Copper Nationalization in a Newly Independent State, 1974
In 1974, the president of a newly independent copper-exporting state must decide the future of two foreign-owned mines that produce 90% of export earnings. A World Bank memo recommends a joint venture: the state buys 51% for $120 million, the company keeps management and markets the copper. A mineworkers' union petition demands full nationalization without compensation, citing 4,000 jobs and foreign profits. A company prospectus warns that full nationalization would trigger a 30% fall in technical staff and loss of access to London metal markets. The state has $80 million in reserves and a copper price that has fallen 18% in six months. The president wants a decision within 30 days; any deal must be approved by a parliament where the union has 40 of 120 seats.
1. Evaluate the reliability of the World Bank memo and the union petition as evidence for this decision.
Read the worked answer
The World Bank memo is technically informed but institutionally interested: it wants a bankable joint venture and may downplay the state's bargaining power and the copper price risk. Its 51% purchase price of $120 million exceeds reserves of $80 million, so its financing assumption needs scrutiny. The union petition represents 4,000 workers and is a genuine voice, but it is an advocacy document; full nationalization without compensation may not be legally or fiscally possible, and the union does not speak for all 120 parliamentarians. The company prospectus is also advocacy: the 30% staff-loss and market-access warnings are plausible but unverified, and the company has an interest in keeping management. Use the memo for financing structure, the petition for distributional and political risk, and the prospectus for operational risk, but commission an independent audit of reserves, staff nationality, and marketing contracts before treating any figure as a baseline.
2. Recommend a policy and explain how it addresses the financing gap and political constraints.
Read the worked answer
Recommend a phased joint venture: the state buys 51% in stages, paying $80 million now and the remaining $40 million from copper revenues over three years, while retaining the company as operator for five years and requiring a training plan for local staff. This fits the reserves and avoids a sudden loss of technical staff or London market access. To win union support, allocate 10% of dividends to a workers' fund and guarantee no compulsory redundancies during the management contract. The parliamentary constraint matters: the union has 40 of 120 seats, so the president needs at least 21 more votes; a phased deal can attract members who fear full nationalization. The strongest objection is that copper prices have fallen 18%, so the $40 million may not materialize. If prices fall another 20%, renegotiate the schedule rather than cancel; if the company refuses training and market access, full nationalization becomes more defensible despite the risks.