INTERNATIONAL LABOUR OFFICE

The Chilean Development Corporation
by Herman FINER

A Study in National Planning to Raise
Living Standards

MONTREAL
1947

S T U D I E S

AND

R E P O R T S

N e w Series N o . 5

P U B L I S H E D BY T H E I N T E R N A T I O N A L LABOUR O F F I C E ,

3450 Drummond Street, Montreal 25, Canada

Published in the United Kingdom for the INTERNATIONAL LABOUR OFFICE

by Staples Press Limited, London

Distributed in the United States by the INTERNATIONAL LABOUR OFFICE,

Washington Branch, 734 Jackson Place, Washington, 6, D.C.

PRINTED I N CANADA BY INLAND PRESS PUBLICATIONS, LTD.

171 Metcalfe Avenue, Westmount 25, Canada

CONTENTS
Page
INTRODUCTION

CHAPTER I : The Economic and Social Problems of Chile

1

3

CHAPTER II: Establishment of the Development Corporation

11

CHAPTER III: General Features of the Corporation

14

CHAPTER IV: The Operations of the Corporation

20

A. Energy and Fuel
1. Electrification
2. Coal
3. Petrol

21
21
26
27

B. The Development of Industry
1. The Metallurgical Industries
2. The Chemical Industry
3. The Cement Industry
4. Timber and Forestry
5. Textiles
6. Metal Articles
7. Electrical Industries
8. Tyre Factory

29
29
32
33
35
36
37
37
38

C. Indices of Progressive Industrial Development

38

D. Mining

38

E. Commercial Operations

40

F. Transport

41

G. Agriculture
1. Irrigation
2. Mechanisation
3. Fertilisers
4. Storage
5. Improvement of Seed
6. Plant Products and Fruits
7. Livestock and Milk

42
44
44
46
46
47
47
48

H. Fisheries

50

CHAPTER V: Investigations and Production Skills

54

CHAPTER VI: Methods of Operation

57

CHAPTER VII: Administration

63

IV

CONTENTS

Page

CHAPTER VIII: Scale of Operations

67

CHAPTER IX: Finances

72

1. Earmarked Taxes
2. The Export-Import Bank of Washington

72
73

CHAPTER X: Summary and Appraisal

78

APPENDIX 1

84

APPENDIX II

84

INTRODUCTION
In the Declaration of Philadelphia of May 1944, the International Labour Conference recognised the solemn obligation of the
Organisation
"to further among the nations of the world programmes
which will achieve:
(a) full employment and the raising of standards of

living;
(b) the employment of workers in the occupations in which
they can have the satisfaction of giving the fullest
measure of their skill and attainments and make their
greatest contribution to the common well-being . . ."
Along this path, first traced in an international instrument by
the International Labour Organisation, the San Francisco Charter
of June 1945 took a further step when it declared (Article 55) that:
"The United Nations shall promote:
(a) higher standards of living, full employment, and conditions of economic and social progress and development;
(b) solutions of international economic, social, health, and
related problems ; and international cultural and educational co-operation . . ."
The objective so clearly stated in these two declarations must
obviously constitute one of the foremost aims of the International
Labour Organisation. The Organisation is peculiarly the agency
responsible for promoting social justice and the welfare of the workers in every country. It can do so in part through its own efforts and
in part by co-operating with the Economic and Social Council of the
United Nations, through which its activities will be co-ordinated
with those of other specialised agencies pursuing similar aims. The
action taken by the International Labour Organisation and by the
other specialised agencies is naturally primarily of an international
character. By this international action these agencies can encourage
and assist Member States to help themselves in finding solutions for
their specific national problems in any particular field.

2

THE CHILEAN DEVELOPMENT CORPORATION

The Declaration of Philadelphia, in enumerating the tasks of the
Organisation in the "war against want", affirmed that "it is the responsibility of the International Labour Organisation to examine
and consider all international economic and financial policies and
measures in the light of this fundamental objective". It is in pursuance of this task that the International Labour Office has prepared
the present study of the work of the Chilean Corporation for the
Development of Production. The Corporation is a well-conceived
effort to raise the standard of living of a whole nation, partly by
national action and partly through the assistance of other countries.
The Corporation has been operating for eight years, and the peculiar
features of its organisation and methods of work can hardly fail to
be of interest to all those who are concerned in raising national living
standards. The fact that its success has depended in part on financial
and technical assistance from the United States gives its work an
added interest as an example of international co-operation which
may well prove a stimulus to further similar experiments in the
future. In the present instance, the assistance received by Chile came
entirely from one country, but there is no reason why in other cases
the international co-operation might not be on a much wider scale.
Chile is a relatively small country and its total national production
is low compared with that of the great industrialised nations. The
amount it can afford to spend annually on developing production
must therefore of necessity be modest. There are also obvious limits
to the amount of financial assistance that can reasonably be obtained
from other countries, but the fact that the financial scale of the operations of the Development Corporation is relatively small does not
minimise the importance of the lessons that may be learned from this
resolute attempt to promote national economic development. Nor are
the actual achievements of the Corporation its only claim to interest
the student of economic and social progress. The working of the
Corporation will repay study also because of the problems that had
to be solved, the thinking that lay behind its decisions and actions,
and the methods which have been adopted as being most conducive
to success. The significance of the experiment lies in what is in the
minds of the planners rather than in the actual achievements to date.
In the following pages an attempt is made to survey not only what
has been done by the Development Corporation but also the reasons
underlying the form of organisation and the working methods which
it has adopted.

CHAPTER I
THE ECONOMIC AND SOCIAL PROBLEMS OF CHILE
Since 1939 the Government of Chile, home of a traditional "raw
material" or "colonial" economy, has taken broad and powerful action
to modernise, industrialise and diversify her economy and to achieve
a generally higher plane of production. The responsibility for this
has been entrusted to a special corporation, the Corporación de Fo•-mento de la Producción or Chilean Development Corporation. In
order to understand the need for this body and to appreciate its
activities, it is necessary first of all to give a brief account of the
main economic problems of the country.
As already indicated, Chile still has a predominantly "raw material" economy. Here two facts are fundamental : 40 per cent, of the
population is agricultural; and general prosperity is largely and
precariously based upon exports of two commodities, Chilean nitrates
(and iodine) and copper.
The most recent analysis of the occupational distribution of the
Chilean people is that of the census of 1940. The figures are as follows:
Total population
Gainfully occupied population . . . .
Occupation

Agriculture, forestry and fisheries .. .
Manufacturing industries
Transport and communications
Public services and others of general
interest
Rentiers
Miscellaneous

5,023,5391
1,468,8022

Number occupied Percentage occupied

299,937
31,723
327,746
69,945
74,303
200,506
70,361

20.4
2.2
22.3
4.7
5.0
13.7
4.8

295,035
41,589
57,657

20.0
2.8
3.9

For comparative purposes the total population in 1930 was 4.3
million, the occupied population 1,250,000. The occupational classification was then slightly different from 1940, the figures being (as
percentages of the gainfully occupied population) : agriculture, etc.,
*XI Censo General de Población, 28 Nov. 1940.
2
Taken and computed from Estadística Chilena, Oct. 1945, Vol. XVIII,
No. 10, pp. 388-397.

4

T H E CHILEAN DEVELOPMENT

CORPORATION

40.8; extractive, 6.2; industry, 23.8; commerce, 11.9; communications and transport, 5.7; national defence, 1.7; public administration, 4.0 ; liberal professions, 2.2 ; domestic service, unstated ; miscellaneous, 3.3; theatre, etc., 0.4.
A large agricultural population as compared with a small labour
force in mining and industry does not of itself indicate a low standard of living; natural fertility of the land, climate, agricultural
methods and land tenure are important determinants. In Chile good
agricultural land is relatively scarce, and the land is not everywhere
highly fertile. The progressive decline in the yields of the chief food
crops averaged 1 per cent, each year between 1900 and 1936.1 Chile
is a strip of territory running north to south for 2,600 miles (average width, 110 miles) but only the central zone, or Central Valley,
is agriculturally productive. The North is arid desert confined to
mining; the South is largely wooded and inaccessible. Eighty per
cent, of the total population live in the Central Valley (550 miles
long and from 30 to 50 miles in width). The necessity for improving the valley's fertility is urgent ; but this requires large-scale irrigation works with mechanical power, erosion control, better fertilisers,
and more modern and mechanical methods of cultivation, which in
turn depend on the education of the agricultural population, both on
the many small holdings and on the large estates. On the latter, the
traditional labour relationship between owners and workers retards
the maximum possible development of the land. In the area of small
holdings, the provision of ordinary common education, still less of

agricultural education, has hardly begun; and, with some important
exceptions, inefficient and antiquated methods of production persist.
Further, there are some necessary food products which cannot be
produced in Chile, and must be imported, e.g., sugar, coffee, tea, and
certain edible oils.2 It is not surprising, therefore, that with a small
1

Report of the Statistical Department of the Central Banks of Chile, 1936.
Extracts from the import statistics for the year 1939 illustrate the quantity and range of dependence on foreign production. Total (in pesos of 6d.
sterling value) : 410,525,100 pesos—
2

Mining products
Water and woods
Animal products
Agricultural products

25,083,200 (chiefly coal).
1,861,300
12,621,700 (chiefly live cattle).
34,942,500 (chiefly oleaginous plants, textiles, fertilisers).
Foods
22,908,600 (chiefly sugar and edible fats).
Drink
751,200
Tobacco
154,000
Textiles
66,144,800 (chiefly yarns and cloth).
Chemicals
55,612,700 (chiefly bitumen, resins, industrial fats,
drugs, dyes, chemical products).
Metallurgical articles
51,781,200 (chiefly iron and steel and metal articles).
Machines and tools for industry 56,369,600
Materials and tools for transport 40,786,400
Diverse manufactured goods .... 41,507,900 (chiefly scientific instruments, ceramic glassware, and earthenware; rubber and celluloid;
papers and cartons).

(SOURCE: Estadística Chilena, Dec. 1939, p. 585.)

5

THE ECONOMIC AND SOCIAL PROBLEMS OF CHILE

industry, a growing population, and generally poor agriculture, the
national production is small, and the standard of living low.
Estimates of the average income per capita are various, since the
valuation of Chilean agricultural real income in dollars is necessarily
inexact. One estimate gives 150 U.S. dollars per capita for 1929 as
compared with $523 in the United States.1 But a more recent estimate
gives $97 for Chile and $510 for the United States.2 Indicative of the
need for raising the standard of living of the country is an International Labour Office estimate of deficiencies in the principal constituents of diet. As regards calories, 27.3 per cent, of the population
have an adequate or ample intake; 22.6 per cent, just sufficient; 11.9
per cent, suffer from malnutrition ; 27.3 per cent, from serious malnutrition, and nearly 11 per cent, from desperate malnutrition. The
Chilean wage earner's family must spend on food about threequarters of total consumption expenditures as compared with only
one-third by an American wage earner.3 Further evidence of
deficient diet is presented later in relation to food production plans.4
For many years past, the Government has sought to improve
agriculture. This has been carried out through the Ministry of Agriculture and various semi-autonomous institutions for agricultural
credit, technical assistance and education, and also through the development of public works, in the form of communications, transport, roads, irrigation, drainage, etc. However, as will be explained
later, the total achievement does not meet the need. The present
structure of the Chilean economy is indicated by the statistics of
occupied population in various industries in 1940, shown in the
following table:
Number of persons
occupied

Agriculture
Mining
Industry
Other (services, commerce, construction, etc.)

620,000
96,000
298,000
728,000

Apart from agriculture and small industries, Chilean prosperity
is mainly dependent upon nitrates and copper. With the foreign
exchange obtained from these exports Chile is able to buy certain
indispensable imports. Her present problem of stimulating produc1
Cf. Colin CLARK : Conditions
lan, 1940, pp. 35 and 36.
2

of Economic

Progress,

London, Macmil-

S I M Ó N / J A E A M I L L O , MÜLLER and IZQUIERDO: El Concepto

de la

y la Protección del Estado, Plan de Electrificación, Santiago, 1942.
3
Cf. Robert Morse WOODBURY : Food Consumption and Dietary
in the Americas, International Labour Office, Montreal, 1942.
4
See below, p. 43.

Industria

Surveys

6

THE CHILEAN DEVELOPMENT CORPORATION

tion can be stated in terms of the difficulties arising out of the country's excessive and unstable dependence upon these two products.
Because foreign exchange depends on them, Chilean production and
consumption are especially sensitive to all the accidents of world
trade, and not only the quantities of imports but also the prices are
affected. Over a period of 30 years nitrates and copper have constituted 80 per cent, of Chilean exports and have been subject to
serious and sometimes most violent fluctuations.1
On those fluctuations have depended in large measure Chilean
imports, employment in mining, and, indirectly, employment in industry and commerce. Since the collection of direct taxes from a
low income population is difficult and costly, and since also taxes on
production or land are politically inexpedient, the public revenues
have taken the form of export and import taxes. The administration
of import taxes is simple, and the levy of export taxes is popular.
From 1880 to 1929, the tax on nitrates brought in 43 per cent, of
Chilean public revenues. From 1893 to 1917 the export tax on nitrates yielded 50 per cent, or more of the total national revenue in
all but three years. But in the 20's, export taxes, mainly on nitrates
and iodine, made up only a quarter of the total revenue. How unreliable and fluctuating a basis of public finance this was may be seen
from the following figures :
Year

Revenue
(in millions of pesos) 1

1921
1922
1924
1926
1927
1928
1931
1935

645.5
562.0
808.1
1,059.7
941.6
1,680.0
864.6
1,408.6

Year

Revenue
(in millions of pesos) 1

1939
1940
1941
1942
1943
1944
1945

1,807.5
2,081.6
2,495.6
2,953.8
3,738.0
4,089.0
5,531.0

1
Conversions of the Chilean paper peso (1939-1944) into U.S. dollars are made at
roughly $0,032 per peso, or 31 paper pesos to the U.S. dollar.

Public expenditure could not altogether drop with the sharp
decline in revenue in certain years (1922, 1927 and 1931), and
the deficit was made up by increasing the public debt. As the proceeds of export taxes decreased, import taxes had to be increased;
and this course was favoured by the desire to protect Chilean infant
industries, but at the same time it burdened the cost of living.
Reliance on these mineral exports for foreign purchasing power
and as sources of public revenue made Chile a prey to economic
uncertainty, which was a strain on Government and political order.
1

Cf. Appendices I and II.

THE ECONOMIC AND SOCIAL PROBLEMS OF CHILE

7

The high standard of living of well-developed countries owes
much to the ability of industry and Gouvernement to take long-term
views and make long-term commitments of capital, organisation
and techniques, and to await with assurance the maturing of enterprises.
Dependence on nitrate and copper exports is not only an uncertain basis for a whole economy; it is limitative. There is a point
of saturated demand for these commodities. If, therefore, the importation of raw material and semi-manufactured articles depends
chiefly upon nitrate and copper exports, then the development of
production and the raising of the standard of living has a strict
limit. Not only has Chilean nitrate production decreased to about
9 per cent, of world production, from 90 per cent, in 1913, and 15
per cent, in 1930, but, as the table in Appendix I shows, the absolute amount has seriously declined, being in 1940 about one-half
of what it was in 1925 and less than one-half of what it was in 1928
and 1929. Exports were bolstered by some bilateral trade agreements.
Since 1932, as the figures in Appendix II demonstrate, the value
of copper exports has exceeded exports of nitrates by approximately
1.85 to 1. But they had not, until the Second World War, ever
equalled the value of the peak years 1928 and 1929. With the decline
in the value of nitrate exports, and a pessimistic prognosis in view of
the increased capacity of the rest of the world to manufacture artificial nitrates at costs considerably below that of the Chilean product1, future copper export values are a matter of grave concern
to Chile. For a few years, while post-war reconstruction proceeds
in Europe, the Chilean industry may continue to be about as prosperous as in the years immediately preceding the war. But some
competition must be expected from Canada, South Africa and
Soviet Russia, which produce at a lower cost, and this will reduce
Chile's 18 per cent, of world production.2 This competition will also again be subject to trade fluctuations, unless an international
Government commodity arrangement can effectively replace the rather
ineffective pre-war cartel agreements.3
In the depression of 1929 to 1932, Chilean foreign trade suffered particularly severely. The League of Nations' index of world
trade fell from 100 in 1929 to 74.5 in 1932, but Chile's index of
' S e e U.S. TARIFF COMMISSION: Chemical Nitrogen, Report No. 114,
1937, p. 13.
!
Cf. DEPARTMENT OF T H E INTERIOR: Minerals Yearbook, 1940, Washington, D.C.
* Cf. Alex SKELTON : International Control in the Non-ferrous Metals, New
York, Macmillan, 1937, Chapter V I I I .

8

THE CHILEAN DEVELOPMENT CORPORATION

physical volume of exports fell to 32 and her imports to 25. Chile's
first default on her loans occurred in 1931, when loss of trade had
led to a shortage of foreign exchange.
The desire to find a way out from this extreme dependence by
increased diversity and industrialisation began to take form during
the First World War, when that dependence was first conclusively
demonstrated. There was a reaction against remaining an economy
whose reserves of minerals were being depleted for foreign benefit. The belief grew that a high standard of living was not usually
obtainable in primary production, but only in manufactures, and
that the standard of living could never rise to the level of countries
which imported and processed Chile's minerals. Chilean mines
were chiefly owned by American and British interests ; and though
these had brought with them skills, employment, science, medicine
and social progress, yet profits went out of Chile and were lost as
claims on foreign exchange, while Chileans had no access to the
better-paid occupations of refining and manufacturing the metals.
The investing interests had not planned Chilean development mainly for the long-term benefit of the Chilean people. Moreover, the
Government controls necessary for dealing with the impact of the

war on Chilean economy had familiarised the nation with the policy of a deliberately co-ordinated economy. After the war was
over, Chile moved in the general world current of thought regarding a planned raising of the standard of living. There was general
agreement that some planning was essential, and that whatever the
differences about method (whether the Government should develop
production by its own direct enterprise, or whether it should merely
stimulate and assist private enterprise in desirable directions) there
must be energetic industrialisation and improvement in agriculture.
The more concrete impact of the principles of planning dates
from 1925. In that year, following Professor W. Kemmerer's report on Chilean public finances, banking and currency1, the Central Bank of Chile was established under Government supervision.
From this time, also, dated either the establishment or the reform
and expansion of a number of public institutions for the grant of
credit designed to sustain or promote various branches of the national economy, such as the Mining Credit Fund 2 , the Agricultural
1
Cf. four Reports of 1925 : Commission of Financial Advisers, Republic
of Chile Central Bank; General Banking; Organic Budget; and Monetary
Bill.
' Caja de Crédito Minero : a State institution created to help the small
miners by making loans to them. It buys the minerals, which it treats in its
own plants, distributed along the principal mining centres, especially in the
North. Often works in co-operation with the Development Corporation.

THE ECONOMIC AND SOCIAL PROBLEMS OF CHILE

9

Credit Fund 1 , the Institute of Industrial Credit2, the Agricultural Settlement Fund 3 , the People's Housing Fund*, and the
comprehensive reform of the departments of public administration.
Thus, before the Chilean Development Corporation was set up
in 1939, there was already some intervention by the Chilean Government in the national economy through centralised financial and
credit institutions, public works, encouragement of agriculture, assistance to various branches of production, commercial legislation
designed to improve standards while keeping work and business
for Chileans, and import and export taxes. Furthermore, the prior
existence of these partial arrangements for promoting the national
economy made impossible the acceptance, in 1939, of a suggestion
that the Chilean Development Corporation embrace all possible
phases of Chile's economic development. Theoretically, an economic
plan should come from the top like a roof and nothing should fall
outside its scope. But no.modern economy, not even Russia's in
1918, has been free to plan without accommodating itself to existing economic institutions, habits and obligations. The Chilean Development Corporation could become pre-eminent, but not entirely
dominant in this field. It had to find terms of co-operation with
existing organs, and in many cases to work through them. Whether
anything is lost in efficiency by such an arrangement will be discussed later.
Two things are worth notice. Long before 1939, the various industrial and commercial conferences, the councils of economic associations, and bodies like the Bank of Chile and the credit organisations often proposed forceful and co-ordinated action by the
Government to stimulate production. On several occasions, a Council of National Economy was actually decreed to formulate a comprehensive plan and to give a steady impulse of development to the
national economy.5 But these councils never actually operated, for
they were endowed neither with financial means nor with legal powers to execute their plans.
Nor should it be forgotten that in various ways industrialisation
1
Caja de Crédito Agrario : a State institution which lends money to land
workers, usually on a mortgage, to buy seeds, cattle or agricultural implements.
2
Instituto de Crédito Industrial : a stock company, of which the State
holds all the shares. It lends funds to industries, especially small ones.
3
Caja de Colonización Agrícola : a State institution that buys large land
estates and divides them into small lots to be sold, on easy payment terms, to
poor land workers.
4
Caja de la Habitación Popular: builds cheap houses and sells them, on
easy payment terms, to the working class. T h e selection of buyers is based on
their integrity.

