Chile - the earthquake that exposed capitalism’s weaknesses

The huge earthquake that struck Chile back in February has revealed all the negative consequences of decades of deregulation and privatisation, as the people come to the terms with shoddy building methods and lack of services to deal with such a catastrophe. Privatisation literally kills!

The earthquake of 27 February in Chile (8.8 degrees on the Richter scale) killed around 500 people, and more than 100 have not been found. It created mass destruction (leaving 2,700 schools and 35 hospitals unusable) and produced social chaos. A recent government report estimated that the material cost of the catastrophe was US$30billion, equivalent to 18% of national GDP (the exact amount is still being debated). However, as many analysts have already commented, this natural event gives us the opportunity to look at Chile’s current political, social and economic weaknesses, in this country which is one of the earliest and most “neo-liberalised” countries of the world.

The earthquake not only did immense damage to the national territory, but also affected, as is usually the case in Chile with natural disasters, the most disadvantaged social groups of the country. More importantly, in ideological terms perhaps, the earthquake challenged some key assumptions imposed on society by the local ruling class for almost four decades, i.e. firstly that state deregulation is the key to economic growth and secondly that individualism, privatisation and commodification are indispensable for social success and the basis of efficient economies.

The idea that deregulation of the construction industry is good for economic growth has been proved wrong. Hundreds died because their homes could not resist the brutal impact of the earthquake and had no time to escape. Leaving aside the old adobe (clay and straw) dwellings destroyed by the event, mostly in rural areas, most of the buildings destroyed in Santiago, the country’s capital, and Concepcion, the second city located at 550 km from Santiago, are apartment buildings built in recent years. Currently, in Santiago alone, 23 brand new apartment buildings may be facing demolition orders, and many others show signs of severe damage. Initially, the big private builders of these projects used the bad quality of the soil (on which the buildings stand) as an excuse for the scale of the destruction, but soon this proved to be false as deficiencies in design became evident.

The number of buildings that have become uninhabitable has not surprised the many architects and planners who had witnessed for years how the traditional state regulations on high-rise constructions had been rolled back and the industry had been widely privatised. An early-2000s law passed in the National Congress took the control of construction assessment away from the local councils, giving it to builders. As a result, there had been a loosening up of the ability of the state to check whether building regulations, which had gradually been developed by the nation from the 1950s through to 1972, were being respected. From then on, both construction and quality assessment were allocated in (the same) private hands, as every building company could hire free lance technicians to check its performance. These technicians’ reports were logically unknown by the authority. The result was evident: the quality of construction, on average, became worse. So, on the morning after to the earthquake, Chile saw – with horror – the war-like images of several brand new high-rise buildings that had collapsed all over Santiago’s and Concepcion’s city centres.

For decades, deregulation of the construction industry has been demanded of the National Parliament by the National Builders’ Association. The same argument was always raised: deregulation accelerates the pace of construction. The construction sector represents just 8% of national GDP, but it is an important engine for several other local industries and so it adds several points the national employment figures. The Builders’ Association is the second most powerful private sector organisation in the country (between 1972 and 1973, they decisively conspired against President Allende’s Housing Plan). Currently, these corporate builders are getting ready to face hundreds (maybe thousands) of lawsuits, and they also attempt to compensate their enraged customers with money or replacement accommodation. As large-scale builders usually use a myriad of different brand names, the country still does not know which building firms are to blame for the bad construction. Large-scale builders and real estate firms have also hired, as usual, the best and most expensive lawyers to avoid prosecutions.

Damage in Santiago. Photo by todosnuestrosmuertos. As the earthquake was combined with a Tsunami (with sea waves of up to 15 metres high), dozens of cities and towns along the coastline (in an area comprising four regions and almost 800 kilometres long) were severely devastated by the combined effects of the quake and flooding. Again, this tragedy laid bare the administrative and territorial particularities of the country. Following the typical patterns of dependent capitalism, Chile has concentrated resources, investment and infrastructures in its capital Santiago, at the expense of leaving important regions lacking in infrastructure, with insufficient health and security systems. The National Emergency Office (ONEMI, based in Santiago) lost communication links with the most affected regions of the south, and local police and regional emergency bodies could not receive orders from Santiago for several days. Many provinces and municipalities were left isolated. While Santiago city (around 6 million inhabitants or 40% of the country’s population) has been branded as a global city and an excellent place for business the rest of the regions every year have to bargain with national government for public sector investment and for external credits. As a result, the levels of emergency reactions in Santiago were acceptable, but in the cities of Concepción and Constitución, there was actually no state apparatus working during the crucial first two or three days after the event.

The concentration of wealth, investment and a service-oriented economy in Santiago alone promotes a too specialized, primary economy in the country’s provinces. It is not surprising that the two most affected regions of the south (Biobio-Concepcion and Maule-Talca) are those which exhibit higher rates of unemployment, casualisation of jobs, poverty and alcoholism. To talk about the Concepción and Maule regions is to talk about economies fully dependent on oligopolised forestry and fruit-wine industries respectively. Forestry represents around 13% of national GDP but this industry is currently controlled by no more than four groups. Under this monopsony [i.e. a situation in which the entire market demand for a product or service consists of only one or a few buyers], forestry-related industries (e.g. wood-processing, transport) are underpaid activities, as the few large scale firms impose the price to be paid to smaller service-providers, and unemployment soars in the region.

In the Maule region, fruit production (11% of GDP) depends on one of the most precarious types of work in the country, the temporeros (seasonal workers with no labour contract). In contrast, small scale fishers – who live in the affected coastal areas and on which thousands of households depend – represent less than a modest 1% of GDP. These people live just above the poverty-line, and are usually deprived of private bank credits as no real policy for small-scale fishing development exists in the country. They are also dependent on tourism, an economic activity which obviously will be very little developed in these areas over the next few years, due to the catastrophe.

