Nationalization (nationalisation in
British English
British English (BrE, en-GB, or BE) is, according to Lexico, Oxford Dictionaries, "English language, English as used in Great Britain, as distinct from that used elsewhere". More narrowly, it can refer specifically to the English language in ...
) is the process of transforming privately-owned
asset
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...
s into public assets by bringing them under the
public ownership
State ownership, also called government ownership and public ownership, is the ownership of an industry, asset, or enterprise by the state or a public body representing a community, as opposed to an individual or private party. Public ownershi ...
of a
national government or
state
State may refer to:
Arts, entertainment, and media Literature
* ''State Magazine'', a monthly magazine published by the U.S. Department of State
* ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States
* ''Our S ...
.
Nationalization usually refers to private assets or to assets owned by lower levels of government (such as
municipalities
A municipality is usually a single administrative division having corporate status and powers of self-government or jurisdiction as granted by national and regional laws to which it is subordinate.
The term ''municipality'' may also mean the go ...
) being transferred to the state. Nationalization contrasts with
privatization
Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
and with
demutualization
Demutualization is the process by which a customer-owned mutual organization (''mutual'') or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, member ...
. 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
In Marxian economics, the "commanding heights of the economy" are certain strategically important sectors of private industry. Some examples of industries considered to be part of the commanding heights include public utilities, natural resources, ...
–
telecommunications
Telecommunication is the transmission of information by various types of technologies over wire, radio, optical, or other electromagnetic systems. It has its origin in the desire of humans for communication over a distance greater than that fe ...
,
electric power,
fossil fuels
A fossil fuel is a hydrocarbon-containing material formed naturally in the Earth's crust from the remains of dead plants and animals that is extracted and burned as a fuel. The main fossil fuels are coal, oil, and natural gas. Fossil fuels ...
,
railways
Rail transport (also known as train transport) is a means of transport that transfers passengers and goods on wheeled vehicles running on rails, which are incorporated in tracks. In contrast to road transport, where the vehicles run on a pre ...
,
airline
An airline is a company that provides civil aviation, air transport services for traveling passengers and freight. Airlines use aircraft to supply these services and may form partnerships or Airline alliance, alliances with other airlines for ...
s,
iron ore
Iron ores are rocks and minerals from which metallic iron can be economically extracted. The ores are usually rich in iron oxides and vary in color from dark grey, bright yellow, or deep purple to rusty red. The iron is usually found in the fo ...
,
media
Media may refer to:
Communication
* Media (communication), tools used to deliver information or data
** Advertising media, various media, content, buying and placement for advertising
** Broadcast media, communications delivered over mass e ...
,
postal services
The mail or post is a system for physically transporting postcards, letters, and parcels. A postal service can be private or public, though many governments place restrictions on private systems. Since the mid-19th century, national postal syst ...
,
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s, and
water
Water (chemical formula ) is an inorganic, transparent, tasteless, odorless, and nearly colorless chemical substance, which is the main constituent of Earth's hydrosphere and the fluids of all known living organisms (in which it acts as a ...
– though, in many jurisdictions, many such entities have no history of private ownership.
Nationalization may occur with or without
financial compensation
Financial compensation refers to the act of providing a person with money or other things of economic value in exchange for their goods, labor, or to provide for the costs of injuries that they have incurred.
Kinds of financial compensation inclu ...
to the former
owner
Ownership is the state or fact of legal possession and control over property, which may be any asset, tangible or intangible. Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different ...
s. Nationalization is distinguished from
property redistribution
Redistribution of income and wealth is the transfer of income and wealth (including physical property) from some individuals to others through a social mechanism such as taxation, welfare, public services, land reform, monetary policies, confi ...
in that the government retains control of nationalized
property
Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
. Some nationalizations take place when a government seizes property acquired illegally. For example, in 1945 the French government seized the car-maker
Renault
Groupe Renault ( , , , also known as the Renault Group in English; legally Renault S.A.) is a French multinational automobile manufacturer established in 1899. The company produces a range of cars and vans, and in the past has manufactured ...
because its owners had
collaborated
Collaboration (from Latin ''com-'' "with" + ''laborare'' "to labor", "to work") is the process of two or more people, entities or organizations working together to complete a task or achieve a goal. Collaboration is similar to cooperation. Most ...
with the 1940–1944
Nazi
Nazism ( ; german: Nazismus), the common name in English for National Socialism (german: Nationalsozialismus, ), is the far-right totalitarian political ideology and practices associated with Adolf Hitler and the Nazi Party (NSDAP) in ...
occupiers of France. In September 2021,
Berlin
Berlin ( , ) is the capital and largest city of Germany by both area and population. Its 3.7 million inhabitants make it the European Union's most populous city, according to population within city limits. One of Germany's sixteen constitue ...
ers
voted to expropriate over 240,000 housing units, many of which were being held unoccupied as investment property.
