Hostname: page-component-586b7cd67f-t7fkt Total loading time: 0 Render date: 2024-11-25T19:37:54.380Z Has data issue: false hasContentIssue false
  • English
  • Français

The Privatization Origins of Political Corporations: Evidence from the Pinochet Regime

Published online by Cambridge University Press:  05 February 2020

Felipe González ,
Mounu Prem  and
Francisco Urzúa I
Felipe González
Affiliation:
Assistant Professor, Pontificia Universidad Católica de Chile, Instituto de Economía, Av Vicuña Mackenna 4860 Macul Santiago, Santiago 7810000, Chile. E-mail: [email protected].
Mounu Prem
Affiliation:
Adjunct Professor, Universidad Del Rosario Economics, Bogota, Colombia. E-mail: [email protected].
Francisco Urzúa I
Affiliation:
Reader in Finance, Cass Business School, City University of London, London, United Kingdom of Great Britain and Northern Ireland. E-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

We show that the sale of state-owned firms in dictatorships can help political corporations to emerge and persist over time. Using new data, we characterize Pinochet’s privatizations in Chile and find that some firms were sold underpriced to politically connected buyers. These newly private firms benefited financially from the Pinochet regime. Once democracy arrived, they formed connections with the new government, financed political campaigns, and were more likely to appear in the Panama Papers. These findings reveal how dictatorships can influence young democracies using privatization reforms.

Type
Article
Information
The Journal of Economic History , Volume 80 , Issue 2 , June 2020 , pp. 417 - 456
Copyright
© The Economic History Association 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank our discussants, Eric Hilt, Lakshmi Iyer, Paola Sapienza, and Jonathan Weigel, for their suggestions and Andrew Ellul for commenting on an early draft. We also thank Emanuele Colonnelli, Thiemo Fetzer, Gastón Illanes, Borja Larraín, Pablo Muñoz, Martín Rossi, Giorgo Sertsios, Rodrigo Soares, Juan F. Vargas, and seminar participants at various seminars and conferences. We have also benefited from conversations with politicians and army officers of the Pinochet regime and from information provided by Neville Blanc, Juan Carlos González, Miguel Landeros, and Marco Sepúlveda. We are grateful to the Center for Effective Global Action, the Economic History Association, Fondecyt (Project 11170258), and the Stanford Center for International Development for financial support. Katia Everke, Benjamin Leiva, Piera Sedini, and Cristine von Dessauer provided outstanding research assistance.

