I’m writing a bimonthly column for The Santiago Times, one of Chile’s English language newspapers, about doing business in Chile and the entrepreneurial ecosystem. My first article was published today and it overviews some of the changes I’ve seen in the Chilean entrepreneurial ecosystem since I first came to Chile in 2010. From the article:
But entrepreneurs in 2010 also had to face powerful cultural obstacles. Chile was risk averse and punished failure. A typical conversation went something like this:
Chilean: “What do you do?”
Me: “I have my own business.”
Chilean: Blank look … “But what do you do?”
Me: “I have my own business!”
Chilean: “So you don’t have a job?”
When new businesses failed, as many do, the typical Chilean response was that the entrepreneur was either: a) stupid, b) lazy, c) stole the money or d) all of the above. Almost none of my new Chilean friends even could imagine themselves starting a business and looked at me like an odd duck who was on a weird path — not the traditional one of getting a job at a big, prestigious company with a comfortable salary and three weeks of vacation, plus fifteen days of “feriados.”
Bolivia, wedged between Chile, Peru, Paraguay, Argentina and Brazil, is an amazing country of contrasts. With unmatched deposits of silver, tin, zinc, natural gas and enough lithium to power all of our modern devices for centuries, Bolivia should be a wealthy country. But is one of the poorest countries in the western hemisphere, only slightly better off than Haiti.
Since its “discovery” by the Spanish in the 1500s until today, Bolivia has been screwed over by nearly everyone, first by Spain, then Britain, the United States, Chile, Brazil, Paraguay and Argentina, all in partnership with its small upper class that has exploited its natural resources a labor. As I traveled through Bolivia over the past ten days, taking in its incredibly natural beauty, I read A Concise History of Bolivia and reread Open Veins of Latin America and began to appreciate just how unlucky the Bolivians have been.
Salar de Uyuni
I started my trip from San Pedro de Atacama in Chile, booking the three day tour to the Salar de Uyuni. I’d done this trip before in 2011, but I still loved doing it again. You can read horror stories about this trip, but both times I’ve gone, I’ve never had a problem. This time I booked with Cordillera Traveller on the Chilean side and the accommodations were much better than with Colque Tours in 2011. We paid about $20 more than the competition but our driver seemed safer and more knowledgable.
I joined a group of 18 people in four Jeeps and we left San Pedro at 8am and made the one hour trek to the Bolivian border, where pretty much the only people who cross are tourists. We climbed from 2000 meters all the way up to 5000m (~16,000 feet) by nightfall. The scenery, along with the altitude, is (literally) breathtaking. We slept at altitude, but kept waking up every hour or so, our hearts racing and throats dry from the altitude.
Bolivia/Chile Border
The next day, we went past geysers, interesting rock formations and more colored lagoons until we reached a tiny town called Culpina K. It looked like a ghost town. Our guide, Humberto, told us that most of the people in the town either cultivate quinoa or work in the mines, so they got to bed by sundown at the latest. It was like going back in time to when most people farmed and lived in small towns.
We woke up early and drove through Uyuni, a poor, broken down town in the middle of nowhere, that wouldn’t exist without the Salar that’s just next door. At 10,000 square km, its the largest salt flat in the world and contains 50%-70% of the world’s lithium supply.It’s so different from anything I’ve ever seen and coming back a second time just brought the point home again. It’s so flat, so white and so big that you can see the curve of the earth. On cloudy days, the guides can’t go too far away from the “shore” or they risk getting disoriented and lost on the Salar. Not taking my own advice from 2011, I got burned to a crisp. Again.
We arrived back to Uyuni in the afternoon, burned, thirsty and caked in salt and went directly to the bus depot to reserve tickets to Potosí. Bolivian roads are unsafe. Drivers aren’t very experienced, road conditions vary and you have to keep your eye out for mudslides and the occasional llama darting into the road. As a rule in Bolivia, always buy the most expensive bus ticket. Our bus trundled out of Uyuni onto the brand new road that connects Uyuni-Potosí-Sucre and prepared ourselves for the four hour trip. It was the first paved road we’d seen in four days and had only been completed in the past year. The bus seemed safe enough, but it was easy to imagine the bus falling off the hairpin turns.
