Nationalization

Nationalization, or nationalisation, is the process of transforming private 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 assets owned by lower levels of government, such as municipalities, being transferred to the state. The opposites of nationalization are privatization and 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 that are often subject to nationalization include telecommunications, electric power, fossil fuels, railways, airlines, iron ore, media, postal services, banks, and water.

Nationalization may occur with or without 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-makers Renault because its owners had collaborated with the Nazi occupiers of France.[2]

Nationalization is to be distinguished from 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, having been historically carried out for various different purposes under a wide variety of different political systems and economic systems.[3] However, nationalization is in most cases opposed by economic liberals as it can be perceived as excessive government interference in—and control of—economic affairs of individual citizens.

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

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.[4]

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."[5] He argues that leaders "nationalize extractive resources to extend the duration of their power" by using "this increased capital to secure political support."[5]

Economic analysis

Nationalization can have positive and negative effects.[6] A 2018 Stanford study of Chinese firms found their State-owned enterprises (SOEs) to be significantly more productive.[7] In 2019 research based on studies from Greenwich University found that the nationalization of key services such as water, bus, railways and broadband could save £13bn every year. [8]

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 country to hit its climate change targets. This analysis was based on the assumption that the Government would have to pay the market rate for these industries.[9]

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.[10] 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 that business is conducted in order to understand the risks as an investor in that country.[11]

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.[12] The term is also used to describe nationalization campaigns by communist states, such as dekulakization and collectivization in the USSR.[13]

The term expropriation is found by late Marx writings, specifically in “Karl Marx: A letter to Otechestvenye Zapiski” to describe the process of turning agrarian/rural peasants into wage laborers/proletarians if the Russian country is to become a capitalist nation like that of the Western European nations.

Nikolai Bukharin had criticised the term 'nationalisation', preferring the term 'statisation' instead.[14]

Examples

See also: List of nationalizations by country

Another example is the expropriation of Granahorrar Bank owned by Julio Carrizosa Mutis in Colombia in 1998 as part of the economic plan performed by the Colombian government to mitigate the financial crisis. In the late 90s, the Central Bank tried to reduce liquidity caused by the financial crisis and Granahorrar, which was at the time one of the highest rated financial institutions, suffered liquidity distress caused from the government's decisions.[15] As a result, the bank was expropriated without compensation and sold, on October 31, 2005, to the Spanish Bank BBVA.

In Venezuela, the massive expropriation plan that started in 2007, allowed to expropriate thousands of companies (from all strategic sectors) and land (arguing that those that were unproductive should be used to promote "food security and sovereignty").[16] Expropriation and nationalization was one of the characteristics of the government of Venezuelan ex-President Hugo Chávez and President Nicolás Maduro. The result has been negative consequences in the economic sector.[17]

Chile

Main article: Codelco

In 1972, the Chilean government acquired control of the major foreign-owned section of the Chilean copper mining industry. The process, commonly described as the Chilenización del cobre,[18] started under the government of Carlos Ibáñez del Campo and culminated during the government of President Salvador Allende, who completed the nationalization.

Colombia

Granahorrar Bank was a bank based in Colombia (1972–1998). When it was open, it was part of a business conglomerate called Grupo Grancolombiano. The conglomerate also owned Banco de Colombia (Bancolombia), Colombia's largest bank. In 1982, the conglomerate underwent a period of crisis. Consequently, the Colombian government nationalized Granahorrar Bank and effectively took over the bank by force from its private owners.[19]

Germany

The railways were nationalized after World War I. The German railway company Deutsche Bahn is owned by the Federal Republic. In 2008, it was agreed to "float" a portion of the business, meaning an end to the 100% share the German Federal Republic had in it, with a plan that 25% of the overall share would be sold to the private sector.[20] However, the onset of the financial crisis of 2007–08 saw this cancelled.[21]

Mexico

One example of expropriation occurred between the United States and Mexico in 1938 when the Mexican president Lázaro Cárdenas signed an order that expropriated almost all of the foreign oil companies operating in Mexico. This initially turned out to have great negative consequences on the Mexican economy when their oil exports were boycotted by major oil companies, decreasing exports dramatically,[22] but later on, the economic benefits of this move became apparent, with the new national oil company PEMEX being an important contributor to the Mexican Miracle,[23] and other countries soon followed with oil nationalization carried out in much of Latin America and the developing world.

