions of the allowance

recipients. Even if in this way the possibility of free choice was guaranteed, the

anonymous vote separated allowance recipients from their own preferences,so that a personal attachment to their good of choice could not be created

(cf. Çalışkan & Callon, 2010; Cochoy & Grandclément-Chaffy, 2005). In such a

context, the good was depersonalized and the market encounter became an

abstract procedure unable to captivate publics effectively (Cochoy, 2007).





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The situation was also similar in the so-called ‘general plan,’ although here

the market encounters differed in two main respects. In the first place, the

allowance recipients did not have to decide on a type of house in a single day.

They could go to meetings organized by SERVIU once or twice a month,where ministerial employees presented the house types available at each time.

Houses were also presented on standardized posters and data sheets, so that

comparisons with other offers could be made. The second difference was that

purchase decisions were primarily made individually as opposed to collectively.

Every buyer should be able to obtain the house he or she prefers and there

should be no need to adapt his or her choice to that of others. However, since

construction companies were allowed to set a minimum number of houses they

were prepared to build, buyers often had to choose those house types that

other allowance recipients had also chosen in order to reach that minimum.Nonetheless, the decision remained entirely individual and was not the object

of a negotiation process or a vote. In theory, an allowance recipient could

always wait for the next meeting to see if others were also interested in their

house of preference, although in practice waiting was seldom an option for

homeless families. Participant observation at such meetings indeed revealed

some of the difficulties people have comparing houses when they have to

decide on the spot:

The people discuss the options with their partners or families. Some seem a

little confused and say things like, ‘I don’t know which I should choose.’ The

discussions generally take place within the families and not between the

different allowance recipients. I wander through the room taking particular note

of what the people are saying and hear things like, ‘We have to choose one of

the ones with three rooms’ or ‘The blue one is nice.’ I hear a woman saying, ‘I

like this one, made of this material, but it’s not suitable for the area where I live.’

I notice a woman saying to her husband, ‘OK, just tick any one of them.’ Some

people greet each other, but they do not discuss their decisions or which house

they think is best. I hear other statements like, ‘This one stands out’ and ‘I thinkthis one is better because we could extend it.’ A gentleman says half-jokingly,

‘Why didn’t I bring my wife? She’ll kill me!’ Another says, ‘Don’t look a gift

horse in the mouth,’ to which his wife replies, ‘Well, whichever …’ I ask a few

people if they looked at the online catalogue beforehand and they all reply no.

This means that this moment, which only lasts around 15 minutes, is when they

first see and choose their future homes. They have to make their choice one

after the other in a list order, which puts them under a certain amount of

pressure as the next person is awaiting his or her turn. For example, a woman

who is unsure about her choice is called up and asked by a SERVIU employee‘The house you like best, which is it?’ The woman points to a house which is

immediately marked before she can change her mind again. (Field notes

Biedermann, 24 November 2010).





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In both the pilot schemes and the general plan, market encounters were

created based on the idea of a subject that is technically well versed and

inclined towards rational decision-making. However, this assumption often

proved to be a problem in actual market encounters when the buyers could notdecide on the spot in favour of one of the houses proposed. This occurred not

only when house types on offer would not correspond to the candidates’ own

wishes, but also when their characteristics, such as size, appearance and

materials used, could not be properly compared by the allowance recipients.

To cope with such situations, further arrangements were made to compel the

candidates to make purchase decisions during the market encounter. These

include not only the standardization of the posters with the houses on offer,

but also the procedural or situational behavioural rules improvised by the

SERVIU employees, such as a time limit of only a few minutes for choosing ahouse. Just as we saw for the introduction of housing markets in the 1980s,

here it is secondary how exactly the market functions and which distortions,

externalities and bad choices emerge.

5. Conclusion: modes and models of economic improvisation

In both moments examined, an improvisation process could be described as a

series of urgent interventions and adjustments to critical situations. Improvised

courses of action were certainly followed by reflection and evaluation producing

new economic knowledge about specific market arrangements. However, this

knowledge needs to be understood as a result rather than as a condition for

improvisation. Here, I think, lies the thin red line separating economic

improvisation from performativity. As MacKenzie (2007) has made clear,

performativity in any of its forms involves the mobilization of an ‘aspect of

economics’, such as models, theories, procedures and the like. Certainly, most

state officials and policy-makers involved in creating or adapting housing

market instruments had training in economics and, especially in the second

case, they had experience working with the existing housing market instru-ments. However, their decisions and interventions in the critical situations

studied were not made following an existing model or theory of social housing

markets. Instead, these economists followed propedeutics, general principles

and prior experiences. So they could only learn about the new market

dynamics they were bringing into existence from the difficulties and

externalities of the very process of installing the market. Thus, rather than

performing existing economic models, the cases involved learning about housing

economics through the improvisation of housing market arrangements.

Moving improvisation to centre stage illuminates important issues that Ishall briefly address. Firstly, it is necessary to consider improvisation as an

economic practice that is not tied to critical moments, but also occurs in

normal situations as a way of coping with the common condition of uncertainty

shaping economic and political action. Uncertainty is generally understood as





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the incapacity of actors to anticipate and assign probabilities to the outcomes of

their actions (Beckert, 1996). This is certainly the case for crises, as the ones

studied in this paper have shown, but is also the result of other factors. Knight

(1921), for example, classically associated uncertainty with the problem of measuring factors affecting economic action. Callon (2009) proposes linking

uncertainty to the more fundamental problem of theoretical and practical non-

knowledge regarding possible states of affairs. It follows from this emphasis on

non-knowledge that it is from the vantage point of improvisation rather than of

performativity that we can and should approach how actors act when they

‘don’t know what is best to do’ (Beckert, 1996). As we have seen, performativity

involves relying and mobilizing ‘aspects of economics’ to guide economic

practices. Rather than a way of coping with uncertainty, performativity involves

circumventing uncertainty by moulding economic processes so that theybecome measurable, calculable and eventually less uncertain.

