Chile: Switzerland of the South?

Policy Ideas

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 child
for U.S.-inspired neoliberal policies. But why, then, is
there so much social unrest? The authors unravel the
story in a wonderful narrativea full account of a
developing country as a case study of seeming success
and underlying discomfort. The story begins with one
of Chiles entrepreneurial families.

ore than forty years ago,

Eliodoro Matte was an MBA student 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

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

Challenge/SeptemberOctober 2013 5

Benedikter and Siepmann

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.1 Matte emphasized that Chicagos radical free-market
ideology was, first, crucial to transforming my enterprise CMPC from
a locally operating company within a protected market into an international player in a highly competitive business world,2 and, 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 accident. It simply corresponds to the facts. Indeed, some of the most
brilliant examples of recent successful Chilean entrepreneurship are
the siblings Eliodoro, Bernardo, and Patricia Matte, owners of the paper 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 keeping 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 to Forbes magazine, 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

6 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

Chileans, thus confirming their status as part of the historic symptomatology 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 its
Catalan 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 members of the family share the destiny of all great Latin American statesmen 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 Pontificia
Universidad Catlica de Chile and exvice president of the Universidad 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 multitalent: 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.

Challenge/SeptemberOctober 2013 7

Benedikter and Siepmann

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 family 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 Chilean
political systemnot unlike some similarly influential families in the
U.S. establishment, for example, the Harrimans.

Economic Progress Based on Liberalization from

Above
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

8 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

Organization for Economic Cooperation and Development (OECD) in
recognition of its brilliant overall performance combined with functioning democratic institutions. Since 2012, it has been the main pillar of
the free trade zone between Chile, Colombia, Mexico, and Peru. Chile
is now considered one of the most economically and financially liberal 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 Protest

But 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, including 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.

Challenge/SeptemberOctober 2013 9

Benedikter and Siepmann

The Causes: Social Discontent Incited by Rising

Prices and Economic Pressure
As the Chilean consumer service Sernac (Servico Nacional del Consumidor) 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 contracts, 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 (Indice de precios del consumidor) demonstrates, between March 2012
and 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 hotels 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 is
hardly 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.

10 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

The social effects are numerous. The most important ones are mistrust, a new everybody for himself mentality, and social disintegration. According to a study by the CEP, in 2012 76 percent of Chileans
agreed with the statement One cannot trust others, and almost 50
percent 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 poverty
can 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 the

Future
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 (compared 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 thinkers 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

Challenge/SeptemberOctober 2013 11

Benedikter and Siepmann

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 Barack
Obama 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 imbalance 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 differences
in 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 development 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 democratization 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 (ending 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.

12 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

Taken together, over the past few decades the country has had many
astounding achievements, which are rightly celebrated by the international community. But they seem to coexist with negative personal
evaluations of the state of affairs by the majority of the citizensa fact
that 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 contextual
politicsincluding 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 anticipation of the respective challenges. Thus for a deeper understanding 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 Not

Developing?
First, it is important to critically revise the tale of Chiles development 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 population has access to all resources and means as well as incomes that

Challenge/SeptemberOctober 2013 13

Benedikter and Siepmann

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 globalized era. It is particularly visible in the geography of the capital,
Santiago. While life remains precarious in many of the neighborhoods, 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 place
where 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 population 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 violence. Consequently, the discontent in large portions of the Chilean
population is caused by the need to rebel against the given conditions, 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 protests 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.

14 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

Propagation of the Free Market and Power

Concentration
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 CLP 4,000 (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 monomarket for a basic good like paper, it is no surprise that the CMPC
paper 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 loans
without 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

Challenge/SeptemberOctober 2013 15

Benedikter and Siepmann

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 in
Santiago opens up an observatory of social segregation. In supermarkets, 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 an
expression 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, competencebased, 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

16 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

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 countries
in 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 driver
of 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 immediately 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

Challenge/SeptemberOctober 2013 17

Benedikter and Siepmann

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 their
loans 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 domestic 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 system. 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

18 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

population at large (85 percent, according to the CEP in 2011) on the
phrase No al lucro. The reason is that many Chilean citizens understand 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 financial
products 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 installments. 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, eventually, 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 indebtedness of the poorest, which led to the collapse of entire social classes.
As a consequence, many observers today diagnose a structural confis-

Challenge/SeptemberOctober 2013 19

Benedikter and Siepmann

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 companies. CMPC, Arauco, and MASISA (the three big actors in the Chilean
forest 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 companies. 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 particular. 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-

20 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

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.6
Due 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 have
such 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 Angelini, 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.7 Considering
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 rational 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 strategic decisions, more than once the government placed the interests

Challenge/SeptemberOctober 2013 21

Benedikter and Siepmann

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, demanding 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 certain
areas 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 Student

Movement Since 2011
Indeed, for many, the real base of Chiles current growth remains exploitation: of natural resources, which harms the environment, and
of people (through banks and policies on education, health, and housing), 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 amplifier of social discontent. It transferred the critics from the sectoral
(education) to the systemic (principles of economic development, the

22 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

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. The
student 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 presidential 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, and
the 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 intellectual 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 frustration. 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.

Challenge/SeptemberOctober 2013 23

Benedikter and Siepmann

Toward a New, More Thoughtful Public Discourse

on Development and Participation? Elements for
Reform
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 democracy 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 environment that have to be carefully pondered. Reducing the current situation 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 of
private 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

24 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

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 right
alikeabout the pros and cons of liberalization and the interplay between 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 TV
political talk show Tolerancia Cero (Zero tolerance) to share their
views on the future. On April 27, the guest was Marcel Claude,8 a
new, independent presidential candidate from the small party Partido
Humanista (Humanist Party), which did not have any significant influence 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 interesting 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 centerleft 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

Challenge/SeptemberOctober 2013 25

Benedikter and Siepmann

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 Paulmann, 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 human rights, broadly understood. I agree that such a transition could be
called radical by some. Chile is not governed by the rule of law today.
Most issues are pure business options.9 According 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, metapolitical, and integrative than he claims, Claude is one symptom
among many of a Chile in transition. He is undoubtedly an expression 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, or
Regionalization?
The classic development theory for the third world since the 1970s
propagated mainly two typological models: first, alignment with the

26 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

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 wealth
for 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 redistribution of wealth, but also through the disappropriation of foreign owners
and 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 appropriate 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 declining 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,

Challenge/SeptemberOctober 2013 27

Benedikter and Siepmann

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 justice
should 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, has
clearly 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 nonhomogeneous 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 incompatible, 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 multipolar 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

28 Challenge/SeptemberOctober 2013

Chile: Switzerland of the South?

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 environment 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, Chile
today 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.

Notes
1. 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.

Challenge/SeptemberOctober 2013 29

Benedikter and Siepmann

5. Alberto Mayol, El derrumbe del modelo. La crisis de la economa de mercado
en el Chile contemporneo (The Collapse of the Model: The Economic Crisis of the
Social 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 (Political 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]), Revista
Punto 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 reprints, call 1-800-352-2210; outside the United States, call 717-632-3535.

30 Challenge/SeptemberOctober 2013