Gran Minería, a massive Chilean copper complex encompassing three mines: El Teniente, Chuquicamata, and Potrerillos. Although Chile was a substantial copper producer in the mid-nineteenth century, its output began to flag in the late 1870s. Modernizing the mines, which would have increased their productivity, would have required massive infusions of expensive technology. Although Chilean capitalists had the funds, they preferred to invest either in the booming nitrate industry, which brought in a high rate of return, or in ventures abroad.
In 1904 the American capitalist William Braden purchased El Teniente, a mine located near Santiago, where he introduced techniques that permitted the exploitation of low-grade copper ore. Braden subsequently sold El Teniente to the Guggenheim mining interests, which in turn transferred it to the Kennecott Copper Company. Then in 1911 the Guggenheims acquired what became the world's largest open-pit mine, Chuquicamata, located in Chile's Norte Chico. With the infusion of large sums of money to upgrade it, this mine quickly matched El Teniente's production levels. After restructuring their holdings, in 1915, the Guggenheims turned over Chuquicamata to Kennecott. In 1923, Kennecott sold Chuquicamata to the Anaconda Copper Mining Company, which named it the Chile Exploration Company. This corporation also developed the third part of the Gran Minería, Los Andes, in Potrerillos, for which it is now named.
These mines became classic examples of company towns where the mines owned the housing, the store, and the social facilities. These isolated copper mines did not consume much in the way of locally produced goods, largely because Chile did not manufacture what the mining companies needed. The workforce, though well paid by Chilean standards, was never large. Consequently, the huge profits resulting from low labor costs and minimal taxation were remitted abroad.
In the twentieth century this situation slowly began to change. For one thing, improvements in working conditions and increased social benefits mandated by the 1925 Constitution increased the cost of labor. More significantly, during the Great Depression the Chilean government shifted the main tax burden from nitrates to copper. The Moneda, or executive branch, accomplished this in two ways: by imposing a direct levy on revenues and by setting up exchange controls, thus forcing those copper companies that wished to remit their profits to the United States to purchase the dollars from the Chilean state. The creation of CORFO (Corporación de Fomento, or Development Corporation) increased the burden on the copper companies, because the Moneda levied a special tax on the mines to finance the diversification of the Chilean economy. By 1939 the tax rate on American mining corporations had risen to 33 percent.
Copper sales boomed during World War II, when the U.S. government agreed to pay a special rate of 12 cents per pound and abolished the import tax on Chilean copper. The Moneda increased the tax on the copper industry, raising it to 65 percent of the companies' profits at the same time the mines were paying a premium of 60 percent to purchase dollars. Chileans would subsequently complain that since the world market price was higher than the 12 cents per pound the United States paid, Washington had cheated Santiago.
Prices did rise after the war, encouraging the owners of the Chuquicamata mine to expand its facilities, but the owners of the other two, because of sagging profits, did not. When the onset of the Korean War brought another surge in copper prices, the United States again negotiated a treaty with U.S.-owned copper companies, setting the price at 24.5 cents per pound. Vowing not to be cheated twice, the Chilean government nullified this agreement and reopened the negotiations. The result was the Washington Treaty of 1951, which fixed the price at 27.5 cents per pound. Not only would the Chilean government reap the extra 3 cents, but it would have the right to market directly 20 percent of the copper mined in Chile. The following year the Chilean government declared that it would purchase the mines' output and sell it directly, in order to benefit from the higher prices.
Taxes then became so prohibitive—in some cases 90 percent—that companies became reluctant to modernize their mines, particularly after 1953, when copper prices fell at the end of the Korean War. This failure to invest reduced Chile's share of the world market. Clearly, the government had to do something to increase production and raise its revenues.
In 1955, the Carlos Ibáñez administration instituted a new policy called El nuevo trato, the new deal, that set the tax rate on the copper companies at 50 percent. To encourage production the government also levied a 25 percent surcharge, which it offered to forgo if the mines increased their output. Most of the copper companies complied, but the results proved disappointing: mechanization reduced their work forces, and even though Anaconda opened a new mine, El Salvador, Chile's share of world copper declined. This dismal performance disappointed those who had expected more from El nuevo trato.
Eduardo Frei, a Christian Democrat, drastically altered the status of the Gran Minería companies. Frei wanted the state to purchase an interest in the copper corporations so that henceforth it would participate in all aspects of mining, from extraction to its ultimate sale. Under his direction, in 1965 the Chilean government purchased 51 percent of the El Teniente mine from Kennecott, which remained a junior partner.
Frei's "Chileanization" program failed to appease the nationalists, who argued that the copper companies had cheated the government. When, in 1969, the price of copper increased on the world market, Frei's critics demanded that he renegotiate his earlier agreement with the U.S.-owned copper companies. Anaconda subsequently agreed to sell 51 percent of its holdings in Chuquicamata and El Salvador.
After his 1970 election, President Salvador Allende announced that he would purchase the remaining 49 percent of Kennecott and Anaconda. Although he promised to pay compensation, he stipulated that he would deduct from that award all profits he considered excessive, meaning any amount over 12 percent. In September 1971 he declared that since Anaconda and Kennecott had made excess profits of approximately $770 million, these companies owed the Chilean government approximately $380 million. Clearly, politics, not international law, had motivated Allende's desire to end what he considered a cycle of dependency on the United States. Regrettably, politics often dictated the policies of the nationalized mines: worker discipline declined, and it became difficult to obtain spare parts. The mines, their workforces swollen, simply became less productive, and hence less profitable.
The Pinochet government (1973–1990), which returned stability to the mines, moved to seek an accommodation with Kennecott and Anaconda. In 1974 it agreed to pay them for their shares in their respective former holdings. Finally, after decades, the Gran Minería became completely Chilean.
Clark Reynolds, "Development Problems of an Export Economy: The Case of Chile and Copper," in Markos Mamalakis and Clark W. Reynolds, Essays on the Chilean Economy (1965) pp. 203-298.
Leland Pederson, The Mining Industry of the Norte Chico, Chile (1966).
Markos Mamalakis, "The Contribution of Copper to Chilean Economic Development, 1920–1967," in Raymond Frech Mikesell, Foreign Investment in the Petroleum and Mineral Industries: Case Studies of Investor-Host Country Relations (1971), pp. 387-420.
Eric N. Baklanoff, Expropriation of U.S. Investments in Cuba, Mexico, and Chile (1975).
Theodore H. Moran, Multinational Corporations and the Politics of Dependence: Copper in Chile (1975).
Joanne F. Przeworski, The Decline of the Copper Industry in Chile and the Entrance of North American Capital, 1870 to 1916 (1980).
Paul E. Sigmund, Multinationals in Latin America: The Politics of Nationalization (1980).
Francisco Zapata, "Nationalization, Copper Miners and the Military Government in Chile," in Thomas C. Greaves and William Culver, Miners and Mining in the Americas (1985), pp. 256-276.
Klubock, Thomas Miller. Contested Communities: Class, Gender, and Politics in Chile's El Teniente Copper Mine, 1904–1951. Durham, NC: Duke University Press, 1998.
William F. Sater