Nationalization

Nationalization, also spelled nationalisation, is the process of taking an industry or assets into government ownership by a national government or state.[1] Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being transferred to the public sector to be operated and owned by the state. The opposite of nationalization is usually privatization or de-nationalization, but may also be municipalization.

A renationalization occurs when state-owned assets are privatized and later nationalized again, often when a different political party or faction is in power. A renationalization 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 nominally private, publicly listed corporation.

The motives for nationalization are political as well as economic. It was a central theme of certain fascist, economic nationalist, populist and national liberation policies that industry should be owned by the state on behalf of the citizenry to allow for consolidation of resources and central planning for the purposes of economic development.

Nationalization was one of the major strategies advocated by socialists for transitioning from capitalism to socialism. Socialist ideologies that favor nationalization are typically called state socialism. In this context, the goals of nationalization were to dispossess large capitalists and redirect the profits of industry to the public purse, as a precursor to the long-term goals of establishing worker-management and reorganizing production toward use.[2]

Nationalized industries, charged with operating in the public interest, may be under strong political and social pressures to give much more attention to externalities. They may be obliged to operate some loss making activities where social benefits are clearly greater than social costs — for example, rural postal and transport services. As an instance, the United States Postal Service is guaranteed its nationalised status by the Constitution. The government has recognized these social obligations and, in some cases, provides subsidies for such non-commercial operations.

Since the nationalised industries are state owned, the government is responsible for meeting any debts incurred by these industries. The nationalized industries do not normally borrow from the domestic market other than for short-term borrowing. However, if they are profitable, the profit is often used as a means to finance other state services, such as social programs and government research — which can help lower the tax burden.

Nationalization may occur with or without compensation to the former owners. If it takes place without compensation it is a case of expropriation. 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, the French government seized the car-makers Renault because its owners had collaborated with the Nazi occupiers of France.

Contents

Compensation

A key issue in nationalization is payment of compensation to the former owner. The most controversial nationalizations, known as expropriations, are those where no compensation, or an amount far below the likely market value of the nationalized assets, is paid. Many nationalizations through expropriation have come after revolutions, in particular Communist-led revolutions.

The traditional Western stance on compensation was expressed by United States Secretary of State Cordell Hull, during the 1938 Mexican nationalization of the petroleum industry, 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 the former owners acquired ownership through exploitation, or that private ownership over socialized assets is illegitimate and exploitative of employees.

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 both the traditional Calvo-doctrinist 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 protection of private property.

When nationalizing a large business, the cost of compensation is so great that many legal nationalizations have happened when firms of national importance run close to bankruptcy and can be acquired by the government for little or no money. A classic example is the UK nationalization of the British Leyland Motor Corporation. At other times, governments have considered it important to gain control of institutions of strategic economic importance, such as banks or railways, or of important industries struggling economically. The case of Rolls-Royce plc, nationalized in 1971, is an interesting blend of these two arguments. This policy was sometimes known as ensuring government control of the "commanding heights" of the economy, to enable it to manage the economy better in terms of long-term development and medium-term stability. The extent of this policy declined in the 1980s and 1990s as governments increasingly privatized industries that had been nationalized, replacing their strategic economic influence with use of the tax system and of interest rates.

Nonetheless, national and local governments have seen the advantage of keeping key strategic assets in institutions that are not strongly profit-driven and can raise funds outside the public-sector constraints, but still retain some public accountability. Examples from the last five years in the United Kingdom include the vesting of the British railway infrastructure firm Railtrack in the not-for-profit company Network Rail, and the divestment of much council housing stock to "arms-length management companies", often with mutual status.

Notable nationalizations by country

Argentina

Australia

Bolivia

Canada

Channel Islands

Chile

Croatia

The HDZ government, on the break-up of Yugoslavia, nationalized private agricultural, non communist nationalized, property and rezoned it under the guise of forest statesmanship when their publicly professed agenda was to only complete the nationalization of the communists. Much of this land is in the process of being restituted and the model rethought.