Getting squashed on the salar
Potosí
We arrived safely into Potosí and got off at the “ex terminal”, which is really just a service station in the middle of the town and took a taxi to the Tukos Casa Real, an old building that’s been refurbished into a hotel. The room was massive, had hot water and the hotel provided a nice breakfast and only cost $40 per night for something that would cost at least $150 in the US. My heart was pounding and I was struggling to breath after walking up the three flights of stairs to get to the room. The 4060m altitude really takes it out of you. I can’t imagine playing a world cup qualifier in La Paz, Quito or even Mexico City.
Potosí was the city that drove Europe’s economy for almost three hundred years. From 1550-1783, it’s estimated that 45,000 tons of pure silver came out of Cerro Rico, one of the richest silver mines in the history of the world. The mine made people fabulously wealthy and the town grew to a peak of 200,000 people at a time when Madrid only had about 50,000. But it was all built on exploitation of natives and africans, who were used as slaves. Some people estimate that eight million people have died in Cerro Rico mining first silver, then tin and now zinc.
Cerro Rico
The mine created incredible wealth, which led to some amazing churches, cathedrals, public spaces and houses, much of which has gone into different stages disrepair after the richest minerals were extracted. Cerro Rico’s riches pushed the Spanish to create Bolivia’s first national mint, which has been preserved and converted into a beautiful museum. The original donkey powered minting machines are preserved alongside some of the original coins.
Potosí Catedral
The cathedral has been beautifully restored over the past ten year. During the war for independence, Simon Bolivar ordered the colorful cathedral to be whitewashed. People forgot and the incredible colors were rediscovered during the renovation. Now a UNESCO world heritage site, parts of colonial Potosí have been preserved, but the poverty remains.
Potosí Catedral
Today, it’s a loud, bustling city filled with diesel busses that come directly from China after they’ve been banned for expelling too much pollution, broken down cars honking at every intersection and people everywhere. I only saw a few non-natives during my three days in Potosí. Even today, an estimated 25% of Bolivians aren’t fluent in Spanish and many people are still bilingual Quechua or Ayamar speakers, including a taxi I got into.
You can see the grinding poverty: Potosí is now one of Bolivia’s poorest areas. There’s hardly any industry, other than mining, and the occasional tourist, so locals, mostly indigenous people, are forced into the mines. The miners forced out the government’s nationalization attempt because of rampant corruption, so now the miners have an elaborate series of cooperatives where you work for yourself. If you strike it rich, you can be a millionaire. If not, you may starve to death or be relegated to extreme poverty.
Potosí
Because life expectancy is so short and families are large, Bolivia is an incredibly young country, with an average age of 22, compared to 33 in Chile and 36 in the US. It’s noticeable. There are school aged kids everywhere, decked out in formal school uniforms. After school, the kids held massive water balloon and squirt gun fights on the main roads and plazas. I got caught in the crossfire a few times.
The food reflects the local conditions, making the most out of less expensive ingredients to provide the highest level of nutrition possible. There’s lots of potatoes, quinoa, corn and vegetables. Meat is a luxury. Llama features on many menus. Coca Cola is ubiquitous, but I didn’t see many international chain fast food restaurants.
We tried to go to Doña Eugenia, a restaurant specializing in local food, but it was closed. We ended up at a tiny restaurant nearby where I tried Kalapulca, a corn based soup with bits of meat and potatoes that’s served with two superhot rocks that creates a volcano like soup. Another good option was Koala Cafe, which has cheap fixed price menus and featured an awesome quinoa soup.
We did a mine tour with Big Deal Tours, the best company in town. Founded and run by ex-miners, the guides take you on a 3km walk underground through the mine. I felt a bit conflicted about doing a mine tour to basically gawk at people who were working in terrible conditions, but after talking to the miners at the tour agency, I decided to do it. I’m glad I did. It was a sobering tour.