Devastation in Concepcion. Photo by Claudio Núñez. Most of the dead people lived in coastal areas and were taken by surprise, because during the first hours after the disaster they received incoherent information from the national government’s emergency agencies, ONEMI and the one dependent on the National Navy. No real tsunami-related contingency plan exists so far in this country which has 4,000 kilometres of coast! As usual, the effects of this catastrophe were mainly felt by the most deprived and marginalized social layers in the country. One month after the quake and thousands of homeless families around the most affected areas were still waiting for replacement emergency accommodation. The government recently listed around 30,000 dwellings which are currently uninhabitable, need replacement, or are situated in highly hazardous areas. Some private government assessors are currently advocating, for the most affected cities, the relocation of vast urban areas towards new, more stable and secure locations. However, the unplanned processes of relocation could create an enormous problem with land property, since almost every Chilean household owns his/her own portion of land, due to several decades of titling policies. Therefore, people now do not want to give away their main assets (the land). The relocation and re-concentration of people in large urban areas could also devitalize hitherto healthy hinterland economies. The problem of relocation is core in a country where any kind of territorial planning (at national, regional and urban levels) has, for the last 40 years, run behind the market.

In the meanwhile, the private-led housing sector is ready to reactivate its red numbers revealed during the last two years, as private bank-credits now emerge like mushrooms, offering cheaper interest rates. Even though they present this as solidarity towards the affected people, in fact, it is a mockery for the thousands who have lost all their assets and capital, and thus are not eligible for those private credits.

Chile is a country where almost everything has been privatized. General Pinochet’s dictatorship (1973-1990) privatized education, healthcare, pensions and urban space, and the democratic Concertación coalition governments (1990-2010) applied the same neoliberal logic to water supplies, transport, communication and the construction sector. But all that privatized infrastructure had been previously built by the Keynesian-inspired bourgeois regimes that ruled the country between1939 and 1970, and the government of the Unidad Popular led by Allende (1970-73). After this last earthquake, the country realized that those services that worked worse during the catastrophe were precisely those that had been more deeply privatized in the recent past, e.g. landline (and mobile) communication was cut off for several days and still there are areas with no communication; motorway and airport infrastructure, which for the last 20 years has been built under a private-oriented scheme of “concessions”, were the most affected and revealed insufficient quality of construction; electricity and water were shut down and, by early April, there were still areas with no services; buildings and houses built by the largest private building firms (which have greatly corporatized the housing market in the country) revealed their bad quality construction. In contrast, the railway infrastructure (tracks and bridges), built by the state until the 1960s and that has not been privatized, did not suffer major problems.

Probably, the most extreme act of individualism was shown by many owners of national and local supermarkets in the Concepción region. Just after the catastrophe, they decided to shut their doors without giving any previous notice, leading to desperation among the local population and this led to further riots, which were immediately broadcast by the local TV. Similarly, many branches of private banks did not open until after three weeks after the quake, and to this date many people still cannot withdraw their money from their accounts. The only logistic response of the government to the social chaos – generated by the incapacity of the market to regulate supply and demand – was to send the national army to the most affected regions and declare a state of siege, which was still in place two months after the event. Social repression seems to be the only rational choice of the highly neo-liberalised Chilean state apparatus.

For the last few decades, Chile has been a fully commodified country. As the economy has been almost entirely monetarised, there is little that people could do with no real money, in order to get food or basic goods. Exchange or gift-based economies are extremely rare in large urban areas. The dramatic images of the mobs assaulting supermarkets in search of food (and/or anything that could serve as exchange value in an uncertain future) demonstrated the desperation that the mere potential scarcity of money can generate in Chile today. But soon the situation was out of control, and some people started to rob their neighbours’ homes and assets. Just after the first moments of shock, what emerged was a total lack of solidarity and the survival instinct whatever the cost may be. The previous high capacity of social organization that Chilean urban neighbourhoods had proudly exhibited up to the military coup of 1973, and during a few years after the dictatorship (neighbourhood-based organizations were key to the overthrow the military regime), has been almost totally extinguished by the reformist ruling coalition which, for 20 years (1990-2010), told people that individual purchasing capacity were the only means by which to measure social success. Currently, donations are operating only through private intermediaries: bank deposits are seized, centralized and redistributed by private banks, finance organizations and private NGOs. Solidarity is currently an over-used word, overused to ridiculous levels by the largest retailers who call on their customers, through the media, to buy their products as the way of helping others.

Today’s Chile resembles the tale of ‘The Emperor’s New Clothes’; the fragility of its apparent economic success was exposed by the brutal intensity of this natural event. And yet the 5% who control Chile’s political and economic institutions and have in their hands 50% of national GDP have good reasons to be concerned for their future. After almost 40 years of “neo-liberalisation” and brutal state roll-backs, as almost every economic sector has been privatised and corporatised in fewer and fewer hands, the Chilean people from now on will demand a different future for their children. The basic needs and aspirations of the Chilean masses such as the rebuilding of homes, infrastructure, the need for tougher regulations on real estate and construction firms, the introduction of forms of neighbourhood and workers’ control over urban planning, etc., will inevitably come into conflict with the interests of the ruling oligarchy and multinational finance capital which hold in their hands most of the wealth of the country. Chile is currently demonstrating that natural catastrophes and social shocks not only serve to lay bare the incapacity of capitalism in its crudest form i.e. “neo-liberalism” to combine real economic growth with a cohesive society, but also that these shocks are good opportunities to radically transform the conditions that keep this system alive.