" I n 1931, 1932, 1933, and 1934. Cf. L. B. ALDUNATE: La Corporación

Fomento de Producción,

Santiago, 1943, pp. 37-42.

de

10

T H E C H I L E A N D E V E L O P M E N T CORPORATION

was fostered through protectionist devices, the grant of credit by
semi-public institutions, technical assistance and general propaganda for the development of production. The index of industrial
production (including light and power) was 89 in 1927; 94 in
1928; 117 in 1929; 118 in 1930; 112 in 1933; 153 in 1937; 160 in
1938; and 158 in 1939. While the subsequent general increase in
production cannot be ascribed to the Corporation alone, it may be
noted that the index shows a further rise to 167 in 1940; 171 in
1941; 169 in 1942; 163 in 1943; 168 in 1944; and 191 in 1945.1
The amount of mechanical power used showed a marked increase,
for whereas the index of production of electrical energy stood at a
base of 100 in the period 1927-1929, it was 191 in 1937, nearly
202 in 1938, and 204 in 1939. The production of gas showed a similarly large increase.2
This development of production3 took place in cement, woolen
textiles, tanning, glassware, lumber, sugar refining, tobacco, soap
and perfumes, enamel ware, beer, matches, canned fruits and vegetables, in which, on the basis of the present very low standard of
living, the country has become practically self-sufficient. Considerable development also occurred in the manufacture of leather goods,
lighting fixtures, cotton textiles, clothing, sweets, biscuits, flour,
cigarettes, paper, cardboard, string and rope, and the expansion
was particularly marked in the cotton, woollen, and rough textile
industries. The list shows the direction in which expansion has
been not too difficult, given the abundance of labour and the comparatively small capital required. But none of these industries, with
the possible exception of textiles, is heavy industry. That sphere
was practically untouched until the Development Corporation was
established.
As shown above, the index of industrial production for 1939
showed a slight decline. This again gave rise to demands for Governmental attention to comprehensive industrialisation.

1
Estadística Chilena, July 1946.
'Ibid., Dec. 1939, p. 577; see also Levine B. FLAVIAN: Indices de Producción 3Física, 1944. Santiago, 1944.
The indices of increased industrial production in the chief industries
are as follows, the average of 1927-29 being taken as the base of 100 (SOURCE:
Estadística Chilena) :

Tar
__
Sugar
Shoes
Cartons
Cement
Brewing
Coke
Matches -

1927
91
72
61
36
81
92
104
100

1939
225
73
170
143
287
154
166
Ill

Soap (crude) „
Wool yarn
Cloth
Paper
Tobacco products
Glass
Light and power

1927
84
73
97
88
„
93
_
55 ..„
92

1939
168
230
203
388
113
82
204

CHAPTER I I
ESTABLISHMENT OF THE DEVELOPMENT
CORPORATION
The precipitating factor in the establishment of the Development Corporation was the shocking earthquake of 24 January
1939, when 30,000 people were killed and 50,000 injured. Hardly
any buildings in the cities of Concepción and Chilian remained
standing. Numbers of smaller towns and villages were virtually
wiped out. Many industrial buildings, factories, etc., were destroyed.
Two problems immediately arose: repair of the damage; and the
means for rehabilitation, having regard to the immensity of the
blow to wealth and industrial capacity. The need for a solution to
these problems focused and brought to a head the widespread demand for Government action in the economic field.
The Government proposed a Bill providing for two Corporations, one for reconstruction and assistance, and the other for the
development of production. They were connected, as it was argued
that development would pay for reconstruction. The duration of
the Reconstruction Corporation was to be limited to 5 years; the
Development Corporation was to be permanent. The Bill was introduced by a left-wing President into a Legislative Assembly dominated by the Right. There was no disagreement regarding the
need for either Corporation; all wanted the development of production, and its urgency and strong popular pressure for action
prevailed. Debate revolved around two points: whether the reconstruction and development corporations should be dealt with in the
same Bill; and what the form and financing of the Development
Corporation should be. The Government argued that most of the
money voted would go to reconstruction and would be only indirectly productive. Therefore, to avert inflation, production must be
stimulated. Chile's finances must be improved or loans for reconstruction purposes would not be forthcoming. The Parliamentary
Opposition contended that reconstruction could be started first, and
that development expenditures ought, in any case, to be postponed
until a thorough plan of development had been formulated. It
claimed that there was insufficient money for both purposes, and
feared that the proposed loans of about 2,000 million pesos would
cause inflation. It was thought that if expenditure on development

12

THE CHILEAN DEVELOPMENT CORPORATION

were deferred until the peak of expenditure on reconstruction were
passed, inflationary demand would be smoothed out.
Since no one single pattern in economic planning has universal
merit, the principal clash of opinion regarding the form and financing of the Development Corporation is instructive. One proposal
was that the Corporation should submit a plan to the President.
This would be embodied in a legislative proposal to Congress. When
enacted (possibly in an amended form) the plan would return to
the Corporation for execution. The idea was rejected on the grounds
of its unwieldiness, the provisional character of the Corporation's
plans, and the Corporation's excessive dependence on the legislature. It was generally accepted that a Development Corporation
needs freedom of initiative and security of finance — a lesson taught
by experience of development works elsewhere.
For the necessary funds, the Government had proposed a foreign loan of 2,000 million pesos, with a term of 10 years at a maximum interest of 3 per cent. ; and another 500 million pesos to be
found by the national banks. The total amounts were to be used by
the two Corporations for their respective purposes. The service of
the loan was to be financed by new taxes, bringing in 85 million
pesos a year, plus funds repaid tc the Corporation on loans granted
to individuals, firms, etc.
The Right parties were interested chiefly in reconstruction. They
wished the financing to be based on Chile's national resources and
not on foreign loans. They feared the loss of national capital as
in the past, and evinced concern for Chilean foreign credit. They
therefore proposed only a special tax on copper mining. But during the discussion of the Bill in the House, a member, not on the
Governmental side, proposed that a portion of the taxes (some from
nitrates) earmarked for the amortisation of a part of the foreign
debt (as arranged in 1932) should be used temporarily for the
Corporations of Reconstruction and Production. The proposal was
opposed by members of the Right who had supported the foreign
debt arrangement, and who were anxious about the national credit.
The Government itself favoured the proposal and secured a slight
majority in the House for it. Although the Senate rejected the proposal it was enacted into law. The final outcome was that (a) the
proposed loans were provided for ; and (b) several tax sources were
reserved for the Development Corporation, including principally
the special copper tax, and in addition, a part of the foreign debt
fund. The tax on copper was expected to bring in 100 million pesos
a year, but the coming of the Second World War with an increase

ESTABLISHMENT OF THE DEVELOPMENT CORPORATION

13

in the quantities and prices of copper exports raised the proceeds
considerably. Since, as will be seen later, the contemplated loans
were never made, others being obtained from the Export-Import
Bank of Washington, the funds for the Corporation actually consisted of certain assigned taxes plus the credits of the ExportImport Bank. The Act was passed on 29 April 1939. Within a month
the Council's first meeting took place, and a little later its working
regulations were established. Certain financial and general regulations had to be approved by the Government, and were subsequently
promulgated as Decrees.1
Before entering into a more thorough account of the functions
and ways and means of the Corporation, a summary of its general
features may be given.

1
Act No. 6334, Corporaciones de Reconstrucción y de la Producción, 29
Apr. 1939 ; Act No. 6640, containing amendments, 10 Jan. 1941 ; Act No.
7046 of 22 Sept. 1941, which gives a State guarantee for operations contracted
for abroad by the Corporation; Act No. 7200 of 21 July 1942, affecting certain minor administrative agents. General Regulations : Decreto Supremo de
Hacienda, No. 2610, dated IS July 1939; Financial Regulations: Decreto Supremo de Hacienda, No. 4202, dated 6 Dec. 1939.

CHAPTER III
GENERAL FEATURES OF THE CORPORATION
The Corporation was created by the Act already mentioned and
by certain amendments. It is administered according to the principles laid down therein, as well as in detailed regulations drafted by
itself and approved by the Government.
It is a public-law corporation, and as such is endowed with wide
autonomy of enterprise and decision, and freedom from customary
controls by Government departments. 1 It is directed by a Council
of 25 members, widely representative of the Government and various organisations of public and private enterprise ; a two-thirds vote
is required for approval of the general plans of development which
it is its duty to prepare.
The purposes of the Corporation, as laid down in Article 22 of
its Statutes, are as follows:
(a) to draw up a general plan for the promotion of national
production intended to raise the standard of living of the population
by means of the development of the natural resources of the country
and by decreasing the cost of production, and to improve the condition of the balance of international payments, taking care in establishing the plan to keep a cue proportion in the development of mining,
agricultural, industrial and commercial activities, and attempting
to satisfy the needs of the various regions of the country ; . . .
(b) to carry out, in collaboration with promotion institutions
(public, semi-public, or private), studies intended to discover the
means most adequate to create new production or improve existing
means, improving the conditions in which they develop as to quality,
yield and cost of production, and studies intended to facilitate the
transportation, warehousing and sale of products, in order that the
same may be used in their most satisfactory condition and at the
most convenient prices ;
(c) to conduct, in accordance with the results obtained in the
studies mentioned in the foregoing clause, experiments in production
or commerce on such scale and with such aid as may be deemed
appropriate ;
*Cf. Herman FINER: The T.V.A., I.L.O. : Studies and Reports, Series B,
No. 37, Montreal, 1944, Chapter VI.

GENERAL FEATURES OF THE CORPORATION

15

(d) to aid the domestic manufacture, or the importation, of machinery and other materials for production ;
(e) to propose and aid in the adoption of measures intended to
increase the consumption of national products or to obtain a greater
participation of Chilean interests in industrial and commercial activities . . .
(f) . . . the promotion plan will necessarily consider the funds
for repair and construction of communication lines and means of
transportation, in accordance with the studies and projects worked
out by the Department of Public Works.
The Corporation is co-ordinated with the rest of Chile's Governmental apparatus, partly by the inclusion in its Council of a member
of the Government and four members of Parliament, and partly by
the general supervision of the Ministry of National Commerce and
Economy, with special and limited controls by the Ministry of the
Interior and the Comptroller-General. Its own personnel, while freely
chosen, conforms to certain basic standards, acceptable to the Ministry of the Interior, which exercises general supervision over Government staffs in all departments. Its funds are obtained from the annual receipts of certain earmarked taxes; from loans advanced by
the Export-Import Bank of Washington, which are guaranteed by
the credit of the Chilean Government, but repayable by the Corporation ; from credits granted by firms which supply it with goods ; and
from convenient interim loans by American banks, being part of
the financing arrangements of the Export-Import Bank.1 The Corporation makes loans to semi-public corporations to assist their activities, but it does much more by way of loans to, or participation
in the shareholdings of private firms. In both cases its assistance is
based on detailed agreements regarding the employment of the capital by the borrowers and the Corporation's share in the direction of
the enterprises in question. A New York branch handles the raising
of credits from the Export-Import Bank and American industrialists, and buys and ships equipment to Chile, besides contributing to
other branches of policy and enterprise.
The purpose of the Corporation is to develop Chilean production
according to a plan. The Statutes, it will be recalled, entrust the Corporation with the task of drawing up a plan of developing national
production; the approbation of this plan, and modifications thereof,
require the favourable vote of two-thirds of the members of the Council. The preliminary sketch of Chilean economic history demonstrated
the need for such a plan. Furthermore, wise expenditure of the funds
' Cf. below, p. 73.

16

THE CHILEAN DEVELOPMENT CORPORATION

depends on a fully related survey of competing purposes and the long
and short-term requirements. Valuable lessons would have been
available if the Corporation had started with a plan.
Yet no such general plan as the law requires was actually put
forward before operations commenced. Instead, it was formulated
piece by piece. For this there were good reasons. To begin with,
there were temporary difficulties. The full consequences of the earthquake could not be gauged. The Second World War upset all calculations of cost and cut off supplies. Certain immediate works had to be
undertaken, such as low-cost housing ; hydro-electric power ; increased
production of mineral products to take advantage of the big war-time
demand ; and importation of essential stockpiles.
More important factors, however, were the very wide scope of
the Corporation's mandate; lack of knowledge; and the difficulty of
securing agreement. The first point is already manifest. Even if
there had been extensive preliminary studies of Chile's economic
future, elaboration of the practical plan of action would still have
taken years to carry out. Its basis would be a careful, solid analysis
of Chilean economic structure and processes and, especially in the
present context, Chilean natural resources. But, though Chile possesses some scientifically gathered data, the indispensable investigations of economic activities and resources, the censuses of industry
and agriculture, etc., have only recently begun to be undertaken
with anything like the necessary scope and depth. At crucial points
knowledge is altogether non-existent; in most cases it is mediocre
Two lacunae were of particular significance: first, the possibilities
of hydro-electric power, and secondly, the availability of fuels, especially oil. Though a fair amount was known about Chile's coal
reserves, information was rather scanty as to their most modern
utilisation. The relationship between the location of power resources
and the location of desirable and feasible industries had not been
fully explored, neither had the possible costs of production. Thus,
there could be no integration of so many unknowns in the making
of a general plan. In the case of the Tennessee Valley Authority,
there had been many highly expert investigations over a period of
more than 20 years before its establishment in 1933, and yet the
T.V.A. was still unable to produce a unified plan until April 1936,
and even that was not complete.1 Yet the T.V.A. had only two oi
three specific regional objectives. In Chile, the Corporation has the
wider responsibility of an economy in all its aspects concerning a
whole nation of immense geographical and climatic divergencies.
There was another obstacle to plan-making : the inherent difficulty
'Cf. Herman

FINER,

The T.V.A., op. cit., Chapter I.

GENERAL FEATURES OF THE CORPORATION

17

of reaching an agreed decision. Many interests are represented on
the Council of the Corporation, and many others outside must properly be consulted on a total plan for national development. There
are established interests ; there are new entrepreneurs ; there are the
sometimes competing interests of Chile's regions; there are existing
economic connections and relationships with foreign countries. None
will allow itself to be ignored. To arrive at an agreement of even
disinterested differences requires time. For the plan is a matter of
supreme policy, equivalent to such decisions as that reached in England in 1845 to repeal the Corn Laws, or in the United States by
Clay and Calhoun in 1816 to establish a tariff as part of the "American System".
Yet the first principle of planning is to have a plan of some
kind. It may be piecemeal and halting at first, and eventually some
of the activities may have to be abandoned. Moreover, the elaboration
of each programme has indicated the need for auxiliary projects to
round out the picture. Thus, over a space of six years the activities
of the Corporation have not been undirected or inchoate. The directing policy has grown more experienced and conscious with time
and reflection, and approaches the wide and fully comprehensive
plan of the Statutes.
This policy of integration may be summarised as follows :
(1) Chile must develop fuel and mechanical energy. A vast hydroelectric scheme would provide three-quarters of a million kilowatt
capacity. Oil resources might be discovered. More coal resources
would be opened up and present supplies better utilised. (2) Certain industries must be developed to replace imports, to give direct
employment, to form a basis for related industries and by-products,
and to save foreign exchange by changing the pattern of imports
and exports 1 , thereby increasing the purchasing power of Chilean
consumers. Thus, primarily, it is necessary to establish a steel industry, sufficient at least to cover all domestic needs. In this connection, the iron ore and limestone deposits of the North would be
used; local deposits of coal would provide the constituents of a
chemical industry with its pharmaceutical offshoots. Steel mills
and the related processing of steel products would carry the project
further. (3) Side by side with the steel industry, there would be
copper refining for products such as copper wire. Other metal production — brass, bronze, and other alloys — would follow. (4) Local industries would be fostered, particularly food processing, since
there are areas of Chile, especially in the North, where no food is
1
It is intended to decrease imports by roughly 25 million U.S. dollars
per year, and increase exports by the same amount.

18

THE CHILEAN DEVELOPMENT CORPORATION

produced, and where 400,000 inhabitants of mining encampments
live on preserved and canned supplies. (5) Agriculture and fisherywould be developed. Agricultural mechanisation and irrigation on a
considerable scale must be planned to raise production by means of
an educated agricultural population, using new methods of farm
economy and phosphatic and limestone fertilisers. The remarkable
fish resources off the entire coast offer exceptional opportunities
for developing and processing. (6) Attention must be paid to the
technical improvement of mining, and the expansion and modernisation of transport by land, sea, and air.
With the qualified exception of the hydro-electric scheme, the
Corporation's plan has been and will be implemented through assistance to private industry by contributions of capital. As soon as
each enterprise is soundly developed, the Corporation sells out and
with the funds obtained finances new enterprises. Several ventures, it is true, would never have been embarked upon on account
of their smallness, but the Corporation entered because public opinion expected action. The war also compelled the Corporation temporarily to participate in business opportunities for which it alone
could obtain the necessary licences and foreign exchange. Though
economic development was thus assisted, the Corporation deprecated
having to take as much trouble, perhaps even more, on schemes involving $10,000, as on those involving a million.
The various programmes of development are prepared by committees of councillors into which the whole Council of the Corporation is divided.1 Permanent officials and experts work with the
councillors to develop the plans and submit them to the General
Manager, through whom they go to the Executive Vice-President
and the Council. The appropriate statistical, costing and financial
bureaux have been set up to explore existing records, and to break
new ground.
The business of the Corporation is to consider the many claims
and possibilities and to assist those that are the most promising. In
particular, it must take a long-term view, by aiding basic branches
of production where private industry alone cannot find the large
amounts of capital for long terms. Again, there are various industries already in being where modernisation would be expedient —
for example, textiles, chemicals and some metal refineries. Some
of these were founded without adequate knowledge of the best
technical means of producing at low cost, and have machinery and
methods which are now obsolete.
1

Cf. Chart of Organisation opposite.

19

GENERAL FEATURES OF THE CORPORATION

CHART OF ORGANISATION

Council of the Corporation for
the Development of Production

Executive Vice-President

Permanent Commissions

Cenerai

Management

•

—
Studies and
Planning

Commission on
Regulations
Foreign
Credits
I

Legal Council

Administrative
Management

General Secretary I

Department of
Control

Commission on
Finances

Department
ent of
Accouinfs

-r

Technical I
Investigations!

Scholarships

I — •

Commission on
Securities

*>•

I
I

New York Agency

Commission on
Mining

Dept. of Mining

Foundries and
Refineries

Metallurg/

Mining

Commission on
Agriculture

Department of
Agriculture

)

Agriculture j

Commission on
Industrie«

| Agrkultuiral
| Machine
nery j

Dept. of Industries

i
rgicall
Metallui.
Industries
tries j

Chemical
Industries

Commission on Commerce
and Transport

•{

|f°°d'ji°"'i"9

Depi. of Commerce
and Transport

I Commerce I

M
^

Commission on Energy and
Fuels

I

Transport

D e p t of Energy and Fuels

I
I

Energy

I

)
-1
Fuels

I

I

Control
I
ond Archive»!

| ****•. | I t g l

|wi»«'1oneou»|

|Th«Ñor,h |

r

Coal

_L

1

i
Geological

CHAPTER IV
THE OPERATIONS OF THE CORPORATION
The table below shows the utilisation of the credits granted for
the Corporation's operations, mainly by the United States ExportImport Bank, though some $9 million were furnished by U.S. suppliers of goods to the Corporation. It should be borne in mind
that the U.S. Investments are in almost all cases equalled by Chilean
investment, and that in some cases, especially the hydro-electric developments and plants and other long-range activities, the Chilean
investment is twice as much as that of the United States.

SUMMARY OF PAYMENTS MADE OR DEFINITELY ALLOCATED
AGAINST CREDITS AVAILABLE
(In U.S. dollars at

Energy and Fuel:
Electric power
Petroleum
Gas
Industry:
Cement
Copper wire, etc
Rubber tyres
Wood
Textiles
Chemicals
Metallurgical
Ceramics, glass
Movies, radio
Papermaking
Miscellaneous
Mining
Commercial:
Raw material stocks
Transportation:
Railways, planes, ships
Trolley buses
Agricultural machinery
Fish
Steel mill

31

December 1945)
11,323,927
590,791
459,970
3,981,397
1,461,181
423,338
—
460,765
111,535
594,953
156,200
143,626
141,533
773,187
257,046
3,805,906

Total

2,550,649
1,900,000
7,744,446
$70,018,811
138,361
33,000,000

THE OPERATIONS OF THE CORPORATION

21

The proportions of contributions by shares and by loans, based
upon the balance sheet of 31 December 19441 are as follows:
Agriculture and livestock:
Shares and capital contributions
Loans

Chilean pesos
21,060,000
151,008,000
172,068,000

Energy and fuels:
Shares and capital contributions
Loans

524,714,000
40,098,000
564,812,000

Mining:
Shares and capital contributions
Loans

37,995,000
125,511,000
163,506,000

Industries:
Shares and capital contributions
Loans

128,143,000
249,169,000
377,312,000

Commerce and transport:
Shares and capital contributions
Loans

50,135,000
104,630,000
154,765,000

Housing:
Loans

139,747,000
Total
1,572,210,000
These were the total values owned by the Corporation in active
business. T h e r e were also some assets, like buildings a n d funds in
banks. T o realise the full extent of its operations it would be
necessary at least to double the total to take into account t h e
contributions made by the firms collaborating with the Corporation.
A t the date in question a substantial number of the projects were
being financed entirely by Chilean investment, that is, where American machinery was not required, for if the roughly 1,500 million pesos
are converted into U . S . dollars, the amount equals about fifty million
dollars, whereas the amounts which the Corporation had actually
drawn from the U . S . E x p o r t - I m p o r t Bank then totalled only about
$13 million, that is, about one-quarter.
A. ENERGY AND F U E L

1.

