Switzerland of the South -- Mattes Chile

8/9/2019 Switzerland of the South -- Mattes Chile

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Chile: Switzerland of the South?

Challenge/SeptemberOctober 2013 5

Challenge, vol. 56, no. 5, September/October 2013, pp. 530. 2013 M.E. Sharpe, Inc. All rights reserved. Permissions: www.copyright.comISSN 0577-5132 (print)/ISSN 1558-1489 (online)DOI: 10.2753/0577-5132560501

ROLAND BENEDIKTER is the European Foundation Research Professor of Multidisciplinary Political

Analysis and Political Anticipation at the Orfalea Center for Global and International Studies of the

University of California at Santa Barbara. He is also a long-term visiting scholar at the Europe Center

of Stanford Universitys Freeman Spogli Institute for International Studies.KATJA SIEPMANNis a

researcher for the market research institute Opina in Santiago de Chile. She is writing a book about

the background of the 2011 student protests in Chile.

POLICYIDEAS

Chile: The Switzerland

of the South?

Roland Benedikter and Katja Siepmann

Branded the Switzerland of the Global South,Chile has made, at least it appears from the outside,admirable economic advances. It is the poster childfor U.S.-inspired neoliberal policies. But why, then, isthere so much social unrest? The authors unravel thestory in a wonderful narrativea full account of a

developing country as a case study of seeming successand underlying discomfort. The story begins with oneof Chiles entrepreneurial families.

MORETHANFORTYYEARSAGO, Eliodoro Matte was an MBA stu-

dent at the University of Chicago. In recognition of his

outstanding success thereafter, he was invited to address

the business schools graduation ceremony on June 15, 2008. On this

occasion, he spoke about the influence of the school, the birthplace

and stronghold of global neoliberalism; his subsequent career; and the


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Benedikter and Siepmann

6 Challenge/SeptemberOctober 2013

destiny of Chile: The University of Chicago brought all the ideas and

commitments to my mind, my soul, and my spirit that penetrated and

changed my life and my company, and, most important, my country

forever, he said.1Matte emphasized that Chicagos radical free-marketideology was, first, crucial to transforming my enterprise CMPC from

a locally operating company within a protected market into an inter-

national player in a highly competitive business world,2and, second,

that it was decisive in creating the most progressive, successful, and

fair economic ambience of South America in Chile.3

The interrelation that Matte pointed out between his companys

performance and its basis in Chiles overall development was no ac-

cident. It simply corresponds to the facts. Indeed, some of the mostbrilliant examples of recent successful Chilean entrepreneurship are

the siblings Eliodoro, Bernardo, and Patricia Matte, owners of the pa-

per empire CMPC, also known as La Papelera. Founded in 1920, the

company has specialized in the production and commercialization

of cellulose, paper, pulp, tissue, and other paper products. It is now

the fourth-largest cellulose provider in the world and produces 2.8

million tons a year, of which it exports 85 percent, mainly to Asia,

the United States, and Europe. The company possesses more than a

million hectares of forests in Chile, Argentina, and Brazil and is keep-

ing alive 8,500 workplaces in Chile and 6,500 in branches abroad

(Brazil, Argentina, Peru, Uruguay, Colombia, and Mexico). CMPC

ended 2012 with US$4.76 billion in sales, $914 million in earnings

before depreciation, interest, and taxes (EBDIT), and $14.05 billion in

assets. The Matte family controls the company, owning 55.3 percent

of the share capital, and, according toForbesmagazine, in 2013 is the

second-wealthiest family in Chile with a fortune of $10.2 billion.

Interestingly, 11 percent of the capital of CMPC stems from private

pension funds that all Chileans by law are obligated to pay into.

Promotion of Free-Market Ideology

It is not only their success and wealth that make the Matte family an

object of both great admiration as well as fierce opposition among


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Chileans, thus confirming their status as part of the historic symp-

tomatology of the country. It is their convincing rhetoric and cultural

finesse as leading public promoters of the free-market ethic in Latin

America. When talking in public, the Catholic Matte family with itsCatalan roots usually transmits the impression of being conservative

freethinkers, above all political parties. But the family positions are

unmistakably on the center-right of the political spectrum.

Being both criticized and revered by the masses, the leading mem-

bers of the family share the destiny of all great Latin American states-

men and leaders. This is not by chance. Eliodoro Matte is a typical

public figure of the region. He is highly networked in the intellectual

academic world, having been a lecturer at the prestigious PontificiaUniversidad Catlica de Chile and exvice president of the Univer-

sidad Finis Terrae and now president of the neoliberal think tank

Centro de Estudios Pblicos Chile (CEP). He finances the Centro de

Investigacin Cientfica de Valdivia (one of the most important and

modern research centers in the country) and the highly influential

centers of public and political opinion, Instituto Libertad y Desarollo

and Fundacin Paz y Ciudadana. Moreover, Eliodoro is a rare multital-

ent: He is interested not only in economy, education, and politics but

also in spiritual life. Like most of his family, he is said to be close to

the Legionaries of Christ, a religious congregation of the pontifical

right, founded in 1941 with the mission to extend the kingdom of

Christ in society.

His two siblings, Patricia and Bernardo, maintain familial influence

in the cultural sphere and were members of the advisory council of the

TV channels Canal 13 and TVN. Patricia, who is sometimes branded

the most powerful woman in Chile, is married to another Chicago

alumnus, Jorge Gabriel Larran, known as the other Matte for his

brilliance in business. Patricia, a sociologist, is a leading intellectual

who often points out her standing above ideology. She has indeed

been part of both leftist and rightist governmentsfirst on the staff

of the government led by the leftist Unidad Popular and Salvador

Allende and later in charge of social politics in Pinochets regime,

where she served as link between entrepreneurs and the dictatorship.


