Leadership Dispatches
Chile's Extraordinary Comeback from Disaster
Michael Useem, Howard Kunreuther, and Erwann Michel-Kerjan

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PROLOGUE: A QUIET SUMMER EVENING

What we saw was just incredible! —President-elect Sebastián Piñera

It had been another sunny day. Millions were enjoying their summer vacation at the beach with family, hiking in the mountains with friends, visiting museum exhibitions, having fun at theme parks with the kids, or maybe just relaxing at home. It was Friday night, and those not already on holiday were happily at the start of a seemingly carefree weekend.

LITTLE DID THEY KNOW

With temperatures in the 70s, the terraces of restaurants were packed; fresh food would be cooked and local wine served. Casual strollers enjoyed live music near every corner. We could be in a lively quarter of New York, Los Angeles, Paris, or nearly anywhere in the world at the start of a late summer weekend that everybody was savoring and somehow wishing would never end.

Little did these vacationers and weekenders know that what was about to happen would change their lives forever. It would bring a severe test of the nation’s resilience, challenging the effectiveness of the country’s institutions and the determination of its national leaders, the president above all.

Deep below the earth’s surface, some twenty miles down, two massive tectonic plates had been slowly converging for more than a century, and the gathering strain had finally become virtually untenable for the planet. It had reached a breaking point.

By 3:30 a.m. on that Saturday most restaurants and streets had emptied except for a few late-night revelers. The tectonic plates below finally snapped at 3:34 a.m., violently rocking the earth’s surface for nearly two minutes. The released energy was so great, NASA later estimated that the event moved Chile’s capital, Santiago, eleven inches to the west and even tilted the Earth’s axis by three inches. A quiet summer night had come to a shocking end.

LIVING ON THE RING OF FIRE

The earthquake on February 27, 2010, devastated Chile. It could seem like a nightmare or the script of an epic sci-fi movie. But for millions it was all too real. This book is about what came next, how an entire country woke up at the end of the summer to face one of the most devastating natural events most would ever experience. The story we are about to tell, however, is an affirmative one. The country came back quickly and fully, and the courage and determination of its people and their leaders in that recovery have been, by many measures, exceptional. It thus offers a rare account for anyone facing big risks on how best to embrace resilience and bounce back.

Chile is located on the western side of South America, bordering the Pacific Ocean and Argentina. Twice the area of California, Chile extends 2,600 miles from tip to toe—double the distance from New York to Miami—though it averages just 110 miles east to west. Its great vertical extension comes with a near perfect but very unwelcome alignment along the world’s “ring of fire.” Rimming the Pacific Ocean, this great semicircle is the most earthquake-active line in the world, running up the spine of Chile through the western United States, across Alaska, and then down through Japan. In other words, what happened in Chile could one day occur in the United States, Japan, or almost anywhere else on the ring.

To many readers, Chile still remains best known for having suffered almost two decades of General Augusto Pinochet’s dictatorship in the 1970s and 1980s after the violent coup of 1973. Yet Chile is a very different country today from what its past might suggest. Democracy was restored in 1990, and the country had become one of the fastest growing economies in Latin America. It boasted a market-based economy with a broad and generous social safety net. In striking contrast to the United States and many other Western economies, it ran a surplus rather than being deeply in debt. And of special importance for dealing with a national crisis, while Chilean presidents can serve multiple four-year terms, they cannot serve two consecutive terms. As such they can focus their time and energy on the tasks at hand without having to worry about the consequences for their re-election, though of course it may also unduly shorten their task horizons to what can be achieved in the four years that they have.

The February 27, 2010, seismic event, now widely referenced in Chile as F27, was not just another earthquake. It released five hundred times more energy than the earthquake in Haiti six weeks before. F27 was a monster event, the sixth greatest earthquake ever recorded on earth.

