The Chilean Road to Socialism


Economic Structure and the Process of Socialization


The Chilean Oligarchy

A handful of powerful businessmen have always monopolized the economic life of Chile, making fortunes out of underdevelopment and the dependent position of the country in relation to the international system. Some of these "oligarchs" preferred to escape from the country after the assumption of the government by the Marxist parties. This article examines three of the oligarchic clans and some aspects of their operations in Chile.

Abridged from Ahora I, #8, 1971.

with Gustavo González, Mónica González, and José Venegas

Last September, at least for some Chileans, the country came to a standstill, it ceased to exist. From then until November, and even into December and January, the airports, seaports, and frontier posts observed an odd procession of patriots fleeing abroad "to take refuge and seek safety."

In the forefront were the ancient Grand Dukes of our economy followed by one or another paid mercenary frightened by his own shadow. Also exiting were people from the middle classes, small industrialists and merchants who had been caught in the contagion of fear. The sardines were climbing into the same boat as the sharks.

Dominating this exodus was a fear patiently built up by the oligarchy during the presidential campaign of 1970. The instigators and financiers of this fear were aware of the fact that a popular victory in September would put an end to their manipulations and speculations.

If the historical deeds of these millionaires were classed as treason to the country, there would be many heads rolling among those involved in the "Great Escape." It was they who, for more than a century, had built vast personal empires at the expense of the nation's destiny, always invoking Country, Forefathers, and Tradition. Their interests, however, never coincided with those of Chile.

For over one hundred years these men of finance formed and promoted their fortunes with the aid of three factors: exploitation of their employees, bleeding of the state, and the forming of close ties with the imperialist powers of the moment. Foreign penetration found in them docile and obedient allies.

The advent of a popular government has signified for Chile an end to the imperialist presence in our economy and political life. The allies of imperialism are escaping. It also signifies the start of socialist construction. Those who have made a profit from our capitalist underdevelopment flee. The controlling centers affected by the measures of the new government began, also on September 4, a gigantic sabotage of the Chilean economy. Industries were closed down, deposits were withdrawn from the banks, local and foreign currency was sent abroad. The Frei government calmly watched the events of the closing months of its reign while the Central Bank was being stripped of dollars for use in speculation. Last September the Central Bank issued a total of U.S. $17 million for trips abroad. During the same month in 1969 only $5 million was issued for the same purpose. At the same time, a migratory wave began. This was formed by all kinds of people. Chamudes escaped to Mendoza and from there controlled anti-Chilean campaigns throughout the continent. Lugoze did the same thing in Miami among the Cuban gusanos (exiles) and "other Midases." Jaime Egaña Barahona worked with the oppressive forces of the Paraguayan dictatorship. Agustín Edwards became an executive with the Pepsi-Cola Company. In Buenos Aires, the Chilean "emigrants" went into the dry-cleaning business. Others have installed boutiques where they sell Chilean handicraft goods. What a parody! the goods they sell are imported from Chile, a country where, one supposes, anarchy and communism reign.

A phrase mentioned a few years ago by Senator Rafael Gumucio now has a contemporary sound: "A relentless capitalist will without a doubt carry out his last commercial transaction on the road between his cell and the scaffold." The actions of the present government have already started to affect monopolistic groups financially controlled, until a short time ago, by those who have decided to flee from this country en masse. For the present report, we have drawn a profile of three of these groups: the Edwards group, the Yarur group, and the group of the Banco Hipotecario, commonly known as "The Pirañas." [1] There exist among them and other groups such close ties that when speaking of one of them we are really speaking about all of them. It is not the purpose of this article to vilify the people who directly represent these groups. They are of no interest, nor do we have vengeful attitudes. All we are interested in showing is part of the enormous empire built up by the local millionaires, in collaboration with imperialism, at the expense of underdevelopment, backwardness, and the misery of the people.

EDWARDS: From One Barrel to Another

George Edwards was a humble doctor who left his native Wales at the beginning of the nineteenth century. Wales was then, and still is, the most backward part of the British Isles.

Young Edwards, like many of his young compatriots, took the only opportunity offered to him to better himself: to emigrate and seek his fortune elsewhere. Present-day Welshmen are still doing the same: Richard Burton, Dylan Thomas, Tom Jones, and Engelbert Humperdinck have emigrated.