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Today she has a stake not only in forestry and paper products but also

in telecoms, banking, and shipping firms. She is chairwoman of the

Society for Primary Instruction and a highly regarded counselor of

Libertad y Desarrollo. Bernardo runs the financial affairs of the fam-ily as president of the investment bank Banco Bice (which specializes

in foreign trade and investment financing) and as president of the

investment holding Bicecorp.

The list of important positions held by the Mattes could go on. By

2002, the family controlled more than thirty companies in different

sectors (forestry, finance, mining, health care, telecoms, energy, harbor

management). It is said that it has been so influential over time that

it became a protagonist of both change and continuity in the Chileanpolitical systemnot unlike some similarly influential families in the

U.S. establishment, for example, the Harrimans.

Economic Progress Based on Liberalization fromAbove

The result of the influence of Chicago-formed oligarchs like the

Mattes on Chiles development, as entrepreneurs and public figures,

was exemplary economic progress at both private and public levels

based on liberalization from above. During the past decade, Chile

has been presented at international forums as a never-ending success

story of development and economic growth. Indeed, the Andean

state constantly presents impressive macroeconomic data: annual

GDP growth of 6 percent (a rate far above the global average), an

unemployment rate below 7 percent (better than most European

countries), and high levels of both foreign and domestic investment

and entrepreneurship. These data go hand in hand with the positive

evolution of Chiles Human Development Index (HDI)a statistical

indicator that reflects national developments in education, income,

and healthwhich attained first place in South America at 0.805

in 2011 (compared to 0.630 in 1980). In 2013, Chiles HDI reached

0.819, ranking the country fortieth in the world.

In May 2010, Chile became the first South American member of the


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Organization for Economic Cooperation and Development (OECD) in

recognition of its brilliant overall performance combined with function-

ing democratic institutions. Since 2012, it has been the main pillar of

the free trade zone between Chile, Colombia, Mexico, and Peru. Chileis now considered one of the most economically and financially lib-

eral countries in the world. In comparative and developmental studies

around the world, it is used as an example of the success of liberalism,

in particular of alignment with the West through integration in the

Western financial system strategies in former third world countries.

2011: A Surprising ProtestBut to the surprise of many, in 2011 something happened to the

unshakable truth that Chile had become the most progressive,

successful, and fair economic environment of South America.4

Considering the economic indicators, international experts, includ-

ing those familiar with the Latin American context, had reason to be

surprised by news of massive demonstrationsthe largest since the

return of democracy in 1990across the country. The spark spread

from the student movement, which, under pressure by rising study

fees, demanded structural reforms and a more active role by the

state in the regulation of the increasingly profit-oriented educational

system. These protests soon overlapped with other, locally specific

activism, including mineworkers strikes and womens, indigenous

peoples, and environmental movements, and they rapidly mutated

into a nationwide social protest initiative. Even though the single

movements had specific causes and demands, most of them were an

outbreak of indignity and shared the expression of discontent with

society. The social mobilization in 2011 was a surprise not only in its

diversity but also in its capacity for maintaining continuity over time,

and in its massive sizeapproximately one-third of the population

older than eighteen was directly or indirectly involved. Although in

2013 demonstrations are continuing on much lower levels and have

widely disappeared from international attention, discomfort is still

in the air. And there could soon be new noise.


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The Causes: Social Discontent Incited by RisingPrices and Economic Pressure

As the Chilean consumer service Sernac (Servico Nacional del Consu-

midor) reported in April 2013, citizen discontent has not ended with

the exhaustion of popular protest. On the contrary, it is on the riseit

has just shifted from the streets to the institutions.

In the health-care system, the administrative appeals and written

complaints against rising prices tripled between 2010 (9,100) and

2011 (25,767).

In the financial sector, formal complaints against banks rose by

139 percent between August 2011 and August 2012, with more than

27,000 appeals between May and August 2012 alone. Among the

causes are bills for products and services not requested, transactions

of unclear origin, and excessive commissions not included in con-

tracts, but also corruption and malpractice. But the most important

issue debated among Chilean citizens is rising prices in crucial niches,

hidden in the overall inflation report by stable or decreasing prices

in other, less needed fields. As Chiles index of consumer prices (In-

dice de precios del consumidor) demonstrates, between March 2012and March 2013 food prices increased by 3.1 percent, alcohol and

tobacco by 7.6 percent, health care by 4.1 percent, education by 5.1

percent, water and electricity by 2.4 percent, and restaurants and ho-

tels by 7.5 percent. While these figures may not seem excessive when

compared to international standards, the rise is disproportionate to

the average Chileans wages. For example, some young lawyers have

starting salaries of around 500,000 Chilean pesos (CLP; $1,041/e808/

682)an amount sufficient for survival five years ago, but that ishardly sufficient today. As a result, indebtedness is increasing among

the highly qualified and well educated. In 2012 households in Chile

had debt on average of 59 percent of their yearly combined income

(compared to 50 percent in 2005). While this may seem tolerable if

compared with U.S. figures of 112 percent (in 2011), the crux is the

cost of credit, which according to a Sernac study in December 2012

can total as much as 93 percent for a thirty-six-month loan of between

CLP 500,000 and CLP 1 million.


