Did the copper SOE help Chile develop?
By Scott Sumner
Tyler Cowen says yes:
One reason the Chilean reforms went well was that the state had nationalized the copper mines. That provided a steady flow of money, thus minimizing the need for revenue-raising distorting policies elsewhere. More generally the revenues helped build a stable state backed by a secure coalition, which in turn liberalized much of the rest of the economy. For all the talk about laissez-faire and the Chicago boys, the Chilean privatizers never gave up their hold on those mines. And the mines proved easy enough to run and convert into revenue…and they are still a lucrative source of foreign exchange.
I don’t find that claim to be all that convincing. Wouldn’t it be better to privatize the mines, and tax the output? Here’s The Economist on Chilean copper mining:
The copper mines themselves are far from the capital. Escondida, the world’s biggest (and the source of over 5% of global supplies) is a 1,300km (800-mile) trek north, in the middle of the Atacama desert. BHP Billiton, the world’s biggest mining company, operates two gigantic pits there. The deeper one is 3.9km from side to side and 650 metres from brim to bottom. Trucks as big as houses, working non-stop, haul 1.5m tonnes of rock out of Escondida each day. Managers may drive 150km in a shift. Last year the mine disgorged 1m tonnes of metal. Overall, Chile produces a third of the world’s copper.
BHP has 4,000 workers on site, plus another 13,000 contractors nearby.
So the world’s largest copper mine is in Chile, but run by a private company.
Chile’s copper industry is a hybrid. Codelco, the state mining firm, competes with private ones. In the past Codelco has suffered from a lack of investment, but that is improving. A change in corporate governance in 2010 is slowly making it more like a private firm, by freeing the board from political control.
In 2000-05 the government’s income from mining averaged $2.1 billion a year. As Chinese growth accelerated, that rose to $11.5 billion a year between 2005 and 2011. But the boom owed almost everything to the copper price. Chile’s output of the red metal has hardly grown in a decade.
Copper is certainly an important part of the Chilean economy, but the state owned Codelco produces only about 1/3 of Chile’s copper, a ratio that’s been stable since 2000. And the firm has apparently been a bit less dynamic that its private competitors, until recent reforms made it operate more like a private firm.
Looking at this picture, I find it hard to believe that Chile’s neoliberal reforms would have been all that different if the copper industry was 100% private, and its exports were taxed to provide revenue for the government.
Tyler then goes on to discuss the role of SOEs in Chinese development. These have gradually been made more business-like, especially in the late 1990s when there were massive layoffs to boost productivity. But I think the bigger story in China (and elsewhere in East Asia) is the government ownership of land, which provides an important share of government revenue. The Singapore government, for instance, has a monopoly on the right to “mine” (i.e. create) new land. As a result, Singapore’s land area has grown rapidly, and this has generated a lot of revenue. Local governments in China rely on land sales to pay for infrastructure projects.