Historically speaking, exploitation of minerals in Chile goes back to the colonial period. For instance in the 17th Century, copper mining in the province of Coquimbo in Chile, gold mining in the 18th Century in Norte Chico dominated the economic and social life of Chileans.
Mining operations, in turn, brought variety of economic activities -agriculture and livestock rising to supply the mining ‘ centres with food, growing of forage and fodder to feed the mules; transportation of timber to supply the smelters with fuel.
While gold production had reached its peak at the time of Chilean independence in 1818, silver and copper emerged the significant mineral resources in Chile subsequently. For instance, between 1811 and 1870 (although at intervals and in different parts of the country) silver extraction and production went up multi-fold.
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It did lead not only to the increase in population in silver producing areas but also provided the stimulus to agricultural operations to feed the growing population. The Chilean silver production rose continuously until the 1850s, declined somewhat during 1860s but reached its peak in the decade 1880s with an annual average output of 157,000 kg. Somewhat similar had been the story of copper mining and production in Chile during the 19th Century.
However copper was more important as a source of national income and the history of copper mining in Chile is not only older than that of silver but also more continuous. Chile experienced two quite distinctive phases of copper mining in the nineteenth and early twentieth century’s.
In the first phase (1820s to 1870s) copper production increased rapidly in Norte Chico area and its exports in I860, for instance, amounted to more than half of Chile’s total exports.
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By 1860s, Chile’s share of world production rose to 44per cent from 30per cent in the previous two decades. However with competition from USA and Spain and also faced with outmoded technology, the Chilean share of world production fell to 16per cent in 1880s and further down to 6per cent in 1890s. By this time, copper was further overshadowed by nitrate production in the Chilean economy.
The second phase of copper exploitation in Chile was closely associated with the revolution in copper technology that USA experienced in the first two decades of the 20th Century.
The two phases of copper mining in Chile are distinct not only in terms of mineral extraction but also in their different impact as the Chilean landscape; however what links them together is the critical dependence of the Chilean economy during each phase on the production and export of copper.
Nitrate Industry: Boom and Slump Periods:
The most important development of mineral resources was that of Chilean nitrate. The existence of nitrate resources and its low operational cost with low cost of transportation to the coast from Atacama Desert were favourable factors for rapid exploitation of this mineral.
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The nitrate industry witnessed rapid growth from the 1880s, after having experienced depression years in the late 1870s. Chile’s seizure of the nitrate provinces from Peru and its subsequent decision to return the industry to private ownership was a decisive moment in the history of the nitrate industry.
This step marked the entry of British capital in a major way in the Chilean nitrate industry. Five major areas of nitrate field exploitation were developed in the boom period of nitrate industry since 1880s. In the heydays of nitrate boom, 70per cent of the Tarapaca province nitrate industry was in British hands.
Impact on Economic and Social Formation
a) Economic Impact:
The most significant development of mineral recoveries in Chile J was that of natural nitrate between 1880 and 1925. Even before 1880, when the political problems among Chile, Bolivia and Peru had been J surmounting, the Chilean labour and capital played a major role in the exploitation of the nitrate deposits.
Comparative advantage of exploitation lay in low operational cost of mines as well as low cost transportation to the coast for onward shipping to the consumption centres in Europe.
After the settlement of political problem in the above three countries in 1880, the rapid expansion of the nitrate industry took place and large parts of the Atacama desert region of Chilebuilt a transport infrastructure unmatched in the world’s arid regions.
No doubt, the foreign enterprises from USA and Britain provided the much needed capital and technology for the development of this industry.
Railways construction received the top priority either by nitrates-, companies or some independent companies looking for profitable investment opportunities generated by the nitrate companies.
The system was designed to provide the shortest and lowest cost route from the preliminary processing centres of nitrate to the ports. Without the incentive of nitrate development in the desert, the railway network would not have penetrated into the central valley of the country and further down to the south.
Apart from the transport linkages effect, there were few other local multiplier effects emerging out of the Chilean nitrate development and exploitation. For instance, the Chilean government was able to collect revenue from the nitrate companies and utilised the same to pursue development projects elsewhere in the country.
The government revenue from export taxes on nitrate as a proportion of its total revenue rose from a paltry 5.5 per cent in 1880 to 66 per cent in 1895, declined to 56.6 per cent in 1905, stagnated around 50 per cent between 1910 and 1920 but fell sharply to 37 per cent in 1925. Further, the state financed Chilean Development Corporation was engaged in oil fields exploration and development and investment in manufacturing industry.
Nitrate industry also stimulated trans-Andean trade in cattle and agriculture commodities in the region. On the negative side however, as the history of nitrate industry shows the boom was followed by slump with considerable frequency.
Since the nitrate was mainly export-oriented industry and the major markets for this commodity were Western Europe and USA, the determining factor was the demand in these markets for nitrate. However, world consumption of nitrate did not keep pace, rather was falling short with Chile’s productive capacity.
Over-supply witnessed a period of falling prices, which led the producers to enter into an agreement to restrict their output under the circumstances. This led to a reduction in the government revenue from export taxes; workers were rendered jobless; shippers also suffered and its ‘spread effect’ caused misery to the other interested sections in the nitrate trade.
Second, due to the disruptions in the supply of nitrate to its one of the biggest market i.e., Germany in the First World War period, the German scientists developed synthetic nitrate and the process was followed by other West European countries.
This led to a decline in the share of Chilean nitrate production from 90 per cent to about 24 per cent during 1913-29. The great depression of 1929-33 further hit the Chilean nitrate industry. Large number of mines was closed; millions of workers were rendered unemployed and ‘nitrate age’ in Chile ended abruptly.
b) Social Effect:
The rapid stride in the nitrate industry from the 1880 had a significant effect on the Chilean economy and society. First, the industry encouraged immigration from other parts of Chile and stimulated the growth of ports and construction of railway tracks to carry the nitrate from the field to the ports.
Also pipelines for water were laid down to supply water for both the coastal and island centres. Second, the industry led to the doubling of population of Tarapaca (one particular town in Chile) between 1885 and 1895. Third; port towns really enjoyed boom period, having spread cultural activities in these towns.
Some of the commentators view the development of mineral resources in Chile more favourable to American and British interests than for the Chileans themselves. During 1960s and 1970s, for instance, the Chilean governments preceded first to the ‘Chileanisation’ of the copper industry (under President Eduardo Frei) stakeholders and ultimately culminated in the military takeover of the Chilean government.
Contrary to the above view, some argue that without foreign financed development; the whole of the northern part of the country would have remained unused, unpopulated.
For Chile, given its resource position it would have been a difficult and costly proposition to maintain contact with this area and thwart any attempt of its neighbours to grab this territory. Economic exploitation of the resources by foreign enterprises kept intact the Chilean territory and also provided the means to defend the same.
In sum and substance, as a result of the changing market structure or technological breakthrough and shifting of activity from one region to another the process of development moved from agriculture development and grain production in Central Chile to the mining of nitrate and then copper in the north.