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The social effects are numerous. The most important ones are mis-

trust, a new everybody for himself mentality, and social disintegra-

tion. According to a study by the CEP, in 2012 76 percent of Chileans

agreed with the statement One cannot trust others, and almost 50percent agreed that to feel lonely is normal. Thus mistrust seems

to have become a cultural leitmotif. While quality of life has risen,

general contentment has fallenin particular, when it comes to social

mobility. Only 36 percent of Chileans believed in 2012 that one can

afford to buy a house with income from personal work (compared

with 55 percent in 2009), 31 percent now believe that one can live

as an independent small or medium-size entrepreneur (compared

with 51 percent in 2009), and only 17 percent believe that povertycan be reduced (compared with 27 percent in 2009), as indicated by

the study Encuesta Nacional Bicentenario 2012 from the Market

Research Institute Adimark and the Universidad Catlica.

The Man on the Street: Rather Negative About theFuture

As a result, many Chileans are clearly negative when it comes to the

future of their country. According to Adimarks findings, in 2012

only 24 percent believed that greater equality can be achieved (com-

pared with 41 percent in 2006); 24 percent believed that Chile will

remain a peaceful and unified country throughout the next ten years

(compared with 43 percent in 2006); 24 percent believed that the

country can halt environmental decline (compared with 30 percent

in 2006); 43 percent believed in better access to education (compared

with 68 percent in 2006); and 51 percent believed that Chile might

make progress as a country in the next ten years (compared with 59

percent in 2006). Overall, citizens trust in politics and institutions

has declined in the past few years.

That is not really surprising, if what independent Chilean think-

ers report is true. As Manfred Max Neef, 1983 recipient of the Right

Livelihood Award, reported on the occasion of the launching of the

new masters-degree program Desarollo a Escala Humana y Economa


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Ecolgica (Development at a human scale and ecological economy) at

the Universidad Austral de Chile in the southern town of Valdivia on

April 10, 2013, Chiles speculative financial economy has grown to be

fifty times bigger than the real economy, which, to paraphrase BarackObama in 2012, manufactures real things. According to Neef, Chile

now has the only government worldwide that does not own a single

drop of the water on its soil (all privatized) and has a wide imbal-

ance between national economic performance, citizen participation

in benefits from economic wealth, as well as unequal access to core

fields of societal development like education and health care. Neef says

that one problem at the root of the others is the centralization of the

national institutions, which still do not respect regional differencesin a highly differentiated country that, between its north and south,

stretches out over a distance larger than the one between the north

and the south of Europe.

Ambiguous Evaluations of Chiles Current Society

The combination of excellent statistics on national economic de-

velopment with high levels of social discontent leads to ambiguous

evaluations of Chiles society. Some critics considered the popular

mobilization of 2011 the wrong answer, as dangerous instability for

a growing country and as a threat to the indispensable prerequisite

of growth and wealth: governability. Others, however, evaluated the

incidents as a rather positive achievement for the still ongoing de-

mocratization process in the way that people started to claim their

influence and participation in the renewal process of society. Chile

has a long history of student mobilization dedicated to political (end-

ing dictatorship and fighting for democracy) and educational issues

(supporting public and equal education),but the participation of the

population at large in demonstrations against the government was

something new in the postdictatorial era. In its mainstream, Chile

has sometimes been branded a spineless democracya legacy of the

shock effects of the dictatorship. If nothing else, those who coined

this phrase were silenced in 2011.


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Taken together, over the past few decades the country has had many

astounding achievements, which are rightly celebrated by the interna-

tional community. But they seem to coexist with negative personal

evaluations of the state of affairs by the majority of the citizensa factthat is rather unusual and generally not noted outside the country. It

points to a lack of participation and to a one-sided distribution of the

benefits of development. Even though national economic statistics

and technical indicators remain decisive, they alone are no longer

powerful enough to draw conclusions about the real welfare and the

perspectives of a country as a whole. Issues essential for the digital

age like access to information and education and sociopsychological

welfare must be included. At a time of the global rise of contextualpoliticsincluding social psychology, cultural paradigms, subjective

narratives and aesthetics, and interactive social mediawith core

political factors of similar or even equal in importance to party and

institutional politics, overly traditional assessments of classical

political science can be misleading in an analysis of change and an-

ticipation of the respective challenges. Thus for a deeper understand-

ing of ongoing social processes in Chile, it is essential to include the

everyday experiences, that is, the subjective perceptions of people

and their collective moods as related to their lifestyles, to gain a more

appropriate, multifaceted picture.

The Core Mechanism: Chile Is Growing, but NotDeveloping?

First, it is important to critically revise the tale of Chiles devel-

opment as an unprecedented success story that should serve as a

model for the surrounding geopolitical region, the global South, or

even the rest of the developing world, as Obama euphorically put

it during his last visit to Chile in March 2011. The country reports

record-breaking growth statistics, but too few people gain profit

from the countrys advancement. This is why the country has been

declining into two Chiles. On the one hand, part of the popula-

tion has access to all resources and means as well as incomes that


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are found in the richest countries worldwide. On the other hand,

60 percent of the citizens have an average income comparable to

that of Angola. Approximately 70 percent of Chileans earn around

$650 per month.These social divisions may appear to be a remnant of the typology

of old Latin America that survived into the postmodern and glo-

balized era. It is particularly visible in the geography of the capital,

Santiago. While life remains precarious in many of the neighbor-

hoods, the eastern community of the cityLas Condeshas become

a symbol for exceptional growth and wealth. This is where most of

the international companies have their offices in modern skyscrapers,

and where new luxury stores spring up every day. It is a vibrant placewhere large amounts of money are continuously spent in gigantic

shopping malls, and where life is thriving as in the United States or

other highly developed countries.

In contrast, the second, other, Chile, features a labor market with

workdays of as many as twelve hours (many people have two or more

jobs just to get by) and a current minimum wage of CLP 164,000 ($347/

e271/229) a month after contributions to social security, which is just

above the poverty line. These earnings correspond neither to the countrys

growth rate nor to the rapidly growing prices of basic goods, including

food, clothes, and housing. In 2013 more than 10 percent of the popula-

tion officially lives below the poverty line.