References

REFERENCES

Acemoglu, Daron, Johnson, Simon, Kermani, Amir, Kwak, James, and Mitton, Todd. “The Value of Connections in Turbulent Times: Evidence from the United States.” Journal of Financial Economics 121 (2016): 368–91.10.1016/j.jfineco.2015.10.001CrossRefGoogle Scholar
Acemoglu, Daron, and Robinson, James. “Persistence of Power, Elites, and Institutions.” American Economic Review 98, no. 1 (2008): 267–93.10.1257/aer.98.1.267CrossRefGoogle Scholar
Acemoglu, Daron, Ticchi, Davide, and Vindigni, Andrea. “A Theory of Military Dictatorships.” American Economic Journal: Macroeconomics 2, no. 1 (2010): 1–42.Google Scholar
Acemoglu, Daron, Ticchi, Davide, and Vindigni, Andrea. “Emergence and Persistence of Inefficient States.” Journal of the European Economic Association 9, no. 2 (2011): 177–208.10.1111/j.1542-4774.2010.01008.xCrossRefGoogle Scholar
Albertus, Michael, and Menaldo, Victor. “Gaming Democracy: Elite Dominance during Transition and the Prospects for Redistribution.” British Journal of Political Science 44, no. 3 (2014): 575–603.10.1017/S0007123413000124CrossRefGoogle Scholar
Albertus, Michael, and Menaldo, Victor. “Authoritarianism and the Elite Origins of Democracy.” New York: Cambridge University Press, 2018.Google Scholar
Altonji, Joseph G., Elder, Todd E., and Christopher, R. Taber. “Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools.” Journal of Political Economy 113, no. 1 (2005): 151–84.10.1086/426036CrossRefGoogle Scholar
Atanasov, Vladimir. “How Much Value Can Blockholders Tunnel? Evidence from the Bulgarian Mass Privatization Auctions.” Journal of Financial Economics 76, no. 1 (2005): 191–234.10.1016/j.jfineco.2004.05.005CrossRefGoogle Scholar
Baltrunaite, Audinga. “Political Contributions and Public Procurement: Evidence from Lithuania.” Journal of the European Economic Association, forthcoming.Google Scholar
Baran, Zeyno. “The Turkish Challenge.” Journal of International Affairs 54, no. 1 (2000): 127–46.Google Scholar
Barberis, Nicholas, Boycko, Maxim, Shleifer, Andrei, and Tsukanova, Natalia. “How Does Privatization Work? Evidence from the Russian Shops.” Journal of Political Economy 104, no. 4 (1996): 764–90.10.1086/262042CrossRefGoogle Scholar
Bel, Germà. “Against the Mainstream: Nazi Privatization in 1930s Germany.” Economic History Review 63, no. 1 (2010): 34–55.10.1111/j.1468-0289.2009.00473.xCrossRefGoogle Scholar
Black, Bernard, Kraakman, Reinier, and Tarassova, Anna. “Russian Privatization and Corporate Governance: What Went Wrong?” Stanford Law Review 52, (2000): 1731–808.10.2307/1229501CrossRefGoogle Scholar
Blanes i Vidal, Jordi, Draca, Mirko, and Fons-Rosen, Christian. “Revolving Door Lobbyists.” American Economic Review 102, no. 7 (2012): 3731–48.10.1257/aer.102.7.3731CrossRefGoogle Scholar
Boycko, Maxim, Shleifer, Andrei, and Robert, W. Vishny. “Voucher Privatization.” Journal of Financial Economics 35 (1994): 249–66.10.1016/0304-405X(94)90006-XCrossRefGoogle Scholar
Boycko, Maxim, Shleifer, Andrei, and Robert, W. Vishny. “A Theory of Privatisation.” Economic Journal 106 (1996): 309–19.10.2307/2235248CrossRefGoogle Scholar
Boycko, Maxim, Shleifer, Andrei, and Vishny, Robert W.. Privatizing Russia. Cambridge, MA: MIT Press, 1997.Google Scholar
Brocas, Isabelle, Carrillo, Juan D., Wang, Stephanie W., and Camerer, Colin. “Imperfect Choice or Imperfect Attention? Understanding Strategic Thinking in Private Information Games.” Review of Economic Studies 81, no. 3 (2014): 944–70.10.1093/restud/rdu001CrossRefGoogle Scholar
Brough, Wayne T., and Mwangi, S. Kimenyi. “On the Inefficient Extraction of Rents by Dictators.” Public Choice, no. 48 (1986): 37–48.Google Scholar
Burgess, Robin, Jedwab, Remi, Miguel, Edward, Morjaria, Ameet, and Gerard Padró-i-Miquel. “The Value of Democracy: Evidence from Road Building in Kenya.” American Economic Review 105, no. 6 (2015): 1817–51.10.1257/aer.20131031CrossRefGoogle Scholar
Campbell, John Y., Lo, Andrew W., and Craig MacKinlay, A.. The Econometrics of Financial Markets. Princeton, NJ: Princeton University Press, 1997.CrossRefGoogle Scholar
Cavallo, Ascanio, Salazar, Manuel, and Sepúlveda, Oscar. La Historia Oculta del Régimen Militar: Memoria de una Época 1973–1988. Santiago, Chile: Uqbar editores, 2011.Google Scholar