Young Edwards boarded a ship bound for South America. Months later he arrived off the coast of Coquimbo and, who knows for what reason, left the ship. He hid himself away, inspected the lay of the land, and finally married a local maiden, Isabel Ossandon, daughter of a powerful figure of the region and recently converted Jew. She provided him with a fabulous dowry. It was the start of a great career. Almost two centuries later, his better endowed descendants Agustín ("Dunny") and Roberto Edwards Eastman inherited the migratorial urge and went into an exile of a less financially distressing nature. Agustín went to Miami, Roberto to Buenos Aires. They left behind them a country in which six generations of Edwardses had made themselves commercially and financially powerful, speculating and profiteering at the expense of underdevelopment and the misery and poverty of others. They left because the country was no longer "theirs" and the "favorable conditions" were disappearing. Democracy was in great danger. Together with other lion-hearted citizens they decided to seek new and freer pastures abroad, such as those offered by Miami and Argentina. . . .

Seventy Sly Ones

At the time of their flight, Agustin and Roberto directed and captained a peculiar sort of football team. Eleven people controlled seventy corporations, together the most formidable financial complex in Chile and, in proportion to the might of economies, one of the largest family concerns in the world. Of the seventy units in the complex, Agustin had direct intervention in nineteen and Roberto in nine. Since they were short of time, their representation in the rest was handled by other members of the team: Sonia Edwards Eastman in three corporations; Domingo Edwards Gonzalez, three; Agustin Edwards Hurtado, three; Pablo Edwards Hurtado, nine; Hector Brown Guevara, fifteen; Carlos Eastman Beeche, two; María Isabel Eastman (widow of Edwards), two; Jorge Bande Neis, twelve; Carlos Urenda Zeagers, twenty. Some of the units of this empire are the Banco Edwards, the newspaper El Mercurio, United Breweries, Indus Leaver, the Chilean Consolidated Insurance Co., Renta Urbana, Pasaje Matte, Lota Schwager mine, Pizarreno, Luchetti mills, Ganadera Tierra del Fuego (vast landholding in the South), Agendas Graham, The Santa María Clinic, Huecke, Dow Chemical of Chile, General Motors Chile. There was even a university—the Federico Santa María, in Valparaiso.

It is calculated that the empire had a working capital of a billion escudos. The financial dealings of the clan were controlled through the Edwards Bank. The newspaper, El Mercurio, created the appropriate "atmosphere." Executives of little character were the first clients to be taken in by the brainy editorials and the backslapping campaigns in favor of the Edwards interests. Some of the newspaper's executives, up until a few years ago, used to have American-style breakfasts with the President of the Republic in order to consolidate their actions. As long as the political actions of the government had backing and promotion in the pages of the newspapers, El Mercurio's business proteges flourished.

Clan Versus Flan

The Edwardses did more than build close ties with other national monopolistic clans. They also looked for outlets abroad in their search for power and formed partnerships with imperialist concerns. Foreign investments abroad are closely linked with the Rockefeller group in Argentina, Brazil, and Colombia. Their Argentine business had the protection of an excellent sponsor in the person of Nicanor Costa Mendez, ex-Minister of Foreign Affairs and civil archpriest of the "gorillas." The links between the Edwardes and the Fords were channeled through the Ford Foundation. . . .

Before escaping from the country, Agustin exchanged all his national business interests for the international holdings of his brother Roberto. He bought a large holding of stocks in Pepsi-Cola and installed himself in the United States as one of the corporation's vice-presidents. Roberto, on the other hand, lives in the Argentine in a manner described as "frugal" by his friends.

