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Chile takes a great step in modernizing bankruptcy laws | TribLIVE.com
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Chile takes a great step in modernizing bankruptcy laws

Tribune-Review
| Saturday, November 15, 2014 9:00 p.m

Chile has taken a bold step to promote innovation that should be copied by all other Latin American countries. In order to encourage entrepreneurs to start new businesses and not be paralyzed by the fear of failure, it has put into effect a new bankruptcy law that eliminates many of the burdens of insolvency.

It might seem like unexciting news. But in Latin America — where draconian bankruptcy laws often turn business people who file for bankruptcy into economic and social pariahs — the repeal of such laws could be a major step to spur innovation and economic development.

Ruthless bankruptcy laws are among the biggest obstacles to entrepreneurship and innovation in the region. Potential entrepreneurs and investors often are deterred from starting new ventures not only because of the social stigma associated with failure but because people who face situations of temporary distress and file for bankruptcy cannot go back into business for many years.

While in some of the world’s most innovative countries — such as the United States, Japan, Germany, South Korea and Singapore — it takes an average of between six months and 1.5 years to resolve bankruptcy-related issues, in most Latin American countries it takes between three and 5.3 years, the study shows.

As Richard Branson, the billionaire Virgin Records founder whose latest Virgin Galactic prototype space tourism rocket crashed Oct. 31 in the Mojave desert, told me in an interview last year: “If you don’t fail, you can’t get anything done.”

It has always been like that. Thomas Alva Edison’s biographers say it took him more than 1,000 failed attempts before he perfected his electric bulb. Orville and Wilbur Wright, the pioneers of today’s air travel, are said to have crashed 163 times shortly after takeoff before they made their first successful flight in 1903.

Virtually all innovation gurus I have talked to agree that if these and other innovators lived in countries where failure carries big punishments, they may have never pursued their goals.

Chile’s Economy Minister Luis Felipe Céspedes told me that President Michelle Bachelet plans to move at full speed to implement the new bankruptcy law, which was passed under former President Sebastián Piñera’s government.

Fear of failure — and of the legal consequences thereof — is one of the biggest obstacles to innovation in Latin America, alongside the absence of a culture of admiration for business entrepreneurs and innovators.

When a baby falls while trying to take his first steps, nobody calls it a failure. We all smile and applaud. Likewise, countries should be much more forgiving with those who fail in their attempts to get a business going. They should make their bankruptcy laws more tolerant with non-fraudulent failure, like Chile has just done.

Andres Oppenheimer is a Latin America correspondent for The Miami Herald.

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