Although the Chile earthquake did not retain international news attention for long, it devastated schools, hospitals, roads, homes, and businesses across a vast swath of the country’s midsection, paralyzing the country for weeks. The economic damage proved massive: losses were 18 percent of the country’s gross domestic product (GDP), nearly a fifth of what the entire country produces in a year. That would be the equivalent to $2.7 trillion in economic losses in the United States, more than twenty times greater than that inflicted by Hurricane Katrina in 2005, America’s most costly disaster to date. Recalling how poorly the recovery from Katrina was managed in New Orleans despite days of advance warning, one can only wonder how an event twenty times more devastating than Katrina could be managed.1

There is a final but central element to the story, and that is the peculiar timing of the event. The F27 earthquake came just days before a change in national government, with Sebastián Piñera soon to take the presidential sash from president Michelle Bachelet. The president-elect was awakened that night like so many others in Chile: “All the communications were gone,” he said, “but I understood immediately that it had been a very huge earthquake.”

Late that same night, the incoming president met with his cabinet-to-be at campaign headquarters to map out a path to recovery. “We immediately realized that we had a huge task,” recalled the future interior minister. Since the election of January 17, the president and his ministers-to-be had been focusing on plans to revive the economy. Now, just twelve days before inauguration, they faced a giant unanticipated calamity.

For most countries around the world, it might take years, if not decades, to recover from such massive devastation. But six weeks later, all of Chile’s schoolchildren had returned to classes. By the end of the year, Chile’s economy was back on track, delivering a strong 6 percent annual growth rate at a time when the world economy was still reeling from the 2008–9 financial crisis.

A TWO-PART RECIPE FOR AN IMPROBABLE COMEBACK

The early years of the twenty-first century have come with an unprecedented series of crises and catastrophes. These events have triggered a growing interest among all of us—citizens, business leaders, and government officials—in finding better ways to prepare for catastrophic risks and discovering ways to bounce back when rare but high-impact hazards become a terrible reality.

Because Chile’s management of the historic F27 disaster and its leadership of the recovery years are not widely appreciated outside the country, we have compiled this account. Chile’s experience offers a compelling and tangible tutorial on the leadership actions required of those facing big risks anywhere.

We want to know how Chile prepared and responded. What were the key drivers of its unlikely comeback? Who took charge, and how did they lead? How did past experience factor into their actions? Our focus is on Chile’s national resilience, and we ask how the country’s leaders—in government, business, and civil society—made their recovery decisions and then implemented them.

The country mobilized to help the injured and bury the dead. It then turned to repairing hospitals, reopening schools, and rebuilding homes. But Chile did not stop with the immediate rebuilding. Its national leadership, spearheaded by a doggedly determined president, insisted that the country think longer term, that its comeback go well beyond what the country had in place prior to the earthquake.

Moreover, Chile’s comeback was in keeping with the country’s deeply rooted institutional values that have placed exceptional emphasis on the effectiveness and fairness of the state, at least since the end of the military dictatorship from 1973 to 1990. Indeed, Chile’s national leadership would not have had nearly the impact it had after the earthquake without the country’s institutional backbone, the values that placed longer-term objectives and collective fairness ahead of short-run concerns and parochial interests. We find that a two-part recipe proved vital for the comeback, a mutually reinforcing combination of able national leadership and strong institutional practices. Each depended upon the other. At the core of both was strategic and deliberative thinking that transcended the tactical and intuitive thinking that can dominate much of our everyday conduct.

In what follows, we will learn about a new administration that took charge just days after the 8.8 magnitude quake, committed to rebuilding a better country without busting the national budget. We will witness an administration that capitalized on a preexisting set of institutional practices and partnered with private and nonprofit enterprises to achieve a turnaround that everyone wanted, even if short-term sacrifices were required. Chile’s recovery is a story of how political leaders worked with civil society and market forces both to assist those in need and to restore national growth. It is an account of how one country with a checkered past has now come to be considered one of the most stable and capable in Latin America. Many developing countries might have stalled or gone into reverse after a calamity of this scale. Chile shifted into high gear.

The three of us were invited by the nation’s president, Sebastián Piñera, to take a close look at Chile’s recovery. His government opened its doors and records to our research team. The president, his cabinet ministers, and others gave freely of their time to numerous discussions. We traveled with the president to the earthquake zone and gathered data from a host of sources in Chile and internationally. We were also guided and informed by our ongoing work with the World Economic Forum’s annual Global Risks Report and its Global Agenda Council on Catastrophic Risks.2

In focusing on the leadership decisions that defined Chile’s response to the F27 earthquake, we sought to understand what worked well and what fell short, with an emphasis on the former. We have found, from working on risk management and leadership development with a variety of companies and countries, that positive actions can be much more effectively instructive than missteps or shortcomings. Our purpose is to extract enduring lessons for leaders and managers elsewhere. We do not intend to convey an overly optimistic account—or an overly pessimistic account for that matter—of what the president and his administration did. Rather, we seek to learn from their experiences and transmit lessons for others to apply in preparing for and reacting to crises.