The Edwardses, however, have been more than successful businessmen. There are people who criticize different aspects of the clan. They assert that the excessive mercantile voracity of the clan ultimately warped and even eliminated from public attention the valuable support given by other, not so rich or powerful members of the clan to Chilean culture and art. The well-known Joaquin Edwards Bello used to say that he did not belong to the clan but to the "Flan Edwards," the "Anti-Edwards Clan." The monarchical Alberto Edwards Vives, author of the well-known book La Fronda Aristocrática (The Aristocratic Foliage), was also not considered a true member of a mercantile family, nor was he in agreement with their life style. Even Sonia Edwards Eastman professes to be inclined toward the Left ever since she was a girl. [2] She studied at the Liceo Manuel de Salas, is a psychologist, and has been present at all the electoral campaigns of the Left. The Edwardses, rich or poor, once constituted an attractive family from a human and psychological point of view. They conserved in their homes a sort of reverential cult to their British ancestry. In Valparaiso, they taught the local society manners. In Copiapo, they were miners. One of them counted Albert Einstein as one of the few people who regularly received letters from him. In politics, the plutocratic circle has always been liberal. [3] They acted on the ideas put forward by the English and American regimes of the time. There were also among the Edwardses those who have supported the enemies of the oligarchy and participated in the ranks of the Popular Front movement as Radicals. [4]

Speaking from a sociological point of view, the criticism is interesting. Agustin and Roberto Edwards head "a family within a family." The name Edwards usually conjures up an image of opulence and well-being in the public eye. There are, however, Edwardses who work as messenger boys in offices or even those who drive trucks for a living.

As in the case of the Buddenbrooks, there was also a tragic side to the family empire. An unwritten rule states that the first-born male (who will always be called Agustín) will be the manager of the family fortunes during his lifetime. It has been said that "Dunny" did not want to do so, and although he was educated and brought up in a manner befitting his future role, his character and temperament were inclined toward artistic rather than materialistic matters. He would have preferred Roberto to take the tiller of the family boat.

It is probably due to this that "Dunny" introduced variations in the management of the empire. He consolidated his standing with the foreign powers and surrounded himself with young executives who were capable and daring in the true tradition of the North American entrepreneurial ethic. The empire was no longer administered and managed like a family shop. This style of thinking and acting allowed Agustín to unburden himself of actual administration and allowed him to dedicate his time to his two favorite activities: journalistic enterprise in general, and El Mercurio in particular. No other business received as much of his attention. This dedication to the press reached its apex when he was named President of the Interamerican Press Society.

The fall of the empire has begun. Its tentacles are so meshed with foreign concerns that no formula can be conceived to allow the growth of socialism as long as this empire remains intact. Its control over the banks, insurance, and the media, its methods of operation, and its outright monopolies (such as the beer industry) have made it incompatible with the interest of the nation.

YARUR: From Jerusalem to Glory

In the Holy Land the Yarur brothers, Juan Saba and Nicolas, traded in religious effigies carved by them, to three religious groups. In 1915 they emigrated to Peru, setting themselves up in Arequipa, where they installed a fabric store on one of the corners of Los Mercaderes Street. Five years later, on the profits gained by the shop, they tried to import machines in order to set up a medium-capacity textile industry. The Yarurs declined to pay the required taxes and, as a result, had to leave Peru.

They crossed the border and established themselves in Bolivia. The choice of country was motivated by the fact that in Bolivia at the time there were no taxes or duties. With the blessing of the Bolivian Government, the Yarurs exploited their workers unmercifully and, as a result, their textile industry flourished and began to yield large profits. The status acquired by the Yarurs allowed them to mix easily with the oligarchy, something that proved impossible later in Chile.

When Bolivia and Paraguay confronted each other in the Chaco War, the Yarurs obtained the concession to supply uniforms and provisions to the Bolivian Army. Very soon, however, their La Paz factory was found to be serving as a front for the illegal sale of arms and munitions to the Paraguayans. Of course, they were expelled from Bolivia. This was in 1935, and here the Chilean chapter commences.

Lace and Exile

When they arrived in Chile the Yarurs had 80 million pesos. A few years later their capital totalled 1,800 million. With the backing of Arturo Alessandri's government (1932-38) the Yarurs imported machinery duty-free and set up their new factory to produce textiles on a large scale. Juan Yarur bought the land on which the factory stands today at forty centavos per square meter. Shortly thereafter he sold part of the land at two hundred pesos per square meter. After a year's residence in Chile, Juan Yarur developed considerable political influence by means of his money. His greatest dream, however, still met impossible barriers. The local aristocracy, prejudiced and arrogant, never accepted him as a member of Society

in spite of his power and wealth. He managed to become a member of the Union Club only after paying an enormous amount of money. Nevertheless, in matters of business he obtained a kind of direct political influence which gave him privileges within the banking world and, to a certain extent, within the government. During the administration of Jorge Alessandri, Amador Yarur, the last manager of the industry, was named Director of the Central Bank of Chile, while he was, at the same time, President of the Banco de Crédito e Inversiones.