Economists can distinguish between nationalization and
socialization
In sociology, socialization or socialisation (see spelling differences) is the process of internalizing the norms and ideologies of society. Socialization encompasses both learning and teaching and is thus "the means by which social and cultur ...
, which refers to the process of restructuring the economic framework, organizational structure, and institutions of an economy on a
socialist
Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the e ...
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
Socialism is a left-wing Economic ideology, economic philosophy and Political movement, movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to Private prop ...
– historically, states have carried out nationalizations for various different purposes under a wide variety of different
political systems and
economic systems.
Compensation
Since nationalized industries are state owned, the
government
A government is the system or group of people governing an organized community, generally a state.
In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...
is responsible for meeting any
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
s. 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
The United States secretary of state is a member of the executive branch of the federal government of the United States and the head of the U.S. Department of State. The office holder is one of the highest ranking members of the president's Ca ...
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
International law (also known as public international law and the law of nations) is the set of rules, norms, and standards generally recognized as binding between states. It establishes normative guidelines and a common conceptual framework for ...
to pay the deprived party the full value of the property taken.
The opposing position has been taken mainly by
developing countries
A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
, claiming that the question of compensation should be left entirely up to the
sovereign state
A sovereign state or sovereign country, is a polity, political entity represented by one central government that has supreme legitimate authority over territory. International law defines sovereign states as having a permanent population, defin ...
, in line with the
Calvo Doctrine.
Socialist state
A socialist state, socialist republic, or socialist country, sometimes referred to as a workers' state or workers' republic, is a sovereign state constitutionally dedicated to the establishment of socialism. The term '' communist state'' is of ...
s 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
The United Nations General Assembly (UNGA or GA; french: link=no, Assemblée générale, AG) is one of the six principal organs of the United Nations (UN), serving as the main deliberative, policymaking, and representative organ of the UN. Curr ...
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
A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
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
Nationalization was one of the major mechanisms advocated by
reformist
Reformism is a political doctrine advocating the reform of an existing system or institution instead of its abolition and replacement.
Within the socialist movement, reformism is the view that gradual changes through existing institutions can ...
socialists and
social democrats
Social democracy is a political, social, and economic philosophy within socialism that supports political and economic democracy. As a policy regime, it is described by academics as advocating economic and social interventions to promote so ...
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
Workers' self-management, also referred to as labor management and organizational self-management, is a form of organizational management based on self-directed work processes on the part of an organization's workforce. Self-management is a def ...
as a precursor to the establishment of a socialist economic system.
[''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."]
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 a nation's competitiveness (such as aerospace and shipbuilding), or to protect jobs in certain industries.
Nationalization has had varying levels of support throughout history. In the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
after the
Second World War
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
, nationalization gained support by the
Labour party and some social democratic parties throughout Western Europe. In the United States,
nationalizing healthcare is often a topic of political disagreement and makes frequent appearances in debates between political candidates. A 2019 poll found that about half of residents support the measure, while half do not.
A re-nationalization occurs when state-owned assets are privatized and later nationalized again, often when a different
political party
A political party is an organization that coordinates candidates to compete in a particular country's elections. It is common for the members of a party to hold similar ideas about politics, and parties may promote specific political ideology ...
or
faction
Faction or factionalism may refer to:
Politics
* Political faction, a group of people with a common political purpose
* Free and Independent Faction, a Romanian political party
* Faction (''Planescape''), a political faction in the game ''Planes ...
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."
He argues that leaders "nationalize extractive resources to extend the duration of their power" by using "this increased capital to secure political support."
Economic analysis
Nationalization can have positive and negative effects. 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.
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.
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. The collapse of the Venezuelan oil industry, due to government mismanagement, is a case in point.
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. Unlike
eminent domain
Eminent domain (United States, Philippines), land acquisition (India, Malaysia, Singapore), compulsory purchase/acquisition (Australia, New Zealand, Ireland, United Kingdom), resumption (Hong Kong, Uganda), resumption/compulsory acquisition (Austr ...
, 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.
Trends
Studies have found that nationalization follows a cyclical trend. Nationalization rose in the 1960s and 1970s, followed by an increase in privatization in the 80s and 90s, followed again by an increase in nationalization in the 2000s and 2010s.