It is precisely the combination of these facts that causes a common

feeling of injustice to emerge, infecting social psychology beyond the

borders of the classes, which is more than ever openly visible. More

people start to claim their slice of the pie through protest and vio-

lence. Consequently, the discontent in large portions of the Chilean

population is caused by the need to rebel against the given condi-

tions, not by hopes of positive nation-building for the future, much

less a demand for more democracy per se. It is rather related to the

systemic exclusion of economic growth. During the nationwide pro-

tests in 2011, a popular saying sprang up: Chile is growing, but not

developing, which has become a widely accepted mantra of societal

self-perception even among the wealthy.


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Propagation of the Free Market and PowerConcentration

Why? Because it is obvious to everyone that life can be difficult in

current Chile. Ordinary activities, such as shopping or consulting

a doctor, can mean frustrating experiences because of high prices.

In 2013, Chile has not only the most expensive education system in

the world but also the most expensive health-care system relative to

average purchasing power. There is a lopsided relationship between

wages and prices not only of luxury items but also of basic goods. In

2013, eight rolls of toilet paper cost up to CLP4,000 (about $8.50/

e6.60/5.6). Other products made of paper are sold at spiraling prices.

How is this possible in a country with a big forest industry in the

south? Paper definitely is not a scarce resource; after all, Chile exports

it in great amounts. In fact, paper produced in Chile is often cheaper

in foreign countries than at home, most certainly in Latin America.

According to Santiago-based political observers, the reason for the

high prices on the domestic market is de facto monopolies that are

rarely challenged by the government. Considering the domestic mono-

market for a basic good like paper, it is no surprise that the CMPCpaper empire is doing so well. De facto monopolies, erected under

the protection of neoliberal free market ideology, are creating power

concentrations that reach out beyond the economy into politics and

the public life.

Similar practices are applied to the housing and food markets.

The housing market follows the U.S. model before 2007 of high

indebtedness through all-too-generous loans that pursue the goal of,

first, making citizens dependent on serving the interest on their loanswithout being able to pay back the debt, and, second, making sure

housing prices are continuously rising, thus creating the illusion that

exaggerated prices still pay off after a given period.

The food market follows the laws of the international speculative

capital market, which since 2007 have been drifting toward food

speculation, thus increasing the prices of basic goods like wheat or

corn by 100 percent between February 2010 and February 2011. The

comparison of supermarket prices with those in covered markets is


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telling. In the latter, the same products cost half or less. For example, a

piece of cheese in a supermarket costs CLP 2,0003,500 ($4.17$7.44/

e3.20e5.70/2.724.85), which is a third more than the amount

charged in an average covered market. Visiting a covered market inSantiago opens up an observatory of social segregation. In super-

markets, usually no poor people are present because the high prices

are beyond their means, forcing them to make their purchases in the

markets. It is a recent development that these often shabby covered

markets are visited by more and more middle-class people. Buying

in markets is an option for not becoming dependent on credit just

to survive.

Developments in the housing and food markets are as much anexpression of the free market ideology as its caricature. In fact, the

gap between the theory and reality of the free market could hardly

be bigger than in current Chile. Almost all sectors have been accused

by the press of collusion and monopolistic practices that prevent the

emergence of new actors and small and medium-size companies.

Not surprisingly, the concentration of power is defended by the same

people who promote the free market out of a neoliberal vision. One of

the most talented promoters of the mythology of a fair, competence-

based, and rational free market in Chile is Horst Paulmann Kemna.

Paulmann, son of an ex-Nazi (Karl Werner Paulmann was the principal

judge of the SS and bodyguard of Adolf Hitler), immigrated to Chile

after World War II and started to run a retail empire together with

his brother. Paulmann, 78, is a self-made billionaire, the owner of the

majority of supermarkets, malls, and retail stores in Chile (Cencosud),

and he has employed more than 27,000 people (as of 2011). He is a

multi-awarded public figure of notable political influence and, with

a personal fortune of $9.3 billion, the third-richest person in Chile,

just ahead of Chiles current president, Sebastin Piera. As a result

of the entwinement of economics, free-market rhetoric, politics,

and the heritage of cultural and social history, power and wealth in

Chile remain closely interrelated. They are dominated by a handful

of families like the Mattes and Paulmanns, their business partners,

and their dependents and allies, both domestic and international. In


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this framework, the official motto of the country Por la razn o la

fuerza (By right or might) has acquired its own meaning, in the view

of many citizens. It is mirrored by the Gini index of income inequality,

on which Chile in 2009 ranked first among OECD member countriesin inequality and income disparity with a coefficient of 0.52.

What Is the Real Base of Chiles Economic Growth?

To understand the mechanisms in play, it is important to look at what

was (and still is) the real base of Chiles economic growth. First, there

is the export of natural resources (copper, seafood, and agricultural

products like wood and wine). It brings money in. But the other driverof growth is domestic: the commercialization of the lives of Chileans,

which in many ways follows the American model. It redistributes

money within the country. In recent years, this second economic

driver has taken over the lead role.

If one takes the metro in Santiago on a spring day of 2013, one im-

mediately understands what the biggest businesses in todays Chile

are. There is not much else to find in the underground trains than

advertisements for two business categories: higher education (with

the most optimistic promises for a safe and successful future) and

health-care servicesboth always together with the corresponding

credit options from the finance industry. Although the omnipresence

of these advertisements is hard to overlook, until recently people also

had to listen to them from the metros speakers.

