PROSPECT

Photo Credit: Municipalidad Antofagasta

By Mihir Shenoy
Contributing Writer

Chile’s newly-elected president wants to reform the way the nation’s resources are managed. President Gabriel Boric ran on a platform of standing up to private mining interests, supporting tax hikes, suing companies for exorbitant water use, and proposing a state-owned lithium company to compete with existing firms. Boric is seeking to reverse the detrimental effects that neoliberalism has had on Chile’s mining industry. This shift towards heightened government regulation would not just affect mining in Chile but also the world, as Chile’s resources are becoming increasingly important to sustainable global development. Currently, Chile supplies the world with 25% of its copper and 20% of its lithium, a component of the lithium-ion batteries used in electric vehicles. The administration’s desire to nationalize and redistribute profits from these essential resources stems from a legacy of Chile’s history of heavy foreign investment and financial speculation. 

Chile’s first major industrial mining operations extracted a relatively obscure material, nitrate, which is used in fertilizers and gunpowder. It is rather fitting then that the industry began a period of modernization following war. In the aftermath of the War of the Pacific (1879-83), Chile annexed Peruvian and Bolivian territory that bordered the Pacific Ocean. This region would become the country’s primary producer of nitrate and eventually copper and lithium. However, the territory spanned the driest desert in the world, Atacama. To this day, the water-intensive mining industry drives conflict, as evidenced by Boric’s recent lawsuits.

During the war, John Thomas North from Great Britain purchased collapsed Peruvian nitrate bonds. After Chile annexed the territory, North was granted control over the nitrate fields, allowing him to monopolize nitrate production, waterworks, and railroads that served the region. After North’s death in 1896, a public-private enterprise known as the Compañía de Salitres de Chile (Cosach) emerged that skewed heavily towards private leadership under the American Guggenheims. Synthetic nitrate competition then forced Cosach to dissolve in 1933, crumbling the nitrate powerhouse. 

North and the Guggenheims exemplify a form of foreign investment that continued throughout the twentieth and twenty-first centuries, where locals benefited from the burgeoning industry but were simultaneously tied by the actions of foreigners. Nitrate built up the port city of Iquique, a city in Atacama, and modernized the Chilean mining system to compete with the rest of the world. However, the Chilean nitrate economy depended unitarily on British and American corporate management. North lobbied Congress to prevent competing firms from undercutting price hikes, and the Guggenheims convinced American President Herbert Hoover to persuade Chilean President Carlos Ibáñez del Campo to create Cosach. The fear of foreign and plutocratic interests controlling Chilean resources thus has its roots in the monopolistic struggle over nitrate production during this period.

Though nitrate’s global demand has fallen, copper’s has not, and considering its value as an electrical conductor, is unlikely to decline in the near future. In the 1930s, industrial copper smelting rose in popularity partly due to the Guggenheims’ vast financing of mining operations, including the Chuquicamata mine, which was sold to the U.S. firm Anaconda Copper in 1923. Che Guevara visited this mine in 1951, noting the workers’ deteriorating health and low wages. Strikes had become a regular occurrence, and regulation efforts culminated in the 1971 decision to nationalize copper under President Salvador Allende. The state-owned industry, Codelco, survived privatization efforts under the dictatorship of Augusto Pinochet and has remained the largest copper producer in Chile. However, today private companies collectively produce more copper than the state. 

The nitrate-copper sequence demonstrates a struggle between the Chilean government and foreign entities that continues today. Nitrate’s original privatization was ultimately split by state interests into a public-private partnership. Copper started off private, turned public under Allende, and then reverted partially to quasi-private control. Given Boric’s current plans to nationalize the lithium industry, the debate over private and public control remains an important but unsettled issue at a time when the world is entering an era of clean energy technologies which demands and depends on reliable and profitable resources such as lithium.

The future of Chile’s mineral industry remains uncertain, but its path will likely be different from that of the United States, another lithium-producing country. The United States has effectively entrusted the private sector with its mining needs, with companies such as Standard Oil, U.S. Steel, and Anaconda Copper dominating domestic and international markets. Yet, Chile’s major suppliers have historically shifted between public and private ownership, making a stable long-term economic strategy precarious. Additionally, the United States has historically been a larger financer than borrower regarding industrial development—something that cannot be said about Chile—which has facilitated American control over financial management decisions. Anaconda Copper’s prioritization of its copper profits over its workers and the Guggenheims’ collusion with the Hoover administration represent two examples of the effects that neoliberal imperialist interests have had on Chilean society. Chile’s nationalization efforts can be seen as a defense mechanism against American forces which could result in a different economic trajectory, one that prioritizes national well-being and security.

The battle between nationalization and foreign investment could also produce other modes of development. For example, domestic Chilean capital could gain influence in the lithium market and drive out international competitors that have historically owned nitrate and copper mines. Sociedad Química y Minera de Chile (SQM), one of the world’s top five lithium producers, began as a private-public enterprise, then became entirely publicly owned before privatizing fully in 1983, with controversial Chilean billionaire Julio Ponce Lerou the principal investor. This approach may allow Chileans to reap greater rewards from their natural resources, but the corruption associated with financiers like the Guggenheims and John Thomas North is unlikely to disappear simply with the transition to domestic private ownership.

As new mining projects emerge in Chile, economic and geopolitical interests raise prudent opportunities. Electric vehicle proliferation has resulted in a rapid increase in demand for lithium and a new age for Chilean mining. Most recently, the Boric-led government has adopted a nationalization strategy through regulation and tax hikes. Yet, Chile’s historical vacillation between private and public hands could breed lasting instability, which may engender geopolitical challenges between Chile and its trading partners. However, the history of wavering mining policy in Chile should not preclude investment into the Chilean mining industry, but rather encourage investors and politicians to study this history carefully to determine what development strategies work best for both Chileans and the rest of the world moving forward.