Electrification

In December 1942 the Corporation produced a n extensive plan
of electrification, the principal hope of successful economic development. I t s timely elaboration was possible because Chile's hydroelectric capacity h a d long been the subject of investigations, a n d the
1

CORPORACIÓN DE FOMENTO DE LA PRODUCCIÓN : Balance General al 31 de

diciembre de 1944.

22

THE CHILEAN DEVELOPMENT CORPORATION

experience of other countries was readily applicable. An acknowledgment is made in this respect to the Tennessee Valley Authority. The
idea of electrification in Chile goes back at least 25 years. By 1935
a group of engineers had submitted a report to the Government on
"Electrical Policy for Chile" (Política Eléctrica Chilena). It was
therein recognised that electric power was fundamental to prosperity,
and this view was confirmed by the World Conference on Fuel and
Energy and its Chilean National Committee, the South American
Congress of Engineering (Santiago, January 1939) and other expert bodies.
In 1938, the Institute of Chilean Engineers set up a commission
to study the problem. It was shown that whereas, in a period of 50
years, per capita production in the U.S.A. had increased twofold in
agriculture and threefold in mining, it had increased sevenfold in
manufactures. This progress was ascribed mainly to mechanical
energy, and particularly to electricity in the development of manufactures.
The Corporation's plan1 is wider and more far-reaching than
those to which reference had been made. It starts with the premise
that "the capacity of a nation's industry for production' is practically independent of the population and, if we disregard the capital
invested in its equipment, depends solely upon the available supplies
of mechanical energy of the country. Beginning with this economic
basis, we arrive at the indispensable need for actively developing
the generation of hydro-electric power".
This is the more necessary, even though petroleum has been discovered, for the coal reserves of the richest quality amount only to
250 million tons, that is, 50 tons per inhabitant, an almost negligible
quantity compared with the reserves of Great Britain, the United
States and Germany. But in respect of hydro-electric reserves Chile
is very fortunate, both as regards total amount and extensive distribution. Investigations up to the end of 1942 showed that those
reserves amounted to at least 1,300 watts per capita, not including
the area south of Puerto Montt (which may yield as large a capacity
in addition), as compared with 238 in the United States, 99 in Germany, 460 in Switzerland and 151 as a world average. The total
available reserves of Chilean hydro-electric power are six million
kilowatt capacity.
The first step, therefore, is the Plan of Primary Electrification.
This would produce three-quarters of a million kilowatt minimum
capacity, or 2,500 million kwh. — about four times the power already
1
Plan de Electrificación del País de la Corporación de Fomento de la Producción. Santiago de Chile, 1942.

THE OPERATIONS OF THE CORPORATION

23

produced in Chile if that used in nitrate and copper production
is excluded. The cost would be about 3,000 million pesos; and
the work would take 18 years to complete in three principal stages.
The Plan would call for the construction of central generators, main
transmission lines and sub-stations to be operated by the National
Electricity Company, Ltd. {Empresa Nacional de Electricidad S.A.),
a subsidiary of the Corporation itself. The Company would produce
and integrate electrical energy in large quantities to distributive enterprises, industries and other big consumers, rural electrification
co-operatives and associations for mechanical irrigation works. The
Corporation would retain the ownership of the generating and primary distributing apparatus, so that it could enforce rational planning of the various systems for the future and, by controlling the
prices at the various stages of sale to the consumers, initiate and
guide the policy of development.
Such a plan could be undertaken only by a Governmental agency,
for, though the estimated amount of electrical energy is large, its
present and future development must be watched with its main purposes in mind. Furthermore, the amount of capital required is far
larger than can be obtained from Chilean private investors. Also, it
is public policy that the use of electrical energy at the primary stage
shall not aim at immediate profit-making, but rather be the means
of developing productive activities. This does not imply, however, that
the Government itself or the Development Corporation must directly
undertake the administration of the plan. There may be more flexible
administrative instruments for this purpose.
Accordingly, on 24 March 1943 the Corporation decided to establish the Electricity Company, which would plan, study, construct and
exploit the electrical system. This company is a commercial enterprise, subject to the supreme control of the Government, the Corporation being the special agency by which the general interests of
the nation are safeguarded. Private capital investment in the Company comes from the existing electric power companies and municipal undertakings, and particularly from insurance funds or other
such organisations which desire i preferred investment opportunity.
The Company's capital is 500 million pesos, of which 90 per cent, is
held by the Corporation. This share entitles it to six out of seven
members of the Board of Directors, one of whom must be Executive Vice-President of the Corporation (who will be Chairman of
the Board of Directors of the Company), and another the President
of the Chilean Institute of Engineers. When the Corporation decides
that additional capital is necessary, it may stimulate private investment by initiating fresh developments.

24

THE CHILEAN DEVELOPMENT CORPORATION

There will be three stages: first, the separate development of
each region ; second, their interconnection ; and finally, the full integration of the various stations and their operations. Stage one will
take 18 years, and is itself divided into three periods of development of six years each, allotted according to technical needs. The
most favourable and economical sources of energy will first of all
be investigated. Some steam plants will supplement the hydrogenerators.
The Chilean electricity scheme differs markedly from the T.V.A.
in its construction programme. The T.V.A. needed many dams. In
the Chilean scheme only one large dam will be required. The run-off
of water from the Andes requires many channels to conduct the water
along the descents, but storage is not needed.
Other schemes for mechanical irrigation, rural electrification,
urban distribution, and education in the uses of electricity are based
on the Primary Plan. For irrigation, advantage will be taken of the
central zone's excess of power during the summer season when the
melting snows provide both power and water. Although there is a
valuable and rapid flow from the Andes to the sea the land flattens
out near the coast so that electric energy is needed for pumping the
water from the rivers up the branching valleys. This is of special
importance in certain regions. Rural electrification is to be based on
co-operatives managed by the consumers on a non-profit basis, and
it is intended to take the electricity far out into the small communities. To these co-operatives the Company will lend technical, financial and legal aid. In the cities, it will improve the existing systems
so as to reduce costs and organise distribution where none yet exists.
Finally, there will be a concerted programme of studies and popular
education in the use of electricity.
The costs of installation and the charges for electricity supply
are calculated to be low ; the former especially so by comparison with
other countries. 1 Land and labour are cheap; topography is favourable, with few expensive problems; and the rate of interest is low.
It is estimated that wholesale charges will vary between two to eight
mills per kwh.2 The wide margin is due to the very different climatic
conditions in different regions. For example, the rivers in the northern part of the Central Valley have little water in winter; in the
southern part it is more plentiful. When the systems are connected,
price disparity will be evened out.
1
Installed cost will be about 120 U.S. dollars per kilowatt. T.V.A. is about
125 2U.S. dollars per installed kilowatt on figures of 1942.
Cf. T.V.A. wholesale rates of rather less than 4 mills for large cities, 5
mills for other cities, and nearly 6 mills for the co-operatives. Annual Report,
1941, pp. 91-92.

THE OPERATIONS OF THE CORPORATION

25

There is much general similarity to the T.V.A. method, but in
Chile provision is made for irrigation by electrical power, for which
there was no need in the Tennessee Valley. The plan is reminiscent
of, though otherwise different from, the Boulder Dam scheme.1
As has been said, Chile, by reason of its extreme length, is a land
of immense climatic and geological diversity. The hydro-electric plan
must follow this geographic basis. Seven regions, running from north
to south, have been delineated, of which the first five, down to Puerto
Montt, have been explored. From Puerto Montt to Magallanes is
not yet explored. As would be expected, the available water power
in the North is small. The great bulk of power is found in three
regions from Petorca to Puerto Montt which include the Central
Valley (already the dwelling place of over eighty per cent, of the
population) with its greatest cities, its best agriculture, and eighty
per cent, of its manufactures.
The Corporation already has an interest in nine power generators, of which three are in actual operation. Five of the nine belong
to the Corporation's electrification programme ; in the remaining four,
belonging to industry and the utilities, the machinery was bought
for them by the Corporation. Of the Corporation's own plants, the
most important are the Sauzal plant, which will provide 76,500 kilowatts, that at Albanico, 130,000 kilowatts, and that at Pilmaiquen,
36,000 kilowatts. The first will provide energy for the provinces of
Santiago, Valparaiso, Aconcagua, and O'Higgins, which, though they
have electricity, are not supplied sufficiently or at low enough rates.
The second is to serve the rich agricultural and industrial zone
around Concepción, and here again will supplement or supplant private companies, which have insufficient and costly steam-generated
power. Thirdly, the rich agricultural area, now partly industrialised,
from La Unión to Puerto Montt, will bring supplies to an area almost
without electricity. The plant at Sauzal will save 80,000 tons of coal
and coal-dust a year, as it is displacing a steam plant, and will permit
a further saving of 70,000 tons of coal, since the railways from
Santiago to San Antonio and to San Fernando will be electrified.
The plant at Albanico will allow a saving of 100,000 tons a year of
coal-dust by displacing steam plants. At Pilmaiquen, a great saving
will be effected because at present the public services and the industries of the area produce their own energy at considerable cost.
In addition to these projects the Corporation is associated with
various municipalities and enterprises for the extension or improvement of their systems of distribution. These, as well as certain plants
owned by various Government departments, will be integrated by
1

United States Bureau of Reclamation Handbook.

26

THE CHILEAN DEVELOPMENT CORPORATION

the Electricity Company. Furthermore, studies of distribution systems, in addition to the Primary Plan, are well advanced. As for
rural electrification, in February 1943 the Corporation's Permanent
Committee on Energy and Fuels approved the regulations of consumers' co-operatives based upon the experience of Denmark, Switzerland, Norway, and the United States, and particularly the Rural
Electrification Administration in the latter country.
The Corporation has assisted Chile to establish electric and hydraulic laboratories which it uses for investigations and special researches to stimulate and train the staff required to develop electrification and diffuse knowledge about the use of electric power.
Various loans have been made to power companies to improve or
extend their facilities, and assistance and stimulus have been given
to the manufacture of electric motors and transformers, and other
electrical apparatus.
2. Coal
Chile is poor in coal, an essential of industrialisation. There are
reserves 1 only for about 50 years at present consumption, adjusted
to allow for the natural growth of demand, though some experts
think that the economic limit of mining may be reached in 25 years.
Of some two million tons of coal now consumed per year, a little
over one-fifth goes to the State railways, a little less than one-fifth
to manufacturing industries, one-sixth to make gas and electricity,
and one-tenth for the mercantile marine, accounting for two-third s
of the total consumption. The coal is not of particularly good quality
and its mining is expensive, partly because the seams are irregular,
partly because plant and equipment are antiquated, and partly because, though labour is not highly paid, there is much absenteeism.
If industry develops on the scale projected by the Corporation,
some importation of coal may be necessary, unless native supplies are
better utilised. Some imports will always be necessary for metallurgical coke, as impurities in the fuel may ruin the product. From 1910
to 1925, a very substantial amount of coal was imported, and though
there was a tremendous drop from 1930 to 1940, in the latter year
224,000 tons were still imported, necessitating a substantial provision
of foreign exchange. The home production of coal, though increasing, still lags behind industrial needs.
The relatively small reserve of coal would, even at first sight,
seem to indicate a policy of conservation. Such a policy is strongly
1
Coal deposits have been found on Magellan Island, but the reported
2,000 million tons are lignite.

THE OPERATIONS OF THE CORPORATION

27

supported by progress in the technology of coal utilisation, which
has been so rapid in recent years that further hopes of substantially
increased values may be reasonably entertained even as regards the
crudest form of coal utilisation, that is, burning it. Since 1913 the
ton-kilometre on the Chilean railways using coal has trabled, with a
decrease of 20 per cent, in the coal used.
The Corporation's coal projects therefore comprise three tasks:
improvement of mining techniques and organisation ; improved utilisation, particularly in connection with the plan for steel mills
and the establishment of a large chemical industry ; and conservation
of coal by the substitution of electricity.
The Corporation has assisted in the replacement of the oldfashioned system of truck transport by mechanised belts in the biggest
mines; the construction of shafts in others; and the rehabilitation,
exploration and opening of still more mines. It has promoted work
in connection with gasogenic methods of carbonisation and geological
soundings ; given technical assistance in conducting studies on fuels ;
provided capital for exploration; and helped in the acquisition of
machinery and materials. In the Consolidated Mine, 12 million pesos
were invested in modern ventilation and new galleries for mining
and moving the coal, apparatus for washing and loading it, and workers' housing. The full production, as originally estimated, has not
been reached, owing to unforeseeable irregularities in the seam. This
is an illustration of the risks which such a corporation must and does
take. The causes of the diminution of output per worker have been
examined and proposals made for technical and social remedial measures. Another completely new mine, at Colico Sur, opened on the
initiative of the Corporation, has been most successful, with a production of 100,000 tons a year. About 30 million pesos have been
invested, shared between the Corporation and private interests. Some
six million pesos are appropriated for housing estates to be built for
the workers. It should be emphasised that great importance is attached in Chile to workers' housing, partly as social goodwill and
partly in the realisation that the health of the worker is dependent
on good housing, and also that good housing induces a change in
spending habits and regular attendance at work.
3. Petrol
Since 1918, Chile has imported steadily increasing quantities of
petroleum, though with fluctuations according to the state of economic prosperity. In 1939, 531,000 tons were imported; in 1940,
666,000 tons; and in 1941, 806,000 tons. Even more remarkable has

28

THE CHILEAN DEVELOPMENT CORPORATION

been the increase in the imports of gasoline, reaching 127,500 tons
in 1939; 144,100 tons in 1940; and 164,700 tons in 1941. These
imports represent a considerable charge on Chilean production for
foreign exchange, though they are, of course, essential to industry,
mining and transport. Early in 1942 the Corporation, which was
especially charged by the Chilean Government with all prospecting
operations for petrol, assigned the necessary sums for explorations
for oil deposits in the regions of Magallanes, Tierra del Fuego and
other districts of the far South. For the Corporation, a commission
of United States technicians is operating in Magallanes, with the
most modern prospecting equipment. Chilean technicians are attached
to the commission, and some of the personnel of the Corporation's
Department of Mines and Petroleum have participated in and observed the investigations. It was believed that it would take a year
to discover any deposits, but within six months the indications were
so favourable as to suggest soundings. In January 1946, the first
strike of oil was made. One well showed oil of very good light quality for gasoline and lubrication. A few hundred barrels a day are
being tapped ; there are promising signs of a substantial supply, but
the complete prospecting is not yet concluded. An unexpected result
was new discoveries of coal.
Investigations are also being made into the possibility of obtaining petrol by distillation of coal or shale.
Because of wartime restrictions on imports of gasoline, the Corporation co-operated with the Department of Roads of the Ministry
of Public Works and Communications in making studies of the most
practical designs for gasogene machines to replace liquid gasoline.
Loans have also been made to people wishing to work with this
apparatus in motor vehicles, especially in public transport, and to
producers of the necessary charcoal.
What is noteworthy about investigations of this kind is the incentive which produces them. There has been in Chile for many
years a Government Geological Survey, but it has never made surveys of resources such as are indicated for industrial development.
The considerable appropriations for the necessary equipment and
personnel have never been voted. But the Corporation has the means,
and, in addition, the special stimulus and ambition felt by people to
whom a specific responsibility for economic development has been
entrusted. This incentive to enterprise is also to be seen in the Tennessee Valley Authority, in the development of a commercially valuable insecticide in Ecuador by the Ecuadorian Development Corporation (a mixed U.S.-Ecuador agency) ; and it has lent drive to
the Canadian Parliamentary Committee on Resources.

THE OPERATIONS OF THE CORPORATION

29

B. T H E DEVELOPMENT OF INDUSTRY

The Chilean need for industrial development and its already not
inconsiderable progress have been noted. The census of 1940 revealed
that there were some 208,000 wage earners and salaried employees
occupied in industry. But the number steadily employed in industry
must be much smaller. The number of skilled artisans is small indeed
measured by the scale of the Corporation's programme. Workers
recently drawn from agriculture or from only occasional low standard
employment in cities need time to acquire skill in labour and
managerial functions, diligence and punctuality. Foreign managers
accustomed to high standards elsewhere testify, however, to Chilean
adaptability and dependability.

1. The Metallurgical Industries
The Corporation's plans for industrialisation fall broadly into
two classes : the basic industries ; and the processing and production
of finished goods. Most important in its projects is the steel industry
plan, as on this depends the utilisation of various domestic resources
and labour.
The steel industry plan in turn depends on the execution of the
hydro-electric projects, and, as the U.S. Export-Import Bank agreed
in November 1945 to finance the scheme, the success of the Corporation's plans, not only for steel, but in general, is assured. The U.S.
credits amount to $28 million for the purchase of materials, equipment and services from the United States. American suppliers will
furnish credits amounting to another $5 million. Chilean investment,
which the Corporation will raise, is approximately $25 million. This
will meet all expenditure in Chile for construction and operation and
any other sums involved in excess of the U.S. credit. A new corporation, the Pacific Steel Company {Compañía de Acero del Pacifico), is to undertake the enterprise, to be in production by the end
of 1948. The Steel Company's corporate structure is founded on
debenture bonds to cover the Export-Import Bank's credit, and then
common stock for the rest ($25 million) to be taken up in Chile and
outside and to be employed in Chile for the acquisition of plant site,
the construction of buildings, installation of equipment and working
capital. The Corporation is prepared to take up the amount of stock
which public subscription fails to buy.
The significance of the steel plan is broadly as follows. Chile has
an abundance of iron ore of high quality, and hitherto some 1.6
million tons per year have been exported to the Bethlehem Steel

30

THE CHILEAN DEVELOPMENT CORPORATION

Corporation. (The new plan was not accepted by the U.S. ExportImport Bank until the Bethlehem Corporation assented.) Besides the
ore, Chile has limestone, coal and charcoal. Manganese ore of good
quality is available and its production is actively stimulated by the
Corporation. In brief, it is easy to establish a steel industry quite
capable of satisfying Chile's growing domestic demand, with the
exception of certain special quality steels, the production of which in
the relatively small quantities required would be uneconomic, even
if the techniques were available.
Hitherto, the Chilean market has been supplied by the importation of finished and semi-finished iron and steel products. The importations have not directly responded to need, but have depended
closely on the fluctuating availability of foreign exchange. This,
again, has depended on the varying copper and nitrate exports. Chile
now imports about 125,000 tons of steel; her consumption is about
175,000 tons a year, and is per capita far below what it should be.
Steel is now produced mainly in Santiago, where scrap is used ;
and also at Corral, in the south, where a high-cost pig iron is produced by the use of charcoal. In both cases old-fashioned methods
are employed. Furthermore, as the production of scrap in the country
is only about 15,000 tons per year, all of this is more urgently needed
for the copper industry. Therefore, the Corporation's primary decision is to base all production on iron blown in Bessemer converters.
Conversion to this modern method is being financed by the Corporation. Foreign competition cannot be met without the most up-to-date
processes, and it is not deemed wise to rely on tariff protection.
It is, however, more important to establish mills which will produce over 125,000 tons of steel per year. The plan for this purpose
was formulated by a Commission appointed by the Government in
July 1942 to study the economics of the steel industry for Chile. This
Commission included representatives of all the principal organisations, public and private, concerned in the steel problem, chief among
them being the Corporation. Its purpose was to discover a single
great centre of steel production where there would be the optimum
economic combination of favourable factors—principally the fuel,
the energy, the raw material and transport facilities. Concepción, near
the coal mines, was selected. The plant will take three years to build ;
the machinery and materials are to be imported. Electric power will
be used wherever it is economically sound, in order to save as much
coal as possible ; the power will come from the Albanico electric plant,
which is one of those included in the Corporation's hydro-electric
scheme. The Corporation has provided five million pesos for preliminary technical investigations and experiments to be undertaken,

THE OPERATIONS OF THE CORPORATION

31

chiefly by American technicians. It made its own thorough examination of the proposition and on this basis resolved to finance the enterprise, doing so through the establishment of a private company.
Equipment will come from the U.S.A., financed, as usual, by loans
granted by the Export-Import Bank.
The location of the steel plant reveals the imperative need for
most careful reflection on the many economic and social factors necessarily involved in such a scheme. At Concepción there is the optimum combination of coal and cheap power. But it is 300 miles from
the chief present market for steel, that is, Santiago and district. Normally, other things being equal, it is desirable for production to be
near its market outlets. But, if the steel plant were established in the
Santiago district, all the raw materials would have to be shipped to
it : coal from 300 miles south, iron ore and limestone from 300 miles
north, while electric power is dearer than in Concepción, for reasons
already explained. It is true that at Concepción the limestone and
the ore must come 600 miles from the north; but, since they are
brought by ocean transport, the long distance makes no material difference, the principal expense in ocean transport being in the loading and unloading.
These are not the only factors involved. The Corporation's mandate requires it to consider the interests of the various regions of
Chile. The Santiago area has always attracted industry. Industries
are still on a small scale, and present transport costs are too high to
permit of their being at any distance from their markets. But the development of hydro-electric power will make it possible to move
further south, because there will be cheaper power, electric transport and fuel. The railroad runs between Concepción and Santiago,
and a broad modern highway and power line are being built. Since
the gas available from the coke ovens at the steel plant exceeds the
requirements of the population of 200,000 around Concepción, it can
be piped via Chilian to Santiago, which is unable to supply itself
adequately with gas, with outlets en route to small towns now altogether without it. With the general welfare in mind, the quantity of
gas available will be increased by a reduction in its heat value to fivesixths of the U.S. thermal standard. As freight rates for coal are
very high, it is more advantageous to pump the gas through a pipe
to Santiago than to move the coal to Santiago for conversion into
gas.
Developing from the steel industry are plans to supply the railroads, the largest potential market; to produce ferro-alloys by use
of other Chilean natural resources, for export to the world markets ;
to secure the partnership of American manufacturers for the local

32

THE CHILEAN DEVELOPMENT CORPORATION

production of freight cars; and to manufacture farm implements,
household appliances, containers and cans, the latter being especially
important in the projected food and fish processing.
The steel industry is important to the chemical industry, because
by-products of coke production are tar, creosote, sulphate of ammonia and naphtha, and motor fuel. Further, the additional demand for
limestone as flux will increase limestone production and enable prices
to be reduced for all manufacturing consumers, for agricultural fertiliser purposes and for the production of soda ash, caustic soda,
and sodium bicarbonate. For this purpose a large chemical plant is
to be established in the vicinity of the steel mill.