Education and health care are indeed the businesses where the

privatization of current Chilean society and public life is most evident.

Interestingly, Chilean law formally prohibits profit making in the

education sector. Nevertheless, this sector became one of the principal

domestic industries in the country and the most heavily entwined

with the financial lending industrynot least because most students

need to take out a loan to be able to afford to study. The high reliance

of the financial industry on student loans is not surprising in light of

the fact that among OECD countries, Chile today has the largest gap

between the average tuition fee and the average income per capita. As


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a result, loans are so badly needed that they can be given with such

high interest rates that the students in the end pay twice or threefold

the costs of their studies, if university and bank debt services are

combined. Due to indebtedness, most graduates have to repay theirloans over twenty to thirty years. In addition, the disproportion

between projected graduate income and the average graduates debt,

in many cases, makes it almost impossible to fully pay back the loan

over an average working lifetime. Today in Chile, the average debt of

university graduates represents 174 percent of projected income, in

comparison to the United States, where it is only 57 percent, and to

Europe, where it is usually below 25 percent (with the exception of the

UK, where, after reforms by the conservative Cameron government,it is expected to reach 40 percent). While other countries feature a

problematic military-industrial complex, contemporary Chiles rare

characteristic is an academic-financial complex that is at the center

of the countrys rising discontent.

The shift of the center of gravity of growth from foreign to do-

mestic in recent years has created a situation in which parts of the

overall growth are unproductive for the majority of the citizens. To

the contrary: Many feel that national growth occurs on their backs

and at their expense for the benefit of a few. If someone starts to

settle the bill for something that was cheap or even free before (which

happened with the education and the health-care system), she or he

will claim to create growth and wealth, Chilean sociologist Alberto

Mayol remarked. Or to overstate the case a bit: If people had to start

paying for breathing air, the GDP would also grow, but people would

become poorer.5

He is not the only one uneasy with Chiles current economic sys-

tem. What the student movement of 2011 demanded under the motto

No al lucro (No to profit) was a free, public, and fair education

of good quality. Although Chile has the most expensive education

system worldwide in terms of per-capita income, Chilean students

areaccording to UNESCO datapoorly trained compared to those in

other countries. It was a worrying signal for Chilean society that the

students reconciled with other local movements and agreed with the


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population at large (85 percent, according to the CEP in 2011) on the

phrase No al lucro. The reason is that many Chilean citizens under-

stand No al lucro in a broader sense as No to abuse of power.

Omnipresence of the Credit Business

But the education sector is just one, if the most extreme, example of

the omnipresence of the credit industry, which penetrates all facets

of Chilean life. Retail stores, supermarkets, and pharmacies long ago

stopped making money primarily from the quality of their products,

the numbers sold, and the difference between the wholesale and retail

prices. Most revenue in these sectors is now generated by financialproducts that are sold with the merchandise. It has, for example,

become a common practice for the pharmacist to ask whether the

customer wants to pay for his purchase of aspirin in one or three in-

stallments. Credit is almost imposed on people for the smallest level

of purchase and trade, and the new target groups in particular are

people who are members of the middle or lower classes.

As banks know, these people have difficulty in making it to the end

of the month with their regular income. Thus they promote crditos

de consumo, or consumer credit, which is usually extended without

having the consumer provide any security. It is sold as a service to

those who need it, and as an apparently generous sign of solidarity

of the financial industry with the poorer segments of the population.

The truth, though, is that they make people dependent and, eventu-

ally, poorer. The rate of interest charged is so high that in the end

the consumer repays nearly double the cost of the original purchase

made with it. The irony in Chiles public landscape is advertisements

like Es rico dejar de ser pobre (It is beautiful to stop being poor;

literally: It is rich to stop being poor) by the Banigualdad (Chile

FoundationBank of Equality), which claims to provide microcredits

to the most disadvantaged. But instead of creating more equality, the

real dynamic of recent years was the systematic increasing indebted-

ness of the poorest, which led to the collapse of entire social classes.

As a consequence, many observers today diagnose a structural confis-


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cation of real life in Chile by the financial industry, because most

poor people work only to pay the banks. In 2013, a disproportionate

number of them become mentally ill because of the fear that sooner

or later they would be unable to pay.

The Forest Industry: A National Good?

At the same time, indigenous and environmental movements are on

the rise. Their main motto is the same as the student movements No

to profit or No to abuse of power. There is a concrete link between

those movements and the multibillion-dollar forest products compa-

nies. CMPC, Arauco, and MASISA (the three big actors in the Chileanforest sector) claim that their forests generate broad economic, social,

and environmental outreach that creates a fortune for the country

and does not threaten the primeval forest.

Indeed, after mining, the forest industry is officially second in

producing the growth in Chiles GDP. But the wealth generated by

forestry remains mostly in the hands of the owners of those com-

panies. The communities where the plantations are located remain

among the poorest and most underdeveloped in the country and are

hardly beneficiaries of the industry. The network that constitutes

CMPC, Arauco, and MASISA led to the bankruptcy of many small and

medium-size actors in the field, allowing the big players to define the

price of territory, raw material, labor, and the end product.

Interestingly, the forest business remains highly subsidized by the

Chilean governmentofficially to favor small producers in particu-

lar. Nevertheless, big companies receive most of the subsidies: from

1974 to 1998, 94 percent of the subsidies were given to the three big

companies (62 percent from 1998 to 2010).