Miners still work nearly the same as they did in the 1500s. Most don’t have electricity, so they use pickaxes, hammers and dynamite to bust open the rocks. They carry out the ore on their backs in 40-50kg loads or in wheeled carts weighing between one and two tons. If they slip, they get crushed. Life expectancy for miners is between 40 and 50.
It’s dark, dank and filled with ankle deep water. Particles hang in the air, invading your lungs. Miners chew massive amounts of coca leaves to suppress hunger, fatigue and keep them energized, just like the slaves and exploited indigenous did in the colonial era. They drink 96% pure alcohol that costs the same as a beer to dull the pain and for luck to get “pure” veins of minerals and make sacrifices to “El Tio” the God who has domain of the mountain.
We started at the miners’ market where we purchased gifts for the miners: coca leaves, juice and dynamite. A full dynamite kit (detonator, accelerant and stick) cost $3. As we walked through the mine, crouching down to try to avoid smashing our heads, and not doing so very well, we ran into miner after miner. They all looked similar. Dirty, old clothes. A huge wad of coca leaves. Many missing teeth. Upbeat. Happy to chat with us.
“How old are you?” asked our group to a miner who looked at least 35.
“Twenty-five,” he replied.
“How much do you make per week?” we asked.
“About 1000 Bolivianos per week,” he replied, which is about $140 per week.
“And how long have you been working in the mine?” we all wanted to know.
“Fifteen years,” he said.
His story is fairly typical. There are so few jobs and money is so tight that fathers bring their sons to the mine starting at as young as ten. Or if the father dies and there’s many kids, the oldest kids have to go into the mine to support the family.
$3 dynamite
After a three hour tour or just walking through the mine I was exhausted. The 4400m altitude didn’t help, but the crouching, the head smashing and shuffling through water sapped my energy. I can’t imaging having to hammer all day, run away from dynamite explosions and having to push 1-2 tons carts manually out of the mine for long shifts, with hunger pangs that are only dulled by coca leaves and alcohol.
I’m really glad I got to see Potosí, but it was incredibly sad to see a place that had such natural wealth that has been exploited and squandered to the point where its inhabitants live such a hard life.
Miner pulling 1-2 tons (with help)
Sucre
We decided to leave Potosí via the new bus terminal, which is located about twenty minutes from the town center. It’s brand new and clearly is an investment from the central government, as the location clearly wasn’t chosen for business reasons. We got out of the taxi and immediately felt like we were in a zombie movie. There were ticket sellers bleating like sheep, but there weren’t any customers. The zombies activated and attacked from all sides, trying to get the commission on the $4 bus tickets. Check out the video.
After getting past the zombies, we settled into the four hour bus ride down from 4060m to Sucre’s 2800m above sea level. Getting off the bus was like being able to drink the air. We took a taxi from the bus station to Hostal de Su Merced, a four star hotel in a refurbished building right downtown. It cost about $60 per night for a level of service that would cost $175+ in the US or Chile.
The first thing I noticed was the architecture. Everything is white. Sucre was Bolivia’s capital during colonial times until the seat of government was changed to La Paz during one of Bolivia’s many coups, dictatorships and revolutions and has preserved its historical buildings. The center is designated a UNESCO world heritage site, so there are building restrictions to keep the local character. The main square is surrounded by the cathedral, the municipality and the house where Bolivia’s declaration of independence was signed. There are a multitude of churches and church buildings, schools and universities, including South America’s first law school.
Sucre
Although Sucre is a tourist city, the attractions are only open from about 10am-12pm, then again from 2pm-5pm, at most. It was frustrating, but by the second day I’d figured it out. Just like in other parts of Bolivia, the daily schedule is very different from Chile or what you might think of a Latin schedule. Shops open early and lunch ends by 1pm. Dinner is from 7-9 and most restaurants are closed by 9 or 930. People are out drinking at bars by 930pm. In Chile, people are just starting to eat dinner! It’s another example in the long list that show Latin America is not just one homogeneous cultural unit.