Cuba

The Castro government gradually expropriated all foreign-owned private companies after the Cuban Revolution of 1959. Most of these companies were owned by U.S. corporations and individuals. Bonds at 4.5% interest over twenty years were offered to U.S. companies, but the offer was rejected by U.S. ambassador Philip Bonsal, who requested the compensation up front.[4] Only a minor amount, $1.3 million, was paid to U.S. interests before deteriorating relations ended all cooperation between the two governments.[4] The United States established a registry of claims against the Cuban government, ultimately developing files on 5,911 specific companies. The Cuban government has refused to discuss the effective and adequate compensation of U.S. claims. The United States government continues to insist on compensation for U.S. companies. In 1966-68, the Castro government nationalized all remaining privately owned business entities in Cuba, down to the level of street vendors.

Czechoslovakia

Egypt

France

Nationalization in France dates back to the 'regies' or state monopolies first organized under the Ancien Régime, for example, the monopoly on tobacco sales. Communications companies France Telecom and La Poste are relics of the state postal and telecommunications monopolies.

There was a major expansion of the nationalised sector following World War II.[5] A second wave followed in 1982.

The Paris regional transport operator, Regie Autonome des Transports Parisiens (RATP), can also be counted as a nationalised industry.

Germany

The German railways were nationalised after World War I. Partial privatisation of Deutsche Bahn is currently underway, as of 2008.

Most enterprises in East Germany were nationalised following World War II. After reunification, an agency, Treuhand, was established to return them to private ownership. However, due to structural and economic problems inherent in the previous regime, many of these had to be liquidated.

Greece

Iceland

India

The nationalised banks were credited by some, including Home minister P. Chidambaram, to have helped the Indian economy withstand the global financial crisis of 2007-2009.[6][7]

Iran

Ireland

Railways in the Republic of Ireland were nationalised in the 1940s as Coras Iompair Eireann.

Israel

Italy

The regime of Benito Mussolini extended nationalisation, creating the Istituto per la Ricostruzione Industriale (IRI) as a State holding company for struggling firms, including the car maker Alfa Romeo. A parallel body, Ente Nazionale Idrocarburi (Eni) was set up to manage State oil and gas interests.

Japan

Lithuania

In 2011 Snoras bank was nationalized by Lithuanian government.

Latvia

In 2008 Parex Bank was nationalized by Latvian government.

Malta

Mexico

The Netherlands

New Zealand

Pakistan

Philippines

During the administration of Ferdinand Marcos, important companies such as PLDT, Philippine Airlines, Meralco and the Manila Hotel were nationalized. Other companies were sometimes absorbed into these government-owned corporations, as well as other companies, such as Napocor and the Philippine National Railways, which in their own right are monopolies (exceptions are Meralco and the Manila Hotel). Today, these companies have been reprivatized and some, such as PLDT and Philippine Airlines, have been de-monopolized. Others, like government-formed and owned Napocor, are in the process of privatization.

Poland

Portugal

Romania

Russia

South Korea

Soviet Union

Spain

Sri Lanka

Sweden

United Kingdom

The following companies/industries were the subject of nationalisation in the given year:

