Chile: Learning from its Nationalisation Mistakes

Chile undertook a 16-year process of nationalisation between 1955 and 1971, merging all previous mining companies into a single state conglomerate called Codelco. One of the two major mining companies in Chile at the time, Anaconda Copper Mines, saw a 66 per cent decline in copper output following nationalisation.

In 1983, Chile reformed its stagnating mining sector by introducing a new code which restored property rights and private participation. While remaining a state-owned enterprise, Codelco began to launch partnerships with private firms. More recently, private mining companies started opening mines elsewhere in the country, and, today, continue to expand and increase production. Codelco’s share of Chilean mining output has fallen dramatically. In 1990, its share of Chilean copper production was 75 per cent and in 2009, only 32 per cent.

Codelco’s output has remained relatively stagnant at 1.6m tons for the last 10 years. The Chilean President, Sebastián Piñera, has often criticised Codelco for its “inefficiency, griping over its stagnant output and climbing costs”. He has also expressed his desire to privatise Codelco and has made significant reforms that mimic privatisation. According to The Economist, “Its board now has more independence from the government; the directors recruited Diego Hernández, a former manager at BHP Billiton, the world’s biggest mining company, as the new chief executive”.

Author: Jasson Urbach is an economist with the Free Market Foundation. The above is an excerpt from the chapter, Problems with State Ownership of Enterprises, he wrote for the recently published FMF book, Nationalisation.

FMF Policy Bulletin/ 5 April 2011

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