I really enjoyed salteñas, Bolivian empanadas, especially from El Patio Salteñaria. They have a sweet, flaky dough and have a bit of sugar on the top and are filled with meat and vegetables. The filling is similar to a Chilean empanada de pino, but the dough is completely different. People eat salteñas from breakfast until lunch and not in the afternoon, whereas in Chile empanadas are a lunch or later food. It was hard to find high quality food, but I really enjoyed Condor Cafe, Cafe Mirador, and especially Cafe El Tapado, where I tired a variety of local, quinoa heavy dishes.
Salteñaría Indoor patio
I had an amazing time in Bolivia. The country is absolutely beautiful, the people are welcoming and warm and the country just oozes with history. I hope Bolivia has better luck and better leadership as it moves into this century, as it has all of the natural resources to be much better developed than it is today.
You can trace nearly all of the problems in the world back to one cause: lack of skin in the game. From the financial crisis, to our broken government, to most wars, corruption, pollution and famine, you’ll find a lack of skin in the game as the foundational cause of nearly every one.
What is skin in the game? According to Nassim Nicholas Taleb, “skin in the game is about being harmed by an error if it harms others.” In finance, it means having personal monetary risk associate with any deal you make. A simple example: If I create an investment fund and invest my own capital so that I own 10% of the fund, I have skin in the game. If the fund loses money, I lose money. My decisions not only affect my investors, they affect me. If I don’t invest any of my own money, but make high fees just for managing the fund, whether it goes up or down, I don’t have skin in the game. Taleb believes that skin in the game is “the most important marker of credibility.” Without it, he continues, people are “frauds.”
When people share in the costs and benefits of their decisions that affect others, they are more likely to make good decisions than if they just impose their decisions on others. Taleb believes skin in the game is “a moral imperative” that should serve as the base of a functioning society. I agree wholeheartedly.
The financial crisis was caused by bankers who made incredible amounts of money whether their investments made money or not. The Iraq war happened because the people authorizing the war didn’t have to fight. Neither did the vast majority of their children. The war was fought by a small sliver of the US: our volunteer army. If George Bush or his supporters would have had to send their sons and daughters to war, I bet we wouldn’t invaded Iraq.
Our government doesn’t work because bureaucrats who make laws aren’t affected by them. Lawmakers don’t have skin in the game because massive gerrymandering has rendered their seats safe, unless they’re caught, as the saying goes, “with a dead girl or a live boy.” Global warming is an incredibly hard problem to solve because we don’t have actionable skin in the game. The consequences will happen far off in the future, likely to our grandchildren.
Lack of skin in the game causes the rich to not participate in their own communities because they believe their outcomes are no longer connected to their local communities. A massive student loan bubble because universities don’t have skin in the game to actually help students to get a job after they graduate. Journalists and bloggers to pontificate endlessly without any consequences for being wrong. Large companies and the top 1% to go to extreme lengths to avoid paying taxes because they feel decoupled from their communities: they can operate from anywhere, recruit employees worldwide and be citizens of the world.
More controversially, Jaron Lanier argues that many internet companies that are worshiped as paragons of having skin in the game in fact don’t. He contends that they’re wrecking our economy and that internet companies, via siren servers, are killing, not creating jobs and pushing too much economic activity off the books. They use the world’s most powerful servers to create defacto monopolies that earn money via arbitrage, solely because they have access to the most powerful computer, not because they are taking risks and creating value. (Read my previous posts for background.)
Taleb and Lanier are two of the most important thinkers of our time. It’s interesting that they both find a lack of skin in the game as the core cause of the world’s problems even though they write about completely different subjects.
So how can we start to fix our broken institutions? Simple. Add more skin in the game. Some examples from Taleb: In Roman times, bridge builders, or members of their family, had to sleep underneath newly built bridges for a time. If it collapsed, the builder lost too. He continues:
I feel much safer on a plane because the pilot, and not a drone, is at the controls. Similarly, cooks should taste their own cooking; engineers should stand under the bridges they have designed when the bridges are tested; the captain should be the last to leave the ship. The Romans even figured out how to deter cowardice that causes the death of others with the technique called decimation: If a legion lost a battle and there was suspicion of cowardice, 10 percent of the soldiers and commanders — usually chosen at random — were put to death.