What is the social outreach of these politics? Most plantations

of MININCO, a subsidiary of CMPC, are in the southern regions of

the country, mainly in Bo Bo, Los Lagos, and La Araucania, which

are part of the indigenous territory of the Mapuche people. Most

of the recent indigenous protests and violent conflicts against the

local and national governments took place in this area. The Mapu-


17/26



ches complaint, according to their own statements, is not ethnic

separatism, and it is not directed against Chilean society as a whole

but against the powerful who usurped the territory, destroyed

the ecosystem, and pushed the local population into poverty.6Due to the monocultures of pine and eucalyptus planted for the

forest industry, land for agriculture is disappearing and therefore

the basis of life for most Mapuche. The plantations also trigger

another problem not unfamiliar to other global regions dominated

by monocultures: competition for water. Pine and eucalyptus are

exotic plants imported to Chile that consume huge amounts of

water, which dries up the ground. According to statistics in 2012,

Mapuche wages are mostly below the minimum, and thus they havesuch a low quality of life that their life expectancy is ten years less

than that of the richer communities of the country. At the same

time, the big players in the forest industry (with their various side

businesses in other fields) earn record profits. In 2008, 49 percent

of GDP was concentrated within, or in some way related to, four

families, led by Eliodoro Matte, Andrnico Luksic, Anacleto Ange-

lini, and President Sebastin Piera.

We Are the Owners of Chile

Correspondingly, the great-grandfather of Eliodoro Matte, Eduardo

Matte Prez, allegedly stated more than a century ago: We are the

owners of Chile, the owners of capital and soil; the rest are masses that

have to be influenced and can be bought; these masses dont have any

real weight, neither in public opinion nor in prestige.7Considering

some of the practices in place, particularly in the Mapuche areas, it

seems to many, particularly younger Chileans, that these thoughts

have remained strong throughout the years.

Admittedly, the current Chilean governments double goal is as ra-

tional as it is almost impossible to achieveon the one hand, trying

to protect the rights of indigenous people and, on the other hand,

simultaneously strengthening the markets. When it came to strate-

gic decisions, more than once the government placed the interests


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of the marketsor, rather, growth of GDPabove the interests of the

indigenous people.

What Are the Effects?

On April 22, 2013, thousands of people assembled in the streets of

different cities in Chile for the first nationwide water protest, demand-

ing the renationalization and public recuperation of this essential

resource. As an effect of neoliberal policies, Chilean water is today

completely in private hands. Consequentially, most environmental

protests have been pointing to the same actors: the big companies

that exploit the natural resources of the country, leaving certainareas with increasing shortages of water. That occasionally leads to

situations in which people are no longer self-sufficient because the

harvest dries up, and they can no longer afford to be consumers on

a broader level. That means that, while in macroeconomic terms the

forest industry produces very good results, the benefits are distributed

unequally. It is not primarily the fault of specific people but, rather, a

shortfall of the system. The beneficiaries of growth are a small group

of investors and entrepreneurs, while the costs are paid by Chilean

society, especially the farmers, the small and medium-size firms, the

indigenous communities, and the environment.

Nature-Based Capitalism and the StudentMovement Since 2011

Indeed, for many, the real base of Chiles current growth remains ex-

ploitation: of natural resources, which harms the environment, and

of people (through banks and policies on education, health, and hous-

ing), which can lead to sociopsychological problems from economic

pressure. As a result, social discontent in Chile today is realwhether

justified or unjustified, a matter of reality or of psychology.

The student movement of 2011 served as an expression and ampli-

fier of social discontent. It transferred the critics from the sectoral

(education) to the systemic (principles of economic development, the


19/26



political system, and a hegemonic culture). The students temporarily

broke the communicational circle of the media, which are associated

with the Catholic right (Opus Dei and Legionaries of Christ) and

installed a broad debate about power abuse and indebtedness. Thestudent movement became a moral authority and one of the most

dynamic social actors in Chile in the past twenty years. Nevertheless,

its concrete impact on political and social change remained minimal,

and it fell short of its own ambitions on more than one occasion. As

the movement is mobilizing for the upcoming November 2013 presi-

dential elections, its potential impact will depend on the capacity of

the traditional intellectual nucleus to uphold the existing order, the

capacity of the movement to organize and distribute information, andthe form of change it envisagespeaceful or violent.

But independently of Chiles further destiny: What are the lessons of

todays socioeconomic pattern in the countrybeyond its borders?

In societies like Chile, inequality tends to be overemphasized. On

the one hand, this is due to the survival of inadequate Marxist intel-

lectual traditions in the public sphere and their impact on politics and

economics. Some intellectuals remain prisoners of class ideology that

does not recognize individual achievements and overvalues equality

at the expense of freedoma problem in many southern countries,

including the current European crisis countries. On the other hand,

inequality is indeed a growing practical reality in Chile, with effects

at two levels: At the collective level, it leads to an erosion of solidarity

and a crisis of communitarianism in general. At the individual level, it

results in the impoverishment of social idealism, the decrease of the

postmaterialist segments of the population, and outbreaks of frustra-

tion. In the context of such a society, in retrospect the mobilization of

2011 could have been a first step toward a new, hopefully integrative

and balanced project of Chilean societyalthough mainly indirect,

not yet a direct or immediate perspective. The simple continuation

of the present state of affairs will hardly be the solutionbut neither

will it be a return of the left, which has proven to trigger negative

effects throughout South America, as the example of Hugo Chavezs

legacy in Venezuela shows.


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Toward a New, More Thoughtful Public Discourseon Development and Participation? Elements forReform

In sum, one aspect may be taken for granted: Although Chile has been

praised for its economic performance and its democratic institutions,

the reality of its system reveals a more differentiated picture. Studies

in 2012 show that only 18 percent of its citizens consider Chiles de-

mocracy to be working well, and only 3 percent trust political parties.

