Tens of thousands of Chilean copper-mining contractors have gone on strike for higher bonuses in a time of record-high copper prices. They’re contractors rather than employees, and don’t exactly have a contractual right to demand this money. But for the same reason that uninsured New Orleans homeowners still seek money from Uncle Sam, even though they didn’t buy any of the cheap, available, and pro-offered flood insurance from him, it’s nevertheless natural to ask. Times are unusual and politicians often respond to large numbers of people making the same request. It’s not unexpected that they might ask their owners for more money in times of record-high copper prices – and governments like Venezuela have done this with gusto to their foreign oil contractors, despite perfectly good signed contracts that could stand as they are. There’s a political component to all this.
That said, you might ask why they shouldn’t give it to them? Times are good, live it up. In my own opinion, I would not be surprised or appalled if they probably should give them something. But it should not be enough to interfere with investment. All commodity industries have an investment cycle, and these cycles can be as long as 50 years. Within these cycles, they have high fixed capital costs. That’s what investment is for. Those costs are easy to meet in good times, but hard to come by when prices tumble – and in the commodity industry, they can tumble hard. So, what’s spent on the ground as gravy or dividends or consumption, in the end, runs the danger of being money that’s not available for investment on days when copper prices tumble. And eventually, they will.
But the contractors are firm on the need for more money because copper prices are so high these days. It presents interesting questions about the New Economy, which indeed does include atomizing, decentralized fixtures like independent contractors – along with Chile’s famous pensions, outsourcing, and new business startups.
The government has refused to budge, saying it doesn’t owe them any money, and in response, the contractors have set up Bolivia-style roadblocks, severing the main highway artery from the production point in Chile’s north, to the port. It’s also very violent in the streets and many contractors have been arrested.
Chile controls a massive chunk of the world’s copper supply, something critical to world industry (particularly to booming, rapidly industrializing China), and world copper prices have already been rising to record highs. As a result of today’s strikes, and market fears about shortages, copper prices have soared $15 to $212 an ounce. They’ve since moved back down and now copper prices are lower. But I see no evidence of anything in the press suggesting that this standoff is getting any better.
The whole strike is important, not just because of its size (to compare: Venezuela’s massive oil strike that drove oil prices to $2 a gallon at the pump in the U.S. involved 18,000, not 28,000, people) but because of what it says about the New Economy. It’s also important because Chile is just slightly more than a week away from its presidential election, one that socialist party candidate Michelle Bachelet leads in the polls by 8 points.
Will this copper strike influence the election? I do not know. If it gets violent and people start to fear Bolivia-style unrest, it’s possible they will vote for rightwing candidate Sebastian Pinera. If they feel sympathy for the strikers – and being in the new economy and possibly contractors themselves, maybe they will side with the strikers as a bid to get better pork barrel benefits – particularly with the rest of the continent swinging left. It could be either. Whatever way it goes, it should be watched very closely.
I will find some blogs to link and in the meantime, here are some news stories:
Agencia EFE has a good summary of the situation, in English here.
Bloomberg, as usual, has more first-rate coverage, in English, including information about how copper prices are reacting. It can be read here.
La Tercera has a good photo of the 28,000 strikers that can be seen here.
La Segunda has a good string of breaking news in Spanish, plus a few photos here.
Diario Financiero has some longer articles in Spanish on the business aspects, it’s here.
El Mercurio has more in Spanish here.
Blogs:
To start, David Sasaki at Global Voices has an excellent backgrounder in the form of a Chilean blog roundup. For the Spanish-only ones, he tells what they are saying. It can be read here.
And be sure to catch up on Chile’s election situation with Robert Mayer’s excellent summary of that event – which he will live-blogging from Chile – it’s right here.