2. The Chemical Industry
In 1942, chemical imports into Chile amounted to 96 million pesos,
the second largest item after metallurgical goods. Yet Chile is rich
in many mineral salts and the prime materials for a chemical industry. 1 Assisted in recent years by the Corporation, domestic production has increased in potash and potassium chloride, sulphur,
sodium sulphate and mercury. The country can produce its own
caustic soda, tartaric acid and the by-products of cellulose, bicarbonate of soda, industrial fats, etc. The Corporation's policy, based
on careful, detailed surveys of consumption, concerns not only the
development of chemical manufactures, but also the rationalisation
of the industry. Over-production is avoided and all branches are
made complementary to each other. The plan includes heavy as well
as light chemicals. A special company, absorbing three existing firms,
has been formed for heavy chemicals. The Corporation owns shares
in it, and imports the equipment.
An exceptionally important part of the policy concerns the production of sulphuric acid and hydrochloric acid (nine-tenths of which
is now imported), for these are of fundamental importance for the
chemical and many other industries, such as metallurgy, artificial
silks, etc., and of the alkalis—soda ash, caustic soda and bicarbonate.
For the alkalis, the Corporation has organised a special company to
build and operate a new plant with the most modern equipment and
processes. It will produce over 30,000 tons of chemicals a year, as
against nearly 9,000 tons now imported, and about 6,500 tons domestically produced. The difference of nearly 15,000 tons will be
absorbed by soda ash required to eliminate sulphur from steel
1

1936.

Cf. Tomás VILA : Recursos Minerales No-Metálicos de Chile. Santiago,

THE OPERATIONS OF THE CORPORATION

33

(6,000 tons), and by increased production of glass, rayon, soap and
other commodities, amounting to some 8,000 tons. The price of soda
ash will be reduced from 82 to approximately 50 U.S. dollars per
ton. The scheme is closely correlated with the power plant at Albanico, the steel mills at Concepción and their use of limestone, and
the port of installation proposed for the steel mill.
Assistance is being given in connection with wood distillation
necessary for the production of formalin, acetic acid, vegetable tar,
essences, tanning extract and explosives; and the Corporation has
invited a timber commission from the United States to investigate
and prepare plans for modernising the uses of wood. The Corporation imports aniline dyes. An institute has been established to produce colours, and is now assisted by a commission of American technicians. The Corporation has developed a company to produce
various explosives, thus avoiding 20 million pesos of imports per
year.
War conditions have demonstrated Chile's great dependence on
the outside world for drugs and biological, biochemical and macteriological products. The Corporation has planned the rationalisation
of the light chemical industry, to be operated through two companies, and stimulated by its finance, initiative and technical advice.
Apart from this, the Corporation has promoted and assisted the
Bacteriological Institute of Chile, part of whose work is to make
scientific investigations, particularly those concerning public health.

3. The Cement Industry
In 1931, about 700 people were employed in the manufacture of
cement; in 1942, there were more than 2,100; and production had
risen from 100,000 to nearly 380,000 tons. In the period from 1914
to the present, and taking into account the great alternations of booms
and depressions, the country's consumption of cement has increased
by about 8^4 per cent, every year. In 1914, consumption was 86,000
tons; in 1939, about 341,000; and in 1941, over 400,000 tons. The
progressive development of the country, especially from the middle
twenties, has stimulated the demand for cement. It is essential to
industrial operations, the building of highways and roads, housing
and reconstruction projects and the construction of great public
works like power plants, and especially, in the present context, the
hydro-electric development undertaken by the Corporation.
Since the cost of importing cement is prohibitive, all construction
work in Chile has been limited by low national production. To a

34

THE CHILEAN DEVELOPMENT CORPORATION

great extent, the expansion of the economy has been restricted by
the short supply of this essential commodity. In the face of fast growing needs, the Government actually rations the uses of cement, licensing only those of high priority.
As in its other basic planning, the Corporation works on estimates of future development, and assumes that the present %ZA per
cent, annual increase in demand will at least be maintained. Thus in
1945 consumer requirements would be 690,000 tons; by 1948,
850,000 tons. 1 Moreover, an adequate supply of cement will be essential to schemes for full employment. In the past, cement had been
saved by the use of wood for construction. But, owing to the climate,
wood is not durable and a serious loss is incurred by its use.
Until recently, practically all Chilean cement was produced by
one firm, the El Melón plant; the rest was imported. The Corporation decided to modernise and expand the El Melón plant, and, in
addition, to construct two new plants, one near Coquimbo, to produce
at least a quarter of a million tons a year, and another in the Concepción region. The former would supply the region between Peru
and Chanaral. The Concepción plant would supply the area of new
industrial development in that region (hydro-electric, steel and chemical plants), and could use the raw material, the slag from the blast
furnace. Since cement is an article of great bulk, it was necessary
to set up the plants on the coast. Indeed, the problem of their location gave rise to a more general study of all kinds of bulk transportation.
The Corporation moved rapidly with regard to the Coquimbo
plant. About five million U.S. dollars were required for investment.
Of this, private capital took nearly a half, while the Corporation
financed the purchase of machinery and equipment from the United
States with credits from the Export-Import Bank of almost V/¡ million dollars. It bought and delivered a complete cement plant belonging to the Thomas A. Edison Company, which was located in New
Jersey and was regarded as a marginal plant in American conditions.
This has been erected in the arid zone on the coast at a point where
the necessary supply of raw materials exists.
The El Melón plant will produce about 500,000 tons of cement a
year instead of 380,000 tons, and the Coquimbo plant will produce
250,000 tons a year. The Coquimbo plant is producing at about 20
per cent, less than unit costs at El Melón.
1
Supposing that, owing to improvements in technique, there is only a 75
instead of a 100 per cent, increase in employment over 1942, then by 1948
the number employed would be some 4,200 instead of 2,100, as at present.

THE OPERATIONS OF THE CORPORATION

35

4. Timber and Forestry
In its central and especially in its southern regions, Chile is
heavily wooded. But, as in so many countries, serious damage has
been caused to the forests by irresponsible exploitation. In particular,
the problem of uniform afforestation has never been studied; in one
acre perhaps only two or three trees may be suitable for use. Furthermore, cutting has been confined to the most accessible and least expensive locations, regardless of convenient clearing and the removal
of stumps for future operations.
To Chilean economy, a proper attention to its forests would contribute possibly sugar and syrups from some trees, certainly some
distillations, acids, turpentine, resin and cellulose, and, in addition,
material for housing, transport, shipping, furniture-making and the
arts. Recent discoveries outside Chile in the lamination and hardening of woods and wood hydrolysis make the forests of Chile an even
more important asset. It is calculated that if the present exploitation
were continued, without any reafforestation, there is still sufficient to
last 100 years.
Early in 1943 the Corporation brought to Chile a technical mission from the U.S. Forest Service. Their report reveals that Chile
possesses one of the major sources of hardwood in the temperate
zone. The total area is some 40 million acres, of which 350,000 are
at present plantation area, under rapid increase, as plant growth is
extremely fast.
Based on the findings and recommendations of this report, an
industrial programme has been planned for early commencement
along the following lines:
1. Installation of permanent band sawmills in order to reduce
waste and improve quality and furnish the basis for integrating industries, particularly those based on the utilisation of
woods and wood-waste.
2. Installation of related industries, including drying, cleaning,
boxes, furniture, shingles, etc.
3. Installation of a sulphite mill with a capacity of 80 to 100
tons per day to utilise Insignis Pine.
4. Installation of a treating plant for the creosoting of poles and
railroad ties.
5. Installation of a pressboard plant to produce low-cost housing construction material so necessary for the new building
programme undertaken by the Government.
6. Installation of another pulp mill in order to produce dissolving pulps utilising native hardwoods.

36

THE CHILEAN DEVELOPMENT CORPORATION

7. Mechanisation of present wood operations and sawmills.
8. Future installation of other plants proved to be economical,
such as wood distillation and chemical production of alcohol,
plastics, etc.
The initial programme will involve an investment of $6 million
for American equipment, and a Chilean investment of $4^4 million
for installations; for forest properties $12 million and for working
capital $3 million—some $25 million in all. It would provide work
for 900 men in the plant and a similar number in the forest.
The installation of additional sawmills, pulp-dissolving plant,
wood-distillation plant, and plant for chemical utilisation would be
considered later. All this would involve an additional total investment of $50 million, of which $18 million would be for U.S. equipment. Employment would be provided for a further 3,000 men.
The proposed production would replace old equipment and supply
the increasing demand for lumber in Chile. As the new products
would be far superior in quality, a large proportion of the additional
production could be exported. From the foreign exchange point of
view the programme is impressive, since it is calculated that it would
save $2,600,000 annually in substituted imports, and open up an
export market that might easily exceed $3 million annually.
The Corporation has already made loans to timber cutters and
attempted to maintain prices encouraging to them. It fosters the production of pressed wood blocks and cellulose and is developing wood
distilleries. One factory makes plywood, and the préfabrication of
houses is being studied. For these purposes, the Corporation operates
through the Savings Bank, the Industrial Credit Fund, and the Agricultural Credit Fund. Furthermore, the Corporation encourages forest exploration on a large scale, in order to make it worth while to
build roads and install the plant necessary for by-products. Various
companies formed by it are conducting these enterprises, in one case
in co-operation with the Agricultural Settlement Fund, to develop
the latter's timber reserves. Once these reserves are cleared, very
necessary land for agriculture can be opened up.

5. Textiles
The textile industry is already the third largest branch of Chilean
manufactures. Some 19,000 persons were employed in 1940; and
the annual production is about one-tenth of the value of all manufactured commodities. As Chile grows very little cotton, and it is
doubtful whether more can be grown, imports are essential. It is

THE OPERATIONS OF THE CORPORATION

37

estimated that a reasonable standard of domestic supply would require a threefold increase in the textiles already produced in the
country. There is, moreover, the problem of quality, since home production necessarily began with the coarser qualities. Special attention
is now being devoted to finer spinning, and higher quality is sought
in weaving imported yarns. War conditions have caused rapid expansion in this field; for example, there was an increase of 36 per
cent, in spun yarns between 1939 and 1942. As regards wool, raw
wool has long been an important Chilean export ; but the clip is now
worked up by domestic mills, and there is actually an export surplus
of yarn. The Corporation encourages the production of dressed wool
cloths or combed wool cloths and cotton and linen cloth of good quality, and it stimulates the improvement of natural silk manufacture
as well as rayon. This is being accomplished in part by the importation of high quality machinery and the erection of looms on a very
large scale. For the natural silk industry, mulberry plantations are
promoted. Assistance has been given to develop the production of
carpets, which are exported to the United States.
Special companies have been formed to encourage the production
of linen and hemp, on which further observations are made in the
section on agriculture.1 Other companies are receiving assistance for
the processing of raw materials—the linen into cloths, the hemp into
rope and cord. The Linen Spinning Company is perhaps the only
one in South America.
6. Metal Articles
The Corporation is proceeding with the development of companies
making metals and metal articles—machines, heating apparatus,
bronze articles, kitchen utensils, vehicles and enamelware. There is
active encouragement of the production of copper wire, tubes, bars,
sheets, rods, and shapes. The copper plant being installed—capable
of producing 12,000 tons a year—was purchased in the United States.
The total investment is some 5 million U.S. dollars. The production
of the wire is, in part, supplementary to the electrification plan, and
the work of the plant will also assist the industries manufacturing
copper articles and alloys of copper.
7. Electrical Industries
The Corporation has given assistance to the production of electrical apparatus through two companies, which appear to be on the
* Cf. below p. 47.

38

THE CHILEAN DEVELOPMENT CORPORATION

way towards large-scale progress and capable of making export
goods. Radio sets, plastics and even cinema projectors have been put
on the market.
8. Tyre Factory
The Corporation's plans did not include tyre manufacture. But
when the opportunity arose of manufacturing tyres out of imported
rubber on the spot, one more enterprise was added which would increase productive employment and reduce the need for foreign exchange. The agreement made with the General Tire Co. and other
stockholders to establish tyre manufacture as a national industry will
be the subject of special comment later, since it is an especially interesting example of the Corporation's initiative and shows how it
secures an appropriate control in the direction of enterprises it
promotes.
C. INDICES OF PROGRESSIVE INDUSTRIAL DEVELOPMENT

On the basis of official statistics, it would appear reasonable to
affirm that the work of the Corporation has already had a favourable
effect on industrial production. When the series of figures given
earlier is extended to May 1943, it will be seen that the index (of
quantities, not prices) 1 which for 1927 to 1929 was 100, and which
was 153 for 1938 and 151 for 1939, had risen to 167 for 1940, 171
for 1941, 169 for 1942, and 159 for the first half of 1943. It is
possible that the recession between 1942 and 1943 was due to a
belief that the war would not be of long duration, and that, therefore,
since imports might be expected, domestic manufacture might
slacken. It is possible also that it was caused in very slight measure
by the fact that the Corporation turned from immediate production
increase to planning for basic industries.
D. M I N I N G

It has already been observed that mineral products constitute
some 80 per cent, of Chilean exports. Besides providing foreign
1
The index includes : coke ; cement ; glass (general) ; white glass ; semiwhite glass; dark glass; tar; phosphorus; crude soap; wool for weaving;
cloth; paper (general) ; printing and writing paper; packing paper; cardboard;
shoes (general) ; shoes for men, for women, for children; refined and purified
sugar; beer; tobacco products (general) ; cigars, cigarettes, and packets of
tobacco. In addition, a favourable sign is the upward tendency of gas and
electricity production. Also for all textiles, with a base of 100 for 1935-36, the
indices show 134.7 for 1941; 137.2 for 1942; and 143.2 for 1943 (an average
Jan.-May).

THE OPERATIONS OF THE CORPORATION

39

exchange, they supply the copper, carbon and iron for industry, and
also fertilisers for the soil.
The mining of Chile's metals is directly related to the development of energy and fuel, industry, commerce and transport. The
Corporation's efforts have been directed towards the expansion of
metal refining for domestic industrial use and of modernised mineral
production, especially of copper.
Chile is the world's second largest producer of copper, the United
States having taken first place since 1881. About 97 per cent, of
Chilean production comes from three great mines owned by United
States companies. The rest is produced in two French-owned mines
and several thousands of small Chilean-owned mines using chiefly
primitive and obsolete methods of extraction. It was largely to utilise
the latter type of mine more economically that the Corporation entered the field of copper smelting with an ultimate goal of 20,000
tons of copper metal a year. The establishment of the necessary plant
is one of the rare cases in which assistance could not be obtained by
the Corporation from the United States Export-Import Bank.
Whether the raw material was needed by the United States, or
whether American copper refineries did not wish competition, is not
known, but the Bank judged that the project was, on a strict economic basis, not strong enough. However, the Corporation had to
consider a rather wider set of circumstances. The working of copper
yields some gold, not a negligible consideration in a country which
is in urgent need of foreign currency. Also, retention of the copper
at home saves freight costs (most of the output of the Chilean mines
having previously been exported). These were deciding arguments
to the Corporation, which expects no big monetary profit from its
copper projects. Another consideration was the furnishing of employment opportunities, though the latter cannot offer a high standard of living in prevailing circumstances. The Corporation, therefore, has obtained only the necessary priority certificates from the
United States for the supply of the machinery and equipment, while
the American firm supplying it does so on credit. The Corporation
has also assisted firms mining manganese, cobalt, zinc, lead, tungsten,
gold, talc, kaolin, graphite, aluminium sulphate and calcium carbonate.
In collaboration with the Mining Credit Fund, it set up a copper
refinery and a number of concentrating plants, and developed and
improved some of the mines working with antiquated methods. A
refinery to separate copper, gold and silver, costing some 150 million pesos, is also being provided. The alliance of gold refining
with copper would serve to balance the fluctuating financial situation
of the industy, since the price of gold has a rather stable and upward

40

THE CHILEAN DEVELOPMENT CORPORATION

tendency. The intake capacity of the copper foundry is planned
at 140,000 tons a year, of which 100,000 tons will be minerals, 15,000
tons pyrites and concentrates, and 26,000 calcareous products. This
would produce 7,000 tons of copper bars, with 150 grammes of gold
and 500 grammes of silver per ton.

E.

COMMERCIAL OPERATIONS

The Corporation has given much attention to export markets and
their special needs, and also to imports, especially in overcoming
wartime obstacles and in securing a greater rationalisation of commercial operations. In under-developed countries, especially in a
period of development, commercial operations tend to be excessive in
proportion to production, and also to fall into the hands of a number
of small competing firms. The cost to the consumer is high; producers have little security since marketing is rather uncertain; and
incompetent procedures prevail. The bureaucracy of the small man
may be a heavy charge on a country's production. The Corporation,
therefore, seeks the advantages of organisation for all parties concerned. It can secure this by the use of its capital, its technical assistance and advice, and its influence with the various credit organisations, banks, and the commercial world in general. It operates
through a grant of credits to exporting firms for the purchase and
sale of goods which are of importance to the national economy. Thus,
it has especially encouraged exports of timber, minerals, rice, hemp,
sulphur, copper wire, and, in particular, wines1, which are finding
an ever larger market in foreign countries, especially in the United
States. Companies and consortiums have been established on its initiative and with its assistance. Thus, there is one to foster trade between Chile and Argentina, and another is being considered for trade
with Brazil. There is a large company on a national scale (Comercio Exterior), with a capital of 50 million pesos, the Corporation
owning 10 million pesos and the rest having been provided by the
Bank of Chile, the Mortgage Bank, the Institute of Agricultural
Economy, the South American Steamship Company, and the InterOcean Shipping Company. The participation of the shipping companies shows that they appreciate the importance to them of the development of export trade. Furthermore, the Institute of Agricultural
Economy has a direct interest in the work of the Comercio Exterior;
its place in Chilean agricultural planning has already been indicated.
The Corporation has also taken charge of the importation of certain
1
Vinex was specially formed as an export company to buy, store, and
export certified quality wines.

THE OPERATIONS OF THE CORPORATION

41

goods like metallurgical coke, coal, cement, rubber, ferro-concrete
and tin plate, much needed for industrialisation but also for some
time difficult to obtain through the exigencies of war.

F . TRANSPORT

Even in well-developed countries with a much less difficult terrain than Chile, the contribution to economic welfare of improved
transport and communications is a matter of intense concern. The
succession, from north to south, of mountain spurs and transverse
valleys makes the question of securing communication particularly
acute in Chile, and hampers the exchange of the varied produce of
the different parts of the country and the assembly of goods for export overseas or to other South American countries. For many
years there has been State encouragement and part ownership of
railways, roads 1 and air transport. But the policy has not been pursued on a sufficiently comprehensive scale due to inadequate finances,
although the influence of transport on the encouragement of local
commerce and the levelling of prices, the broadening of local markets,
and the size and location of stocks has been fully recognised. The
Corporation has entered this field and assisted commercial and
passenger air transport, the railways and merchant shipping. It has
helped the National Airways Line by the importation of planes, using
dollars from the Export-Import Bank. Air transport is especially
necessary and important for crossing the great barrier of the Andes.
Assistance to the State railways has taken the form of using
American credits to import material otherwise unobtainable.
The Corporation is especially concerned with the development of
a mercantile marine for coastwise and overseas trade, because the
foreign exchange position will improve as Chile replaces her almost
total peacetime reliance on non-Chilean shipping. In discussing the
production of steel, chemicals and cement, attention has already
been drawn to the difficulties of truck transport along the coast to
link the distant parts of Chile together. Moreover, it is hoped to
extend Chile's trade to the South Pacific and the Far East.
The principal project is the establishment of a company with a
capital of 40 million pesos. The programme could not be carried out
in wartime, for obvious reasons. In the meantime, the Corporation
1
The main burden of road development falls upon the Government Department of Public Works and Roads. The Corporation assists only some selected
special roads, because a road-building programme is very expensive and at the
same time returns nothing directly to the road-builder, and so the Corporation,
with limited funds, must leave this work to the Government.

