The recently introduced compressible-ion interaction model (CIM) is extended to allow for coordination number-dependent oxide polarizabilities. The variable polarizability is parametrized from existing Hartree-Fock calculations. The resulting potential is used to examine small (MgO)(n) clusters in both their relaxed and unrelaxed (more symmetrical) structures. The results are compared to experimental results and both Hartree-Fock and density functional theory calculations. Comparison with alkali halide clusters is also made. The potential is found to be transferable over a wide range of ionic environments, spanning gas-phase clusters and the bulk phase. MgO nanotubes are found to be stable for small clusters of less than 30 molecules.