At this time a scandal broke out. In certain bank accounts more money appeared to be deposited than had in fact been deposited, in order to justify the large credits granted to members of the clan.

From the time of their arrival in Chile until their flight from the country, the Yarurs took pains to create around themselves the image of patriarchs who were concerned about the well-being of their workers. However, the treatment suffered by these workers is beyond imagination. In the factories the Yarurs imposed a life of terror; even a form of "militia" was set up and entrusted with "vigilance." Informers infiltrated the workers and passed any complaint or remark onto the management. The worker who was "disgraced" was then returned to the work-assignment pool. The victim was usually detailed to clean latrines, load bales, tidy salt stores, and clean machinery parts. If the "fault" was considered severe, the unfortunate worker would be sent to "Siberia," a location within the factory where temperatures were kept extremely low for the preservation of raw cotton.

The Yarurs were no better in their dealings with the state. It was always a question of obtaining the upper hand or more advantageous conditions in the easiest possible way. It was common among the Yarurs that when the price for a certain type of cloth was fixed by state control they merely produced the same article but with different designs or patterns. In this way they produced a "different" item, sometimes using less thread, and the price was not fixed.

The Empire Takes Shape

The extravagant personalities of the Yarurs led them to show off their wealth in a manner unlike that of the other millionaires. When the Yarur Textile Industry was confiscated, it was discovered that Jorge Yarur owned eight motor cars (among them one that was used only for taking out his dogs); also discovered were a hundred cases of fine whisky bottled in clay, 100 million escudos done up in 1000-escudo packets, and other choice odds and ends.

More important, however, is the structure of the Yarur empire. The family-owned Fabrilana, Plansa, Banco de Crédito e Inversiones, Yarur Cotton Manufacturers— Chile, Manufacturas Chilenas de Caucho, Juan Yarur S.A., Saavedra Benard, Radio Sociedad Nacional de Agricultura, The Robinson Crusoe Fishing Industry, Textil Progreso, and the Banco Continental.

The Dynamic Pirañas. [5]

The nickname of Pirañas befits this group, not because of the magnitude of their business but because of their voracity, which has transformed them into the real "big fish" among the relatively "small fry" species in Latin American finance. The sixteen principal members of the Grupo Banco Hipotecario constitute the most recent incrustation in the Chilean financial oligarchy. They lived the Golden Era during Frei's government and now extend their influence through more than sixty corporations. The Pirañas are situated in the most dynamic centers of industry—metal manufactures, machines, and electronics —without hampering their incursion into the more traditional fields of farming, cattle breeding, insurance, real estate, transport, communications, textiles, and mining. They are present in everyday life through Fensa refrigerators, Adams chewing gum, and the radio programs of Radio Cooperativa Vitalicia. They fit perfectly the theory of the "economic supergroup" established by the lawyer-economist Ricardo Lagos, [6] and in many spheres they share the honors with other clans such as the Edwardses, the Matte-Alessandri, and others.

Who Are They?

Family structures are not absent in this group, where the components are formed by family names intermingled with each other, such as Vial, Larraín, and Claro, with a few additional ones that do not break this continuity. . . . The hierarchy is led by Ricardo Claro Valdés, who heads thirteen corporations. He is followed by the person most representative of the group, Javier Vial Castillo (nine corporations), and Bernardo Larraín Vial with eight.

To find out the economic magnitude of the Pirahas group, a regiment of economists, lawyers, accountants, and others would need months to sort through the maze of balances, legal documents, tax returns, stock-market reports, and other clues. The task is now even more difficult, since the Banco Hipotecario group have been utilizing intricate devices in their transactions to get around the laws governing corporations.

