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«STANFORD UNIVERSITY PRESS Stanford, California 1986 Modern Latin American Historiography and the Labor Movement Twentieth-century Latin American ...»

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Chile 27 war seriously disrupted trade with Chile's major nitrate customers, and exports plummeted in 1914 and 1915. By 1916, however, wartime demand in Great Britain and the United States (which had replaced Germany as Chile's primary nitrate market) pushed exports above the prewar level, and they peaked again in 1918 at just under 3,000,000 tons. In the decade following the war the industry experienced a period of widely fluctuating demand, triggered by cyclical trends in the world e c o n o m y and violent postwar changes in the level of U. S. imports. Exports fell to only 804,000 tons in 1919, shot back up to 2,750,000 tons in 1920, then fell again during the depression of 1921-22, when they averaged only 1,250,000 tons a year. The years 1923-25 saw another dramatic upswing, with exports reaching 2,500,000 tons in the latter year. After falling again in 1926 and 1927, they rose sharply over the next t w o years, to stand at approximately the all-time high level of 1918 a t the end of the decade.

But with the advent of the Great Depression, the industry virtually collapsed. At the nadir of the Depression in Chile, i n 1932, nitrate exports amounted to only 244,000 tons, or less than 9 percent of their 1929 level."

To some extent, however, the data graphed" i\\ the figure, based as they are on yearly averages, mask the extremely volatile nature of the nitrate economy, especially after 1913. Monthly high s and lows during periods of rapid change were even more extreme.

Long-term trends in the world fertilizer economy underlay these violent fluctuations and the ultimate collapse of the Chilean nitrate economy.

Chile was always the only commercial source of natural sodium nitrate.

But just as the changing demands and technology of the industrial nations of the N o r t h Atlantic brought forth the Chilean nitrate economy, so they undermined and destroyed it. By 18Q5 European scientists had succeeded in fixing nitrogen by artificial m e a n s. Although this process was prohibitively expensive at first, n e w and cheaper techniques were soon developed, and the chemical fertilizer industry expanded. Finally, under the political and economic pressures of War and worldwide depression, first Germany and then the United States and other industrial p o w ers turned to domestic suppliers to meet their heeds. 7 The wide fluctuations in world demand and prices for nitrates led the largest producers in Chile to form cartels to liinit production and ensure

6. The industry slowly recovered after the Depression and by the 1950s production again hit 2,000,000 tons, the level first reached in 1908. But nitrate never regained its central role in the economy. Struggling to maintain its 5 percent share of the world fertilizer market, the industry could contribute relatively little, proportionately, to foreign trade and government revenue. Meanwhile, mechanization cut its labor needs in half.

7- Cariola and Sunkel, "Expansion salitrera" (cited in h. 5), table 16, shows Chile's declining share of the world nitrate fertilizer market over the years 1913-24. Lamer, World Fertilizer Economy (cited in n. 4), p. 38, describes the ch a n gj n g technology of chemical fertilizers.

Chile steady profits after 1890. Although these efforts w o r k e d at cross-purposes with the interests of the Chilean state, whose nitrate revenues were tied to the volume, not the value, of exports, they met with some shortterm success before the First World War. But with the rising importance of synthetics and the competition fostered by changing processing techniques within the Chilean industry itself—especially as U. S. capital and technology moved into the industry in the 1920's—the efforts of producers to moderate violent fluctuations in world demand failed. Although the Chilean government had subsidized stockpiles in an attempt to cushion the war's effect on production, it was only with the advent of the Great Depression and the collapse of the industry that it moved to take a major, direct role in the production and sale of nitrate.

Certain features of nitrate production as it developed in Chile made output in the industry especially sensitive to changes in world demand and prices. Nitrate is an extremely bulky commodity, and also one whose production was labor-intensive. Consequently, rather than invest in m a j o r storage facilities, companies found it easier and cheaper simply to dismiss their workers and reduce or close operations during cyclical d o w n turns. Several circumstances facilitated this classic capitalist response, the first being the rapidity with which Chilean labor responded to renewed employment opportunities and higher wages in the nitrate sector during upswings. Given the relative lack of employment opportunities in agriculture and manufacturing in the nitrate enclave, laid-off men simply hung on with w o r k i n g relatives or friends or crowded into the port towns to await renewed employment. In more severely depressed times, nitrate workers were forced to leave the north by the tens of thousands and search for w o r k in central Chile. But because, as w e shall see, activity in all sectors of the Chilean economy was quickly affected by the fortunes of the nitrate sector, serious drops in nitrate production limited j o b s all over Chile in public works, industry, coal production, and even agriculture. Widespread national unemployment and wage-cutting during these periods facilitated the recruitment of workers in central Chile once labor demand revived in the north. Recruitment was also made easier, after the turn of the century, as the development of rail lines and shipping routes increased the geographic mobility of workers eager to improve their wages and conditions of work. Real wages were higher in nitrate p r o duction than in other sectors of the Chilean economy, and workers responded avidly to the recruiting efforts of nitrate companies.

The Chilean state played an active role in ensuring the flow of labor in

8. Prices for Chilean nitrates closely paralleled changes in world demand. After exceptionally high prices at the end of the First World War, the price of a metric ton (in i960 U.S.

dollars) fluctuated between $40 and S90 in subsequent years. The all-time high was S144 in

1920. Cariola and Sunkel, "Expansion salitrera" (cited in n. 5), table 9.

Chile 29 and out of the nitrate enclave. It provided free transportation to workers and their families out of the north during severe depressions in the industry. As the fluctuations in production became more severe and the numbers of people involved increased, it began to provide food and shelter for the unemployed in the nitrate port towns and in the capital, Santiago.

By 1913 the state was actively engaged in recruiting workers during upswings and trying to relocate and employ them during downswings.

