Improvising A Market, Making A Model: Social Housing Policy in Chile

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Improvising a market, making a

model: social housing policy in
Chile
Ignacio Faras
Published online: 21 Jul 2014.
To cite this article: Ignacio Faras (2014): Improvising a market, making a model: social
housing policy in Chile, Economy and Society, DOI: 10.1080/03085147.2014.881596
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Economy and Society 2014

http://dx.doi.org/10.1080/03085147.2014.881596
Improvising a market,
making a model: social
housing policy in Chile
Ignacio Faras
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 deviates
significantly 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
Callons (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. Callons provocation was to suggest
Ignacio Faras, WZB Berlin Social Science Center, Reichpietschufer 50, 10785 Berlin,
Germany. E-mail: farias@wzb.eu
Copyright 2014 Taylor & Francis
Economy and Society
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. In
this context, performativity denoted the process whereby an economic proposition, such as the behavioural model of the homo economicus, is realized or brought
into being in specific market arrangements. MacKenzie and Millos (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 Callons hypothesis.
MacKenzies 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 economic
practice (MacKenzie, 2007, pp. 5960). 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 central
part 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
sociologys conceptual tool kit (2003, p. 138) and insisted that especially
Granovetters 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 order
to 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
Ignacio Faras: Improvising a market, making a model
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 or
market 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 transactionally 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 Thvenot (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 &
Thvenot, 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 a
market 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
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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 the
strategy 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 earthquakes 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 marketbased 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 markets
becomes a rather counter-intuitive empirical finding.
The paper is structured in four parts. Following a brief overview of the neoliberal governmental project introduced during Pinochets military dictatorship, 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 also
serve as a contextualization for the second moment of economic improvisation
under examination, involving the urgent adaptation of existing market instruments 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
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 the
transactions, 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. Chiles neoliberal experiment

Chile is known worldwide as the site of one of the most radical neoliberal
experiments ever implemented (Harvey, 2007). During General Pinochets
dictatorship (19731990), a comprehensive transformation of the state and the
countrys 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 transformation 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
Brquez, 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 (Ossandn, 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 had
already 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 dictatorships
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 (Valds, 1995).
Chiles 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 (Grate Chateau, 2012). Yet I believe it is important to
draw attention to parallels with the so-called Ordo-liberalism of the Freiburg
Economy and Society
school, as the Chicago Boys in Chile confronted the same fundamental issue of
redefining the relationship between the state and the market. According to
Foucaults (2008) genealogy of neoliberalism, the politico-economic problem
facing the German Ordo-liberalists following the collapse of the Third Reich was
no 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, Chiles 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 countrys 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 privatization 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 (Ossandn, 2011).
The key question one then needs to ask is how these economic policy designers
and experts working in key government positions under Pinochets dictatorship
mobilized 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 to

improvisation
In adherence to a decree issued by Chiles former National Planning Office
(ODEPLAN) in 1974, which encouraged all ministerial departments and
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 homebuyer 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 neoliberal 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 (Morand & Garca, 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 were
thus not defined as a social entitlement, but as a reward for the efforts of lowincome households to escape poverty. The CAS data sheet introduced the
idea that housing was a good that could only be obtained through ones 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 Chiles 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 (Rodrguez & Sugranyes, 2005). A superficial analysis of this
success could take it as clear evidence of the policys 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
Economy and Society
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 was
substantially 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 municipalities to plan and implement construction projects for social housing in 1982
(Rodrguez & 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 suspended 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 building
sector 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
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 (Rodrguez & 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 not
only 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 neoliberal theories and models, this market would never have been created
(cf. Ossandn, 2012). But the process observed here is still a long way away
from 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 alter
the 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
10
Economy and Society
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; Ossandn,
2011; Valdivia, 2001). In this sense, one of the most important Chicago Boys,
Jos Piera, who was the architect of the Chilean pension system and held
several 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 (Bchi, 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 that
followed, 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 reconstruction (MINVU, 2010). In addition to providing temporary accommodation for
the hundreds of thousands of people left homeless, the greatest challenge for
Chiles state officials and policy-makers subsequent to the disaster was
organizing the reconstruction of towns and homes. Regarding the housing
problem, 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,
11
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, which
were 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 Chiles housing policy, despite a few shortcomings, was
one of the worlds 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 this
fund 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 that
would 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 the
butterfly 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 alkan 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 the
catastrophe. 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 Chiles 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 the
houses 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
13
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, in
order 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 their
choice. 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 []. Theres
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
wasnt 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 construction companies that had been major actors in the previous system. The main
challenge 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 one
assumed 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
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Economy and Society
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 also
inexperienced, 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 transformation 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 familys 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, likewise
allowance 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 homebuyer allowance. The recipients of the allowance thus constituted an interest
group 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,
15
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 the
basis 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 to
the 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 and
goods. 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
16
Economy and Society
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 Chilln, a city with a population of
around 170,000. In both cases, the Ministrys 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 SERVIUs 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 voting
process, 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 or
egoistic considerations, but on a process whereby ones 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. alkan & Callon, 2010; Cochoy & Grandclment-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).
17
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 dont 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 its 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 think
this one is better because we could extend it. A gentleman says half-jokingly,
Why didnt I bring my wife? Shell kill me! Another says, Dont 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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Economy and Society
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 not
decide 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 a
house. 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 instruments. 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 I
shall 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
19
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 nonknowledge 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
dont 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 they
become measurable, calculable and eventually less uncertain.
Secondly, and if improvisation describes the way actors cope with uncertainty, then the key political question is whether there are different modes of
improvisation. The two moments of improvisation in Chilean housing policymaking 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 and
evidence, interventions are made paying attention to the prospective consequences 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, only
one state of affairs, in which housing delivery occurs by means of market
transactions. Thereby, attention is not paid to the possible negative consequences of such a course of action regarding the quality of the offered houses
or of peoples decision-making, as one could expect from a precautionary mode
20
Economy and Society
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, the
road 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 Ossandn (2012) has rightly observed, producing all types of new public
problems.
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 models 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 neoliberal 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 Chilean
housing 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:
Ill be honest with you. The magnitude of this feat is so ample that we dont
have people internally to simultaneously and continuously do and evaluate our
work. (Officer #2, MINVU, 15 December 2010)
This, however, does not mean that a more informal evaluation does not take
place:
21
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 Its 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 economic
processes. 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 context
of 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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Ignacio Faras is a senior research fellow at the WZB Berlin Social Science
Center and research associate of ICSO, Universidad Diego Portales, Chile. He
has been a visiting scholar at Harvard University (2013), Goldsmiths College,
University of London (2010) and New York University (2007). His main
research interests are in the fields of urban studies, science and technology
studies and cultural sociology. He has done extensive research on urban
disasters and reconstruction processes, urban consumption and tourism, as
well as the creative sectors of urban economies. He is co-editor of Urban
assemblages: How actor-network theory changes urban studies (Routledge, 2008)
and author of papers in journals, including Sociological Review, European
Journal of Social Theory, Space and Culture, CITY and Mobilities.

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