Nationalization
Nationalization (nationalisation in British English) or collectivization is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state.[1] Nationalization usually refers to private assets or to assets owned by lower levels of government (such as municipalities) being transferred to the state. Nationalization contrasts with privatization and with demutualization. When previously nationalized assets are privatized and subsequently returned to public ownership at a later stage, they are said to have undergone renationalization. Industries often subject to nationalization include the commanding heights of the economy – telecommunications, electric power, fossil fuels, railways, airlines, iron ore, media, postal services, banks, and water – though, in many jurisdictions, many such entities have no history of private ownership.
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Nationalization may occur with or without financial compensation to the former owners. Nationalization is distinguished from property redistribution in that the government retains control of nationalized property. Some nationalizations take place when a government seizes property acquired illegally. For example, in 1945 the French government seized the car-maker Renault because its owners had collaborated with the 1940–1944 Nazi occupiers of France.[2] In September 2021, Berliners voted to expropriate over 240,000 housing units, many of which were being held unoccupied as investment property.[3][4]
Economists can distinguish between nationalization and socialization, which refers to the process of restructuring the economic framework, organizational structure, and institutions of an economy on a socialist basis. By contrast, nationalization does not necessarily imply social ownership and the restructuring of the economic system. By itself, nationalization has nothing to do with socialism – historically, states have carried out nationalizations for various different purposes under a wide variety of different political systems and economic systems.[5]
Compensation
Since nationalized industries are state owned, the government is responsible for meeting any debts. The nationalized industries do not normally borrow from the domestic market other than for short-term borrowing. If they are profitable, the profit is often used to finance other state services, such as social programs and government research, which can help lower the tax burden.
The traditional Western stance on compensation was expressed by United States Secretary of State Cordell Hull during the Mexican nationalization of the petroleum industry in 1938, saying that compensation should be "prompt, effective and adequate". According to this view, the nationalizing state is obligated under international law to pay the deprived party the full value of the property taken.
The opposing position has been taken mainly by developing countries, claiming that the question of compensation should be left entirely up to the sovereign state, in line with the Calvo Doctrine.
Socialist states have held that no compensation is due, based on the view that private ownership over socialized assets is illegitimate, exploitative, or a hindrance to further economic development.
In 1962, the United Nations General Assembly adopted Resolution 1803, "Permanent Sovereignty over National Resources", which states that in the event of nationalization, the owner "shall be paid appropriate compensation in accordance with international law". In doing so, the UN rejected the traditional Calvo-doctrinal view and the Communist view. The term "appropriate compensation" represents a compromise between the traditional views, taking into account the need of developing countries to pursue reform, even without the ability to pay full compensation, and the Western concern for the protection of private property.
In the United States, the Fifth Amendment requires just compensation if private property is taken for public use.
Political support
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Nationalization was one of the major mechanisms advocated by reformist socialists and social democrats for gradually transitioning to socialism. In this context, the goals of nationalization were to dispossess large capitalists, redirect the profits of industry to the public purse, and establish some form of workers' self-management as a precursor to the establishment of a socialist economic system.[6]
In the United Kingdom after the Second World War, nationalization gained support by the Labour party and some social democratic parties throughout Western Europe. Although sometimes undertaken as part of a strategy to build socialism, more commonly nationalization was also undertaken and used to protect and develop industries perceived as being vital to the nation's competitiveness (such as aerospace and shipbuilding), or to protect jobs in certain industries.
A re-nationalization occurs when state-owned assets are privatized and later nationalized again, often when a different political party or faction is in power. A re-nationalization process may also be called "reverse privatization". Nationalization has been used to refer to either direct state-ownership and management of an enterprise or to a government acquiring a large controlling share of a publicly listed corporation.
According to research by Paasha Mahdavi, leaders who consider nationalization face a dilemma: "nationalize and reap immediate gains while risking future prosperity, or maintain private operations, thereby passing on revenue windfalls but securing long-term fiscal streams."[7] He argues that leaders "nationalize extractive resources to extend the duration of their power" by using "this increased capital to secure political support."[7]
Economic analysis
Nationalization can have positive and negative effects.[8] In 2019 research based on studies from Greenwich University found that the nationalization of key services such as water, bus, railways and broadband in the United Kingdom could save £13bn every year.[9]
Conversely, an assessment from the Institute for Fiscal Studies found that it would add at least £150bn to the national debt and make it harder for the United Kingdom to hit its climate change targets. This analysis was based on the assumption that the UK Government would have to pay the market rate for these industries.[10]
Nationalization can produce adverse effects, such as reducing competition in the marketplace, which in turn reduces incentives to innovation and maintains high prices. In the short run, nationalization can provide a larger revenue stream for government, but can cause the industry to falter in the longer run.[11] The collapse of the Venezuelan oil industry, due to government mismanagement, is a case in point.[12]
Expropriation
Expropriation is the seizure of private property by a public agency for a purpose deemed to be in the public interest. It may also be used as a penalty for criminal proceedings.[13] Unlike eminent domain, expropriation may also refer to the taking of private property by a private entity authorized by a government to take property in certain situations.