Celarier, Michelle. “Privatization: A Case Study in Corruption.” Journal of International Affairs 50, no. 2 (1997): 531–43.Google Scholar
Cingano, Federico, and Pinotti, Paolo. “Politicians at Work: The Private Returns and Social Costs of Political Connections.” Journal of the European Economic Association 11, no. 2 (2013): 433–65.10.1111/jeea.12001CrossRefGoogle Scholar
Claessens, Stijn, Djankov, Simeon, Fan, Joseph P., and Larry, H. Lang. “Disentangling the Incentive and Entrenchment Effects of Large Shareholdings.” Journal of Finance 57, no. 6 (2002): 2741–71.10.1111/1540-6261.00511CrossRefGoogle Scholar
Claessens, Stijn, Feijen, Erik, and Laeven, Luc. “Political Connections and Preferential Access to Finance: The Role of Campaign Contributions.” Journal of Financial Economics 88, no. 3 (2008): 554–80.10.1016/j.jfineco.2006.11.003CrossRefGoogle Scholar
Colonelli, Emanuele, and Prem, Mounu. “Corruption and Firms: Evidence from Random Audits in Brazil.” Unpublished Manuscript, 2017.10.2139/ssrn.2931602CrossRefGoogle Scholar
Report, Congress. “Transparencia y patrimonio público.” In Informe de la comisión investigadora encargada de analizar presuntas irregularidades en las privatizaciones de empresas del estado ocurridas con anterioridad al año 1990, chapter 2, 2004.Google Scholar
Crone, Theodore. “An Alternative Definition of Economic Regions in the United States Based on Similarities in State Business Cycles.” Review of Economics and Statistics 87, no. 4 (2005): 617–26.CrossRefGoogle Scholar
Crump, Richard K., Joseph Hotz, V., Imbens, Guido W., and Oscar, A. Mitnik. “Dealing with Limited Overlap in Estimation of Average Treatment Effects.” Biometrika 96, no. 1 (2009): 187–99.CrossRefGoogle Scholar
Donelli, Marcelo, Larraín, Borja, and Urzúa, Francisco. “Ownership Dynamics with Large Shareholders: An Empirical Analysis.” Journal of Financial and Quantitative Analysis 48, no. 2 (2013): 579–609.CrossRefGoogle Scholar
D’Souza, Juliet, and William, L. Megginson. “The Financial and Operating Performance of Privatized Firms during the 1990s.” Journal of Finance LIV, no. 4 (1999): 1397–438.CrossRefGoogle Scholar
Dube, Arindrajit, Kaplan, Ethan, and Naidu, Suresh. “Coups, Corporations, and Classified Information.” Quarterly Journal of Economics 126, no. 3 (2011): 1375–409.CrossRefGoogle Scholar
Ellman, Matthew, and Wantchekon, Leonard. “Electoral Competition under the Threat of Political Unrest.” Quarterly Journal of Economics 115, no. 2 (2000): 499–531.CrossRefGoogle Scholar
Estrin, Saul, Hanousek, Jan, Kocenda, Evzen, and Svejnar, Jan. “The Effects of Privatization and Ownership in Transition Economies.” Journal of Economic Literature 47, no. 3 (2009): 699–728.10.1257/jel.47.3.699CrossRefGoogle Scholar
Faccio, Mara, and Hsu, Hung-Chia. “Politically Connected Private Equity and Employment.” Journal of Finance 72, no. 2 (2017): 539–73.CrossRefGoogle Scholar
Faccio, Mara, McConnell, John J., and Masulis, Ronald W.. “Political Connections and Corporate Bailouts.” Journal of Finance 61, no. 6 (2006): 2597–635.10.1111/j.1540-6261.2006.01000.xCrossRefGoogle Scholar
Ferguson, Thomas, and Voth, Hans-Joachim. “Betting on Hitler: The Value of Political Connections in Nazi Germany.” Quarterly Journal of Economics 123, no. 1 (2008): 101–37.CrossRefGoogle Scholar
Fisman, David, Fisman, Raymond, Galef, Julia, Khurana, Rakesh, and Wang, Yongxian. “Estimating the Value of Political Connections to Vice-President Cheney.” B.E. Journal of Economic Analysis and Policy 13, no. 3 (2012).Google Scholar
Fisman, Raymond. “Estimating the Value of Political Connections.” American Economic Review 91, no. 4 (2001): 1095–102.CrossRefGoogle Scholar
Fisman, Raymond, and Wang, Yongxiang. “Corruption in Chinese Privatizations.” Journal of Law, Economics, and Organization 31, no. 1 (2014): 1–29.CrossRefGoogle Scholar
Frydman, Roman, Gray, Cheryl, Hessel, Marek, and Rapaczynski, Andrzej. “When Does Privatization Work? The Impact of Private Ownership on Corporate Performance in the Transition Economies.” Quarterly Journal of Economics 114, no. 4 (1999): 1153–91.CrossRefGoogle Scholar