These responses are indicative of a crisiscertainly in an internationally

comparative view, though less in a regional perspective. Although the

system implemented in Chile has not assisted the rise of a participatory

political culture, people have started to be interested in politics again

not least because of new faces springing up in the public sphere. In

particular, new social networks play an important role in the evolution

of Chiles new, more pluralistic, and, in some respects, more anarchic

political culture, informed by grassroots elements.

Without a doubt, there are both pros and cons in the given overall en-

vironment that have to be carefully pondered. Reducing the current situ-

ation to prophecies of doom would certainly not correspond to the facts.Chile has made notable advances compared to other countries in South

America. The current economic system brought short- to medium-term

advantages for the rich and the poor alike. During the past few decades,

Chile reduced extreme poverty to a great extent by giving out microcredit

on a broad and undifferentiated scale. That created workplaces, and, not

least, thanks to the credit system, people with a lower social background

gained access to credit, and thus to higher educationan asset that in

previous decades was widely restricted to the elites. The amassing ofprivate schools and universities not only meant an enrichment of the

(already rich) financiers of these places, but it also played a key role in

creating new conditions for political mobilization.

In the long-term view, though, the overall arrangement of Chiles

current sociopolitical pattern unquestionably offers more advantages

for the rich than to the poor. More important, it will hardly be possible

to erase the widespread sense of injustice without structural reforms.

For future development to occur, it will not suffice to redistribute


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parts of the financial resources that are stored at the top levels of

society. Rather, the systemic features should be recalibrated toward

more equal access and fairness. That requires a new, more balanced,

and less propagandistic public discourse from all sidesleft and rightalikeabout the pros and cons of liberalization and the interplay be-

tween economics and politics.

Perspectives for the November 2013 Elections:Toward Political Humanism as a Third Way?

The next presidential elections in Chile are scheduled for November

17, 2013. Most candidates have started to appear on the national TVpolitical talk show Tolerancia Cero (Zero tolerance) to share their

views on the future. On April 27, the guest was Marcel Claude,8a

new, independent presidential candidate from the small party Partido

Humanista (Humanist Party), which did not have any significant influ-

ence within the existing Chilean Binomial Voting System, inherited

from the Pinochet era. Claude has not appeared in polls yet and has

been rarely visible to the public. What makes his candidacy interest-

ing is that according to polls, 7 million out of 12 million Chileans (60

percent) will vote neither for the Alianza (the governing conservative

party coalition) nor for the Concertacin (the alliance of the center-

left parties). Chile wants political change, as indicated by the fact

that one-third of the population was directly involved in the student

protests of 201112 and subsequent events.

Claude is an economist at the Universidad de Chile and has been

involved with the student movement from its very beginning,

mainly as an adviser. He has not been in political office in the past

twenty years but has instead worked with the social movements, the

labor unions, and the students, all of which he wants to integrate

into upcoming social changes. According to his statements, the

students urged him to run because of his reform program based on

strict economic rationales. The most important points of Claudes

program are, first, transformation of the country from what he calls

a market niche system into a constitutional state under the rule


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of law by guaranteeing larger parts of the population equal access

to education, health care, housing, and pensions. If he enters the

Moneda (Chiles presidential palace), Claude vows to limit the power

of the most influential families, such as Matte, Luksic, and Paul-mann, through, among other measures, the nationalization of the

copper mines, free education, and a public health system financed

through taxation.

Although many view these moves as too radical and dangerously

close to socialist ideas, Claude denies having any sympathy for leftist

policies in the traditional sense, pointing out instead his humanist

impulse: The change we need in present Chile is a change toward hu-

man rights, broadly understood. I agree that such a transition could becalled radical by some. Chile is not governed by the rule of law today.

Most issues are pure business options.9According to Claude, Chile

is at a turning point in its recent history. The social situation is worse

than the media represent it. Depression, violence, discontent have been

in the air for decades, but they could not be expressed appropriately

until 2011. The social movements of 2011 were the most important

political innovation in 20 years. With the student movement, Chileans

were able to eventually understand what their problem is.

Although it is difficult to foresee the electoral success of such

arguments, as the campaign in the strict sense has not started yet,

and though some of Claudes statements sound less balanced, meta-

political, and integrative than he claims, Claude is one symptom

among many of a Chile in transition. He is undoubtedly an expres-

sion of the new awareness of the countrys situation, pointing to the

need for reforms that is gripping larger portions of the population

than in the decades before.

The Grand Strategy for the Coming Years:Westernization, Internationalization, orRegionalization?

The classic development theory for the third world since the 1970s

propagated mainly two typological models: first, alignment with the


23/26



West. That meant industrialization through low wages and high investor

profits, export orientation, and attraction of the international financial

sector through low taxation. The hope was to create an upward spiral

for the benefit of the elites during the first phase, followed by wealthfor greater numbers in a second, and for more or less all in a third phase

through mass employment and growing government income, a resulting

tax decrease, and increasing consumption. Second (and in opposition

to this model), a national and regional own way was proposed. It had

to be achieved through local empowerment and participation; a focus

on domestic production and consumption with the priority of regional

and local economic circuits as well as government-directed redistribu-

tion of wealth, but also through the disappropriation of foreign ownersand investors; an increase in taxes for the rich; and further progressive

taxation. Both options proved to have as many pros as cons, and both

have proven to be one-sided and incomplete for improving reality ap-

propriate to post-9/11 complexity and in sustainable ways.

Without a doubt, the Chile of past decades has been an exemplary

playground for the first approach, the more traditional oneimitation of

the West by integration into the global financial system; furtherance of

neoliberalism, interpreted as liberalization in as many fields of activity

as possible and without much discernment; separation of politics and

economics; nondifferentiation between core strategic fields and side

fields of government liberalization and withdrawal of the state.

