Privatization and Nationalization Cycles

This paper studies the cycles of nationalization and privatization in resource-rich economies as a prime instance of unstable institutional reform. We discuss available evidence on the drivers and consequences of privatization and nationalization, reviewing the existing literature and presenting illustrative case studies. This leads to the main contribution of the paper: a static and dynamic model of the choice between private and national regimes for the ownership of natural resources. In the model, the basic tradeo¤ is given by equality (national ownership) versus e¢ ciency (private ownership). The connection between resource ownership and the equality-e¢ ciency tradeo¤ is given by the incentives for e¤ort that each regime elicits from workers. The resolution of the tradeo¤ depends on external and domestic conditions that a¤ect the value of social welfare under each regime. We discuss how external conditions –such as the commodity price–and domestic conditions –such as the tax system– a¤ect the choice of private vs. national regimes. In particular, we identify the determinants of the observed cycles of privatization and nationalization. 0For excellent research assistance, we are grateful to Luis Fernando Castro, Teresa Fort, and Tomoko Wada. We also thank Yuki Ikeda for editorial assistance. We have bene…tted from insightful conversations and comments from Ximena Del Carpio and Luis Servén.We gratefully recognize the …nancial support from the World Bank’s Knowledge for Change Program and the Latin America and Caribbean Flagship Report on “The Role of Commodities.”The views expressed in this paper are those of the authors, and do not necessarily re‡ect those of the World Bank, their Boards of Directors, or the countries they represent.