Xi Jinping in His Own Words
What China’s Leader Wants—and How to Stop Him From Getting It
Viewed from the outside, Chile seems to deserve its reputation as the Switzerland of the South. From the inside, though, the picture is less cheery. Growing economic pressure and widespread mistrust in politics has darkened the moods of many Chileans in the run-up to this year’s election. The tale of one powerful Chilean family, the Mattes, which owns one of the largest paper companies in Latin America, embodies that tension -- and the ambiguity between the country’s bright economic growth and its lackluster social and political development.
As a young Chilean entrepreneur in the 1970s, Eliodoro Matte studied for his M.B.A. at the University of Chicago. In recognition of his success thereafter -- he went on to helm one of the biggest companies in Chile -- the school invited him to speak at its graduation ceremony in 2008. His talk centered on the influence of the school (the birthplace and stronghold of global neoliberalism) on his own career, and on Chile. He emphasized that free-market ideology allowed his family business, CMPC (the paper empire also known as La Papelera), to grow from being a local company operating in a protected national market into an international business with a competitive global presence. Take CMPC and multiply it by hundreds of businesses and you have, as Matte put it, “the most progressive, most successful, and fairest economic environment in Latin America.”
Matte and his siblings, Bernardo and Patricia, are natural poster children for the kind of free-enterprise entrepreneurship that the Chicago school prizes and that Chile has tried to foster. CMPC, which specializes in the production and commercialization of cellulose (raw paper material), pulp, paper, and other paper products, was founded in 1920. In its early days, the company produced about 2,200 tons of paper a year. Since then, it has become the fourth-largest cellulose provider in the world, producing 2.8 million tons a year, about 85 percent of which it exports to Asia, Europe, and the United States. It has 8,500 employees in Chile and 6,500 abroad (in Argentina, Brazil, Colombia, Mexico, Peru, and Uruguay). CMPC ended the fiscal year 2012 with a balance sheet of almost $4.7 billion in sales and around $14 billion in assets. The Matte family owns a 55.3 percent share of the company and, as of 2002, controlled more than 30 other companies in different sectors, including energy, finance, forestry, harbors, health, mining, and telecommunications. According to Forbes, as of 2013, each Matte sibling has a net worth of $3.7 billion, making the family among the wealthiest in Chile.
Eliodoro Matte has made a name for himself not only in the business world but also in conservative intellectual circles. He has been a lecturer at the prestigious Pontificia Universidad Católica de Chile; president of Centro de Estudios Públicos Chile, a neoliberal think tank; and has been associated with the avowedly pro-free-market Universidad Finis Terrae. He has also reportedly financed a number of highly influential conservative think tanks in Chile.
Patricia and Bernardo Matte, have done well for themselves, too. Both were members of the advisory councils of the Chilean TV channels Canal 13 and TVN. Bernardo runs the family's financial business as president of the investment bank Banco Bice, which specializes in foreign trade and investment financing, and as chairman of the board of the investment holding company Bicecorp.
Patricia, meanwhile, has often been touted as the most powerful woman in Chile. A sociologist by training, she has served in both leftist and rightist governments, first as a staffer in Salvador Allende’s government and later as an architect of social policy in General Augusto Pinochet’s regime. In that role, she acted as a link between entrepreneurs and the dictatorship. Patricia still nurtures those contacts as a highly regarded counselor of Libertad y Desarrollo, a neoliberal think tank that counts among its board several ex-officials of Pinochet’s regime. The center is financed largely by Eliodoro and is dedicated to the “promotion of values and principles of a free society.” Today, Patricia has stakes not only in forestry and paper products but also in telecommunications, banking, and shipping firms.
The list of the Mattes’ achievements goes on. They provide employment to tens of thousands of people and are dedicated to reducing poverty and improving the quality and coverage of education. But their biggest impact on Chile has not come from their charitable works, or even from the success of their companies. Rather, for better or worse, it has come through their championing of neoliberalism. Like other countries in the developing world, Chile’s industrialization has rested on low wages and high investor profits, the promotion of exports, and creating a welcome environment for foreign investment with low taxes. This ideology has driven the country from bust to boom over the last decade.
