Can You Trust a Chilean?

Lost Purse

Lost purse

Only 24% of Chilenos responded affirmatively to survey query, “Would your neighbors return your purse or wallet if it were to fall onto their property?”

I can see why because my wife Mary misplaced her purse two blocks from our apartment and the Chilenos nearby did not alert her. It took Mary weeks to replace her passport, driver’s license, and other documents, and it cost $300; all so that a Chilean could enjoy the $50 in her wallet.

A survey by the Organization for Economic Cooperation and Development (OECD) showed that Chileans are the most untrustworthy people in the OECD countries. Only 13% of Chileans believe most people can be trusted compared to 23% in Turkey, 26% in Mexico, and 48% in Portugal. Rich countries scored higher and the ethnically homogenous countries in northern Europe scored highest (Denmark, Norway, Finland, Sweden).

Nathan Lustig recently lamented how difficult it is for Chilean start-ups to raise capital and how many accept the Marxist idea that capital comes dripping from head to foot, from every pore, with blood and dirt:

Chilean culture punishes failure. Many Chileans believe that if an entrepreneur starts a business and fails, the entrepreneur must be stupid, lazy or stole the money. Or a combination of all three!

…. I also learned that making a ton of money is sort of looked down upon here. Multiple people have told me that Chilean President Sebastián Piñera had to fight off attacks from the opposition that he was TOO successful. Not that he was corrupt, but that he was too successful.

People in the United States do not despise the richest investors, Bill Gates and Warren Buffett, a big advance from when Presidents Truman and Eisenhower 50 years ago punished DuPont’s success:

Quick to spot a moneymaking opportunity, Du Pont Treasurer John Jacob Raskob persuaded his firm, back in 1917-19, to sink about $50 million into a struggling automobile company named General Motors. That fabulously foresighted investment, now worth close to $2.7 billion, makes giant E. I. du Pont de Nemours & Co. the owner of the largest block of stock (23%) of the biggest industrial giant of them all.

In 1949 the Justice Department brought suit to force Du Pont to give up its G.M. shares… Judge Walter J. LaBuy dismissed the Government’s suit. Ruled Judge LaBuy, “The Government has failed to prove conspiracy, monopolization, a restraint of trade, or any reasonable probability of a restraint.”

Karl Marx

Karl Marx, inspiration for USA Supreme Court and Presidents Truman and Eisenhower

The Supreme Court, inspired by the Marxist doctrine that capital comes from dripping blood and dirt, reversed Judge LaBuy and forced DuPont to sell its GM shares.

Venture capitalists almost always invest nearby to reduce time spent managing investments. Cristian Shea, manager of Santiago venture fund Equitas Capital, however, invested in a Seattle start-up that develops software for independent hotels and serves on their management board. Travelling afar suggests that Chilean investors are reluctant to invest in Chilean start-ups; they prefer foreigners because Chileans are untrustworthy.

I’ve spoken to many Chilenos and foreigners who say that, as Chilenos are untrustworthy, negotiating a business contract is a protracted ordeal. Nathan Lustig reports that Chile requires fingerprints to open a bank account. Dirk Roettges reports that Chile also requires fingerprints on other contracts and that a poll found that 76% of Chileans don’t trust their neighbors. Worse, Chilenos are unlikely to adhere to its terms after the agreement is made. According to Gallup:

Because trust lies at the core of most human interactions, it forms an integral part of the social capital of nations…. Some researchers argue that the extent of the “high-trust radius,” as in trust between strangers, affects a country’s economic performance. Most, if not all, economic activity exists in a social context and depends on people’s ability to cooperate with each other.

According to the Legatum Prosperity Index, Chile ranks 64th in the world in social capital and 32nd in overall prosperity out of 110 countries. Pew Research also finds that Chile has less social capital than Argentina and Mexico. Francis Fukuyama explains why social capital is important in a free market, where it comes from, and how it can be increased. Philosopher John Stuart Mill wrote in the 19th century about the problem of trust in business:

The moral qualities of the labourers are fully as important to the efficiency and worth of their labour, as the intellectual. Independently of the effects of intemperance upon their bodily and mental faculties, and of flighty, unsteady habits upon the energy and continuity of their work (points so easily understood as not to require being insisted upon), it is well worthy of meditation, how much of the aggregate effect of their labour depends on their trustworthiness.

All the labour now expended in watching that they fulfill their engagement, or in verifying that they have fulfilled it, is so much withdrawn from the real business of production, to be devoted to a subsidiary function rendered needful not by the necessity of things, but by the dishonesty of men. Nor are the greatest outward precautions more than very imperfectly efficacious, where, as is now almost invariably the case with hired labourers, the slightest relaxation of vigilance is an opportunity eagerly seized for eluding performance of their contract.

The advantage to mankind of being able to trust one another, penetrates into every crevice and cranny of human life: the economical is perhaps the smallest part of it, yet even this is incalculable.

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