Difference Between Privatization and Nationalization

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Difference Between Nationalization and Privatization

Nationalization is the transfer of a sector of the private economy into the hands of the State, whereas privatization means the sale of partial or total shares of a public company to private capital.
Difference Between Privatization and Nationalization

Nationalization and Privatization

Also referred to as nationalization, it is observed that the state property of a company makes it a good of public utility, being administered directly by the institution designated for it.

In nationalization processes, the State usually buys the shares of the private company, in an agreed or unilateral manner, in the form of expropriation.

On the other hand, privatizations are carried out to separate the administration of a company from public policy, becoming governed by the profitability and growth criteria of the capitalist market.

Determining factors in the Nationalization process

The economic policies of a statist tendency are related to the nationalist and socialist political currents, which postulate the need for the economy to be directed by a public interest that is not subject to the criteria of business profitability of private capital.

These policies are usually implemented to a greater extent in sectors of the economy that are essential for the general well-being or that are key to the national economy, for example education, services and public transport, basic and hydrocarbon companies, messaging and telephony, among others.

The extreme of a totally nationalized economy was carried out in the countries of the USSR during the 20th century, in this case many authors define this model as state capitalism.

State-controlled economies can generate the capacity to develop peripheral and dependent economies, however, after a first moment of growth, they can have a rigid behavior that tends to stagnate, generating public deficits and inflation. At the same time, state property can degenerate into private property of the political class, being an economic system vulnerable to administrative bureaucracy obtaining formal privileges or through corruption.

Capacities and limits of Privatization

From the liberal currents, nationalization is a tool only to rescue companies with little profitability or at risk of bankruptcy. Privatization is promoted as a mechanism to integrate the entire economy into an open capitalist market, where the private accumulation of capital functions as the fundamental stimulus of the economy.

The neoliberalism that emerged at the end of the 20th century proposes the general privatization of the economy as a way to end the public deficit and eliminate state subsidies.

Privatization allows solving the problems of stagnation and inflation in state-owned economies, however the business profitability criterion can lead to policies that maximize the profits of private capital, leaving out the social interest as a premise for the functioning of the economy.

This criterion applied to basic services can exclude important sectors of the population from accessing resources for their development, as well as the marginalization of services necessary for modern life.

In the context of contemporary economics

At present there are multiple forms of mixed economy, for example companies where the State shares shareholdings with private capital, or where the private economy is subject to regulations with the criterion of maintaining mechanisms of social responsibility thereof. Fiscal policies can also have a redistributive role that allows maintaining a social security system, at the same time as a private economy.

The problem behind all economic policy begins with the conflict between the requirements for the valuation of capital (state or private) and the satisfaction of the needs of society, such as the valuation of work. The capitalist economy works on this axis and statist or private public policies are the result of the tension that is generated in this regard.

There are also forms of alternative economy that work on the premise of cooperation or mutual support, which can be distinguished as a social economy. These are cooperatives, community enterprises, collective enterprises, among others, which differ from both private and state capital, maintaining criteria of efficiency and profitability, such as the priority of social interest and the common good.


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