To be sure, Eliodoro was never directly involved in politics, but he has built up considerable political influence. According to Ernesto Carmona Ulloa, author of the book The Owners of Chile (Los Dueños de Chile), most topics that wind up on the political agenda of the country’s conservative parties were first thought up in the academic and intellectual centers that Eliodoro funds, especially at the Centro de Estudios Públicos, which he launched in 1980. According to the magazine Qué Pasa, the nominations of several Chilean government ministers that are involved in economics were “blessed” beforehand by the think tank (including Nicolás Eyzaguirre, who was minister of finance between 2000 and 2006, and José de Gregorio, who was minister of Economy, Mining, and Energy between 2000-2001 and governor of Chile’s central bank between 2007-2011). There are also ties between Chilean President Sebastián Piñera and the Mattes. In May 2011, the president approved the highly controversial mega-project HydroAysén, a $3.2 billion endeavor by Endesa and Colbún (part of the Matte group) to build five hydroelectric power plants, making it the largest energy project in the country's history. If the power plants are completed, Endesa and Colbún would together own 80 percent of the Chilean energy market.
Simply put, so vast is the Matte’s influence, and that of their peer entrepreneurial families, that the structure of the Chilean economy today was largely built by their efforts.
GROWTH WITHOUT DEVELOPMENT
Chile’s economic liberalization coincided with a period of political and human restriction. It was in 1974, a year after Pinochet seized power, that the so-called Chicago boys, including the neoliberal hard-liners Pablo Baraona, Sergio de Castro, Jorge Cauas, and Jorge Gabriel Larraín, Patricia Matte’s husband, started to fill Chile’s most important economic and military ministries and began to push privatization and financial deregulation. Their hope was to lift Chile’s elites to new economic heights -- which they believed would, in turn, create wealth for greater numbers of Chileans through mass employment, steadily rising government income, and resulting tax decreases.
At first, they seemed to get what they had wanted. Throughout the 1980s and 1990s, Chile developed at an amazingly fast pace. By 2000, the country came to be considered one of the most economically and financially liberal nations in the world. Its economic success became legend. The Chilean economy grew at six percent each year, far above the global average, and its unemployment rate sat below seven percent (better than the United States and most European countries). Chile’s standing on the Human Development Index -- a statistical indicator that reflects national progress in education, income, and health -- likewise rose. Today, the country ranks first in South America and 40th in the world, which would have been unimaginable just two decades ago.
But in 2011, something happened that shook confidence in Chile’s apparently progressive and stable system. Despite positive social and economic indicators, Chileans weren’t happy -- and they took to the streets in the largest demonstrations since those that brought democracy to the country in 1990. The spark started in the universities of Santiago in May, with students who, pinched by rising tuition, demanded structural reforms and more state regulation of the increasingly profit-oriented educational system. The protests soon overlapped with other, more localized demonstrations such as strikes by mineworkers, women’s groups, and indigenous and environmental oganizations. All in all, approximately one-third of the population over 18 was directly or indirectly involved.
The protests have since let up, but, as the Chilean consumer service Sernac reported in April 2013, discontent hasn’t abated. To the contrary, it is on the rise. The expression of it has simply shifted from the streets to the institutions. In the financial sector, for example, 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.
Chileans are also upset about an increase in prices for the most important goods (which are hidden by an inflation rate that is stable over all). For example, food prices rose by 3.1 percent between March 2012 and March 2013, alcohol and tobacco by 7.6 percent, health care by 4.1 percent, and education by 5.4 percent. These figures might not seem excessive when compared to international standards, but the rise is disproportional to the increase in average Chilean wages. As a result, indebtedness is increasing across the country. In 2012, Chilean households on average carried 59 percent of their yearly income in debt. That might seem tolerable when compared to U.S. figures of 112 percent, but credit costs much more in Chile. According to a Sernac study in December 2012, credit charges can amount to as much as 96 percent for a 36-month loan.
The result is that Chileans have stopped believing in social mobility. According to a 2012 public survey conducted by the market research institute Adimark and the Universidad Católica, only 36 percent of those polled believed that any Chilean could earn enough to buy a home through regular work in a reasonable period of time. Just 31 percent believed that any Chilean could make a living as an independent small- or medium-sized business owner. And only 17 percent believed that poverty could be reduced. The lack of faith isn’t surprising. Near some of the world’s wealthiest families live the 60 percent of Chileans, who, according to comparative studies, survive on average incomes comparable to those in Angola. This explains the emergence during the protests in 2011 of a popular phrase: “Chile is growing but not developing.”
There are complex reasons for the appearance of growth without development. In main, though, the University of Chicago model pursued by Chile had three basic goals: deregulation, privatization, and slashing social programs to boost competitiveness. The upshot was that the public sphere gradually gave way to private markets.