Now I wouldn’t advocate for the Roman Legion’s solution, but what if we started to design public policy, laws and societal norms that required some amount of skin in the game as a moral imperative, along the lines of “thou shall not steal?” What if we said that it’s immoral to force decisions on others when you don’t have skin in the game?
What if we required bankers to personally invest in any deal they proposed to their own investors? Or their bonuses were tied to long term performances? Or if we devolved more power to local institutions instead of concentrating power at the federal level? What if we forced siren servers to have skin in the game and not make money solely on arbitrage? Or pushed the 1% to once again have skin in the game in their local communities? What if we had a partial military draft? Or some sort of selective service? Or forced banks to keep at least 50% of any loan they originated?
I don’t have many specific proposals yet, but all we need to do is use skin in the game as our guiding heuristic. We should be extremely skeptical of anyone who doesn’t have real skin in the game. The likelihood that they are a fraud is exponentially higher.
What do you think? Is skin in the game as important as I believe it is? Do you have any proposals to push for more skin in the game? What do you think we can do to help push for more skin in the game?
Every since I started blogging, I’ve done a year end post summarizing what I’ve done in the past year. These posts are mostly for me, so that I can look back and remember what I did, what I was thinking and what was important to me each year. Previous versions (2000s, 2009,2010, 2011, 2012).
I started and ended 2012 in nearly the same place: on a friend’s rooftop in Santiago, champagne in hand, surrounded by great people, watching a multitude of fireworks explode across Santiago’s expansive skyline. In between, the first part of 2013 continued on 2012’s theme: a time in flux. I started out preparing to become a professor for the first time. My business partner and friend Enrique Fernandez and I completely revamped our entrepreneurship class How to Build a Startup and began teaching at Universidad Católica in Santiago and Universidad Católica del Norte in Antofagasta.
Antofagasta was a real challenge, but it was extremely rewarding. While the two hour flight eight times in twelve weeks was challenging, the hardest part was teaching a class solo, 100% in spanish. I was really nervous my first class and could see from the looks on my students’ faces that they weren’t looking forward to a whole semester with my gringo spanish, but by the second class, I started getting better and by the final class, my spanish was much better and I wasn’t nervous at all.
I’m glad I got to practice in Antofagasta, because in August I taught another class completely in spanish to undergrads at Universidad de Desarrollo in Santiago. It was rewarding to see my students actually learn something each semester, see their self belief growing each week, and seem projects go from ideas to reality.
I traveled back to Wisconsin in August to help organize the fourth annual Forward Technology Festival and was happy to see it keep growing. Matt, Bryan, Forrest and Preston have done an awesome job since I moved to Chile. Forrest continues to grow Capital Entrepreneurs and Madison’s entrepreneurial scene continues to get more national prominence.
While the first half of the year was a year still in flux, the second half was much more focused. After coming back from my trip home in August, I started Andes Property, a real estate investment company focused in Santiago and published The Expat’s Guide to Chile, a book about living, working and doing business in Chile, which has been consistently ranked in the top ten most popular books about Chile on Amazon. I also launched an ecommerce business, La Condoneria, that sells condoms online. It’s been fun to start to build a business from scratch again and to work with two great business partners. In November, I celebrated three years in Chile.
I also made it back to Wisconsin for my family’s Thanksgiving and my group of friends’ 9th annual Friendsgiving. It really was great to get back and see my family twice this year and it was amazing to see our group continue to grow with more engagements and our group’s first kid. I expect both trends to continue in 2014.
I explored more of South America, but didn’t travel as much as I would have liked. I made it to Chiloé and Uruguay, then visited Mendoza when my parents visited Chile for two weeks, and Pucón, Puerto Varas and Frutillar when my friend Polsky came to visit from the US. I’ve done a better job of taking advantage of going to the beach more in 2013 than in 2012, but plan to do it more in 2014.
I didn’t exercise as much as I would have liked, but continued to play squash and increased my soccer. On the sports side, I went to a Chile world cup qualifying match, some chilean club matches and watched the US qualify for the world cup. Overall, it was a year of transitioning into my next projects that I’ve since been able to sink my teeth into. I expect 2014 to be a very interesting one!
