One of the biggest things I’ve noticed working and living in Chile over the past five years is that most Chilean elites have a very different attitude toward business than US business people do.
In the US, most business people, even those with vast fortunes, are extremely driven. Whether they’re driven to make more money, for more recognition, for more power, to make the world a better place, or for their own entertainment, most US business people are always looking for the next challenge. They want to expand, to try new things, to make more money.
If they own the 5th biggest mortgage business in the US, they’re likely working their ass off and are very motivated to try to grow to #4. If they own the second biggest Honda dealership in the greater Milwaukee area, they’re doing everything they can to get to #1. And they’re busting their butt every day because they know all of the people with smaller businesses are gunning for their spot. And so are new entrants into the market. In short, US business people are extremely ambitious because they both fear competition and want to grow to make more money, leave a legacy or just because they enjoy it.
In the US, we celebrate rags to riches stories. We love to hear stories about people who came from humble beginnings to start massive companies, became doctors, lawyers, teachers or other success stories. We even celebrate just going from not having money to having money. We see it as a virtue in and of itself.
The typical Chilean elite attitude is very different. There aren’t many rags to riches stories in Chile and people don’t really celebrate existing stories. In many cases, many Chilean elites actually look down on people who came from the bottom to become successful. It’s the opposite of the US.
The vast majority of Chilean upper class business people are all about preservation and extraction. The #3 pharmacy isn’t going all out to be #2. The 5th biggest bread brand isn’t busting their hump to be sure they aren’t caught by the 6th. They’re happy with what they have, making their share of the profits each year. They’re not concerned that a new entrant will start to compete and take away market share.
Why doesn’t competition scare them?
I think it’s a combination of reasons. First, Chile has been isolated from the outside world for the vast majority of its existence. Chile is a small country geographically, at the end of the world, so when foreign companies want to enter into a South American market, they choose bigger, sexier markets like Colombia, Mexico, Brazil and Argentina.
When foreign brands decide they want to come to Chile, they don’t find it attractive to enter the market and compete directly. Instead, they sign exclusive representation deals with Chileans, in effect, giving the representative a license to print money. In larger countries like Brazil, Mexico and Colombia, more foreign companies set up their own operations to make money.
The next big reason is that industries are highly concentrated into a few hundred very wealthy families that pretty much all went to the same elementary, middle and high schools, and then the same universities. Everyone in the elite is one to two degrees of separation away from each other. Competing really hard against a family friend, a friend of a friend, a member of your church, or golf club is looked down on and most people don’t do it.
Sometimes this lack of competition leads to direct price fixing, which happens with impunity, as the social and economic punishments are very low and price fixing isn’t a criminal offense. When three large Chilean companies were accused of price fixing toilet paper and stealing US$37m by taking advantage of the poorest Chileans, Chilean elites didn’t lead the outcry demanding justice and denouncing the families who run the companies. Some did, but the vast majority didn’t.
Another big reason is that most Chileans don’t have the resources or education to actually compete. 95% of Chileans make less than US$1400 and 85% make less than $900, 50% make minimum wage of US$310 and the vast majority of the “have nots” don’t have a good education. You can’t compete with a large scale business if you don’t have a good education or the ability to have saved a bit of a nest egg.
Finally, Chilean bureaucracy makes it much harder to start a business than it is in the US and requires up to 6-9x the startup capital as it does in the US because large Chilean companies pay net 90-150, which means a new business owner needs 6-9 months of startup capital, whereas net 30 in the US means you need 1-2 months of startup capital to get going.
Why aren’t they motivated to grow?
If you’re not afraid of losing market share from strong international competition, a new upstart or someone already in the market, you’re more likely to be happy with what you have.
Most Chilean elites have a very good life. If you’re a business owner, you likely have a nice house or apartment in Vitacura or La Dehesa, a house at the beach in Cachagua, Zapallar, Maitencillo, a house in the mountains to go skiing, a chunk of land in the south with a beautiful house on it and potentially an apartment in Miami or some other nice place.