British assets nationalised by other countries

United States

Venezuela

Zimbabwe

Other countries

See also

References

  1. ^ http://www.merriam-webster.com/dictionary/nationalization
  2. ^ The Economics of Feasible Socialism Revisted, by Nove, Alexander. 1991. (P.176): "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."
  3. ^ The Constitutional Centre of Western Australia | The Role of The High Court
  4. ^ a b Thomas, Hugh (March 1971). Cuba; the Pursuit of Freedom. New York: Harper & Row. pp. 224, p252. ISBN 0060142596. 
  5. ^ a b c Myers (1949)
  6. ^ PSU banks' policies saved India from financial blushes: Chidambaram
  7. ^ The importance of public banking
  8. ^ Eircom and State in broadband swap?
  9. ^ Government nationalises 'fragile' Anglo Irish Bank
  10. ^ Anglo Irish Bank's €700m Quinn plan
  11. ^ The Expropriation of the Petroleum Industry of Mexico in 1938
  12. ^ US Country Studies. "Zulfikar Ali Bhutto" (PHP). http://countrystudies.us/pakistan/20.htm. Retrieved 2006-11-07. 
  13. ^ "Portugal". Country Studies (U.S. Library of Congress). http://countrystudies.us/portugal/63.htm. "In the mid-1980s, agricultural productivity was half that of the levels in Greece and Spain and a quarter of the EC average. The land tenure system was polarized between two extremes: small and fragmented family farms in the north and large collective farms in the south that proved incapable of modernizing. The decollectivization of agriculture, which began in modest form in the late 1970s and accelerated in the late 1980s, promised to increase the efficiency of human and land resources in the south during the 1990s." 
  14. ^ "Portugal Agriculture". The Encyclopedia of the Nations. http://www.nationsencyclopedia.com/Europe/Portugal-AGRICULTURE.html 
  15. ^ Lanka risks losing image, investment
  16. ^ A Historic Journey Luossavaara-Kiirunavaara Aktiebolag, April 2006
  17. ^ Stopping a Financial Crisis, the Swedish Way
  18. ^ Schifferes, Steve (February 18, 2008). "The lessons of nationalisation". BBC News. http://news.bbc.co.uk/1/hi/business/7250252.stm. Retrieved May 20, 2010. 
  19. ^ http://www.historytoday.com/dt_main_allatonce.asp?gid=9859&g9859=x&g9857=x&g30026=x&g20991=x&g21010=x&g19965=x&g19963=x&amid=9859
  20. ^ SN 1825 -Nationalisation of the UK Coal Royalties, 1938 : Compensation Payments
  21. ^ http://www.uksteel.org.uk/history.htm
  22. ^ a b "What was the last nationalisation?", BBC News, 18 February 2008
  23. ^ House of Commons Hansard Written Answers for 12 Feb 2002 (pt 16)
  24. ^ "Northern Rock to be nationalised". BBC News. February 17, 2008. http://news.bbc.co.uk/1/hi/business/7249575.stm. Retrieved May 20, 2010. 
  25. ^ "HIGHLIGHTS-Britain nationalises Bradford & Bingley". Reuters. September 29, 2008. http://www.reuters.com/article/economicNews/idUSBINGLEY20080929. 
  26. ^ US rescue of Fannie, Freddie poses taxpayer risks
  27. ^ Diamond and Kashyap on the Recent Financial Upheavals
  28. ^ a b Baxter, Lawrence; Brown, Bill; Cox, Jim (February 27, 2009). "Finally, A Bridge to Somewhere". Huffington Post. http://www.huffingtonpost.com/lawrence-baxter-bill-brown-and-james-cox/finally-a-bridge-to-somew_b_170688.html. 
  29. ^ Nature of Citi stake debatable
  30. ^ Am I the Last Capitalist? Obama Falters on Rick Wagoner, GM, and the Auto Industry - Mary Kate Cary (usnews.com)
  31. ^ "If, in fact, Wagoner resigned because somebody in government said, 'You have to resign,' then I think we have nationalized the auto industry, at least GM, and I think that's bad to have the government have a socialized car industry," -Sen. Chuck Grassley (R-Iowa)
  32. ^ The Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2009/06/01/AR2009060101480.html. 
  33. ^ Al Jazeera English - Americas - Chavez nationalises cement industry
  34. ^ "Venezuela to nationalize steelmaker Sidor: union". Reuters. April 9, 2008. http://www.reuters.com/article/worldNews/idUSN0942912020080409?feedType=RSS&feedName=worldNews. 
  35. ^ "Venezuela Seizes Cemex - Forbes.com". http://www.forbes.com/markets/2008/08/19/cemex-venezuela-chavez-markets-equity-cx_ra_0819markets41.html. 
  36. ^ "Chavez sends army to rice plants". BBC News. March 1, 2009. http://news.bbc.co.uk/2/hi/americas/7917176.stm. Retrieved May 20, 2010. 
  37. ^ Venezuela quốc hữu hóa 6 siêu thị ngoại quốc (Vietnamese)
  38. ^ Frank Jack Daniel (June 24, 2010). "Venezuela to nationalize U.S. firm's oil rigs". Reuters. http://www.reuters.com/article/idUSTRE65N0UM20100624. 
  39. ^ a b the CNN Wire Staff (November 2, 2010). "Venezuela nationalizes private steel plant". CNN.com. http://www.cnn.com/2010/WORLD/americas/11/01/venezuela.nationalization/index.html. 

Bibliography

On banks nationalization

External links