Critique of Thomas F. O’Brien’s “The Antofagasta Company: A Case Study of Peripheral Capitalism”^*

Dr. O’Brien’s article is a noteworthy contribution to the small, but growing number of case studies aimed at providing evidence for—or against—the views of modern dependency theorists.¹ His particular concern is the area of peripheral capitalism, an “essentially hypothetical” explanation of Latin America’s economic history and woes”; he examines the early years of the Antofagasta Company as an example of this. His conclusions appear generally sound, although perhaps strain his data.

The Antofagasta Company is exceptionally well documented, but largely in British sources. The only collection of Antofagasta Company papers I know adds little to those, though they do confirm Chilean dominance for the period they cover (1878-1879).² Chilean sources appear to be limited largely to public documents—company memorias and congressional debates. Such sources, one partisan and private, the other partisan and public, obviously give a one-sided view of company affairs, for which allowance must be made.

An important question concerning the company, in the context of peripheral capitalism, is how representative of Chilean enterprise it was. Agustín Edwards Ossandón was not a typical Chilean capitalist. The son of an immigrant father and Chilean mother, he was a self-made man whose fortune exceeded twenty-five million pesos by 1878. Interests in copper, banking, insurance, and railways made him financially invulnerable. He was, perhaps, unique among Chilean magnates in investing along with James Sawyer, formerly of Duncan, Fox and Company, in a commission house to compete with the foreign firms.³

Nor was William Gibbs and Company a typical commission house. This, the Valparaíso partner of Antony Gibbs and Sons of London, was by the 1870s managing copper and nitrate mines of its own. Neither appears to have been acquired deliberately, but rather taken over in order to protect money already advanced.⁴ This kind of investment was normally anathema to commission merchants, whose credo was that capital “should be actively employed in shipments from one side or the other, and not upon dead works which cause it to lie idle.”⁵ Few did as well as Gibbs from their lame ducks, but they remained chary of them despite their success. As O’Brien makes clear, the Antofagasta Company was Chilean, not British, in inspiration.

If the company was not a typical example of Anglo-Chilean enterprise, certainly it displayed the basic variables of peripheral capitalism in nineteenth-century Latin America, almost to the point of caricature: “interaction of the domestic elite and foreign investors, exploitation of natural resources … as well as critical national policy decisions” (pp. 2-3). Only “cheap labor” is missing (p. 8). Geographically, it could hardly be more peripheral—far from the centers of population and political power of both Bolivia and Chile, not to mention Britain.

It is, then, a large step to generalize about peripheral capitalism from the company’s example. As the study is based on a detailed examination of only a part of its history (the Gibbs–Edwards alliance) which had its own logic, the particularity of the findings must be noted. What emerges clearly are the business reasons for particular decisions. What does not, except for a succinct characterization of Chilean society (p. 28), are explanations of why such an efficient company had so few backward linkages with the rest of the economy, of why its success did not disturb what the British Minister described in 1873 as the “national preference for those modes of acquiring wealth which involve the least possible labour.”⁶ In fact, no such disturbance occurred; indeed O’Brien’s general conclusion is that the alliance of foreign and native factors of production actually curbed challenges to the traditional order. It is clear that Chile’s rulers had much to lose, but foreign interests in traditional societies have not been universally tolerant of their hosts and their values. Why then did the close relations between the representatives of one of the most ambitious of capitalist nations and the traditional elite of a proud but not noticeably powerful or important state have so little overall effect?

The answer lies in the nature of the foreign interests in Chile, exemplified by the British, who were the most successful and the most skilled foreigners in the republic.⁷ Their presence pervaded the import–export sector of the economy, involving banking, insurance, chartering, wholesaling, transport, staple production, and minor occupations. What it did not involve was manufacturing. In the British community, the leaders were merchants, partners in the big commission houses that dominated foreign trade.⁸

These commission houses shared certain characteristics. Because they were partnerships, not limited liability companies, their resources were limited to their partners’ fortunes, together with such credit as their records recommended to bankers and suppliers. In turn, they made advances to their constituents and granted credit to their customers. This put a premium on the efficient use of their capital, which meant quick turnover, and extreme suspicion of anything likely to lock up their funds, a policy they carried with them into the banks they helped to found and manage.⁹ Such attitudes limited the banks to providing working capital, as did the merchants in their arrangements with agriculturalists and miners whose produce they handled.¹⁰ Their business, then, was to use money, marketing skills, services, and other people’s products to make money. They were merchants, not manufacturers, and only occasionally miners.

This fundamental commercial outlook did not change with their involvement in nitrate. Much of the British investment came from company flotations in London which gave the commission houses new opportunities in their traditional business: agency work on commission for the producers, importing supplies for them, and buying and selling nitrate on their own account. Change, if it involved risk or locking up capital, did not interest them; they were innovators only when forced to be.

The investments that commission houses and wealthy merchants did make reflected this tendency. Banks,¹¹ the private railways in the northern mining districts,¹² and insurance companies were the focus of British capital. These securities shared certain qualities: consistent dividends, profitability, a steady price, and easy resale. Britons also played an active part in their management from the boardroom down, which was a further protection.

In the same way, what they did not invest in is indicative of their attitudes. The artisan industry of Valparaiso, notably foundries, failed to tempt them though they were often established by foreigners. In the absence of protection, such enterprises were bound to remain small-scale and risky, no matter how modern or well-managed. Nor did they invest in land. They had come as transients and land offered slow returns, not to mention the formidable problems posed by a traditional agricultural system.

It was a comfortable and profitable existence for both sides. If the Chileans were content, then foreigners had no reason to push for change. And nitrate appeared to have ended the necessity for even considering it. That the alliance of a traditional, land-oriented elite and foreign, trade-based mercantile interests failed to produce the conditions that would lead to authentic economic development and social change is therefore unsurprising—any other result would have been unexpected.

Nitrate saved Chile, its elite, and foreign businessmen from hard choices in 1879 and then gave the country nearly fifty years respite from economic worry. This is the underlying reason why the alliance of native and foreign factors of production had such a limited impact on the economy and society, and why the backward linkages from the Antofagasta Company were so weak. This company represented an intelligent response to the conditions of the 1870s, and despite disagreements between Chileans and Britons it came rapidly and profitably into production. Providing a finished product, it offered opportunity only for the supportive manufacture of replacement parts, not of by-products. That even this did not occur is best explained by the attitudes and needs of the native and foreign interests involved in the running of Chile’s economy. The effects of peripheral capitalism in Chile in this era are only to be understood if the static nature of the foreign element as well as of the traditional society is remembered.

Author notes