And if you don’t own them, your extended family or close friends have access to them and invite you along. Many have live in maids who make life easier. If you have the good life and aren’t worried about competition, why would you be motivated to try to expand and make more money, optimize and make things better? Why not just let the machine run, collect profits and live the good life?
I can’t say that I fault the elites who have this mentality, but ambitious people are the ones that change things, who make the world a better place, who help lift the world out of poverty, who discover big scientific breakthroughs and move the world forward. Right now, the vast majority of elites think that the good times will run forever. Copper will keep being valuable, the 85% of the non-elites will be happy with cheap material goods and won’t demand a bigger share of the pie. I think they’re wrong on both counts.
If Chile really wants to be a world-class country, it must find a way to motivate its upper class to be more ambitious, make the system better and easier to navigate for ambitious lower and middle class people to thrive or import foreigners who are driven and want to create new value. Otherwise Chile will sit with the status quo, extracting copper, making massive profits on capital, banking, property, agriculture and natural resources and 85% of its population will be unhappy, wanting to get into the middle class, but not being able to, creating a risk of left wing governments like Argentina or Venezuela that we know don’t work.
And when (not if) copper is replaced by synthetic substitutes or technology advances so that less copper is needed in infrastructure and other manufacturing processes, the Chilean miracle will be over. When. Not if.
If Chile wants to be a world class country, it must do better.
Great article Nathan. You seem to have a theme going on the cultural impediments to a great leap forward for Chile. I have a friend who left Chile and worked for 10 years developing skills and receiving recognition for his ability and accomplishments. He returned to Chile but because he was not a member of the club, had not gone to the right university, etc. he struggle to get a decent job that in anyway reflected his experience. He found a position as a temporary hotel manager during the holiday season and within 2 weeks he identified and fixed so many problems that the owners gave him the general manager position. However, they being the old money type owners did not give him the autonomy needed to make the enterprise as profitable as the vision he presented. It was like a hobby to them and he wanted to make it the best hotel. They really weren’t interested. He saw he had no future, so he organized a new start up. You’d be proud of it. It’s an example of the energy unlocked by being exposed to an environment that incentivizes bigger visions. These guys have no vision and are shooting themselves in the foot by trying to keep all the toys for themselves. They are not learning the important lessons than will be necessary when serious competition confronts them. Apparently, they can only think in terms of getting more money by squeezing the locals as evidenced by the price fixing scandal. It’s pathetic actually.
Hi Randy, I’m glad you liked the post. Your friend’s story is fairly typical…it’s very hard to get a similar level job that you might have held outside of Chile when you come back.
Hi Nathan, I’m Randy’s friend. Actually he introduced me to your blog the day I mentioned to him I was into starting up my own bussiness. Your article about “Chileans should leave…” is been going back and forth on my Facebook’s wall which means it’s been very successfull and “on point”. Right now I am waiting on SUP Chile’s results… I made it to the “skype call” with the team, so we’ll see… if not, will continue bootstrapping until we email the first factura electrónica. Great reading, happy following your blog! Take care and thanks for sharing your wisdom in this part of the World.
Enjoy reading your blog. Work here in the physics department of a university, and maybe fortunately am not exposed to Chilean old money. However it is a great problem that our graduates are often unable to find work – even if they have been overseas for postgraduate PhD studies. (Becas Chile returnees driving taxis for example). The corporates have not cottoned on to the fact that it may be profitable for them to hire a physicst: Someone who is smart, creative, and for whom problem solving is their speciality.
Thanks for commenting. Chilean companies still hire based on your major, not based on whether you can do the job and still use personality tests to see who might fit the right profile, immediately limiting the supply of smart people. Then when you add in “buena presencia” you’re really cutting them down. If you know smart people who are coming back working as taxi drivers, send them my way!
Thanks for putting my thoughts in worlds! I wonder why the Chileans born into money don´t get a basic business education which they can clearly afford. I understand that when you become a senior manager right after uni of your parents/relatives´ company or a business specially set up for you by your parents, it´s difficult to see a need in doing MBA (not trying to promote one here). But keep running the business the way your ancestors did and hiring people who are way better educated than you and not giving them any change to help grow your business is really sad. Chile could have been a much better place if the people who actually think they own the country had treated it accordingly.