The political economy of public enterprise reform: a comparative study of mineral sector cases in Latin America

In accordance with market-oriented reform in recent decades, Latin American countries have implemented public enterprise reforms. But these efforts have varied depending on the country and type of industry. Some Latin American countries have chosen to hold on to their state enterprises in the mineral sector when they have privatized widely in other sectors. Also, some Latin American countries have fully privatized their public enterprises while other companies have opted for partial privatization or other types of public enterprise reform that do not involve privatization. This study accounts for such divergence by developing a theory of public enterprise reform. The findings in this study contribute to our understanding of the conditions for economic policy in general and public enterprise reform in particular. In this study, public enterprise reform is divided into four different types according to the degree of state and private involvement in the ownership and viii management control of the public enterprise: no-privatization, rationalization, semiprivatization, and full-privatization. CODELCO of Chile and YPF of Argentina constitute cases of no-privatization and full-privatization respectively, while COMIBOL of Bolivia represents a case of rationalization. The comparative analysis of these cases demonstrates that the combination of economic benefits and the scope of political opposition to privatization determines the type of public enterprise reform. The combination of high economic benefits and high political opposition results in no-privatization, while low economic benefits and low political opposition lead to full-privatization. Also, low economic benefits and high political opposition yields rationalization while high economic benefits and low political opposition produce semi-privatization. As a result, this study finds that the state implements a certain type of public enterprise reform based on the competition of social forces and economic efficiency. This research also details the specific indicators or sources of economic benefits and political opposition. The economic benefits of a public enterprise are determined by the company’s fiscal balance, its contribution to tax revenue, its contribution to exports, and its debt ratio. The autonomous power of the labor unions, the power of the military, the power of the left, and the strength of public opposition shape the political opposition.