Hello everyone, I have a few reasons but always fail (In my opinion) fail to grasp the fallacy that is, the state ownership of Codelco. For someone who knows a lot more about the subject, please tell me why would it be better to privatize this copper giant, and if so, what would replace the vast amount of resources that this state owned company supplies to finance important sectors such as education, health and other important services? I know privatizations are better, and know of both the moral, social and economic reasons for it, but I am having a hard time justifying the privatization of this copper company.
There are unlimited reasons for privatisation, but look up the history of public sector corporations in India.
Sorry to this back…@Sanjay, I know the unlimited reasons in general, and read about what happened in India. However, im talking about this specific example, of a country that depends so much on the money from this resource. Where would it get that amount of money if it was privatized? I doubt the tax revenue would be even close to what this copper company brings.
Thanks in advance.
Let us examine what would happen, ideally. All the govt schools and hospitals close down. The company is sold to a private person.
Since govt schools are huge wastes of time and teach very little, the children learn to read and write by attending some inexpensive private school, or learning at home. The literacy rate rises dramatically.
Doctors treat their patients at rates the patients can afford, because they have no choice. Prices of medical care drop. The more enterprising doctors buy up the hospitals as well, running them more efficiently and with more concern for the happiness of the patients, because otherwise they will not make money.
Copper prices also drop dramatically, since the govt monopoly kept them artificially high. All industries that use copper can sell their products more cheaply, and thus attract more customers, making more profits. The consumers have their purchasing power rise as a consequence. Everyone is wealthier.
What’s not to like?
these are basic arguments that ive used from time to time, but there are several flaws.
- There rarely are inexpensive private schools, and even if there were, there would still be a large section of the pop. that still could not afford it.
- Literacy rate is already high on the new generations, only a few percentages lower but mainly because of older generations
- I do agree in the long-run health care costs would go down, however same argument for private education. There will still be a large section that won’t be able to afford it.
- Copper, and commodity prices in general are established by suppy and demand mechanic, the gov’t here does not set price of copper, nor does it manipulate it artificially.
- The industries that use copper are 99% outside of Chile, favoring very little the local population.
Plus just like Ron Paul’s short to medium term plan for health care, im looking for something that can be done. What you said is just like you put it, “ideally”.
btw thanks for the response, im just trying to strengthen my ideology by exposing some blank spaces that i have in regards to this specific problem in Chile and Codelco.
I would tackle the issue from another side.
Right now Codelco has a revenue of around 15 billions dollar a year. After expenses are deducted (people have to be paid, worn machinery has to be replaced etc) Codelco gives the Chilean government roughly 6 billions per year. The Chilean government spends roughly 45 billions a year after all’s been said and done: that means Codelco contributes to over 13% of State budget.
Let’s suppose for a moment Codelco is privatized: whatever it’s sold off in a single bloc to the Chinese or broken up in bits and sold to different investors it matters not. For simplicity’s sake let’s say payments are spread over many years, so as to avoid the usual “get some quick cash” reasoning behind privatizations. How much would the Chilean government would make each year out taxes, concessions etc? My guess is considerably less. Codelco doesn’t pay concessions, it’s true, but foreign (or domestic) investors want to see a decent profit out of their investment. That means you have to keep taxes reasonably low. Say the privatized industry now gives the Chilean government roughly 3.5 billions a year through taxes, concessions and payment for the purchase of Codelco itself. This assumes the private sector is able to be more efficient than the Chilean government in cutting costs and increasing profits, of course: many huge multinationals are not much better than governments but let’s keep playing the game for the time being. That means the Chilean government is left with a 2.5 billions shortfall. In a big spending country like the US or France that would be a pittance. In Chile it means over 7% of the State budget. Huge troubles. The Chilean government would have to cover up this shortfall either through expenditure cuts, increased taxation on other sectors of the economy, increased debt or monetary inflation. Of course expenditure cuts would be the most sensible way but, as we know in the present ideological climate people have come to believe everything coming from the government is a God-given right. And not just schools and healthcare.
So the privatization of Codelco has to be well-weighed. In the present climate, where big government spending and strong entitlement mentality are the norm, it could prove counterproductive or even harmful. Once this has changed it would be a completely different thing.
Thanks for taking the time to answer.
I guess I see what you are saying, however I always wonder what people like Ron Paul would have said if he was from Chile. I guess for now the answer to the problem would be that nationalizations are bad 95% of the time (hard pill to swallow) but for the lack of papers on this particular subject its hard to say. Also, what do you guys think about the chilean gov’t considering raising the royalty on the private mining industry. Again, i consider myself a libertarian, and oppose increases in tax, however in this specific example i feel my argument is weak. Although the gov’t would raise the royalty (lets say from 5% to 10%), that new figure is still the lowest in the world, so wouldn’t that still be considered good? hard to say, wonder what you think.
Yes. Rarely you can find inexpensive private schools. That’s because it’s hard to compete with 'free" public schools. You are taxed to pay for public school and if you want to school your children in private school you have to bear the whole cost again. That’s why private schools capture the part of the market where buying power is high. The system with vouchers at least give private schools some chance: