258 CHAPTER 11 THE TRIUMPH OF NEOCOLONIALISM AND THE LIBERAL STATE, 1870–1900
After two years of resistance against very unequal
odds, the Araucanians were forced to admit defeat
and sign a treaty (1883) that resettled them on res-
ervations but retained their tribal government and
laws. The Araucanian campaign of 1880–1882,
which extended the Chilean southern frontier into
a region of mountain and forest, sparked a brisk
movement of land speculation and colonization in
that area.
From the War of the Pacifi c, which shattered
Peru economically and psychologically and left
Bolivia more isolated than before from the outside
world, Chile emerged the strongest nation on the
west coast, in control of vast deposits of nitrates
and copper, the mainstays of its economy. But the
greater part of these riches would soon pass into
foreign hands. In 1881 the Chilean government
made an important decision: it decided to return
the nitrate properties of Tarapacá to private own-
ership—that is, to the holders of the certifi cates
issued by the Peruvian government as compensa-
tion for the nationalized properties.
During the war, uncertainty as to how Chile
would dispose of those properties had caused the
Peruvian certifi cates to depreciate until they fell to
a fraction of their face value. Speculators, mostly
British, had bought up large quantities of these
depreciated certifi cates. In 1878, British capital
controlled some 13 percent of the nitrate industry
of Tarapacá, and by 1890 its share had risen to at
least 70 percent. British penetration of the nitrate
areas proceeded not only through formation of
companies for direct exploitation of nitrate deposits
but also through the establishment of banks that
fi nanced entrepreneurial activity in the nitrate
area and the creation of railways and other com-
panies more or less closely linked to the central ni-
trate industry. An English railway company with
a monopoly of transport in Tarapacá, the Nitrate
Railways Company, controlled by John Thomas
North, paid dividends of up to 20 and 25 percent,
compared with earnings of from 7 to 14 percent for
other railway companies in South America.
The Chilean national bourgeoisie, which
had pioneered the establishment of the mining-
industrial-railway complex in the Atacama, offered
little resistance to the foreign takeover. Lack of
strong support from the liberal state, the relative
fi nancial weakness of the Chilean bourgeoisie, and
the profi table relations between Chilean oligarchs
and British interests facilitated the rapid transfer
of Chilean nitrate and railway properties into Brit-
ish hands. This transformed Chilean mine owners
into a dependent bourgeoisie content to share the
profi ts of British companies.
But elsewhere in Chile, the war had energized
the national economy and mobilized local manu-
facturers and workers, who pressed for electoral re-
form; in 1884 the property qualifi cation for voting
was replaced with a literacy test. Because the great
majority of Chilean males were illiterate rotos (sea-
sonal farm workers) and inquilinos, this change
did not materially add to the number of voters;
as late as 1915, out of a population of about 3.5
million, only 150,000 persons voted. But it did se-
cure the 1886 presidential victory of José Manuel
Balmaceda, who took offi ce with a well-defi ned
program of state-directed economic moderniza-
tion. By the 1880s, stimulated by the War of the
Pacifi c, factory capitalism had taken root in Chile.
In addition to consumer goods industries—fl our
mills, breweries, leather factories, furniture fac-
tories, and the like—there existed foundries and
metalworking enterprises that served the mining
industry, railways, and agriculture. Balmaceda
proposed to consolidate and expand this native in-
dustrial capitalism.BALMACEDA’S NATIONALISTIC POLICIES
Balmaceda came to offi ce when government rev-
enues were at an all-time high (they had risen
from about 15 million pesos a year before the War
of the Pacifi c to about 45 million pesos in 1887).
The chief source of this government income was
the export duty on nitrates. Knowing that the pro-
ceeds from this source would taper off as the nitrate
deposits diminished, Balmaceda wisely planned
to employ those funds for the development of an
economic infrastructure that would remain when
the nitrate was gone. Hence, public works fi gured
prominently in his program. In 1887 he created a
new ministry of industry and public works, which
expended large sums on extending and improving