42

THE CHILEAN DEVELOPMENT CORPORATION

assisted in the rehabilitation of laid-up ships and the immediate
use of any other vessels available.
G.

AGRICULTURE

It has already been pointed out that over 40 per cent, of the
Chilean people live on the land, and there are many in other occupations who from time to time return to it. Some of the products
are exported: e.g., peas and beans, cereals (chiefly oats and barley),
fruits, meat, fish, game, starch and flour, wool and hides, thereby
furnishing foreign exchange and financing essential imports into
Chile. But there are fairly frequent and important deficiencies in
wheat and coffee, cereals and forage. The foregoing account of industrialisation suggests that it will be some time before a substantial
rise is achieved in the standard of living for the masses. For a long
time to come much of Chile's welfare must depend upon her agriculture, and if the Corporation succeeded in all else but failed in improving this, not only would those who live on the land continue to
be miserably poor but those in urban occupations also would find
little improvement in their standard of living.
The basic problem of Chilean agriculture is the smallness of the
cultivable area. Further, the productivity is much less than it need
be, whether in terms of plant products or of livestock. As has been
said, the only part of Chile which is of value for agriculture is the
Central Valley. The entire area is some 183 million acres, that is,
rather smaller than England and Scotland. For a population of 5
millions this would seem very large, but in fact the Andes range
with its spurs and intrusions of hills substantially reduces the tillable
area. Thus, only about 25 per cent, of the total area is usable for
crops and pastures, and of the 14 million acres of arable land little
more than 5 million are worth cultivation. The climate is of the
Mediterranean type and the land usually of remarkable fertility. But
because there is a dry season of some six to nine months, agricultural
development is, in most cases, impossible without steady irrigation.
The dominant feature in Chilean agriculture is the hacienda system, that is, the regime of very large estates with a semi-servile
body of permanent labourers, mostly illiterate. About 89 per cent.
of all the farm land consists of such estates — comprising nearly
ten and a half million hectares out of a little over eleven and a half
million hectares in total rural properties. It has been estimated that
from 60 to 75 per cent, of the rural population of Central Chile lives
on the large properties. These are usually so extensive that the
individual owner has little interest in the maximum exploitation

THE OPERATIONS OF THE CORPORATION

43

possible by means of modern methods, or in the full education, training and employment of the labourers. Some allowance must be made
for the fact that much of the land near the Andes yields only a little
grazing during the spring. The small farms, though more fully
utilised, are frequently so diminutive that they lack the means and
scope to introduce scientific processes and machinery. Both large
estates and small farms still rely mainly upon primitive agricultural
methods, and especially human toil of the hardest backbreaking description. Obviously much could and should be learned from the
experience of Denmark, Belgium and Holland, and from the agricultural education and assistance activities of the U.S. Department
of Agriculture and the Tennessee Valley Authority.
The results of under-developed agriculture are reflected in popular consumption.1 With the exception of pork, the consumption of
meat in Chile compared with other countries is about normal —
the amounts per capita annually are: beef 23.9 kilos 2 ; mutton 4.9
kilos; pork 4.2 kilos; and goat 0.15 kilos. In milk consumption,
Chile falls far behind, with 55 litres3 per year per person, compared
with Germany, 362; U.S.A., 365; Norway, 466; and Finland, 655
litres. The consumption of eggs compares unfavourably with other
countries: in Chile, 55 eggs per person per year; Germany, 129;
Norway, 130; North America, 199 (but Finland, 41). The total
weight of average protein intake is: Germany, 15.99 kilos; U.S.A.,
18.15; Norway, 19.75; Finland 20.49 — and Chile 7.6. It is calculated that for Chile a proper average would be 40 grammes a day;
hence the present deficit is 15 grammes a day. To make this up, the
additional necessary consumption would be 33 kilos of meat per
annum, or 38 kilos of fish, or 161 litres of milk. A suggested programme is the cultivation or import of more forage; improvement
of herds; the breeding of more swine; the propagation of soya;
and the development of fishing. This programme is being pursued
in various ways, and the survey of Chile's fish resources, mentioned
later in this study, is of value not only as regards the provision of
food but also of fishmeal for feeding cattle and poultry.
It is freely agreed that Chile herself can be made independent
of agricultural imports and provide a much higher standard of living for a much larger population. To this end, the Corporation has
(1) improved productive methods and organisation; and (2) improved and increased the products grown. Under the first head, it
has given assistance to irrigation, the mechanisation of farm work,
1
Ci. Virginio GÓMEZ: Escasez de Buenas Proteínas en la Alimentación
Chilena,
Jan. 1943.
2
One kilo = 2.2 avoirdupois lbs.
'One litre = \% pints.

44

THE CHILEAN DEVELOPMENT CORPORATION

the introduction of better fertilisers, the provision of stock, the
setting-up of warehouses and plant for the conservation of agricultural produce, the improvement of seed, the extension of agricultural credit, and the pursuance of investigations and studies. In the
second respect, it has encouraged the cultivation of new products
and forage and the development of milk herds and other livestock
for meat. Something must be said of the development of the plans
along each of these lines.
1. Irrigation
The need for irrigation in Chile is paramount. Hitherto, the haciendas, severally or jointly, sometimes with public assistance, have
constructed the necessary works. This work was done more easily
because the water descended from the hills. But many small works
are uneconomical owing to loss by evaporation and absorption.
Much of the water is wasted through badly planned trenches and
the use of land that is badly situated, and there are insufficient dams
for catching the water in winter. A large-scale regulation of sources
of distribution, taking a long-term view, is essential. The Corporation's schemes for mechanical irrigation based on its electricity
plan have already been mentioned. As a beginning, some eight million
pesos have been loaned to companies for the irrigation of 30,000
hectares (74,000 acres). Assistance has also been given to trench
projects and to schemes for keeping the rivers within their banks.
Erosion can be controlled by rotation of crops, the proper use of
fertiliser and the cultivation of leguminous fodder. Since there
is a great lack of technical and administrative knowledge on this
point, the Corporation proposes to choose one region as a practical
experiment to demonstrate the conditions of improvement, and to
discover how far the agriculturists may be relied on to play their
part. The services of foreign experts are suggested in this connection.
2. Mechanisation
The life of the Chilean agricultural labourer is very hard. A
trend away from the land to a shiftless urban existence has been
the result of an awakening consciousness of the severity of such a
life. The Corporation realised that both high productivity and a
contented population depended upon mechanisation; it therefore
imported many hundreds of tractors and harvesters, and is financing the manufacture of these and other agricultural implements in
Chile. After a very careful survey of the various kinds of machinery

THE OPERATIONS OF THE CORPORATION

45

required, it ordered directly from the United States supplies to
the value of 6 million dollars, being assisted by the Export-Import
Bank and by direct credit from the suppliers. The machines were
supplied by the Corporation to a Chilean firm, with the stipulation
that they were to be sold at cost, and that the Corporation should
have full supervisory powers. The fanners may have from one to
four years for repayment. Thus, the middleman's charges are much
reduced. The Agricultural Credit Fund assists purchasers, and the
Corporation provides for the necessary servicing through the
American distributing company. Some 62 mechanical tractors and
24 harvesters (costing, with spare parts, etc., about 8 million pesos)
are managed by the provincial agronomists of the Ministry of Agriculture on orders from and under the supervision of the Corporation, for the benefit of small agriculturists. They service a maximum
number of 50 hectares per farm at cost price. In 1942 and 1943,
nearly 490 agriculturists had the use of tractors serving nearly
16,500 hectares (40,770 acres), and 65 agriculturists were served by
harvesters on 1,310 hectares (3,200 acres).
Careful statistics are kept of the results of the relationship to cost
in the various regions. The provision of machines by the Corporation
is important because it is an attempt to induce small agriculture in
particular to follow a national plan which will satisfy home needs and
provide a basis for an assured export trade. The aim is to go beyond
family subsistence and the local market. The small estate owners are
more likely to rely on the mechanised services provided by the Corporation than on those of private companies. In fact, the reception
and the strong demand, far exceeding the present supply of the utility
thus provided, is rather reminiscent of the eager support by manufacturers of the municipalisation of utilities like gas, electricity and
transport in the more highly-developed countries, thereby indicating
more confidence in the standard and the continuity of public than of
private enterprise in such services.
The machines imported and distributed by the Corporation are
better than those formerly used and made available by individuals.
A School of Tractor Mechanics has been established with the
assistance of the Corporation; and the handling of tractors has
become part of the training of conscripts in the Chilean Army.
Mechanical methods are used only on 1.35 million out of the 5
million acres under cultivation. It is estimated that half as much again
could benefit thereby. Further, it is conservatively estimated that an
additional 1.5 million acres could be opened for cultivation by mechanical means. With this as its goal, the Corporation plans to increase the number of tractors from the 5,000 now in use to between

46

THE CHILEAN DEVELOPMENT CORPORATION

13,000 and 15,000, being one for every 250 acres of the land suitable
for mechanical methods.
3. Fertilisers
Some observations have already been made on fertilisers in the
discussion of manufactures. It is calculated that some 120 million
pesos worth of fertilisers should be used per year, but that, in fact,
less than half of this amount is used. The Corporation has initiated
a number of measures to encourage improvements, chiefly executed
by other bodies. Thus the Ministry of Agriculture buys certain fertilisers which it wishes to be used, and sells them through agricultural
societies. By paying each distributor a subsidy where necessary, it
equalises distribution expenses, so that salesmen are interested
chiefly in selling the right amounts of the most agriculturally valuable
fertiliser to each region. The Institute of Agricultural Economics,
comprising the Council for Fertilisers and the Council for Agricultural Exports, and including producers, distributors and consumers
of fertilisers, is a propaganda body, a distributing body and a credit
organisation. The Agricultural Credit Fund grants short-term credits
for this purpose; the Institute, long-term credits. The latter
buys fertilisers and distributes them to small producers. The great
need is for a concentrated phosphatic fertiliser, Chile having learned
the same lesson as that taught in the agricultural experimental
work of the Tennessee Valley Authority. There are mines in Chile
from which this fertiliser can be obtained at reasonable cost, giving
far better results that guano. Furthermore, a company has been
formed for calcareous fertiliser, which is deficient in the south.
In this case the Corporation contributed one-half of a total capital
of six million pesos ; the annual production is 100,000 tons.
4. Storage
Primitive agricultural economies lack stocks, warehousing, and
plant for the storage, preservation and processing of produce. The
Corporation has established warehouses and stocks in the south of
Chile, where it is difficult to conserve wheat because of the heavy
rainfall. It has also set up six grain driers with a capacity of 50
quintals per hour, ensuring a great increase of cereal seed. Incidentally, the introduction of capital, which producers are unable as
yet to provide, enables produce already in existence to be conserved
either for future consumption or for marketing at a profitable time.
This avoids spoilage; it likewise helps saving and, therefore, the
accumulation of capital—an incentive to more production.

THE OPERATIONS OF THE CORPORATION

47

5. Improvement of Seed
In much the same way capital is used to preserve and improve
the stock of seed. Many of the plants of Chile give small returns
for the labour spent on them and are subject to disease. This is especially grave in the case of wheat, of which a bare sufficiency is grown
only with great effort, while the production per hectare has shown
a steady decline in the last decade. The yield in quintals per hectare
in 1909-10 to 1913-14 was 13.4; for 1929-30 to 1933-34, it had
declined to 11.2, rising to 12.6 in 1943-44.
The Corporation decided on a total renewal of wheat seed. The
Ministry of Agriculture and the National Society of Agriculture have
already done much, partly on their own account and partly encouraged by the Corporation. Before the seed is sold, the place of cultivation is inspected for its suitability. The Corporation has aided this
work by a loan of 15 million pesos to farmers for the purchase of
seed. In future, however, the Institute of Agricultural Economy and
the Agricultural Credit Fund will carry on this credit assistance,
while the Corporation turns its attention to important long-term
projects like irrigation.
Attention may be drawn to the extension of credit for the purchase of seed and agricultural machinery. This is a fundamental
requisite of a primitive economy, and promises a very substantial
increase in the standard of living if it can be conducted over the
space of seven or ten years, because it gives producers the opportunity of accumulating some savings. Finally, the Corporation encourages investigations and training by sending agricultural engineers abroad for study, and by co-operating with the University of
Chile in opening an agricultural school, with about 500 students,
and schools for workers on the land.
6. Plant Products and Fruits
The efforts of the Corporation to develop the products of Chilean agriculture fall into two categories — plant products and animal
production. The cultivation of hemp, flax and cotton has already
been mentioned. Besides the fibre for textiles, their seeds give
edible oils. For processing hemp, the Corporation has assisted in the
building of central hemp workshops in various areas and has achieved
great success in the expansion of production: from 3,000 to 10,000
hectares (7,400 to 24,700 acres) in the case of hemp, and from
700 to 2,000 hectares (1,730 to 4,940 acres) in the case of flax.
For the production of other seeds, such as poppy, sunflower, rape,

48

THE CHILEAN DEVELOPMENT CORPORATION

sesame and camelia, it has granted credits through a Committee of
the Ministry of Economy and Commerce, the Ministry of Development and the Ministry of Agriculture. The area sown was 300 hectares (740 acres) ; and the ultimate objective is 4,500 hectares (11,130
acres). Encouragement is being given to the discovery of syrups
from trees as a substitute for sugar, and to research into the possibility of growing sugar cane in the north of the country. It has
been found possible to grow sugar beet in the south, and even if the
margin of advantage over imported sugar is small, the enterprise is
of value because it may ease the foreign exchange problem and because the beetroot, as a by-product, can be used as food for cattle.
When Chile was cut off from imports, the dependence of the
country upon the rest of the world for certain medical plants became apparent. The Corporation has stimulated the cultivation of
poppies for opium and many other derivatives, as well as of pyretro
and peppermint. A more important commercial advantage is to be
seen in its encouragement of the cultivation of fruit, for here the
possibility of foreign markets exists. Its problem is threefold:
(1) to secure a steady market, especially for small producers.; (2) to
see that the producers grow standardised produce suitable for the
market ; and (3) to establish plants for the processing of fruits and to
avoid surpluses. Faced with many small enterprises with diverse
crops, the Corporation has had to promote a marketing organisation
for collecting and packing the fruit and then shipping it in refrigerator cars. Plants have been set up for dehydration and juice extraction. Three nurseries have been established; credits are granted for
the production of oranges, lemons, olives, avocado pears, walnuts,
and almonds. The Corporation has taken shares in the capital of
large companies whose purpose it is to initiate new plantings, the
use of better plants and proper disinfection and treatment of the
plants. Much progress has been made along these lines, though,
admittedly, the projects are still in their infancy.
7. Livestock and Milk
Chile is not rich in livestock, possessing only some 10 million
head of cattle. It is estimated that double this number could be
raised. Chile is fairly well-off in the sheep-raising of the extreme
south. This is carried on mainly in the area of Magallanes, pasture
being available to an extent which permits considerable home consumption and also some export of meat, skins, and wool. Improvement here is possible and also the extension of sheep-raising to
other areas, if the problem of pasture is solved.

THE OPERATIONS OF THE CORPORATION

49

The situation is quite different as regards cows. Chile annually
consumes in beef over half a million head of cattle, of which she
produces 400,000 and imports 100,000. The home cattle are of inferior quality; being poor, the proprietors are not prepared to kill off
the weaker animals, nor have they adequate knowledge of cattle husbandry. There are less than 300,000 milch cows in the country,
which, at roughly 3 litres of milk a day, give one-fifth of a litre per
person per day. The cost of feeding and caring for the cattle is
high, and they are subject to many diseases. Fundamental problems
are the provision, first, of good stock in large quantity, and, secondly,
of fodder. The corporation assists in the improvement of stock
breeding and provision for the proper care and feeding of cattle.
It purchases bloodstock from other countries {e.g., U.S.A., Canada,
Argentina), and then through the agricultural credit institutes
distributes these through the country, keeping track of the sires.
The possibilities of artificial insemination are being examined with
the advice of American experts. The Corporation also finances the
establishment of silos and stables, factories for concentrated fodder,
and the distribution of books and studies on these subjects.
The milk supply is one of the grave problems of the whole of
Latin America, and especially of Chile. The Corporation participates in the marketing organisation of Santiago and its neighbourhood, covering about 17 per cent, of the total population. As in
other countries, the problem of the supply of milk involves three
factors — first, quality and quantity, which depend on the farmer
forgoing profitable alternative production; second, safeguarding
purity; and third, a proper marketing organisation. The Corporation has done much to secure progress in these three factors, particularly through the marketing organisation, which, in the end, governs the rest.
Besides the improvement of cattle, attention is being paid also
to increasing the number of pigs, the breeding of which can be conducted as supplementary to other forms of agriculture.
The agricultural development undertaken by the Corporation,
energetic as it is, finds itself facing three difficulties. The first is
the lack of means at its disposal. Secondly, there is no unified agricultural plan for the whole country in which all the institutions, the
Ministry of Agriculture and the rest, play a well-concerted and
vigorous part. The Corporation has clear ideas on the objective and
the means of attaining it, but the work of agricultural improvement
is divided among too many institutions, each of which, including the
Corporati,n, deals with one sector, with only exiguous administrative
eo-ordination. Finally, this lack of funds and of administrative

50

THE CHILEAN DEVELOPMENT CORPORATION

co-ordination may result from a more deep-seated trouble — the unpiogressive outlook on large and small estates militating against
the full and intensive cultivation of the land by modern methuds,
by well-educated and free and co-operative workers. It is iri the face
of these difficult factors that the Corporation seeks to make progress,
recognising the primary necessity and urgency of mass education in
agriculture.
H.

FISHERIES

Until the Corporation entered the field, practically nothing had
been done comprehensively to consider the fisheries off the Chilean
coast as a major source of wealth. The waters abound in a great
variety of fine fish — whiting, herring, mackerel, tuna, swordfish,
shark, sardines, anchovies, crab, spiny-lobster, oyster and other shellfish — which are more accessible than those found in the Northern
Pacific.
In spite of the dearth of meat, the Chileans are only moderate
fish-eaters, their consumption being far below that of the Norwegians,
Japanese and British. In view of the deficiencies in nutrition, as
tion decided to investigate Chile's great fish resources. Japan and
Norway were also studied as examples of countries which depended
greatly on fishing for food, and also for foreign exchange and imports.
For its investigation, the Corporation arranged the visit of a
mission from the United States Fish and Wildlife Service, with whom
Chilean scientists and institutes and Corporation officials were associated. The mission began its work in May 1944, and travelled altogether 10,600 nautical miles. Every aspect of the fisheries problem
was studied, including gear, boats, marine biology, storage, processing, bacteriological questions, fish-oil, the history of fishing at
various points of the coast, the fish consumption habits of the Chileans, the prospects of export, refrigerators and freezing, and the
living and working conditions of the fishing families.
The results were extremely promising. There is space only for
some of the more significant points and findings:
(1) The sea abounds in accessible varieties of fish, and salmon
can be introduced.
(2) Whenever proper arrangements were made for marketing,
the catch rose extraordinarily. For example: in 1938, 3,511 kilos of
tuna were caught, while in 1943, after canning factories had been
built, 1,100,000 kilos were brought in. Again, in 1938, 650 tons of
shown on p. 43 above, and considering that the provision of more
meat within a short time would be a costly undertaking, the Corpora-

THE OPERATIONS OF THE CORPORATION

51

swordfish were brought in, while in 1943, after cold storage had been
started at Santiago, 1,500 tons were landed, with only the same gear.
(3) It is also noticeable that when the market outlet is available
throught the building of canneries and salteries, demand rises and industry improves.
(4) However, Chilean fishing is still mostly in the hands of
small operators — as a rule, three men to a boat, with antiquated
gear, working rather sporadically, and without organised relationship
io a steady market. The twenty firms which can shellfish have old
inefficient machinery, use labour wastefully and lack the proper tools.
Most of the Chilean demand for canned fish is now met by Chilean
supply. The lack of trained workers causes considerable loss after
canning.
(5) In view of their protein deficiencies, Chileans should eat
more fish than they do. Though whiting costs only 2.40 pesos per
kilo, compared with 5 pesos for meat and 3.20 pesos for bread,
Chileans prefer the stronger taste of meat ; and the workmen like the
sense of sufficiency it gives. Yet in 1930, 3.5 million kilos of canned
and shell fish were imported — most of which was supplanted in

1940 by home products.
(6) Chileans consume 5.72 kilos of fish per capita per year, made
up as follows : canned, 0.74 ; fillets, nil ; salted and dried, 0.07 ; frozen
whole, nil; fish-meal and oil, 0.06; and fresh, 4.85. It is thought,
on the basis of the most careful and conservative estimates, that these
figures could be increased to: canned 2.50, fillets up to 0.20; salted
and dried, 1.50; frozen 0.50; fish-meal and oil, 1.00; and fresh fish,
up to 5.00.
The increases are expected in processed fish, because the consumption of fresh fish can only be raised at great cost. Fresh fish
contains much waste and requires cleaning, whereas the processed
edible fish is tasty, ready to eat, and may be kept and transported
— it is therefore not confined to any special area. Processing is important for the inland regions, and particularly the northern mining
areas.
(7) The figures proposed in paragraph 6 would double the
total per capita consumption per year, being an increase from 5.72
kilos to 10.70 of edible fish. But some of the increase has a dietetic
value far beyond the increase in the actual figures ; the fish oils are
rich in vitamins while the fish-meal is valuable for livestock feeding.
(8) It is estimated that the feeding of fish-meal, properly processed, produces a 10 per cent, increase in egg yield ; adds 100 kilos'
weight to hogs per year; improves animal reproduction; and adds
an extra yield of 100 kilos of milk per year.