In 1982, President José López Portillo started the nationalization of the Mexican banking system in response to the debt crisis. Under the Carlos Salinas de Gortari presidency (1988–1994), the nationalized banks were privatized very rapidly between 1991 and 1992 to Mexican family groups.[24]

Venezuela

Since 2007, the government of Hugo Chávez started the nationalization of different companies. It started on May 1, 2007 with the world's biggest oil companies. On April 3, 2008, Chávez ordered the nationalization of cement industry and the nationalization of Venezuelan steel mill, among other industries such as cement and rice processing and packaging plants, on April 9.[25][26][27][28]

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

1. "Definition of NATIONALIZATION". merriam-webster.com.
2. Chrisafis, Angelique (December 14, 2011). "Renault descendants demand payout for state confiscation". The Guardian. London.
3. 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'.
4. 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."
5. Mahdavi, Paasha (2020). "Power grab: political survival through extractive resource nationalization". Cambridge University Press. Retrieved 2020-03-12.
6. "Nationalization | economic policy".
7. https://kingcenter.stanford.edu/sites/default/files/publications/1037wp.pdf
8. Ellis, Mark (2019-11-24). "Nationalisation of public services could save £13billion every year". mirror. Retrieved 2020-01-06.
9. 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.
10. Caves, R. W. (2004). Encyclopedia of the City. Routledge. p. 251.
11. Flynn, Chris. Avoiding Expropriation and Managing Political Risk in Emerging Market. Lexology. p. 1.
12. Orlando Figes, A People's Tragedy: Russian Revolution, 1996, ISBN 0-7126-7327-X.
13. Richard Pipes Property and Freedom, Vintage Books, A division of Random House, Inc., New York, 1999, ISBN 0-375-70447-7, page 214.
14. 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.'
15. "Carrizosa, el ganador detrás de Granahorrar". 20 November 2007.
16. "Lo que se sabe de las expropiaciones de Chávez".
17. "La escasez como saldo de las expropiaciones". 19 January 2018.
18. The History of Codelco.
19. "Pelea de Socios". Semana (Sección Economía) (in Spanish). No. 815. 12 January 1998. Retrieved 24 May 2018.
20. "Partial sale of DB agreed" Railway Gazette International May 2008 page 289.
21. "DB flotation on hold" Railway Gazette International November 2008 page 843.
22. Mexican Expropriation of Foreign Oil. US Department of State Office of the Historian. p. 1.
23. Crónica del petróleo en México (Spanish), Historical Archive of Mexican Petroleums (Pemex). http://petroleo.colmex.mx/images/stories/archivos/misc/cronica_petroleo_mexico.pdf
24. Marois, Thomas (2008). "The 1982 Mexican Bank Statization and Unintended Consequences for the Emergence of Neoliberalism". Canadian Journal of Political Science. 41 (1): 143–167. doi:10.1017/s0008423908080128.
25. Al Jazeera English - Americas - Chavez nationalises cement industry Archived 2008-05-11 at the Wayback Machine
26. "Venezuela Seizes Cemex - Forbes.com". Archived from the original on October 10, 2008.
27. "Venezuela to nationalize steelmaker Sidor: union". Reuters. April 9, 2008.
28. "Chavez sends army to rice plants". BBC News. March 1, 2009. Retrieved May 20, 2010.

External links

• The importance of public banking, 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). "Nationalization" . Encyclopædia Britannica (12th ed.).