Nationalisation: Definition, Features, Example, Merits & Demerits

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What is Nationalisation?

The term nationalisation refers to public ownership and control of business enterprises formerly owned by private interests. In other words, nationalization may be defined to as the taking over of transfer from private to state or government, and the ownership and control of business enterprises for economic, social and political reasons.

Nationalization is the process through which the State becomes the owner or controller of assets or activities that until now belonged to the private sector.

In this way, the means of production or exploitation ceases to belong to private companies to be under the control of a government in question. The opposite phenomenon by definition to nationalization is privatization.

By means of nationalization, an industry or a good becomes the patrimony of a country or its public institutions. This process often has some type of consideration in the form of payment for the operation, although this is not strictly necessary. This compensation is usually carried out with government bonds as a payment instrument.

Objective of Nationalisation

The main objective of nationalization generally is to ensure economic efficiency.

Arguments for Nationalisation

  • To provide opportunities for indigenous entrepreneurship.
  • To prevent exploitation of consumers of very essential goods and Services
  • To assert the political independence of the country
  • The reduce outflow of the nation’s scarce foreign exchange.
  • To protect the security of the country e.g. in the production of armaments.

Origin of Nationalization

The goal of any nationalization is to make the private public.

Nationalization has its origin as a practice only from the creation of the State and therefore from the tensions and differences between public property and private property.

The objective of any nationalization is to make the private public, and especially if it is foreign private property. These methods of direct state intervention in the economy began in the western capitalist world in 1929, when it was in the midst of the Great Depression after the First World War.

Reasons for Nationalization

The reasons behind a nationalization generally serve reasons of State security, strategic policies or national macroeconomic plans, always bearing in mind the collective benefit or the protection of the common welfare. Nationalizations have also been used as retaliation or punishment for illegal or inappropriate behavior by private companies or individuals.

Nationalizable Assets

Many types of productive companies and factories are nationalizable assets.

Virtually all assets are subject to expropriation, from a real estate (a building, a piece of land, a service station), an entire company (banks, production companies, factories) or a number of capital assets.

Consequences of Nationalization

The consequences of a nationalization depend on the specific case and the type of property expropriated. For example, the nationalization of basic service companies (electricity, electricity, etc.) gives the State greater control over the most basic aspects of life in the country, but in exchange they tend to bureaucratize their processes.

In general terms, the nationalization processes are accused of damaging private assets, bureaucratizing services and allowing inefficiency and corruption to enter, when not establishing tariffs contrary to business profitability that end up reducing the effectiveness of the company.

On the other hand, the protective effect that the nationalization of some goods can have on public consumption, in the protection of national interests and even in a fairer distribution of wealth is recognized.

Procedures of Nationalization

The nationalization includes a compensatory payment for the seized property.

Nationalization procedures are generally detailed in the specific legal framework of a nation, and include compensatory payment for properties seized from their former owners, according to rates and amounts that, in the best of cases, are mutually agreed Between the parts. In theory it is not a kind of theft by the State, but a forced purchase.

Disadvantages of Nationalization

Nationalizations are always greeted with alarm by the private business sector, which understands them as a possible threat and a radical intervention by the State in the economy and business that could scare off future investment.

On the other hand, the meaning of the nationalizations that promote the enrichment of government officials (corruption) has been questioned.

Public goods and companies
nationalization. Public assets become State property.

Once nationalized, the companies would have to continue their functions but under a public company or state company regime, which is often reflected in their rates and service costs. These types of measures are given in favor of an economic or social plan determined by the Government.

Regarding public assets, they also become State assets and will serve for the location, construction or operation of institutions designated by the State, whether or not their new goals have anything to do with those developed in the past.

Difference Between Nationalization and Privatization

Differences Between Nationalisation and Privatization
Nationalization and Privatization

Privatization sells public goods to the highest bidder.

These are completely opposite processes: while nationalization makes private goods public (especially foreign), privatization makes public goods private (even foreign clients). In other words, the first is a forced purchase by the State and the other is a sale to the highest bidder by the State.

Differences between Nationalization and Statization

These are more or less synonymous terms. The only difference is that “nationalization” is often understood to make the nation private assets of some foreign interest, while “nationalization” is understood to mean the same but of any kind of assets. We can say then that nationalization is a type of nationalization.