Chilean State Companies Need Clear Justification or Privatization, Analyst Argues

A recent study by the Center for Public Studies (CEP) in Chile recommends that state-owned enterprises (SOEs) must have a clear, verifiable, and publicly available justification for their existence. The author of this opinion piece, Tomás Casanegra, agrees with the intention but proposes a causal shift: if an SOE lacks such justification, it should not exist. He argues that if a government needs extensive deliberation, external consultants, or the label 'strategic enterprise' to explain state ownership, the enterprise likely shouldn't be state-owned. Chile operates nearly thirty SOEs across diverse sectors like mining, television, banking, and betting, leading Casanegra to deduce the national strategy is simply 'The State of Chile owns anything.'

Casanegra observes a political inclination, particularly from the left, towards state entrepreneurship. However, he notes this interest doesn't stem from a desire for profitability or shareholder returns, but rather from the opportunity for well-paid executive and director positions without personal financial risk or performance accountability. The author describes SOEs as the ultimate principal-agent problem in economics, where aligning management and owner interests is nearly impossible. He criticizes the romanticized notion of 'companies of all Chileans,' suggesting that if citizens were more aware of the direct financial implications—monthly subsidies or guaranteed debt through future taxes—this sentiment would dissipate. The combination of an indifferent owner and a less-caring administrator is a recipe for failure, even for promising businesses.

As a recent example, Casanegra highlights Codelco, Chile's state copper mining company. Codelco recently released reports showing that its 'surpluses' are effectively debt, requiring further borrowing or owner intervention, especially concerning given historically high copper prices. The reports also revealed that Codelco's costs significantly exceed those of other national and international mining companies. Casanegra emphasizes that transparency is the first step, but the more challenging second step is implementing corrective measures. He quotes the report stating the primary challenge is not executing more investment, but capturing the value from existing investments, concluding that non-profitable investment is merely expenditure, a principle applicable to all companies.