Galal, Ahmed. Welfare Consequences of Selling Public Enterprises: An Empirical Analysis. Washington, DC: World Bank, 1994.CrossRefGoogle Scholar
Goldman, Eitan, Rocholl, Jörg, and So, Jongil. “Politically Connected Boards of Directors and the Allocation of Procurement Contracts.” Review of Finance 17, no. 5 (2013): 1617–48.CrossRefGoogle Scholar
González, Felipe, and Prem, Mounu. “Can Television Bring Down a Dictator? Evidence from Chile’s ‘No’ Campaign.” Journal of Comparative Economics 46, no. 1 (2018a): 349–61.CrossRefGoogle Scholar
González, Felipe, and Prem, Mounu. “The Value of Political Capital: Dictatorship Collaborators as Business Elites.” Journal of Economic Behavior and Organization 155 (2018b): 217–30.CrossRefGoogle Scholar
González, Felipe, and Prem, Mounu. “Losing Your Dictator: Firms during Political Transition.” Unpublished Manuscript, 2019.10.1007/s10887-020-09176-5CrossRefGoogle Scholar
González, Felipe, Prem, Mounu, and Urzúa, Francisco. “Replication: The Privatization Origins of Political Corporations: Evidence from the Pinochet Regime.” Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-12-16. https://doi.org/10.3886/E116770V1.Google Scholar
Green, Richard, and Haskel, Jonathan. “Seeking Premier-League Economy: The Role of Privatization.” In Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980–2000, edited by Card, David, Blundell, Richard, and Richard, B. Freeman, 63–108. Chicago: University of Chicago Press, 2004.CrossRefGoogle Scholar
Grossman, Gene M., and Helpman, Elhanan. “Protection for Sale.” American Economic Review 84, no. 4 (1994): 833–50.Google Scholar
Guzmán, Juan Andrés, and Rojas, Jorge. Empresarios Zombies: La Mayor Elusión Tributaria de la Elite Chilena. Catalonia: Universidad Diego Portales, 2017.Google Scholar
Hachette, Dominique. “Privatizaciones: reforma estructural pero inconclusa.” In La transformación económica de Chile, edited by Larraín, Felipe and Vergara, . Santiago, Chile: Centro de Estudios Públicos, 2001, 111–153.Google Scholar
Hachette, Dominique, and Lüders, Rolf. Privatización en Chile. San Francisco CA: Centro Internacional para el Desarrollo Económico, 1992.Google Scholar
Hodler, Roland, and Paul, A. Raschky. “Regional Favoritism.” Quarterly Journal of Economics 129, no. 2 (2014): 995–1033.CrossRefGoogle Scholar
Hsieh, Chang-Tai, and Peter, J. Klenow. “Misallocation and Manufacturing TFP in China and India.” Quarterly Journal of Economics 124, no. 4 (2009): 1403–48.CrossRefGoogle Scholar
Huneeus, Carlos. The Pinochet Regime. Boulder, CO: Lynne Rienner Publishers, 2006.Google Scholar
Khanna, Tarun, and Palepu, Krishna. “The Future of Business Groups in Emerging Markets: Long-Run Evidence from Chile.” Academy of Management Journal 43, no. 3 (2000): 268–85.Google Scholar
Khwaja, Asim I., and Mian, Atif. “Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market.” Quarterly Journal of Economics 120, no. 4 (2005): 1371–411.CrossRefGoogle Scholar
Kolari, James W., and Pynnönen, Seppo. “Event Study Testing with Cross-Sectional Correlation of Abnormal Returns.” Review of Financial Studies 23, no. 11 (2010): 3996–4025.CrossRefGoogle Scholar
Kolmogorov, Andrey. “Sulla Determinazione Empirica di una Legge di Distribuzione.” Giornale dell’Istituto Italiano degli Attuari 4, (1933): 83–91.Google Scholar
La Porta, Rafael, and López-de-Silanes, Florencio. “The Benefits of Privatization: Evidence from Mexico.” Quarterly Journal of Economics 114, no. 4 (1999): 1193–242.CrossRefGoogle Scholar
León-Dermota, Ken. …And Well Tied Down: Chile’s Press under Democracy. Santa Barbara, CA: Praeger, 2003.Google Scholar
Linz, Juan J., and Stepan, Alfred. Problems of Democratic Transition and Consolidation: Southern Europe, South America, and Post-Communist Europe. Baltimore, MD: Johns Hopkins University Press, 1996.Google Scholar
López-de-Silanes, Florencio, Shleifer, Andrei, and Vishny, Robert W.. “Privatization in the United States.” RAND Journal of Economics 28, no. 3 (1997): 447–71.CrossRefGoogle Scholar
Lucca, David, Seru, Amit, and Trebbi, Francesco. “The Revolving Door and Worker Flows in Banking Regulation.” Journal of Monetary Economics 65 (2014): 17–32.CrossRefGoogle Scholar
