nationalization

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Nationalization

A government takeover of a private company.

Nationalization

The taking of a private business or industry by a government. Compensation to shareholders, bondholders, and/or other stakeholders may be made in a nationalization, but the word connotes forcible seizure. Developing countries and socialist governments nationalize companies and assets more often than developed countries, but even the United States took majority ownership of several major private companies in 2008 and 2009. Nationalization is very controversial. See also: Too-big-to-fail.

nationalization

A government takeover of private property or operations. The government may or may not compensate the property owners. Multinational companies with operations in developing countries have frequently seen their assets nationalized.

nationalization

The public ownership of industry. In a CENTRALLY PLANNED ECONOMY, most or all of the country's industries are owned by the state, and resources are allocated, and the supply of goods and services determined, in accordance with a NATIONAL PLAN. In a MIXED ECONOMY, some industries are owned by the state, but the supply of the majority of goods and services is undertaken by PRIVATE-ENTERPRISE industries operating through the MARKET mechanism. The extent of public ownership of industry depends very much on political ideology, with advocates of a centrally planned economy seeking more nationalization and private-enterprise proponents favouring little or no nationalization. For example, in the UK a Labour government nationalized the iron and steel industry in 1949, having previously nationalized the Bank of England, civil aviation, transport, electricity and the coal and gas industries. The iron and steel industry was denationalized by a Conservative government in 1953, but later a large part of the industry was renationalized by a Labour government in 1967. In 1980 a Conservative government embarked on a major denationalization programme, including British Steel (see PRIVATIZATION).

The main economic justification for nationalization relies heavily on the NATURAL MONOPOLY argument: the provision of some goods and services can be more efficiently undertaken by a monopoly supplier because ECONOMIES OF SCALE are so great that only by organizing the industry on a single-supplier basis can full advantage be taken of cost savings. Natural monopolies are particularly likely to arise where the provision of a good or service requires an interlocking supply network as, for example, in gas, electricity and water distribution, and railway and telephone services. In these cases, laying down competing pipelines and carriageways would involve unnecessary duplication of resources and extra expense. Significant production economies of scale are associated with capital-intensive industries such as iron and steel, gas and electricity generation. In other instances, however, the economic case for nationalization is far less convincing: industries or individual firms may be taken over because they are making losses and need to be reorganized or because of a political concern with preserving jobs. For example, in the UK, the British Leyland car firm and British Ship-builders were nationalized in 1975 and 1977 respectively, only to be returned to private enterprise in the 1980s.

A private-enterprise MONOPOLY could, of course, also secure the same efficiency gains in production and distribution as a state monopoly, but the danger exists that it might abuse its position of market power by monopoly pricing. The state monopolist, by contrast, would seek to promote the interests of consumers by charging ‘fair’ prices. Opponents of nationalization argue, however, that state monopolists are likely to dissipate the cost savings arising from economies of scale by internal inefficiencies (bureaucratic rigidities and control problems giving rise to X-INEFFICIENCY), and the danger is that such inefficiencies could be exacerbated over time by governments subsidizing loss-making activities.

The problem of reconciling supply efficiency with various other economic and social objectives of governments further complicates the picture. For example, the government may force nationalized industries to hold down their prices to help in the control of inflation, but by squeezing the industries’ cash flow the longer-term effects of this might be to reduce their investment programmes. Many of the nationalized industries are charged with social obligations; for example, they may be required by government to provide railway and postal services to remote rural communities, even though these are totally uneconomic.

Thus, assessing the relative merits and demerits of nationalization in the round is a difficult matter. From an economic efficiency point of view, under British COMPETITION POLICY, nationalized industries can be referred for investigation to the COMPETITION COMMISSION to determine whether or not they are operating in the public interest. See MARGINAL COST PRICING, AVERAGE COST PRICING, TWO-PART TARIFF, PUBLIC UTILITY, RATE-OF-RETURN REGULATION, PRIVATIZATION.

References in periodicals archive ?
Eight foreign firms at least, including Mexican cement giant CEMEX, are locked in appeals processes against renationalisation that they hope will allow them to maintain their investments in the country.
General Secretary Bob Crow said: "This poll, revealing that a massive majority of the public support the renationalisation of the railways, shows that the Government are miles out of step with the voters when it comes to the crucial issue of who owns and runs our transport services.
Since renationalisation, Entel has been expanding its mobile network under a project known as Territory with Total Coverage, aimed at providing telecom services to all Colombians, including those living in small rural villages.
One case includes a legal battle with Saudi investors over the renationalisation of one of Egypt's oldest department stores, Omar Effendi.
Mr Borisov added that three power distributors had been fined for undisclosed violations, but said he was against their renationalisation.
Rail Minister Theresa Villiers said: "Labour have admitted that their only transport policy is rail renationalisation with huge costs and massive upheaval for our railways.
Delegates refused, however, to go as far as committing to renationalisation of the railways, defeating a bid by Montgomeryshire MP Lembit Opik for the party to consider bringing rail services back under public ownership.
Dear Editor, Nationsalisation fever is sweeping the nation at the moment so it is quite fitting that an old Trot like Rob Marris MP should now come out in favour of nationalising the railways (Midland MP calls for renationalisation of rail - Birmingham Post, October 23).
Network Rail is to take another step towards renationalisation in stripping its contractors of responsibility for some key upgrades and taking much of the work in-house.
Regional secretary Tom Brennan said renationalisation would ensure thousands of jobs were created in the North East to make renewable and clean energy.
RAIL workers were today completing a country-wide march to press for the renationalisation of their industry claiming strong public backing for their campaign.
The renationalisation of cleaning is now at the top of the agenda and talks on how it's implemented are on-going.