Due to political risks that are involved when countries engage in international business, it is important to understand the expropriation risks and laws within each of the countries in which business is conducted in order to understand the risks as an investor in that country.[14]
Marxist theory
The term appears as "expropriation of expropriators (ruling classes)" in Marxist theory, and also as the slogan "Loot the looters!" ("грабь награбленное"), which was very popular during the Russian October Revolution.[15] The term is also used to describe nationalization campaigns by communist states, such as dekulakization and collectivization in the USSR.[16]
However, nationalisation is not a specifically socialist strategy, and Marxism's founders were sceptical of its value. As Engels put it:
Therein precisely lies the rub; for, so long as the propertied classes remain at the helm, nationalisation never abolishes exploitation but merely changes its form — in the French, American or Swiss republics no less than in monarchist Central, and despotic Eastern, Europe.
— Friedrich Engels, Letter from Engels to Max Oppenheim, 24 March 1891
Nikolai Bukharin also criticised the term 'nationalisation', preferring the term 'statisation' instead.[17]
See also
- Compulsory purchase
- Constitutional economics
- Confiscation
- Eminent domain
- List of nationalizations by country
- Municipalization
- Privatization
- Public ownership
- Railway nationalization
- Sequestration
- State ownership
- State capitalism
- State socialism
- State sector
- Statism
References
- "Definition of NATIONALIZATION". merriam-webster.com.
nationalize [...] 2 : to invest control or ownership of in the national government[.]
- Chrisafis, Angelique (December 14, 2011). "Renault descendants demand payout for state confiscation". The Guardian. London.
- Winck, Ben (27 September 2021). "A majority in Berlin's election just voted to strip 240,000 rentals from major landlords and fight the city's housing crisis". Business Insider.
- Berry, Alex (26 September 2021). "Germany: Berlin locals vote to expropriate real estate giants". Deutsche Welle.
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Alistair, Mason; Pyper, Hugh (21 December 2000). Hastings, Adrian (ed.). The Oxford Companion to Christian Thought. Oxford University Press. p. 677. ISBN 978-0198600244. Retrieved 8 December 2019.
At the heart of its vision has been social or common ownership of the means of production. Common ownership and democratic control of these was far more central to the thought of the early socialists than state control or nationalization, which developed later. [...] Nationalization in itself has nothing particularly to do with socialism and has existed under non-socialist and anti-socialist regimes. Kautsky in 1891 pointed out that a 'co-operative commonwealth' could not be the result of the 'general nationalization of all industries' unless there was a change in 'the character of the state'[.]
- The Economics of Feasible Socialism Revisited, by Nove, Alexander. 1991. (P.176): "Nationalisation arouses no enthusiasm, in the minds of most socialists and anti-socialists. It would probably be agreed that hopes which reposed on nationalisation have been disappointed. Conservatives hold that this is due to defects inherent in nationalisation, that private enterprise based on private ownership is inherently superior. (Mrs Thatcher’s government tried to ensure that this was so by preventing essential investments and ordering the nationalized industries to sell off their more successful undertakings.)...The original notion was that nationalization would achieve three objectives. One was to dispossess the big capitalists. The second was to divert the profits from private appropriation to the public purse. Thirdly, the nationalized sector would serve the public good rather than try to make private profits...To these objectives some (but not all) would add some sort of workers' control, the accountability of management to employees."
- Mahdavi, Paasha (2021). Power grab: political survival through extractive resource nationalization. Cambridge University Press. doi:10.1017/9781108781350. ISBN 9781108781350. S2CID 243736481. Retrieved 2020-03-12.
- "Nationalization | economic policy".
- Ellis, Mark (2019-11-24). "Nationalisation of public services could save £13billion every year". mirror. Retrieved 2020-01-06.
- PoliticsHome.com (2019-12-03). "Labour nationalisations 'would cost tens of billions and risk years of disruption', claims IFS". PoliticsHome.com. Retrieved 2020-01-06.
- "Nationalization". Corporate Finance Institute. Retrieved 2021-09-29.
- Monaldi, Francisco (March 2018). "The collapse of the Venezuelan Oil Indusry and its global consequences" (PDF). Atlantic Council.
- Caves, R. W. (2004). Encyclopedia of the City. Routledge. p. 251.
- Flynn, Chris. Avoiding Expropriation and Managing Political Risk in Emerging Market. Lexology. p. 1.
- Orlando Figes, A People's Tragedy: Russian Revolution, 1996, ISBN 0-7126-7327-X.
- Richard Pipes Property and Freedom, Vintage Books, A division of Random House, Inc., New York, 1999, ISBN 0-375-70447-7, page 214.
- Economy of transition period, Chapter Seven 'The latter term, indeed, certainly is not perfect. First, it mixes "nation" ("whole") with the state, i.e. the ruling class. Second, it has shade of national states epoch. We keep it because it is absolutely rooted, though there are no logical grounds for its existence.'
External links
| Library resources about Nationalization |
- The importance of public banking[Usurped!], article on Indian public sector banks
- Time for Permanent Nationalization by economist Fred Moseley in Dollars & Sense, January/February 2009
- The Corporate Governance of Banks – a concise discussion of concepts and evidence
- Davies, Albert Emil (1922). . Encyclopædia Britannica (12th ed.).
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