Luechinger, Simon, and Moser, Christoph. “The Value of the Revolving Door: Political Appointees and the Stock Market.” Journal of Public Economics 119 (2014): 93–107.CrossRefGoogle Scholar
Marcel, Mario. “Privatizacion y Finanzas Públicas: El Caso de Chile, 1985-88.” Colección Estudios CIEPLAN 26 (1989): 5–60.Google Scholar
Bravo, Martínez, Mónica. “The Role of Local Officials in New Democracies: Evidence from Indonesia.” American Economic Review 104, no. 4 (2014): 1244–87.CrossRefGoogle Scholar
Bravo, Martínez, Mónica, Priya Mukherjee, and Stegmann, Andreas. “The Non-Democratic Roots of Elite Capture: Evidence from Soeharto Mayors in Indonesia.” Econometrica 85, no. 6 (2017): 1991–2010.CrossRefGoogle Scholar
Martínez, Jon I., Bernhard, S. Stöhr, and Quiroga, Bernardo. “Family Ownership and Firm Performance: Evidence from Public Companies in Chile.” Family Business Review XX, no. 2 (2007): 83–94.10.1111/j.1741-6248.2007.00087.xCrossRefGoogle Scholar
Megginson, William L., and Jeffry, M. Netter. “From State to Market: A Survey of Empirical Studies on Privatization.” Journal of Economic Literature 39, no. 2 (2001): 321–89.CrossRefGoogle Scholar
Meller, Patricio. Un Siglo de Economía Política Chilena. Santiago, Chile: Andrés Bello, 1998.Google Scholar
Michels, Robert. Political Parties: A Sociological Study of the Oligarchical Tendencies of Modern Democracy. New York: Hearst’s International Library Co., 1915.Google Scholar
Milovanović, Milić. “Property Rights, Liberty, and Corruption in Serbia.” Independent Review XII, no. 2 (2007): 213–34.Google Scholar
Mönckeberg, María Olivia.El Saqueo de los Grupos Económicos al Estado Chileno. Barcelona, Spain: Ediciones B, 2001.Google Scholar
O’Donnell, Guillermo, and Phillipe, C. Schmitter. Transitions from Authoritarian Rule: Tentative Conclusions about Uncertain Democracies. Baltimore, MD: The Johns Hopkins University Press, 1986.Google Scholar
Oster, Emily. “Unobservable Selection and Coefficient Stability: Theory and Evidence.” Journal of Business Economics and Statistics 37, no. 2 (2019): 187–204.CrossRefGoogle Scholar
Robinson, Marti J., and Robinson, John. “Permutation Tests for Linear Models.” Australian and New Zealand Journal of Statistics 43, no. 1 (2001): 75–88.Google Scholar
Rossi, Martin. “The Impact of Individual Wealth on Posterior Political Power.” Journal of Economic Behavior and Organization 106, no. 1 (2014): 469–80.10.1016/j.jebo.2014.08.006CrossRefGoogle Scholar
Saba, Roberto P., and Manzetti, Luigi. “Privatization in Argentina: The Implications for Corruption.” Crime, Law and Social Change 25 (1997): 353–69.CrossRefGoogle Scholar
Sapienza, Paola. “The Effects of Government Ownership on Bank Lending.” Journal of Financial Economics 72, no. 2 (2004): 357–84.10.1016/j.jfineco.2002.10.002CrossRefGoogle Scholar
Smirnov, Nikolai. “Estimate of Deviation between Empirical Distribution Functions in Two Independent Samples.” Bulletin Moscow University 2 (1933): 3–16.Google Scholar
Steinhaus, Hugo. “Sur la Division des Corps Matériels en Parties.” Bulletin De L’Académie Polonaise des Sciences IV, no. 12 (1957): 801–804.Google Scholar
Tangri, Roger, and Mwenda, Andrew. “Corruption and Cronyism in Uganda’s Privatization in the 1990s.” African Affairs 100 (2001): 117–33.10.1093/afraf/100.398.117CrossRefGoogle Scholar
Tibshirani, Robert, Walther, Guenther, and Hastie, Trevor. “Estimating the Number of Clusters in a Data Set via the Gap Statistic.” Journal of the Royal Statistical Society: Series B (Statistical Methodology) 63, no. 2 (2001): 411–23.CrossRefGoogle Scholar
Treisman, Daniel. “Democracy by Mistake.” NBER Working Paper No. 23944, Cambridge, MA, October 2017.Google Scholar
Tromben, Carlos. Crónica Secreta de la Economía Chilena. Barcelona, Spain: Ediciones B, 2016.Google Scholar
Zingales, Luigi. “Towards a Political Theory of the Firm.” Journal of Economic Perspectives 31, no. 3 (2017): 113–30.CrossRefGoogle Scholar
Zucman, Gabriel. “Missing Wealth of Nations: Are Europe and the U.S. Net Debtors or Net Creditors?” Quarterly Journal of Economics 128, no. 3 (2013): 1321–64.10.1093/qje/qjt012CrossRefGoogle Scholar
Supplementary material: PDF

González et al. supplementary material

González et al. supplementary material

Download González et al. supplementary material(PDF)
PDF 1.3 MB