52

THE CHILEAN DEVELOPMENT CORPORATION

Here is a clearly demonstrated way to an increase in the standard of living, based on the use of the less valuable fish and of fishwaste left over after processing. The United States uses 37 per
cent, of its total fish production for feeding livestock; Chile only
3.5 per cent; Germany, France, England, Norway, Sweden and
other European countries import many thousands of tons of fish for
this purpose alone. Even the United States, already rich in this respect, imported thousands of tons of fish-meal from Japan and other
countries. The price of locally consumed fish falls if the catch is
increased and the surplus used for export in this and other ways.
The prosperity of Norway and Japan, as that of Spain in sardine
fishing, has largely depended on this relationship between home consumption and export, which helps to increase their foreign exchange
balance.
(9) Careful estimates of markets at competitive prices in the
United States, the Caribbean area and South and Central American
countries indicate that nearly 55 million kilos of fishery products
could be sold abroad per year, breaking down roughly to : canned,
11 per cent.; salted and dried, 51 per cent.; frozen, 25 per cent.;
fish-meal, 14 per cent. ; shellfish, about 0.75 per cent. ; and vitamin
oils 1 per cent.
There would therefore need to be an annual total catch of 214
million kilos — yielding in the edible portion 54 million kilos for
Chile and 55 million kilos for export. At present, the total catch
per year is 40 million kilos (29 million kilos of products). In 1920
the catch was 11 million kilos. It is mainly the higher class species
which are brought in by the small-scale fishermen, who naturally
want the highest returns. This does not encourage the eating of fish
by the poorer part of the population.
To catch and process this total requires investment in cannery,
fish-meal, refrigeration and other machinery; in vessels, motors and
fittings ; fishing gear ; construction of buildings, docks, etc. ; installations, machinery, wiring, pipes, steam; and trucks, railway cars,
markets, etc. This calls for an additional investment of 230 million
pesos and further disbursements in biological and océanographie
surveys, technological laboratory investigations and exploratory and
experimental fishing; the training of personnel; additional schools;
hatcheries; and administration, costing another 108 million pesos.
The total new cost would therefore be 338 million pesos, or roughly
25 million U.S. dollars.
Conservative estimates of the annual gross value of the fishing
industry for this investment are: home consumption, 400 million

THE OPERATIONS OF THE CORPORATION

53

pesos, or about $15 million; export, 413 million pesos, or about
$14 million.
A large increase in direct fishing employment and auxiliary
trades would result, and can manufacturers would have orders for
some 120 million cans per year.
Along with the development of production, an educational campaign for fish consumption could be undertaken, just as the British
Government was obliged to educate its people in the consumption
of more milk.
The advantages which the Corporation foresees in the development of the fishing industry may be summed up as follows. Modern
methods of processing would enable a large industry for providing
fresh fish to be developed; exports would be made possible; economies could be obtained by canning, curing and other industrialisation methods; and fish-meal, which experience abroad has shown
to be a most valuable cattle and poultry food, would be provided.
Besides these advantages there might be additional employment in
fishing and processing and the manufacture of equipment. As far
as industrialisation is concerned, the steel industry would be required
to furnish cans as well as other equipment.

CHAPTER V
INVESTIGATIONS AND PRODUCTION SKILLS
The Corporation is obliged to preface and accompany its development activities by long and intricate investigations, studies and experiments. This scientific basis and the necessary data for economic
planning were not available at all, or not in an appropriate form,
when it began operations. It took three years' study on the steel mill
before there was any assurance that the project was economic. A like
period has been spent in assessing forest and fishery resources.
The National Institute of Technological Investigations and
Standards 1 was established on the initiative of the Corporation. Its
purpose is to organise and co-ordinate the scientific and technical
investigation of problems of national production. The work and plans
of many different institutes and laboratories which have not hitherto
been successfully co-ordinated urgently need guidance ; precious
knowledge must be collated; and a rational division of labour instituted. Co-operating in the establishment of the Institute, which was
granted a legal charter by the Government, were the University of
Chile, the Institute of Engineers and Mines, and the Association of
Chilean Engineers. In its first period of operation, the Institute is
studying primary products—mineral, vegetable and animal—and their
provision and processing; the instalment of experimental plants for
new industries ; the further instruction of technologists and specialists
in particular industries; the establishment of technical norms; the
co-ordination of the work of its laboratories and the setting up of
new ones when necessary; and, in addition, it acts as a rational
experimental laboratory. The Institute is financed by the State and
the various organisations connected with it, and it is expected that
there will be revenues from investigations undertaken for public or
private clients, endowments, and fees derived from the sale, concession or lease of procedures, machines, products, etc., invented or
perfected by the Institute.
The Corporation is an important influence in the development
of industrial, managerial and administrative skill. Under-developed
countries are deficient in men skilled in the establishment and organisation of industry, who can conduct manufacturing or other
1

Instituto Nacional de Investigaciones Tecnológicas y Normalización.

INVESTIGATIONS AND PRODUCTION SKILLS

55

economic operations, or guide and regulate an enterprise. Skilled
artisans are also lacking. Both are limiting factors in development
that can fortunately be met by appropriate measures of training and
instruction. It is practically impossible to have a reserve of specialised
or highly versatile staff for new enterprises. A gradual process of
transfer at the opening of new industries is unavoidable. The Corporation does not, and as yet cannot do much about the supply of
skilled labour in general. Once industry gets going, a process of
training at least occurs on the job. There is very little provision for
vocational guidance and training, for industry has not hitherto been
on a sufficiently substantial scale to require this, nor is society
organised for it.
However, the provision of higher technicians and administrators
is more feasible, since the numbers are smaller and university and
technical institutions have long studied the question. The Corporation
has tackled this aspect of the provision of skill with special energy.
In addition to sending young technicians to the United States and
giving them a kind of apprenticeship in the day-by-day work of its
New York branch, it has established a Foundation for scholarships in honour of the late Pedro Aguirre Cerda, a former President
of the Republic. Its objects are to establish scholarships in the
country so as to enable many promising students in high school to
continue their studies along lines useful to the Corporation ; to
arrange for and manage scholarships granted by foreign Governments or other foreign institutions, and to assist with travel expenses, upkeep, the acquisition of books, etc. ; to aid the attendance
of specialised or technical workers at courses in industry or industrial
schools; to publish or assist in the publication of scientific books
concerning the stimulation of production ; and to facilitate the visits
to Chile of technicians and professional men to give lectures and
other forms of technical instruction.
Hitherto, the main purpose of the Foundation has been the granting of scholarships to Chilean students of proven excellence to
visit United States schools, factories and plants. Some 30 students
have benefited from this. The subjects to be studied by Chilean
technicians in American universities and industrial establishments
in 1942 are given below.
1. Mining:
(a) Flotation of metallic and non-metallic minerals.
(b) Geophysical methods for the survey of mines.
2. Agriculture and animal husbandry:
(a) Breeding and fattening of pigs.
(6) Treatment of the Bang disease.
(c) Dehydration of vegetables, fruits and other foodstuffs.
(d) Modern abattoirs and refrigerating plants.

56

THE CHILEAN DEVELOPMENT CORPORATION

3. Industries:
(a) Manufacture of plastics.
(b) New uses for wood or lumber.
(c) Production of special metals and alloys (steel, brass, copper, etc.).
(¿) Industrial ceramics.
(e) New uses for glass.
(/) Canning of fish and seafoods.
(g) Modern fishing methods.
(A) Textile industries.
(i) Motion pictures. Laboratory technique.
4. Fuels:
(a) Development of oil wells.
b) Oil refinery.
c) Coal distillation.
5. Transportation:
(a) Shipyards for wooden naval construction.
(6) Trolley buses and development of collective transportation service.
(c) Commercial air transportation systems for passengers and freight
6. Commerce and supply:
(a) Rationing and control of prices.
(6) Markets for products.
7. Other matters:
(a) Industrial architecture (factories, shops, etc.).
(b) Workers' housing. Construction of standardised dwellings.
(c) Tourism.

Much of the current application of skill at higher levels in Chilean
industry comes from foreign technicians, and Chileans do not resent
this. On the contrary, they would like even more of such valuable
collaboration in the development of their economy, but they observe
that a foreign director, expert or foreman, though possessing technical
qualifications, cannot always establish the best relationships with
Chilean workers. There are aspects of the character and outlook of
the Chilean worker which can be understood far better by Chileans
themselves. The training, therefore, of a generation of Chileans
skilled in the direction of industry is of fundamental importance,
whether it results in the co-operation of foreign and Chilean directors
or whether the Chilean in the course of time altogether replaces his
foreign colleague.
Finally, it must again be emphasised, as revealed by all studies
of economic development, that there is a great demand for skills in
the under-developed countries, that the people have the capacity to
learn and that relatively small sums are necessary for the granting
of scholarships to promote such a policy. Further, it is gratifying to
notice the goodwill towards the Chilean Development Corporation
on the part of American universities, American industrialists, agriculturists, and the rest, in their readiness to pass on the benefits of
their economic experience to the other country.

CHAPTER VI
METHODS OF OPERATION
The Corporation possesses the widest latitude as to methods of
developing production. Neither the Congressional debates nor the
Government proposals when the Bill was introduced, nor even the
text of the Act itself prescribe how the Corporation must proceed.
"The Corporation may grant loans" is the phrasing of the Statutes.
The General Regulations add: "The Corporation may grant loans,
contribute capital, and carry out works directly". Accordingly, it
conducts the development of enterprise by either or both of the
following methods: (1) making loans through various semi-public
institutions like the Institute of Mining Credit or the Institute of
Agricultural Economy; (2) making loans to private individuals and

firms, or participating in the shareholdings of private companies.
The Corporation's aim is to develop production by assisting
private enterprise. It enters as a shareholder and stays during the
period of active development until the enterprise is soundly on its
feet, and then sells out its investment. Two questions arise out of
this: one, whether on principle such intervention is justifiable, and
the other, the problem of selling out at the appropriate moment.
There is an unmistakable cleavage of opinion regarding assistance
to private enterprise. There are critics who hold that where public
money is provided, the Corporation or the State ought to nationalise
management entirely and permanently. On the other hand, there are
those who deplore any intervention whatever in private industry,
even in the form of assistance, because it weakens the initiative and
skill of those assisted, and competes with private firms in the same
or substitutable lines of business which are not aided. The Corporation simply takes the view that it is deputed in the national interest
to intervene and stimulate even to the point of taking risks of loss
(which it does), but then to move out and leave the rest to private
business. If it did not distribute its funds over many enterprises, and
then take the funds out again, when it was thought opportune, it
would not be able to assist new ones. It is not necessary for the
Corporation to determine whether public or private enterprise can
conduct its industrial operations with success and profit. Its business
is to seek out those enterprises which are necessary in the interests

58

THE CHILEAN DEVELOPMENT CORPORATION

of raising national production, and to set them going in a direction
and with a strength which it believes to be beneficial and lasting.
There is one other consideration. Chileans would be reluctant
to admit an insufficiency of capable personnel if the assisted industries were publicly administered. If there are enough capable business
men and employees to run the business in private hands, the reservoir
of personnel exists. But if it were further argued that such industries
as power, steel, cement, chemicals and transport could be built and
developed by public administration, the general answer would be
that such a solution might be feasible in countries with a long experience of modern economy and government. There government
administration and regulation in economic matters may be free of
political pressures which tend to deflect from purely economic decisions. That stage has yet to be reached in Chile.
On the other hand, the Corporation realises, and Chileans in
general realise, that to leave industry to evolve in the casual way
of the past would make a substantial improvement in the national
economy in the near future altogether impossible. For it is necessary to recognise, first, that there are some projects, such as transport, which no private company could possibly promote, for the
means are not available. Secondly, there are others, like the obtaining of foreign credits, where the credit of the Government must be
pledged. Thirdly, there are productive occupations with a long-term
benefit, such as irrigation, the setting up of storage and warehousing facilities, the organisation of the fruit and milk markets, which
need long-term thought and long-term investment. These will not
produce an immediate accountancy profit for each particular operation and some may never produce a profit at all. But they certainly
will, in the long run, contribute more than an accountancy profit to
the total national economic welfare.
To emphasise the Corporation's particular role in stimulating
production two projects may again be mentioned : the steel mill and
the fisheries programme. The steel project would hardly have been
conceived, much less carried out, had not a responsible body with
prestige come into existence to propose and plan it and then convince the Export-Import Bank of its desirability and feasibility.
The operations of the steel company far exceed in magnitude
and daring any single project, or even several of the greatest, ever
undertaken in Chile. The plan had to be demonstrably sound not
only in its broad outlines and objectives but down to almost unbelievably small executive details. The general qualifications of the directors had to be satisfactory to the Export-Import Bank, which
has a large stake in its success. The Corporation had to induce Chil-

METHODS OF OPERATIONS

59

ean investors, and also non-Chileans, to provide nearly as much
capital as the Bank is supplying. This involved a sound appraisal of
market and market expansion possibilities. That is not all, for the
company will be a big employer, and has had to plan from the beginning and in much detail what its responsibilities are in housing,
transportation, medical care and hospital accommodation, wages
and working conditions in their relationship to surrounding conditions, and workshop conditions like accident prevention, hours,
shifts and the rest. This has all needed economic initiative, courage,
persistence and brains.
As regards Chilean fisheries, what organisation other than a
Government could or would undertake the careful mapping of all
the prospective uses of the different seafoods available along the
coast of 2,600 miles? In the course of many decades, perhaps,
small enterprises might assume the regionally inter-related pattern,
with all the supplementary techniques and provision, supplies and
equipment for fisheries, transportation and marketing that the
Corporation's plan builds up. But the chance of success would be
infinitesimally small.
The Corporation, then, either considers the proposals made at
the initiative of various private companies, or itself approaches existing enterprises. It has no compulsory powers over them.1 It has
power to assist, and therefore, to discriminate and prefer. It can
set up a new enterprise altogether, and, in a sense, duplicate the
firms that already exist, but with infinitely better financial and technical resources. Its strength lies in the fact that it is prepared to
share risks at the difficult outset of an enterprise, and that it puts
up its money only after the most responsible investigation of the
technological and economic aspects of the proposition.
It may be asked: when the Corporation puts capital into private
business, what guarantee has it that its money will be soundly used
in orienting the enterprise in a national direction? This is answered
in three ways : it chooses its partners in perfect freedom ; it has its
directors on the board of the assisted company; it enters into an
agreement on certain principles of management of the enterprise.
'Under an Act of 1938 no new industrial development or expansion of
existing plant may be undertaken without the approval of the Ministry of
Development (not to be confused with the Development Corporation). The
project of industrial development or expansion is considered first by the Corporation, which reports to the Ministry of Development. The Corporation may
declare to the Ministry that the industry is one of "national interest". If this
is the case, the industry is automatically brought within the power of the
Corporation to participate as it normally does in the case of the establishment
of enterprises with its assistance and direction. Furthermore, the Act of 1932
[on over-production] authorises the Executive to declare a state of over-production in any sector of manufactures. If such a state is declared, no new
enterprise may be set up without the Executive authorities' approval.

60

THE CHILEAN DEVELOPMENT CORPORATION

As regards the bigger companies, the Corporation appoints its
own officers to their boards of directors in the measure of the
directorships reserved for it. (The fees and bonuses they receive are
remitted by them to the Corporation.) As the total number of
directorships is small, this means that a few individuals in the Corporation's employ hold what may be regarded as multiple directorships,
and this is a strain on them. They are present when affairs of the
company are being discussed; they report back to their superiors
in the Corporation's administrative committees, and so on. They
have access to all information, and to accounts, records and reports.
With the exception of the Electricity Company, the Corporation
directors are in a minority. Yet ihey have an adequate grip over the
firms, because they must maintain the agreements made with the
Corporation safeguarding its purposes. Thus, in the case of the
National Tire Company, the Corporation has laid down rules regarding the furnishing of technical assistance ; the marketing of the tyres ;
the fixing of prices; sales methods and procedure; the acquisition
of raw materials (by preference of Chilean source or manufacture) ;
incurring obligations outside the ordinary scope of the Company's
business; the election of the Chairman of the board; guarantees to
be furnished by each director; the remuneration of directors; the
minimum number of directors required to confirm the appointment
and removal of higher personnel; their compensation and other
conditions of their employment; the appointment and removal o£ the
General Manager; the granting of extraordinary remuneration to
personnel; the calling of stockholders' meetings; majority voting;
the preparation of the annual report ; and the allocation of profits.
In the Steel Company there are to be twelve directors. Of these
three or four are to be appointed by the Corporation, others will be
nominated by the Chilean Government so as to secure a liaison
between Government economic departments and society in general;
the Central Bank will also have representation, and one or two
directors will be appointed to represent "the public". The guarantee
of efficient choice lies in part in the Corporation's guarantee of millions of dollars of debentures, and this again is strengthened by the
fact that the Corporation itself owes a kind of reckoning to the
Export-Import Bank, which, supplying it with credit on the basis
of a carefully worked-out plan of action, tacitly requires the appointment of directors calculated to carry it through successfully. The
company's memorandum of association originates with the Corporation; its scope and its organisation originate there also; both
have had to pass the scrutiny of the Export-Import Bank.

METHODS OF OPERATIONS

61

The Corporation cannot force the companies to be model employers, but its own public position, its care for efficiency of production, its mandate regarding such matters as health and people's
housing, the representation in its Council of Ministers, of members
of the Legislature and of bodies concerned with social welfare and
economic advancement, and its desire for success, all give it an
impetus in this direction, as is shown by the housing projects at
the coal mines, at the cement plant, and at the proposed steel plant.
It may, of course, still be argued that there is insufficient control
by the Corporation. Whether this is so or not, and to what degree
the operations of the companies elude control, is difficult to determine. Judging by the reaction of private enterprise itself, it would
seem that the Corporation has a firm hand. It would be a pity if,
having invested its money, and then sold out its interests, and therefore having withdrawn its share of direction, it had to see a
flourishing company go into a decline. But of this there has so far
been no example.
In most of the smaller enterprises, the Corporation makes loans
by means of debentures or bonds. Here it has no representation.
It must rely on close contact with the officers and boards of the
businesses and occasional supervision of the companies' activities.
Much of the Corporation's assistance goes to semi-public bodies,
like the Agricultural Credit Fund, the Mining Credit Fund, etc.
These are well-known responsible institutions, and can do as good a
job of supervision of the use of the moneys or machines (for example, the tractors and other equipment sold or lent to farmers) as
the Corporation could itself. Before it makes loans to individuals and
firms through them, it safeguards its projects by a careful prescription of the terms and conditions, and continues to supervise the
administration of the money. In these cases, it has inspectors who
watch the employment of its indirect assistance, and in the case of the
agricultural aid, it maintains a service of statistics and measurement,
in order to assess the relationship between the cost and increased
production.
It is impossible in this study to present the details of the conditions on which loans are made by the Corporation to the many
enterprises it assists, but reference may be made to its arrangements for loans for pedigree stock, for irrigation, and for afforestation. In the case of pedigree stock, it requires applicants to file
a plan of operation, to state the location and describe the accommodation and fodder available, demonstrate that the proper installations
and sanitary care are available, and prove that they have the funds
and the leases of land necessary to maintain the cattle. The recipients

62

THE CHILEAN DEVELOPMENT CORPORATION

of credits undertake to mark the animals ; to submit them to veterinary control and feeding stipulated by the Corporation ; and not to sell
or transfer the animals within five years, except with special authorisation. The Corporation reserves to itself the right to take back
the animals if the conditions are not observed. There are also financial obligations for the payment of interest and capital.
In regard to loans for irrigation works, there is a maximum
limit of 150,000 pesos, for which guarantees are required; penalties
are imposed for arrears in the payment of interest or if the credit
is used otherwise than for the purpose agreed upon ; deposits are required for inspection and control ; and the right of inspection is prescribed so as to assure a permanent and adequate control by the
Corporation.
In the case of loans for afforestation and companies to be
established for that purpose, the Corporation stipulates the planting of
pine and eucalyptus ; and also that the recipient of the loan shall carry
out the rules of the Corporation with respect to the preparation of
the ground, the selection of the plant, the system of planting and
cultivation and insurance against fire, and undertake development
only when authorised by the Corporation.
The fact that the Corporation has to put its money into a business
and keep it there until the experiment is on a sound basis means, of
course, that it cannot use its money in other directions during that
time. But this is in any case unavoidable, if it wishes to give assistance coupled with control for a period long enough to get the
business soundly operating. The only valid argument that can be
made in this respect is one over which the Corporation is not master :
that the amount of capital it must invest, and therefore immobilise,
is large in comparison with what is at its disposal. The need to freeze
funds in the great long-maturing projects causes some anxiety, and
it is a matter of concern and delicate judgment when to sell out its
interest in one concern and move into another. It has at least four
considerations to take into account: whether the assisted business is
able to stand on its own feet ; whether the market for the sale of its
shares is favourable, and to what degree; what is the comparative
national value of the new firm or enterprise to be assisted ; and what
returns may reasonably be hoped for and in what period of time. In
order that these questions may be carefully considered, the Corporation has a Standing Commission, called the Commission of Values
(Valores), numbering six, headed by the Vice-President or the
General Manager. In a decision to sell, there must be at least four
members favourable to the transaction.

