Abstract This article proposes an analytical framework for use by a democratic socialist government in determining how much to nationalize or privatize. A model is developed which enables socialist planners to determine the optimal size of the state sector. Once the optimal size of the state sector is determined the amount of capital to nationalize or privatize is ascertained. Hence, the model is of interest to socialist governments contemplating privatizations or nationalizations. Nevertheless, for expositional purposes, the setting chosen is that of a government which has just come to power and is attempting to determine how much private sector capital to nationalize.