But though the state was willing to take steps that would ensure nitrate companies their labor force and diffuse social tensions during hard times, it refused, until the labor reforms of 1924, to adopt measures that would have shifted some of the burden during depressions from labor to capital.

Until that date, nitrate companies were not required to give notice to the workers they laid off, to pay them severance pay, or to contribute to the cost of their transportation out of the north.

The human cost of the cyclical unemployment in the Chilean nitrate industry can be judged from the data graphed in Figure 2.1. The work force ranged between 3,000 and 7,000 during the early 1880's, then expanded to a peak of over 13,000 in 1890. Employment reached another peak of more than 22,000 in 1895, declined in the late 1890's, then rose steeply—to reach 53,000 in 1913. After declining sharply at the start of the war, the work force increased to almost 57,000 in 1918. Employment then fell precipitously during the postwar depression of 1920-22, which saw the work force cut by more than half. Thereafter the number of workers fluctuated wildly. Employment rose to over 60,000 in 1925, fell back to only 36,000 in 1927, and then rose again in 1928-29, when it averaged about 59,000 a year. Three years later, in 1932, there were only 8,535 people still at work in the nitrate sector.

The economic insecurity of the Chilean labor force in a society tied to the boom-and-bust cycles of nitrate production was heightened by the government's inflationary policies during the nitrate era. Paper money was introduced to finance the War of the Pacific and was retained, despite an abortive attempt to return to a metal-based currency in the late nineteenth century. The government steadily expanded the paper money supply until the late 1920s. Although the economic effects of inflation and the motives of the political groups in control of Chilean monetary policy are debated in the literature,9 there is wide agreement over the depressing effect of moderate inflation on the real wages of workers in all economic sectors. Fluctuating exchange rates and falling real wages sparked some °f the most significant worker mobilizations, particularly in the nitrate sector, during the period 1890-1925.

9- The orthodoxy that the chronic inflation of the nitrate era was a result of the singleminded policy of landowners in control of the state was first challenged by Albert O.

•iirschman, "Inflation in Chile," in Journeys Toward Progress (Garden City, N. Y., 1965), pryChile 3o As the nitrate e c o n o m y expanded in the half century following 1880, so also did the revenues of the Chilean government. Before the outbreak of the War of the Pacific, the income of the Chilean state stood at less than 20,000,000 pesos a year. By the early 1880's that figure had doubled.

Then, after an eighteenfoldjump during the 30-year period 1882-1912 (to m o r e than 750,000,000 pesos), revenues declined sharply, falling to 500,000,000 pesos during the First World War and the postwar depression. By 1922 the figure had climbed back to prewar levels, by 1924 reached the billion-peso mark, and by the end of the decade was approaching t w o billion pesos. Even if inflation accounted for almost half of this increase, the real expansion of government revenues during this 50-year period was spectacular.

This impressive g r o w t h was due in large part to taxes generated by the nitrate industry. By far the most important of the direct sources of revenue was the tax on exports of nitrate and iodine (a by-product of nitrate processing). This tax quadrupled during the War of the Pacific, and by the early 1880's it contributed about 20 percent of the state's ordinary income. That share rose quickly in the next several years, to hover around 50 percent for most of the period 1890-1917, then declined to 40 percent or lower as the industry entered the protracted period of crisis and sharp fluctuations in demand in the postwar period.'" Another important direct source of revenue was the tax levied on the acquisition of nitrate lands.

Nitrate capitalists claimed that they had invested £14,000,000 in such acquisitions up to 1903; this compared with an investment of only £4,000,000 in processing plants and less than £3,000,000 in railway and port facilities."

In addition to these direct contributions to the treasury, the expansion of the nitrate industry stimulated the growth of foreign trade, with the result that customs revenues on imports rose dramatically. Until 1890, in fact, the government derived m o r e income from this indirect effect of nitrate expansion than it gained from export taxes. Thereafter, throughout most of the period up to 1930, import taxes provided between a quarter and a third of the state's ordinary income.

These new and growing sources of revenue transformed the structure of state finance during the nitrate era. Internal sales, inheritance, and

10. The value of Chilean exports rose from 81,000,000 pesos in 1890 to 525,000,000 pesos in 1920; nitrate exports accounted for between 60 and 80 percent of the total value during that period. The data on government revenue in these paragraphs are taken from Cariola and Sunkel, "Expansion salitrera" (cited in n. 5), tables 6, 7, 22, 25, and 26.

11. Manuel Salas Lavaqui, Trabajos y antecedentes presentados al supremo gobierno de Chile por la comision cottsultativa del Norte (Santiago, 1908), p. 606. Payments for the acquisitions of nitrate lands appear as extraordinary revenue in Chilean budget records; extraordinary revenue fluctuated widely from year to year, ranging from virtually nothing to more than half of ordinary income.

Chile 3i property taxes were reduced or eliminated in the 1890's and furnished minuscule contributions to government revenues until the 1920's. As late as 1916, during the wartime nitrate b o o m, only 4 percent of government revenues came from internal taxes, compared with 61.5 percent from export taxes and 27.1 percent from import duties. 12 With these now-substantial and growing revenues at its disposal, the state was able to expand considerably its coercive apparatus and a d m i n istrative control over Chilean territory. Military expenditures consistently accounted for about 20 percent of the budget during the entire period. A m o n g all state employee groups, the one that increased the most after 1900 was the police force, the arm of government charged with preserving internal order. But substantial numbers of administrative personnel for the growing state railway system, telegraph operators, and schoolteachers were added to the public payroll as well. T h e g r o w t h of these groups reveals the significant efforts made by the state to invest nitrate revenues in h u m a n and material infrastructure to p r o m o t e development. Large quantities of public revenues were also spent on public works, primarily government buildings.

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