CHAPTER VII
ADMINISTRATION
Three aspects only of the administration of the Corporation need
be discussed : its integration in the framework of the Chilean Government; its internal management; and its personnel.
The Corporation- has a large degree of freedom of initiative,
decision, contract and property. This gives it sufficient responsibility
and authority for economic initiative and business enterprise. Before
September 1942, it was covered by a statute providing that it should
be "integrated with the Ministry of Finance", and that its General
Regulations should be submitted for approval to the President of
the Republic. Such very general conditions were not onerous.
Regular, practical co-ordination of the economic activities of the other
Departments and the Corporation was to some extent provided for
by the fact that the Minister of Finance was the President of the
Council of the Corporation, and that the Minister of Agriculture and
the Minister of Development (which was chiefly a public works
department) were members of the Council. In July 1942, a Ministry
of Economy and Commerce was established1 as it was realised that
one department should have the general function of co-ordinating all
public bodies which intervene in the economy of the nation, its
domestic and foreign commerce, and so on. The exigencies of the
Second World War with its short supplies and the need for rationing
added force to the argument. Therefore, the Ministry of Economy
and Commerce was charged with special functions, e.g., supplies,
metal research, coal research, rationing, and with the longer term
functions of helping forward development projects such as the improvement of fisheries, the steel industry, domestic copper production, etc. It has departments of transport, navigation, production,
mines, petrol, food, agriculture and statistics.
As has been indicated, the Act establishing the Corporation
required that its work should be integrated with that of the Ministry
of Finance. But since the establishment of the Ministry of
Economy and Commerce, it is this latter Ministry with which it
has to be co-ordinated. For the Corporation, as well as the other
_______

64

THE CHILEAN DEVELOPMENT CORPORATION

funds and institutes for credit in industry and mining, "of so great
an importance for the general progress of productive activity, must
equally develop their action within the plans of economic policy
formulated and made known by the Ministry of Economy". 1 In September 1942, it was decreed that all semi-public bodies must annually
submit their estimates for approval to the President of the Republic
together with their plan of investment and the schedule of their personnel. These documents go first to the Ministry of Economy and
Commerce and then to the President of the Republic. Moreover, by
a change in the composition of the Corporation's Council of Management, the Ministers of Finance, Agriculture, and Development were
withdrawn, and the Minister of Economy and Commerce became
President of the Council, with the right to the chairmanship of all
its commissions.
The further integration of the Corporation's work with other
branches of the national economy, whether public or private, is fulfilled through the wide membership of the Council, to which reference
will be made presently.
The combining of all the elements in the national Government
responsible for any aspect of industrial and agricultural development, e.g., the expenditure and revenues of the country, progress
in public works, the promotion of better agriculture, foreign exchange administration, etc., is necessary in order that they may all
move together. Integration, of course, comes first through the national
Cabinet. Below this level there might be a Supreme Economic Planning Council or Department in whose plan all public economic agencies would take part, or the chief planning and development institutions might be required to formulate their respective plans in a
co-ordinating committee of which they were equal members.
The Council of Management of the Corporation, numbering 25
in all, is composed as follows: the Minister of Economy and Commerce; the Executive Vice-President; two representatives of the
Senate ; two representatives of the Chamber of Deputies ; the President of the Mortgage Bank; the Vice-President of the National
Council of Foreign Commerce; the Vice-President of the Mining
Credit Bureau; the Vice-President of the Institute of Agricultural
Economy; the Vice-President of the Institute for Industrial Credit;
one representative each of the Agricultural Credit Fund, the National
Society of Agriculture, the National Mining Society, the Society for
the Development of Manufactures, the Institute of Chilean Engineers,
1
Cf. Mensaje de S.E. el Presidente de la República al Congreso Nacional,
21 May 1943, p. XVII. The co-ordination is to be carried out through the
Ministry's Department of Political Economy and a co-ordinating committee.

ADMINISTRATION

65

the Chambers of Commerce of Chile and the Confederation of
Workers of Chile; six representatives1 chosen by the President of
the Republic; and finally, the Comptroller-General of the Republic.
Thus, the Council is in part chosen by independent, economic and
social bodies.
There is a small fee for each meeting (200 pesos), with an
annual maximum of 24,000 pesos. The meetings usually take place
weekly. Members are appointed to the Council for a period of two
years.
A two-thirds vote of the total membership is necessary for the
adoption of the general plan; ordinary business requires a quorum
of 11 and a majority thereof. The diversity of representation shows a
cross-section of economic opinion and interests, which benefits both
the Corporation and the various bodies represented. There is, of
course, the possibility of disagreement and deadlock, but that occurs
wherever there is representative authority. That there is no such
deadlock is a tribute to the good sense of the members of the Council,
a recognition that the interests of the Corporation are their interests
also, and acknowledgment of the sound technical and economic
judgment with which its plans have been formulated and presented. It might seem that such a large assembly would give rise to
long discussions and therefore retard action. In fact, though unintentional, the size of the Council has caused matters to be left very
much in the hands of the Executive Vice-President and the General
Manager. A smaller body might be more deliberative, but it is necessary to have a fairly large number of Councillors, since the various
plans are prepared by the permanent officials and departments of
the Corporation in continuous co-operation with Commissions of the
Councillors. Each of these Commissions is composed of four to six
members and is presided over by the Vice-President or his deputies,
in the absence of the Minister of Economy. The fact that the
Council meets every week, even for a short time, familiarises the
members with the Corporation's plans and current business.
The activities of the Corporation come under the control of
certain Government Departments in particular respects. For example, the hydro-electric schemes require the approval of the Ministry
of the Interior, which has authority to make regulations binding on
all power and gas services2 and to supervise their fulfilment. The
Comptroller-General, who is a member of the Council of Manage1
The six members chosen by the President are at present : a business
man (right wing politics), a member of the Socialist Party, a small business
man, a lawyer and economist, a farmer, and a doctor of medicine.
2
Cf. Ley General de Servicios Eléctricos; Ley de Servicios de Gas, etc.
Publication of the Ministry of the Interior, 1944.

66

THE CHILEAN DEVELOPMENT CORPORATION

ment, exercises the power of audit, though with much less authority
than the United States Comptroller-General, since he has not to
apply laws like those of the U.S.A. on Governmental purchases,
titles to property, and so forth. He simply opens an account in which
all income and expenses are entered in relation to the funds of
the Corporation, and on the fifteenth day of each month sends to
Congress a complete record of the general movement of funds in
the preceding month, as well as the names, posts and salaries of
officials whose remuneration is met by the funds. Day labourers and
workers are not included. The fact that the Comptroller-General
is a member of the Council of the Board is on the whole advantageous.
The Vice-President of the Corporation is selected by the Council and appointed by the President of the Republic, at a salary of
120,000 pesos a year. The General Manager and the Administrative
Manager are appointed by the Council; in each case the position is
held by an experienced industrialist or engineer. The Corporation
is not entirely free in regard to its personnel policies. The plans of
classification, salaries, and lines of promotion must be approved
by the Minister of Economy and the President of the Republic.
Broadly speaking, the staff is similar to that of Civil Service
Departments, although the Corporation has freedom in choosing,
promoting and dismissing its personnel, and has more latitude in
classification and pay than other Public Departments. There is some
concern lest even such rigidity as »exists should cause energetic men
to leave the service. The law provides that employment by the Corporation is incompatible with the holding of any public, semi-public
or municipal pension or retirement allowance. Almost without exception, the personnel administration has been free from patronage
and political favouritism.
The New York Office of the Corporation is chiefly concerned
with relations with the Export-Import Bank in Washington, the
purchase and shipment of supplies to Chile, the credit and promotional transactions ancillary to these, and general representational
functions. Within the plan and rules set by the Council and headquarters in Santiago, it enjoys considerable financial and business
freedom, thus greatly enhancing Chilean credit. The New York
Office is headed by a former Director of the Chilean Bureau of the
Budget. Among the highly competent personnel are some of the
young engineers and other technicians whose training and development are important contributions made by the Corporation to Chilean productive assets.

CHAPTER VIII
SCALE OF OPERATIONS
The scale of the Corporation's operations depends essentially on
the amount of money available, and consequently this chapter
must largely be concerned with finance, although the details of the
sources from which the Corporation is financed are dealt with in
the following chapter.
The development activities of the Corporation are very diverse,
but they are knit together in an integrated plan towards increased
production. Some of the commitments have been very small. It is
almost certain that as time goes on less attention will be paid to
small ventures owing to the relative waste of time involved.
The question now is whether the activity made possible by the
amount of present financial provision is sufficient for the full taslc.
At first sight, production development activities undertaken on the
basis of revenues from certaiit earmarked taxes would seem to have
a precarious foundation, for taxes must depend on the state of trade
and industry and this would fluctuate.
The war created a steadily increasing demand for copper at
higher prices, thus facourably affecting the funds available for the
Corporation. This itself encouraged the Chilean Government (Act
of 15 July 1943) to establish an emergency tax on copper for financing "public works". These are outside the scope of the Corporation.
But such seizing on revenue sources gives grounds for concern. If
the copper exports decline in value, which institution will suffer?
How long will this tax fund be available? Will it go on indefinitely,
tolerated by the consumer and taxpayer, or is there a probable limit
to it? It will be recalled that the original proposals, and in fact the
Act itself (though this part has remained a dead letter owing to the
war) provided for a loan of 1,000 million pesos, that is, about 30
million U.S. dollars, and a continuing sum from annual taxes. It is
doubtful whether the real implications of the problem of stimulating Chilean production were fully grasped. It was thought that these
could well be learned when the Corporation was actually in midstream with practical responsibility for the job. In some quarters it
was believed that when the amount granted to the Corporation by the
Government in the form of taxes brought in 100 million U.S. dol-

68

THE CHILEAN DEVELOPMENT CORPORATION

lars, that is, roughly three times the original commitments, this
would be regarded as sufficient. However, with the development
of the Corporation's programme to its present stage, the question
arises: will 100 million U.S. dollars be adequate for the job that
ought to be done? Those in a position to judge would perhaps suggest something like 400 or 500 million dollars over and above the
100 million dollars already planned for. This would be divided
among the following items :
( 1 ) Railroads to be electrified and improved : 40 million dollars.
(2) Steamship lines covering the coastwise service and some
boats to the United States and Europe: 50 million dollars (most of
the boats now in service must be scrapped).
(3) Ports, loading and unloading facilities, roads and airports:
50 million dollars.
(4) Irrigation programme: 150 million dollars.
(5) Industries (including steel), oil refineries, etc.: 200 million
dollars.
(6) Power programme (already invested 50 million dollars)
additional : 60 million dollars.
This makes a total of about 600 million dollars to be invested
over a period of 10 or more years.
The sum at present available to the Corporation is a revolving
fund, since it sells its interests as soon as a business is sufficiently
established, and, in spite of occasional losses, makes a substantial
general profit. An exact calculation of this profit is not available, but
it is estimated to be between 12 and 15 per cent. If over ten years the
original 100 millions were actually doubled, or even a little more than
doubled, the required amount would still be far from being reached.
The overriding consideration is whether the native productive
resources of Chile are sound enough to warrant the spending of this
money. If 50 million dollars were invested each year, would a substantially greater sum than 50 million dollars of added values come
back to the country each year? Secondly, are there alternative uses
for this money in Chile which would give a better result? The latter
question can be answered by saying that the Corporation has a sound
plan. It necessarily has to take risks, and some of the risks are losses1,
but the successes more than make up for these losses. It is impossible
to say whether any other alternative available to Chile is better than
1
Thus, in two investments in manganese mines there was a loss ; a third
more than made up for these. Again, the Coquimbo coal mine, though not a
loss, did not come up to expectations owing to unpredictable geological faults ;
but Corico-Sur is a brilliant success.

SCALE OF OPERATIONS

69

that provided by the Corporation. There are no competitors in the
field ; and if there were they could hardly produce a plan which did
not have to begin by investigation and studies as the Corporation has
had to do. As to what excess of value over investment would be
returned to the country's production and standard of living, those who
direct the Corporation are hopeful. They would even venture to say
that double the annual capital would be returned in products each
year, as soon as the scheme is in substantial operation. They observe,
for example, that the savings on imports are already substantial. They
draw attention to the basic value for all industry of all types of power,
steel, chemicals, fisheries, transport and the rest. They point, for
example, to the renewal of city transportation systems, with electric
power rather than gasoline. It has been estimated that if old street
cars and buses were scrapped and 10 million U.S. dollars invested,
the income from this investment would in three years pay for the
new equipment.
However, every development scheme requires not only a comprehensive plan on a sound basis, but also a permanent organisation
endowed with sufficient funds for the whole period of development.
Any breaking off of a part of the plan from the rest, any interruption
in the pace and priority as planned, must produce a disproportionate
waste of money and resources, because the original presumption and
basis is that each enterprise is complementary to some other. Thus,
if the steel project were carried through without the transport and
electric power which are planned with it, the return would be less
economic than anticipated. Again, the improvement of the take of fish
without the provision of storage, distributive and processing facilities
would give less than the optimum return on the capital. The severance
of the steel from the chemical plant would reduce the economic
return from both.
It is particularly necessary to draw attention to the immensity
of the problem of the improvement of agriculture. It would seem to
be clear that, as now constituted, the Corporation hardly has the
necessary financial means for this task. There are too many unplanned
and inadequately financed institutions for promoting agriculture. It
is a vast work, and necessitates a very long-term effort before substantial results can be obtained. A firm public administrative organisation with adequate means is essential, perhaps with the Corporation as its spearhead, but carrying a helpful Ministry of Agriculture with it.
The fundamental financial problem at the root of the difficulties
in Chilean development must be emphasised. Large as is the capital
available to the Corporation in relation to the wealth of the country

70

THE CHILEAN DEVELOPMENT CORPORATION

and to previous development efforts, something like five or six times
the amount is required to do the job as it needs to be done. Therefore
in spite of the substantial and continuing credits by the ExportImport Bank of Washington, and the wise business sense with which
these have been granted, the Corporation still needs substantial additional capital. This cannot possibly be obtained from Chilean
sources alone, or even in large measure. The deficiency goes back to
the vicious circle in all under-developed countries. Their people have
very small incomes, whether in cash or subsistence products. Obliged
to live from hand to mouth, they cannot save and therefore cannot
invest. Large-scale enterprise is lacking and, therefore, there is not
the kind and quality of production which can offer a margin over
daily consumption to permit of saving. And so the circle starts again.
To enable saving to take place, it is necessary to get production
going. But that requires investment in long-term capital equipment,
such as transport from north to south, irrigation and storage-stocks.
Therefore, much more capital must be used now in order that
there may be a basis for an amount of production which permits
domestic savings. Such Chilean saving as there has hitherto been
through the savings banks and insurance companies tends to find an
outlet in commercial rather than industrial operations, since industrial
enterprises in Chilean hands are usually small and are either not
worth bothering about or seem to the investor to be insecure.
Chilean property and savings are also mainly invested in lowreturn but very safe rentas. The Corporation has been successful in
mobilising private capital, and it has always found good buyers for
its holdings. It has been able ^:o do this by offering assurance in
size and soundness. (Its entry into the wine export market, which
had previously been neglected, caused a great demand for the
chance of participating.) Although the Corporation's financial contribution varies from enterprise to enterprise, competent authorities
agree that the amount of private capital mobilised is on the whole
approximately equal to the Corporation's contributions. Yet still more
is necessary. Each of the great industries, if soundly established,
could itself become a little "Corporation" with offshoots and related
industries, and attract capital from less profitable uses.
Yet reliance must be placed chiefly on the receipt of foreign
capital. In April 1944, the Minister of Economy declared: "The
Government is disposed to give foreign capital the greatest facilities
for investment in Chile, granting sufficient guarantees and assuring
the return of legitimate profits. All capital for the development of our
natural resources or the creation of new sources of work and
wealth will be received by the country as a precious contribution

SCALE OF OPERATIONS

71

to progress and will obtain the treatment it legitimately should be
given." On 23 December 1943 (Act No. 7747, Par. 3, Art. 17),
Congress decreed exemptions for a period of 20 years from income tax and super-tax, from fiscal contributions on permanent property, from all taxes on exports of the products, and from customs
duties on the importation of the necessary machinery and equipment, of all Chilean enterprises for producing or converting copper,
iron and steel by the use of local minerals.
The issues presented raise the whole question of international
lending. The Corporation realises the immense task that lies before it in this post-war era, and is especially seeking foreign sources.
Will these be individual countries, private investors or Governments,
or will there be an international scheme of lending for the development of production ? To that question some attention will be devoted
later.
There is another question: supposing the loans are forthcoming,
how much could a poor economy absorb? That is, how much could
it use and pay for in interest and capital repayments? It is estimated
that Chile could absorb installations to the value of 20 million U.S.
dollars a year.

CHAPTER IX
FINANCES
Two main points fall to be considered in this chapter : the question
of earmarked taxes and the part played by the Export-Import Bank
of Washington, which together are the chief sources of finance
for the Corporation. 1 By the end of 1945, the Corporation had
received about 30 million U.S. dollars from its own Government in
earmarked taxes, and over 60 million in loans from the United States.
Repayments of this debt are made at intervals out of the taxes. Of
the sums thus available, a fair proportion has already been invested
in productive enterprises, and a still larger sum earmarked; while
plans for future development far outrun the present capital.
1. EARMARKED TAXES

The earmarked taxes require no more than listing, and a repetition of the comment made elsewhere in this study that for long-term
and comprehensive planning such a source, being subject to termination or diversion, is unreliable. The earmarked taxes are:
(a) A special 2 per cent, addition to the taxes on income from
shares and bonds; 1 per cen':. on incomes from industrial and
commercial enterprises; 2 per cent, on incomes from mining and
metallurgical enterprises; and 1 per cent, on salaries and
professional incomes.
(i>) There are additional taxes on individual incomes; and 10 per
cent, on the income of the large copper companies operating in
Chile; and additions to the taxes on inheritances and gifts.
The general theory of this taxation is that the particular forms of
wealth involved will be benefited by the development activities of
the Corporation. This does not exclude the consideration that the
saving necessary to provide development capital can hardly be expected from the income of the mass of agricultural workers.
1
With the exception of the loans made to the Corporation by the Central
Bank of Chile for housing purposes.

FINANCES

73

2. T H E EXPORT-IMPORT BANK OF WASHINGTON

It has been indicated that development has depended substantially,
and in some cases exclusively, upon the installation of new plants
and equipment, which have been supplied by the United States.
It was also noted that instead of the ordinary loans from foreign
sources, envisaged in the Statute, the Corporation had borrowed
up to the end of 1945 about 67 million dollars from the ExportImport Bank of Washington. Equipment and credits were bound together in wartime. The relationship between Chilean development and
the Export-Import Bank is of great interest both as regards the
facilities which the Bank gives to Chilean development, and its
procedure.
The Export-Import Bank was established in February 1934,
chiefly as an Export Credit Agency, to deal with the difficulties
caused by world-wide restrictions on foreign trade and the development of bilateral trading. In the course of time, the work of the
Bank went far beyond this, and it encouraged economic development
in many different ways, as, for example, coinage reforms in Cuba,
telegraphic communications in South America, road building and
public works, and, of special interest to this study, industrial development loans. U p to 1940, such international lending was on a
very modest scale. Since that time the War has necessitated higher
production in Latin America, and better transportation and the "good
neighbor" policy have fostered this policy of lending. In December
1941 the then Chairman of the Bank, Mr. Warren Lee Pierson,
said:
Obviously it is not always desirable to adhere to the lending standards of
a private institution. Our stockholders are all the people of the United States.
We feel that they will be properly served if, in addition to having a loan
repaid, they receive intangible dividends in the fact that the United States has
been able to assist the economic development of sister republics.

At the same time, Mr. Pierson made it clear that the Bank was
not going to take over all of such lending and assistance for development, and this is expressed in his further statement that:
While it is proper that the Congress and the various administrative
agencies of our Government should take an active part in improving economic
relations with the other countries of the hemisphere, the real work under our
system must be done by private individuals and firms... I hope you will
find enough good in what we have been doing to make more of our private
bankers and businessmen want to go and do likewise, with, or — better still —
without our participation ! *
1

Foreign Commerce Weekly, 6 December 1941.