Today, even Chile’s streets have become privatized. When traveling between cities, all Chileans have to pay the private company COPSA (Asociación de Concesionarios de Obras de Infraestructura Pública A.G.) for access. That might not seem unusual to some drivers in the United States. But prices go up with increasing demand (on weekends and holidays, the tolls for using public streets tend to be a third higher than during the week). In 2012, Chileans paid approximately $4–$6.50 for a 62-mile ride. Considering the size of Chile (2,656 miles from north to south) this business is big money.
Infrastructure is just one example: On the metro in Santiago, advertisements for formerly public services such as higher education and health care dominate. Chile’s law formally prohibits profit making in education. Nevertheless, education has become one of the biggest cash cows in the country -- and is the sector most heavily intertwined with the financial lending industry, not least because most students need to take out loans to afford tuition. Chile has the largest gap among OECD countries between the average tuition and the average income per person. As a result, loans are so badly needed that banks have no trouble tacking on exorbitant interest rates. Many students end up paying two or three times the costs of their studies as they pay back the loans over decades. And despite this, according to surveys conducted in 2012 by the OECD's Program for International Student Assessment, Chilean elite students are still worse trained than those in many other OECD countries. A combined result of privatization, deregulation, and competition, Chile’s education structure may work for companies but not for today’s average Chilean student.
Thanks to government-led privatization in health care, by contrast, standards in the Chilean health-care system have objectively improved over the few past years. But only the wealthiest can access the well-equipped private hospitals. The majority of Chileans continue to depend on an inadequate public system. There are diseases that are still not covered by some forms of insurance, and people die for lack of adequate treatment. Meanwhile, the cost of doctors' visits has gone up, and pharmacies have been accused of fixing high market prices for medicine without taking into account the consequences for patients who can no longer afford their pills.
Chile today is home not only to the world’s most expensive education and health-care systems relative to average purchase power, it is also an expensive place to buy paper: In 2013, eight rolls of toilet paper cost up to 4,000 Chilean pesos (about $8.50). Other products made of cellulose, such as some textiles and cellophane, are also out of reach for most people and small companies. Although paper isn’t a public good, the fact that it is basically a luxury item in one of the world’s largest paper exporters underscores the fact that the government -- committed as it is to free markets -- rarely challenges domestic monopolies. CMPC and other companies like it have edged out many smaller competitors, allowing them to define the price of land, raw materials, labor costs, and the end product.
OF CAPITALISTS AND ACTIVISTS
Apparent growth without development is the most important issue Chile’s political parties will have to grapple with as they look toward national elections this November. The candidates have already started to stake out their positions. One promising contender is Marcel Claude, an independent of the small Partido Humanista (Humanistic Party). Such a miniscule party would normally stand no chance. What makes Claude's candidacy interesting, though, is that 60 percent of Chileans have apparently already decided not to vote for the Alianza (the governing center-right party coalition) or the Concertación (the alliance of the center-left parties). That might give Claude a fighting chance.
An economist by training, Claude has been involved with the student movement -- mainly as an independent adviser. In the past 20 years, he has also worked with nonpartisan social movements and labor unions. His vision is to transform the country from what he calls “a market niche” system into a system that would guarantee equal access to education, health, housing, and pensions. Claude also vows to limit the power of the most influential families, decrease the influence of enterprises on politics, and nationalize the country’s copper mines.
To some, those plans are dangerously close to socialism. Many of those who observed the ruin of other South American countries under leftist governments, find them intolerable. But Claude denies having any sympathies for traditional Latin American socialism, insisting that his program is instead about human rights and the rule of law. Like many progressives, he believes that the ongoing discrimination of indigenous people, particularly in the south, and the inescapable influence of wealthy families are signs that the rule of law, in many cases, is still not enforced.
Regardless of his ultimate performance, Claude reflects a new awareness among many citizens that the country urgently needs both growth and development. Without a doubt, Chile has achieved great things in the last decade, mostly thanks to leaders and thinkers like the Mattes. But if it wants to avoid further social and ideological polarization, and keep its reputation for stability and growth, it needs to take a page from Claude, too. The challenge ahead is thus to blend entrepreneurship with more redistribution through taxation and government spending, and the more even enforcement of the rule of law. This will be no easy task -- it will put the elite families, such as the Mattes, and new actors, such as Claude, on a collision course. And for years to come, Chileans will have to debate the relationship between growth and development. But open discussion is not a bad thing. Chile is resilient enough, both because of its dynamic public sphere and its well-functioning leadership, to pull through this crucial phase of modern development.