Among the core strategic activities, the education sector in past years

has been excessively important in establishing the current Chilean

setting. It can be expected to remain equally important in the future.

If the United Statesin many ways the model for the conservative

Chilean elitesis, through the analysis of former secretary of state

Condoleezza Rice, recognizing the outstanding importance of de-

clining schools that pose a security threat and that failing schools

undermine economic growth, competitiveness, social cohesion and

the ability to fill positions in institutions vital to national security,10

the view of the education sectors position in the greater social domain

seems to be changing. No longer is it regarded as mere business; its

value for the greater success of society is being underscored. Similarly,


24/26



Chile stands before the challenge of discerning the difference between

fields where private business should be privileged and strategic fields

of public interest, and assigning the education sector to the latter. A

first piece of the transition toward greater social inclusion and justiceshould be the transformation of the education sector to allow broader

access and the change of the academic-financial complex through

government intervention.

Outlook: Chile After the End of the Third World:Which DirectionUnited States, Europe, or China?

In sum, Chile, until the 1980s considered a third world country, hasclearly succeeded since then in becoming a fully functional part of

the Western capitalist system. It did so in ways that partly missed the

social market economy mark. That was fine as long as the division

between the first, second, and third worlds prevented closer scrutiny

by international investors and transnational interference, and as long

as the crossroads between globalized and national environments

favored entrepreneurs who operated at their interplay.

But what will happen after the much discussed end of the third

world, currently already in full swing, as the rise of the BRIC (Brazil,

Russia, India, China) countries shows? Will Chile shift toward a closer

partnership with the BRIC group, which is still too loose and non-

homogeneous to be a serious global force? Will it become a member

of the rising Latin American coalition around the new regional lead

power Brazil, which, however, has its own widely different, if not in-

compatible, problems? Or will it simply stand alone within the concept

of a connected autonomy like Switzerland in the eurozone while

remaining faithful to the West and its globalized financial system?

Will Chile be forced by the shifting global balances and the new mul-

tipolar order to endeavor to tread an intermediate course between the

United States, which continues in many ways to serve as a role model;

the rising giant China, which is coming closer every day with Chinese

investors openly showing special interest in Chiles natural resources;

and its continuing connection to its European roots? Does Chiles


25/26



future, unexpected by many, surprisingly lie in the reappropriation

of its widely forgotten European foundations, which means actively

developing toward an ecosocial market democracy?

Whichever option is chosen after the November 2013 elections,the implications for Chiles existing political alliances and economic

treaties (Mercosur [Southern Cone Common Market], the Asia-Pacific

Economic Cooperation forum) and the effects on its geopolitical en-

vironment will be numerous. Economic mechanisms will continue

to be decisive for positioning the country in the coming years

probably once again more than political issues. One problem among

many continues to be the relative isolation of the country among

its neighbors due to its incomparable wealth. In many ways, Chiletoday is the Switzerland of South America. Therefore, like its remote

(though improbable) European sibling, it will have to balance the

interests of its economy with those of the region, including monetary

agreements and competition measures. More importantly, it will have

to integrate broader parts of the population better than is so far the

case in political decision making and to broaden access to economic

growth. This is true at least if Chile wants to maintain its excellent

reputation, avoid further social and ideological polarization, and

become the modern model society that it aspires to be. This requires

a new discourse of integration, legitimated by all stripes of politics,

economy, culture, and society, that aims to create a more inclusive

sociopolitical climate by interconnecting Chiles classes, its elites,

and the broader population.

Notes1. La Universidad de Chicago le dio a mi mente, a mi alma, a mi espritu las

ideas y compromisos que me permearon y cambiaron mi vida y mi empresa, y que

cambiaran, sobre todo, a mi pas, as quoted in Eliodoro Matte da cuenta del vasto

legado de Chicago en Chile y la Papelera,El Mercurio: Economa y Negocos, June

16, 2008, www.economiaynegocios.cl/noticias/noticias.asp?id=48662/, translation

from the Spanish by the authors.

2. Ibid.

3. Ibid.

4. Ibid.


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5. Alberto Mayol,El der rumbe del modelo. La crisis de la economa de mercadoen el Chile contemporneo(The Collapse of the Model: The Economic Crisis of theSocial Market System in Contemporary Chile) (Santiago, 2012).

6. Javiera Donoso Jimnez, Violencia poltica en el sur de Chile. La alianza

territorial Mapuche y el estado chileno en el gobierno de Michelle Bachelet (Po-litical Violence in Southern Chile: The Territorial Alliance of the Mapuche and

the State of Chile During the Presidency of Michelle Bachelet), Ph.D. dissertation,

FLACSO, Mexico, 2011, p. 318, www.flacso.edu.mx/biblioiberoamericana/TEXT/

DOCCS_VII_promocion_2008-2011/Donoso_J.pdf.

7. Los dueos de Chile somos nosotros, los dueos del capital y del suelo;

lo dems es masa influenciable y vendible; ella no pesa ni como opinin ni como

prestigio (E. Carmona, Los dueos de Chile [The Owners of Chile]), RevistaPunto Final,January 2003, www.archivochile.com/Poder_Dominante/grem_empre/PDgremios0001.pdf).

8. See https://www.youtube.com/watch?v=QS5wBUD_lEs/.

9. Ibid.

10. B. Donald, Stanfords Rice Says Declining Schools Pose a National Security

Threat, Stanford Report, April 5, 2013, http://news.stanford.edu/news/2013/april/rice-declining-schools-040513.html.

To order reprint s, call 1-800-352-2210; outside the United States, call 717-632-3535.

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