74

THE CHILEAN DEVELOPMENT CORPORATION

The loans made by the Export-Import Bank to the Corporation
bear the guarantee of the Chilean Government; and as the Corporation, from time to time, draws on the credits granted, its notes are
guaranteed by the Republic. The terms on which the Export-Import
Bank makes loans are chiefly long-term1, that is for a period of ten
years, at 4 per cent., with repayment in equal bi-annual instalments.
There are also some shorter term credits at the same rate of interest
for complete repayment within two years in equal quarterly instalments. The long-term credits are solely for financing purchases of
machinery and equipment in the United States. Originally, the shortterm credits were granted for the purchase in the United States of
raw materials, like drugs, zinc and steel, which by reason of wartime circumstances of a transient nature had to be acquired for Chile
by the Corporation. Subsequently, even some of the machinery and
equipment purchases were financed under short-term credits. The
early instalment payments were thus increased, this being at the
request of the Corporation, the borrower, and not of the ExportImport Bank, the lender, since in the general national and world
financial situation it suited the former to repay over the short term.
The short-term credits comprise about one-sixth of the total credits of
the Export-Import Bank to the Corporation. The difference between
the long and short-term loans is a difference of the terms of repayment, and not of the basic criteria or conditions of the loan. The
credits are eventually refinanced through taxes, the sale of securities,
profit from enterprises, etc.
The Corporation has to show the Export-Import Bank the reasons
for a credit. A carefully prepared memorandum is submitted with
statistical analyses designed to show that the loan is in the interests
of the basic needs of the borrowing country; the soundness of the
particular enterprise in relation to the general programme of development; the relationship between the size of a loan and the capacity of
the country for development; the country's present and potential
wealth; and the borrower's ultimate ability to repay.
Certain conditions are laid down as to the use of the credit by
the Corporation. Whenever it contemplates a purchase within the
United States it so informs the Export-Import Bank by filing what
is known as an "application for approval". This procedure enables
the Bank to examine the uses to which the credit will be put before
1
It may be disputed by some whether the phrase "long-term" is properly
applicable to loans made for a maximum period of ten years. The Corporation
is content to regard ten years as a "long-term" loan, and since it repays the
loans, as described in the text, by instalments, and then receives or may receive
further loans, which may accumulate into very large sums, the proper expression to characterise the loans would be perhaps a "long-term revolving fund".

FINANCES

75

it is actually called upon to finance the purchase. The procedure is
the same for separate orders given by the Corporation for replacement of equipment or the enlargement of the capacity of existing
industries. However, before it presents to the Bank an application
for approval of individual purchases, it first submits what is known
as a "project description". This states the economic need and history
of the project, its effect upon the economy of Chile, and its practicability and financial soundness. A complete technical description of
the project is also included. The Bank, therefore, has an opportunity
to study the project thoroughly before it receives the applications
for approval for equipment necessary for the project, to be purchased
in the United States. Hence, the project description is the basis for
discussion between the contracting parties if desirable and necessary.
On the basis of its own independent investigations and reports
from United States Government agents, the Export-Import Bank
obtains a sound idea of the developmental prospects of the country
and of the part which each project may play in it. It requires the
fulfilment of certain conditions so as to satisfy itself that the loan
is being applied to the purposes for which it is made, and also to
secure the interests of the American manufacturer and investor. It
wishes to know the location of the industry; a full description of
the order; the equipment or material to be purchased; and the
name of the American supplier. The Corporation is encouraged to
seek the supplier's participation in the credit; in many cases with
success. In general, a small firm does not care to participate where
it is a matter of a single smallish order, but large firms with an
interest in the continuing development of a foreign market and a repetition of similar business are on the whole ready to grant credits.
The American supplier usually provides 25 per cent, of the credit,
at an interest rate of 4 per cent., which the Corporation must pay
to the Export-Import Bank. The Bank also stipulates that the goods
must be purchased from the United States. The credit participation
of suppliers does not mean a reduction in the credits available from
the Export-Import Bank. It is rather an addition to the supply of
credit available to the Corporation. By such participation, the Bank
assists and stimulates United States production and private investment.
With respect to the applications for approval of purchases, the
Export-Import Bank leaves to the Corporation the responsibility
for the standing of the suppliers, the quality of the goods, the price,
etc. After the Bank has received all the documents showing that the
purchase has been completed and shipped, the necessary payments

76

THE CHILEAN DEVELOPMENT CORPORATION

are made. This is done only at intervals in order to avoid frequent
disbursements and consequent time-wasting procedures. The Corporation receives the proceeds of the notes it issues under its ExportImport Bank agreement from a commercial bank designated by
the Export-Import Bank, and this commercial bank carries the
notes in its own portfolio and under the guarantee of the ExportImport Bank. Thus, actually it is the commercial bank funds that are
used for this long-term financing, not any actual money passing from
the Export-Import Bank. In the period between the Corporation's
payment for its purchases and its long-term financing under the Export-Import Bank agreement, it operates under credit arrangements
which it has with the commercial banks in question to cover interim
financing. Since the rate of interest of these is lower than the ExportImport Bank requires, as this is short-term borrowing, the Corporation makes a saving in interest on these interim loans.
It would seem that for its long-term work the Corporation should
have credits for longer than ten years. Actually, at present it is
more desirable for it to have the shorter credit, as it anticipates being able to repay more easily during the next few years than later.
It has actually repaid 50 per cent, of the loans for which notes have
been drawn, although its most important projects are quite longterm investments. With the passage of time this situation may
change. It is recognised, however, that for many of its developments,
the term should be longer than ten years, to avoid too heavy a burden on infant industries, and to allow a much longer period of
amortisation. The outstanding example of a project requiring longterm financing is the hydro-electric project. Here, of course, there
ought to be a very long-term amortisation, but the Export-Import
Bank's outlook is not so much a question of when the money ought
to be amortised, but rather the capacity of the debtor country to repay. This attitude also may change with developing experience.
It might be desirable for the Bank and the Corporation to enter
into a long-term agreement covering a large part of Chile's total
plan, including the chief projects, rather than take up the business
of project-examination and loan-administration piecemeal. It would
be even more desirable if the whole plan were thus embraced. The
present hand-to-mouth method, with all its anxiety about what may
happen tomorrow, is not satisfactory. If steady work and success
are to be assured, the plan should from the outset present a comprehensive picture of future projects. The loan-arranging agency
has an obvious interest in this also, and its plan might include agreements regarding the rate of repayment, both in favourable times
and in periods of depression.

FINANCES

77

It might seem at first sight that the Export-Import Bank would
not perhaps favour industrialisation in the case of goods like copper
and steel, etc., which might reduce the demand for American products, and in important cases the Bank does require the American
firm to declare that it has no objection to the project. But the Bank
and the United States Government, and, what is even more encouraging, American manufacturers and investors, realise that, one
way or another, Chile will eventually succeed in obtaining the means
for industrialisation. There is on the part of the United States a
recognition that she is entitled to do this, and that it is fair and
reasonable that she should try to do what the United States has
already succeeded in doing. For the lender the question has four
aspects. First, it is one of goodwill in a broad human and practical
sense. Secondly, it is recognised that it is better to participate in some
way in the Chilean market (either by Government credit or private
industrial credit) than to be excluded altogether. Thirdly, a raising of
the standard of living, made possible by the Corporation with
American assistance, will in itself contribute to the future safety of
the United States, and to a strong, satisfied and unified Western
Hemisphere. And, finally, it is recognised that countries with a high
standard of living are better customers than those with a low standard
of living. It is felt that the interests of both sides, borrower and
recipient, industrialiser and already industrialised, can be adjusted
to each other; and this is, without doubt, promising for the future
of international lending. The relationship of the Export-Import Bank
with Chile and other countries will form an important reserve of
experience which may be drawn upon with advantage.

CHAPTER X
SUMMARY AND APPRAISAL
Though the Development Corporation did not at the outset formulate in detail one comprehensive concrete plan for the improvement of Chilean production and the raising of the standards of living, such a plan has come into being. This falls into a number of
related and mutually complementary programmes of action, each
clearly drawn on sound technical foundations.
The Corporation's contribution to Chilean economy lies essentially
in the following services : ( 1 ) it initiates industry and finances basic
productive activity in the attainment of long-term national objectives. Employment opportunities are usually increased, although in
some cases wasteful employment is eliminated because obsolete
methods were being used; (2) it rationalises industrial and economic
organisation, thus preventing unnecessary expenditure; (3) it persuades private investors to transfer their savings from less productive uses or hoarding into more highly desirable investment;
(4) it seeks out unknown or under-developed resources ; (5) it stimulates the increase of knowledge and the acquisition of skills, and
trains the younger generation to face modern Chilean problems with
contemporary techniques and public spirit; it also imparts administrative knowledge; (6) by the provision of storage and refrigerator
facilities and plants for the preservation and processing of food, it
contributes to the fuller development of the products of industry and
agriculture; (7) it extends the market for goods from primary up
to finished products by its assistance to transport; and (8) by its
various credit procedures it gives an infant economy time to progress from hand-to-mouth methods with small transactions and quick
but petty returns to a more fruitful long-term economy with all the
economic benefits of a more complex but more rational division of
labour and investment. It gives assistance to private enterprise and
undertakes certain work which, by reason of the long-term credit
necessary, the national purpose to be served, and the integrated
nature of each of the enterprises, it is highly improbable that private
enterprise would ever enter upon if unassisted and undirected.
Its projects and financial assistance have mobilised private
capital of an approximately equal amount from less productive uses.

SUMMARY AND APPRAISAL

79

The plans are based on sober calculation, foresight, and no Utopian
vaulting beyond the country's natural resources. To some extent,
effort has been diffused owing to the need to show immediate results,
since the continuance of financial support out of taxes depended
upon favourable public opinion. But that period seems to be closing; and instead, there is a much more marked continuation of the'
work of study, investigation, the preparation of wide and long-term
plans and assistance to basic industry and agriculture, from which
all the smaller concerns will ultimately derive added benefit. Given
the resources available to a poor country like Chile, and given also
the adverse circumstances of the war, which made supplies of equipment and technicians difficult to obtain, a substantial start has been
made, much has been achieved and the future is full of promise.
Indeed, it has been suggested by those closely concerned with the
Corporation that even its achievements to date, with the steel mill
now assured, would be ample justification for its existence; while
in ten more years of steady progress, a real transformation of Chilean
economy may be expected.
Those who have been responsible for the management of the
Corporation are convinced that criticism of its entrance into small
business will cease now that its work takes it into really big industry,
e.g., electric power, steel, cement and chemicals, for the building of
great plants is demonstrably too great a responsibility for private
capital.
Though the scope of the Corporation's obligations is extremely
wide, its funds are relatively small. The question arises whether its
commitments should be limited or whether it should be granted more
funds. In the former case there would be much to be said for reconsidering its agricultural programme. There is a Chilean Ministry
of Agriculture with some funds for agricultural development; there
are agricultural institutes for credit and production. The raising of
the standard of agriculture in Chile is a problem which directly
affects the rural population and indirectly the urban population as
consumers. But its solution is possible only by great effort, large investment and steady educational and other measures over some two
decades. This work ought not to be imposed on the Corporation, as
things now stand, because the funds required are so great as to
deplete those needed by it for industry. If it confined itself to powerirrigation, rural electrification and the provision of warehousing and
processing plants, all the rest might with advantage be assigned to
the Ministry of Agriculture and the other connected institutions.
Even if this were, done, a thorough replanning of the work'and relationships of all the public or semi-public institutions dealing with agri-

80

THE CHILEAN DEVELOPMENT CORPORATION

culture is urgently required. Indeed, the greatest service of the Corporation to Chilean agriculture might well be the organisation of a
commission of enquiry to make an exhaustive examination of the
state of the industry, and this should be done with the assistance of the appropriate foreign experts. The enquiry and report
ought to be so thorough that public action could hardly do other
than follow automatically; while all the institutions concerned with
agriculture, including the Corporation, would fall into the plan as its
co-ordinated instruments.
It has been seen that, with the exception of the hydro-electric
scheme, which is administered through a subsidiary, and of the
ownership of certain agricultural machinery and stocks, the Corporation operates through private enterprise. On this, perhaps the final
word that can be said is that it would be a pity to displace private
by full public enterprise unless the latter could be permanently maintained in economic efficiency unshaken by non-economic influences.
That is hardly possible ; and, therefore, given the economic sentiment
in the country, it is perhaps better to act as the Corporation does,
and leave private enterprise strong enough to go on and develop
further.
The administrative methods are soundly conceived, involving as
they do the establishment of a public Corporation, its relative freedom,
wide representation on its Council, and, more especially, extensive
business latitude for its loan-raising and purchase-making branch in
New York. The initiative, the forethought, the spirit of going out
after business and the ability to do so successfully, are evident from
first-hand observation of the Corporation's methods and personnel,
and show clearly that there is a large fund of ability and public spirit
at work. The feeling that Chile is being rebuilt or built for the first
time causes a remarkable release of devotion and thinking. Capable
young men are being interested and introduced into economic administration at a stage which is both creative and adventurous. This is
a most important factor for the future of Chilean development.
What is needed, and this applies particularly to the country itself,
is a much more rational and persistent co-ordination of all economic
development, including the Corporation, over the whole field of
Chilean economy. The great economies to be won from the development of production in every direction must be planned to include
all the cognate fields of economic endeavour, for these balance and
supplement each other. The Corporation's scope is vaster than that
prescribed for the Tennessee Valley Authority, for it concerns not
merely a few sectors of economic life to be co-ordinated with each
other over a span of time but the whole life of a nation. Moreover,

SUMMARY AND APPRAISAL

81

whereas the interests of the Tennessee Valley have to be adjusted
simply to those of the United States, the Corporation must depend
largely upon a sound relationship with the economy of the outside
world. It has to think of what products it can sell to its immediate
neighbours and to distant countries, as well as how to increase
production for domestic use.
The attention of all who are interested in the progress of underdeveloped countries should be drawn to the experience of the Corporation in two matters : first, the necessity for studies, investigations,
research and experiments, as the basis of unified plans; and second,
to the need for general education, the introduction of foreign technicians and technical missions, and the development of national
experts.
In regard to the first, the bureaux of mines and other such
research institutions, though making their contribution, are nevertheless not endowed with the peculiar incentive which animates an
authority responsible for production. The problem before Chile, as
in all such countries, is development in the first place, and research
in the second place. Chile has the same problem of harnessing
research to the economic availability and utilisation of discovered
resources. It is related to the problem in the already well-developed
countries of mobilising more and better basic research and knowledge
for commercial and industrial advantage. 1
Above all, incentive is necessary. The requisite incentive is not
simply disinterested scientific exploration, not intellectual curiosity
alone, beneficent and indispensable as these are. What is required is
the dynamic incentive which is supplied when responsibility for
development is vested in given public institutions. If these strive
to fulfil their responsibilities, they will call upon research; and if the
work of research has not been done, they will see that it is accomplished with the persistence of those who are interested not merely
in knowledge, but in productive business. There is then a problem
everywhere, and especially in economically backward countries, of
organising investigation and fact-finding for application in raising the
standard of living. It is extremely difficult to convince people in
under-developed countries (and the same holds good for some highlydeveloped countries) 2 of the indispensable, if unsensational, contributions of scientific research to industrial and agricultural progress.
1
Cf. Proceedings, British Association for the Advancement of Science,
1941; Sir Harold HARTLEY, F.R.S.: "Are You Research M i n d e d ? " in Industrial
Research, 1943; and Vannevar B U S H : Endless Frontiers, 1946.
3
Even the U.S. Congress was not an unconditional enthusiast for the
research work of the T.V.A., and looked askance a t its requests for appropriations for studies, etc. Cf. Herman F I N E R : The T.V.A., op. cit., p. 185.

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THE CHILEAN DEVELOPMENT CORPORATION

That has been the Chilean experience. Nevertheless education and
persuasion must be used to secure the power to conduct that research.
Secondly, what is lacking so greatly in countries like Chile, and
what the Corporation helps to supply, is general and technical education and working skill. This need has long been recognised and
the Corporation has induced the General Tire, the General Electric,
and the American Cyanamid Companies to bring in both capital and
knowledge of which Chileans may take advantage. Another matter
is involved here — the need of Chilean intermediaries, at some stage,
between the foreign experts and the Chilean workers. With all the
good will in the world, it is still generally difficult for foreigners to
establish good long-run industrial relations; they need the help of
persons with an almost instinctive understanding of local psychology.
The Corporation takes positive steps to increase the skill available to Chile by associating its own technical officials and Chilean
workers with foreign missions and foreign workers, and by a scheme
of scholarships for young Chileans in American colleges, businesses
and industrial plants. A large amount of money would not be required to provide the benefits of such skill to all the countries in the
world needing it. The numbers of people to be trained would certainly not run into more than tens of thousands, and the facilities
for training are available. It needs the experience of countries like
Chile to show this, and the assistance of a special body like the United
Nations Educational, Scientific and Cultural Organisation to implement it. 1 The expert advice of another international specialised
agency — the International Labour Organisation — is available
also. The work of such bodies need not and ought not to cause
national efforts to slacken.
Since international assistance has been referred to here, something further may be said in regard to investigations and prospecting
for resources. Generally, the Export-Import Bank does not furnish
funds for studies and investigations but only capital for materials and
equipment. However, the International Bank of Reconstruction and
Development might well have an Office of Studies and Resources to
plan and assist in this field.2
Finally, the experience of the Corporation teaches lessons regarding the financial basis of development schemes. Such schemes are in
all probability long-term schemes, and they are also sizable and
comprehensive. Thus, the amount of money that must be allotted is
large; and it must be secure. The failure of any single programme
1
Final Act, Art. I, 1 : "The purpose of the Organisation is to contribute
to peace and security by promoting collaboration among the nations through
education, science and culture. . ."
8
Cf. Herman FINER: The T.V.A., op. cit., concluding chapter.

SUMMARY AND APPRAISAL

83

produces more than proportionate loss by the effects upon all the
rest; the cessation of assistance can cause the whole of the expenditure hitherto provided to go to waste. If half a loaf is better than
none, half a dam or half a steel plant is worse than none! A unified plan must therefore be made as early as possible, for that is
the guide to the size and the term of the funds required. But what
is especially required is a determination by the Government and the
leaders of the people that, once the hand is put to the plough, it will
not be withdrawn until the very end of the furrow is reached.
The present Chilean arrangements fall short of these requirements. The amounts are not large enough ; a development corporation
after its infant years can move very rapidly and usefully along all
sectors together, if assured of adequate capital. The earmarking of
certain taxes is not altogether reliable, having regard to the experience of other countries of the diversion of moneys of this kind to
other purposes in times of crisis. Furthermore, there might very well
be a fluctuation in the revenues from these sources. The original
idea was sound — a large loan and a grant of its proceeds to the
Development Corporation by the Government which raises it. It is to
be hoped that a time will come when this can be fulfilled. Then the
Government can raise the service of the debt from general revenues,
and not from special items.
For Chile, and for countries like Chile, the difficult question is,
"Where is the money to come from now that the war is over?"
This constitutes an incessant anxiety for Chile and for the Corporation. For one thing, the supply of credit from a single lender may be
exhausted by reason of economic change, or for reasons of general
domestic or foreign policy. For another, continuous loans from a
single country, however generous the terms may be, mean the stipulation that purchases shall be made only in the lending country. It
might be better to diversify the sources of imports, since it is certainly
necessary to diversify the destinations of Chilean exports. The lending
countries, that is, the developed countries, realise that the industrialisation of the under-developed countries is inevitable, that their now
unused natural resources and labour will eventually be employed to
the full. Since there is a recognition of the fairness of such readaptation, foreign industrialists and investors tend to be willing to
assist. They are not, however, over-anxious to assist by merely sending technical assistants like engineers, draughtsmen or designers. But
they are willing to participate in the business even with a minority
interest, for then they will at least gain something, instead of being
excluded altogether.

APPENDICES
APPENDIX I — VOLUME OF EXPORTS OF COPPER AND NITRATES1
Year

Copper bars
(Tons)

Nitrates
(Tons)

1919
47,165
804,000
1920
85,165
2,746,100
1921
53,434
1,913,100
1922
120,330
1,252,000
1923
162,419
2,243,000
1924
181,442
2,333,400
1925
172,044
2,518,900
1926
187,231
1,668,200
1927
226,035
2,271,500
1928
271,936
2,832,900
1929
308,305
2,896,900
1930
196,024
1,785,700
1931
211,738
1,454,600
1932
120,712
243,400
1933
156,321
669,200
1934
239,806
1,277,600
1935
259,757
1,260,200
1936
239,238
1,286,300
1937
383,249
1,608,300
1938
349,300a
1,572,800*
1939
312,200a
1,415,800s
a
1940
357,000
1,424,000s
a
1941
440,100
1,270,5002
1942
553,826s
s
1943
APPENDIX
II — VALUE OF COPPER 550,000
AND NITRATE EXPORTS
1
Estadística Chilena, Dec. 1937, p. 730.
'Estadística Chilena,
Dec. 1942,
603. at 40 to £ sterling)'
(in millions
of p.
pesos
* Estimates.
Year

1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1
s

Copper

Nitrates

408.5
422.8
403.0
401.6
460.6
622.8
958.1
464.8
314.6
123.5
128.1
157.8
179.9
213.9
506.8
329.3
332.5
381.4
473.0
562.5a
511.1s

969.0
1,016.7
1,104.4
805.4
933.3
1,001.5
1,046.3
612.9
367.2
37.7
87.0
150.6
147.3
158.5
189.6
152.7
151.0
141.0
123.3
119.9a
127.2a

Estadística Chilena, 1937 and 1942.
Estimates.

Total

1,377.5
1,439.5
1,507.4
1,207.0
1,393.9
1,624.3
2,004.4
1,077.7
681.8
181.2
215.1
308.4
327.2
372.4
696.4
482.0
483.5
522.4
596.3
682.4
638.3

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