Secondly, and if improvisation describes the way actors cope with uncer-

tainty, then the key political question is whether there are different modes of

improvisation. The two moments of improvisation in Chilean housing policy-

making studied above feature no fundamental differences in this regard.

Accordingly, it is more productive to establish a contrast between the cases

studied and the so-called precautionary principle, which has been introduced in

legal thought to ground a prospective form of legal responsibility. As Gorgoni

(2010) suggests, ‘the precautionary principle is a Copernican revolution: the

lack of evidence is now the ground for affirming a responsibility rather than

exonerating the parties’ (p. 2). The key issue, he adds, is that this principle does

not define the content of duty, but rather requires ‘the capacity to manage

unpredicted situations or, re-phrased, the ability to improvise new solutions’ (p. 3,

my emphasis). What arises here as an ethical and juridical standard for judging

responsibility is nothing other than a precautionary mode of improvisation; a

mode that would require one to make decisions that do not prematurely

foreclose other possible courses of action or states of the world (Callon, 2009).

Accordingly, one could then speak of a precautionary mode of economic

improvisation when, despite the lack of formalized economic knowledge andevidence, interventions are made paying attention to the prospective con-

sequences of market arrangements while leaving a space open for other courses

of action, including, for example, non-market-based solutions.

Against such an ideal of precautionary improvisation, it becomes possible to

start characterizing the mode of economic improvisation observed in the

Chilean housing-policy case. The evidence discussed above indeed suggests a

mode of improvisation based on the strong conviction that introducing a

market mechanism is the best possible course of action. Accordingly, the

process described is concerned with achieving, by all necessary means, onlyone state of affairs, in which housing delivery occurs by means of market

transactions. Thereby, attention is not paid to the possible negative con-

sequences of such a course of action regarding the quality of the offered houses

or of people’s decision-making, as one could expect from a precautionary mode





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of improvisation, but rather to the occurrence of market transactions. Looking

at the central and uncontested space reserved here for the market, one could

describe this mode of improvisation as neoliberal, but thinking more generally

about the deep-seated belief that, despite all difficulties and drawbacks, theroad chosen is the best possible one, it would be more accurate to describe it as

a dogmatic mode of economic improvisation. Such a mode involves a certain ethic

which, to echo Weber (1994), could be described as one of principled

conviction and thus be contrasted with an ethics of responsibility prevalent in

the precautionary mode of improvisation. Such concern with deep-seated

convictions, rather than with possible harmful consequences of action, might

also explain why marketization processes in Chile, which were introduced

under the aegis of the dogma ‘private solutions to public problems’, ended up,

as Ossandón (2012) has rightly observed, producing all types of new publicproblems.

Finally, if we accept the idea that economic improvisation is associated

with the emergence of something new, then we need to reflect upon the

nature of these innovations. Both improvisation processes described here led

to markets that later acted as models for the transformation of other markets.

As Gilbert (2002) has studied, the market for social housing created during

the 1980s a decade later became a model promoted by the Inter-American

Development Bank and the US Agency for International Development for

other Latin American countries such as Colombia, Ecuador and Panama.

Interestingly though, the actors who were directly involved in the creation of

this market were sceptical about the model’s replicability, as they understood

this would require a transformation of the whole social, institutional and

economic environment of these countries. Indeed, the way something like the

‘Chilean model’ came into being and circulation was not as a detailed neo-

liberal blueprint or recipe that should be applied step by step. Instead what

circulated were rather Chilean experts and former Ministry officials, who

served as policy consultants in the aforementioned Washington-based

institutions. In this respect, the most recent case is similar. A series of

modifications was introduced in February 2011 to the regular Chileanhousing policy adapting some of the improvised market arrangements for the

reconstruction, especially the idea that the encounter between consumers and

producers does not take place until they meet in the market-place (cf. Brain

& Mora, 2011). However, such modifications were not based on formalized

evaluation procedures or economic modelling of the market for housing

reconstruction:

I’ll be honest with you. The magnitude of this feat is so ample that we don’t

have people internally to simultaneously and continuously do and evaluate ourwork. (Officer #2, MINVU, 15 December 2010)

This, however, does not mean that a more informal evaluation does not take

place:





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The head of housing policy in the Ministry is the operator, I mean the person

who looks at all the decisions of the reconstruction team in other directions.

When things are done in the right way in one place, then they can be

reproduced in another. And vice versa … It’s a constant issue. (Officer #2,MINVU, 15 December 2010)

The notion of the ‘operator’ is particularly important here, for it refers not so

much to an expert, but rather to a political actor, who manages the informal

rules of institutional politics and is capable of mobilizing support and reaching

agreements for certain projects or goals.

Both cases studied thus reveal an important feature of the policy economic

models created. These do not resemble a blueprint or an ‘aspect of economics’,

to paraphrase MacKenzie, which could be mobilized to transform economicprocesses. The models here are not performative, but exemplary. They do not

involve practices that could be replicated, but a mode of engaging with

uncertainty and crisis. The model, in other words, is nothing but a certain way

of improvising.

Note

1 This study is part of a larger research project focusing on different policy

instruments, governmental arrangements and urban projects introduced in the contextof the reconstruction process, for which more than 80 state officials, expert

professionals and citizen representatives have been interviewed. Research has been

carried out in 2010, 2012 and 2013 with the help of three assistants, William Osorio,

Sabine Biedermann and Patricio Flores.

Funding

This research has been funded by WZB Berlin Social Science Center.

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