Marxist theory
The term appears as "expropriation of expropriators (
ruling class
In sociology, the ruling class of a society is the social class who set and decide the political and economic agenda of society. In Marxist philosophy, the ruling class are the capitalist social class who own the means of production and by exte ...
es)" in
Marxist theory, and also as the slogan "Loot the looters!" ("грабь награбленное"), which was very popular during the Russian
October Revolution
The October Revolution,. officially known as the Great October Socialist Revolution. in the Soviet Union, also known as the Bolshevik Revolution, was a revolution in Russia led by the Bolshevik Party of Vladimir Lenin that was a key mome ...
. The term is also used to describe nationalization campaigns by
communist states
A communist state, also known as a Marxist–Leninist state, is a one-party state that is administered and governed by a communist party guided by Marxism–Leninism. Marxism–Leninism was the state ideology of the Soviet Union, the Comint ...
, such as
dekulakization and
collectivization in the USSR
The Soviet Union introduced the collectivization (russian: Коллективизация) of its agricultural sector between 1928 and 1940 during the ascension of Joseph Stalin. It began during and was part of the first five-year plan. Th ...
.
[ Richard Pipes ''Property and Freedom'', Vintage Books, A division of Random House, Inc., New York, 1999, , page 214.]
However, nationalization is not a specifically socialist strategy, and Marxism's founders were skeptical of its value. As Engels put it:
Nikolai Bukharin also criticised the term 'nationalisation', preferring the term 'statisation' instead.
[''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.']
See also
*
Compulsory purchase
Compulsion may refer to:
* Compulsive behavior, a psychological condition in which a person does a behavior compulsively, having an overwhelming feeling that they must do so.
* Obsessive–compulsive disorder, a mental disorder characterized by ...
*
Constitutional economics
Constitutional economics is a research program in economics and constitutionalism that has been described as explaining the choice "of alternative sets of legal-institutional-constitutional rules that constrain the choices and activities of econo ...
*
Confiscation
Confiscation (from the Latin ''confiscatio'' "to consign to the ''fiscus'', i.e. transfer to the treasury") is a legal form of seizure by a government or other public authority. The word is also used, popularly, of spoliation under legal forms, ...
*
Eminent domain
Eminent domain (United States, Philippines), land acquisition (India, Malaysia, Singapore), compulsory purchase/acquisition (Australia, New Zealand, Ireland, United Kingdom), resumption (Hong Kong, Uganda), resumption/compulsory acquisition (Austr ...
*
List of nationalizations by country
This is a list of industries, services, products, or companies that have been nationalized at various times, grouped by country.
List
Argentina
* 1946 Central Bank of Argentina
* 1946 Natural gas services (later privatized in 1992)
* 1947 T ...
*
List of privatizations by country
This list of privatizations provides links to notable and/or major privatizations.
..
Privatisation by country
Argentina
* Aerolíneas Argentinas (1990) – former national carrier; renationalized in 2009.
* Agua y Energía Eléctrica ...
*
Municipalization
Municipalization is the transfer of private entities, assets, service providers, or corporations to public ownership by a municipality, including (but not limited to) a city, county, or public utility district ownership. The transfer may be from pr ...
*
Planned economy
*
Privatization
Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
*
Public ownership
State ownership, also called government ownership and public ownership, is the ownership of an industry, asset, or enterprise by the state or a public body representing a community, as opposed to an individual or private party. Public ownershi ...
*
Railway nationalization
*
Sequestration
*
State ownership
*
State capitalism
State capitalism is an economic system in which the state undertakes business and commercial (i.e. for-profit) economic activity and where the means of production are nationalized as state-owned enterprises (including the processes of capital ...
*
State socialism
State socialism is a political and economic ideology within the socialist movement that advocates state ownership of the means of production. This is intended either as a temporary measure, or as a characteristic of socialism in the transition ...
*
State sector
*
Statism
In political science, statism is the doctrine that the political authority of the state is legitimate to some degree. This may include economic and social policy, especially in regard to taxation and the means of production.
While in use s ...
References
External links
* , article on Indian public sector banks
Time for Permanent Nationalizationby economist Fred Moseley in ''
Dollars & Sense
''Dollars & Sense'' is a magazine focusing on economics from a progressive perspective, published by Dollars & Sense, Inc, which also publishes textbooks in the same genre.
''Dollars & Sense'' describes itself as publishing "economic news and ana ...
'', January/February 2009
The Corporate Governance of Banks – a concise discussion of concepts and evidence*
{{authority control
Economic policy
Economic systems
Ownership
Social democracy