Having worked with a number of government officials and business leaders in the United States and other countries, we believe that Chile’s lessons are broadly applicable to a wide range of organizations and national settings. In recovering from the massive earthquake and tsunami in Japan in March 2011, from Hurricane Sandy hitting the northeastern United States in October 2012, or from Typhoon Haiyan’s devastation of the central Philippines in November 2013, for example, we believe that the leaders in those countries could have usefully turned for instructive guidance to Chile’s leadership experience in the wake of F27.

But this is not just a story about dealing with natural calamities. Large-scale catastrophes and extreme events of many kinds have been on the rise in recent years—from technological meltdowns and environmental disasters to financial crises, disease pandemics, international terrorism, and cyber threats. It is thus an auspicious moment to seek ideas and guidance from leaders who have already faced and rebounded from a catastrophic event. If their experiences can be appreciated and the transferable principles extricated, leaders in other countries will be in a much better position to prepare, confront, and overcome their own unthinkable calamities in the future and to make a difference for the global community.

Notes

1. Sources of information on the scale and impact of Chile’s earthquake and other disasters can be found in the following chapter.

2. We assembled a research team from the United States and Chile. The team included the three authors, Wharton doctoral-candidate Luis Ballesteros, and Santiago-based Matko Koljatic, professor of strategic management at Catholic University, and Aldo Boitano, former chief executive of Vertical Institute. The research was undertaken in collaboration with several initiatives of the World Economic Forum, including its Global Agenda Council on Catastrophic Risks, of which the three of us have been members (www.weforum.org/content/global-agenda-council-catastrophic-risks-2012–2014), with Elaine Dezenski serving as a liaison with the World Economic Forum. The research has also been informed by our ongoing work with the Forum’s annual Global Risk Report since its inception in 2006 (www.weforum.org/issues/global-risks). Our team members, identified at the book’s end, bring their experience with risk management, disaster response, finance, insurance, decision processes, organizational leadership, company strategy—and even direct involvement with the F27 earthquake itself. One of our team members personally experienced the earthquake and later volunteered several months of his time and his organization’s resources to assist in Chile’s recovery.

Detailed study of leaders in the act of making decisions, however, has often proven unusually elusive—like the Higgs boson. Organizational leaders communicate in public, but much of what they decide is done in private. As a consequence, in the words of one inside observer, like another elusive particle of physics, the neutrino, “most executive decisions produce no direct evidence of themselves” (Barnard, 1968, p. 193; see also Jordán, 2009; Useem, Cook, and Sutton, 2005). We have accordingly sought to identify the most useful practices from Chile’s experience through not only public sources but also private interviews with a host of key decision-makers identified at book’s end. The public sources include a number of reports on the earthquake by both the government of Chile and independent institutions such as the International Monetary Fund, the Organisation for Economic Co-operation and Development, the U.S. Geological Survey, the American Red Cross, financial institutions, and research universities in Chile and elsewhere. The private interviews include a range of senior officials. The government of Chile opened its offices and records to our research team, and the president, cabinet ministers, and others gave time to numerous discussions and information requests. We interviewed President Sebastián Piñera, Health Minister Jaime Mañalich, Housing Minister Rodrigo Pérez, Finance Minister Felipe Larraín, Public Works Minister Hernán de Solminihac, Planning Minister Felipe Kast, their staffs and advisors; many others in government, businesses, not-for-profit organizations, and academia; and still others who were directly familiar with the nation’s actions in the months that followed the catastrophic event of February 27, 2010.

We ask readers to join the dialogue on the leading practices that are evident from Chile’s experience or other catastrophic events by going to our website, constructed in collaboration with the World Economic Forum’s Global Agenda Council on Catastrophic Risks. We believe that countries, companies, and communities can best overcome what is unnatural in catastrophic risk management by learning from what others have devised through their own experience. We are especially grateful to the government of Chile for opening its doors so that others can learn from its leaders’ actions.