Chileanization Of Copper: Context, Causes And Consequences

The Chileanization of copper (1966) was a historical, economic and social process through which the Chilean state was associated with North American capital to commercialize copper, make investments and expand its production.

Until the 1960s, various sectors in Chile advocated for an increase in the tax on foreign mining companies. Then the debate shifted to the need for copper nationalization.

During the presidency of the reformist Christian Democrat Eduardo Frei (1964-1970), the way was paved for a partial nationalization. All political sectors supported this process of Chileanization of copper.

In 1967, the state bought 51% of El Teniente de Kennecott and 25% of Andina y Exótica. Soon after, the price of copper rose and the government faced pressure to expand its stake in mining companies.

Then, in 1969, the Chilean State bought 51% of Chuquicamata and El Salvador. With this negotiation, Chile acquired control of the most important copper mines in the country.

The origin of the National Copper Corporation, CODELCO, dates back to the Chileanization of copper in 1966, although it was formally created during the mandate of Augusto Pinochet in 1976.

Historic context

Mining has been a crucial economic activity for Chile throughout its history. Interest in new mineral sources motivated its discovery and colonization by the Spanish Empire in the 16th century.

At the beginning of the colonial period, there was an intense but brief activity of gold exploitation. Since the end of the 19th century, mining has once again become one of the most important economic activities.

In the latter part of the 19th century, the Industrial Revolution in Europe caused an increase in the demand for minerals throughout the world. Chile was in a position to increase its production of silver, copper and nitrates, especially.

Since its Independence , the exploitation of nitrates by British companies was Chile’s first experience with foreign capital. The collapse in demand for nitrates drastically affected the country’s prices and income

Copper has been the most important activity in Chile since the beginning of the 20th century. American companies dominated their exploitation.

Then, doubts were raised about whether Chile had the national financial, managerial and technological business capacity to develop an industry considered strategic for its development.

More importantly, there was a debate from various sectors on whether foreign companies really made a contribution to the national economy.

Causes

Foreign direct investment

During the presidency of Carlos Ibáñez (1952-58), a package of liberal policies called Nuevo Trato had been approved. For the first time, a Chilean statute addressed the issue of foreign direct investment.

Before, foreign investors had to contract with the state through individual negotiations. These normally focused on reducing taxes and duties.

Among others, the new legislation addressed the repatriation of profits and offered special tax breaks for investments in areas that promoted industrial development, including mining.

In the mid-1950s, when new sources were discovered in Canada and Australia, copper production began to decline. However, it was still the main source of foreign income.

It was clear to the government that only by creating a favorable investment climate would foreign mining companies increase investment and copper production.

In addition, Ibáñez sought to decrease Chile’s dependence on copper exports, and saw that foreign investors could play an important role in diversifying the country’s economic base.

Crisis in the balance of payments

The conservative president Jorge Alessandri (1958-1964) decided to deepen Ibañez’s investment concessions. In 1960, it revised the foreign investment statute and expanded its scope.

However, investments in the copper industry did not meet the government’s expectations and fell from an annual average of around $ 100 million between 1957 and 1959 to $ 40 million in the next 5 years.

But, the measures approved by Ibañez and Alessandri made the economy grow . To some extent, they also decreased dependence on copper exports.

Imports soared, causing a trade imbalance. This and high rates of government spending led to a balance of payments crisis in 1962 and the resurrection of protectionism.

Criticism of the New Deal

The New Deal was perceived as a failure. Then, criticism from some of the most powerful sectors of Chilean society began to spread throughout the national territory.

Furthermore, the influential landed oligarchy feared that an agrarian reform would be enacted alongside economic liberalization. Therefore, he lobbied within the Conservative Party to reverse these policies.

The agrarian aristocracy was the main pillar of the Conservative Party. Its members attributed Chile’s development problems to foreign companies, and began to call for the nationalization of their assets.

In 1964, Eduardo Frei, supported by the conservative Christian Democratic Party, won the elections. He presented his plan for the Chileanization of copper, which had been part of his electoral offer.

This plan called for government ownership participation in the large copper mines (eventually a 51% majority stake) along with commitments to expand production.

Consequences

The short-term result was positive. Investment in the copper industry increased from $ 65 million in 1965 to $ 117 million in 1966, $ 213 million in 1967, and $ 507 million in 1968. 

The major mining companies followed different strategies to cope with the new requirements. In 1967, Kennecott agreed to sell 51% of its Chilean subsidiary to the government.

For its part, Anaconda continued to invest on its own until 1969, when claims for nationalization reached their peak. So, he also decided to sell 51% to the government.

However, the miners wanted more profits. The copper miners’ unions and the Chilean left rejected the plan for the Chileanization of copper and called for the large-scale nationalization of the industry.

In 1966, the Frei government responded to a general strike by union leaders by militarizing the northern mines. At the El Salvador mine, eleven miners were killed in a conflict with the military.

Thus, this and other events in the copper mines between 1964 and 1970 led these unions and the national labor movement to support leftist parties.

Finally, on July 11, 1971, under the presidency of Salvador Allende (1970-1973), all the deputies and senators gathered in the National Congress approved the nationalization of copper .

References

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  2. Navia, P. (2012). From limited access to open access. Order in Chile, take two. In DC North, JJ Wallis, SB Webb and BR Weingast (editors), In the Shadow of Violence: Politics, Economics, and the Problems of Development, pp. 261-292. New York: Cambridge University Press.
  3. Toral, P. (2017). The Reconquest of the New World: Multinational Enterprises and Spain’s Direct Investment in Latin America. New York: Routledge.
  4. Guajardo, JC (2016). Mineral resources development: the Chilean experience. In F. Saddy (editor), The Arab World and Latin America. New York: IBTauris.
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  6. Miller Klubock, T. (1998). Contested Communities: Class, Gender, and Politics in Chile’s El Teniente Copper Mine. Durham: Duke University Press.
  7. Caputo, O. and Galarce, G. (2011). Chile’s Neoliberal Reversion of Salvador Allende’s Copper Nationalization. In X. de la Barra (editor), Neoliberalism’s Fractured Showcase: Another Chile is Possible, pp. 47-72. Leiden: BRILL.

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