A Few Accounts

Javier Vial Castillo is on the Board of Directors of five corporations, two investment firms, and two insurance companies. Between June 30 and December 31, 1970, seven of these companies, excluding Mademsa and Cooperativa Vitalicia de Inversiones, controlled capital on the order of 293 million escudos. During the same period of time, the profits were almost 28 million escudos. Taking a conservative estimate of 1 per cent of this amount as Javier Castillo's share, we can speculate that he had an income of 280 thousand escudos (it was probably more than this, considering the number of shares he owns), plus the amounts he received as a member of the board, for representation fees, dividends, etc. . . . The maximum salary fixed by the government for the higher ministerial posts barely reaches the sum of 192 thousand escudos per year, and it is evident that a Minister does far more than assist a board meeting or a periodic gathering of financiers once a month.

Another example is the fact that the seven members of the board of the Sociedad Anónima de Navigation Petrolera received 4,266,000 escudos at the end of 1969 for their attendance at board meetings and over 149,-500,000 escudos as their share of the profits. . . . During 1970 a laborer received a minimum salary, fixed by law, of twelve escudos per day; in other words, 4,380 escudos per year.

Founded in 1905 in Valparaíso with an initial capital of one million pesos, Fensa, under Frei's government, represented the typical emergence of the Grupo Banco Hipotecario in the world of finance, and the general control of the company openly favored the monopolistic oligarchy. In mid-1970, Fensa capital was 136,342,406 escudos including reserves, which gave them a return of just under 10 per cent, with more than 12 million escudos in profit. This capital had been almost doubled compared with five years before. The attraction of greater capital resulted in the progressive elimination of the smaller shareholders. The number of stockholders dropped from 3,647 in 1965-66 to 3,193 in 1969-70.

"The foreign license policy," Fensa states in its last Annual Report, "has allowed Fensa to take a large step forward in its technical advancements instead of a slow growth." The cost of this dependent development conditioned to foreign licenses is enormous.

The foreign influence in Fensa started in 1959, when contracts were signed with the Coleman Company and Whirlpool Corporation to manufacture heaters and refrigeration equipment. It continues with the license and technical assistance of the American Brake Shoe Co. granting them rights to manufacture brake linings for railways stock. This branch of the industry moved into motor vehicles when they obtained a License from S.A. Protto Hnos. of Argentina to manufacture motorcar wheels. They also obtained licenses from Hitachi, Japan, to construct electrical motors (1965) and paraffin stoves and heaters (1967) and in 1969 from Zerowatt e Cia., Italy, to produce washing machines.

On the International Level

The ease with which foreign influence is brought in is another characteristic of the Pirañas. Fensa alone operates fourteen banks, among which are the Frances e Italiano, The Bank of London and South America, Bank of America, and First National City Bank. The insurance group La Transandina links them with the telephone company (ITT), the Sociedad Renta Edificio Carrera with ITT Sheraton, and Finansa (National Finance, S.A.) with the shareholders of the First National City Overseas Investment Corporation, who own over 50 per cent of the stock of Finansa.

Finansa is one of the vehicles of foreign capital. During 1970 this firm authorized the issuance of debentures for a total of 60 million escudos. The 1971 Annual Report states, "The funds proceeding from these debentures will be invested in obtaining debentures issued by commercial, chemical, and other firms such as Wagner Stein SAI, Productores Gillette SAC, Gianoly Mustakis SAC, Franchiny Hollmart SA, Dow Chemical Chile SA, Manufactura de Metales SA, Mademsa, Antivero SAC, Industrias de Te SA, and also in the purchase of notes issued by the Compañía de Acero del Pacífico." Of these nine concerns, five are multinationals.

But now, with Allende in the presidency, the 1971 Annual Report contains a warning, which states: "During the months that have gone by in 1971, there is a tendency not to issue debentures for the time being."


1. Ferocious South American fish that attack and consume anything in the water. See also the reference to this group in Chapter 24.

2. Sonia Edwards, a Vice-President of El Mercurio, recently said, "The only appropriate destiny for El Mercurio is socialization, under control of the workers and with a regime similar to the textile firms transferred to social property." (Punto Final VI, Nº140, September 29, 1971).

3. Liberals in Chile are conservatives of moderate tendencies.

4. During the period under discussion, the Radical Party was a middle-class-based center-to-left-of-center party.

5. The Banco Hipotecario group is also discussed by Oscar Guillermo Garretón in Chapter 24.

6. The reference is to Ricardo Lagos, La concentración del poder económico en Chile (Santiago, 1963).

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