Nationalization is the control and ownership of an industry on a national scale by the government of a country. Industries that are most commonly nationalized include airlines, electric and gas utilities, mines, postal services, railroads, and telephone companies.
In some countries, nationalization plays a vital role in a set of economic, political, and social beliefs called socialism. These countries nationalize certain industries to provide better products or services for their citizens. Socialists say that nationalization ensures democratic control of these industries. In the past, Britain and France nationalized many industries for these purposes. But in recent years, political changes have resulted in the sale of many of the British and French industries to private investors. The selling of nationalized industries to private investors is called divestiture or privatization.
Other countries, especially some developing nations, have nationalized certain industries to remove them from foreign ownership. In the 1960’s and 1970’s, for example, some countries in the Middle East and elsewhere began to take over oil companies that had been owned chiefly by Americans or Europeans. These countries gained higher profits for themselves by removing the oil industry from foreign ownership.
Forms of nationalization.
There are several forms of nationalization, based on how the nationalized industry is managed. In the most common form, a public corporation is set up as an independent body by law. The government appoints a board of directors that manages the industry. In another form, a government department has control of the industry. Such action gives the government close control of the industry. In a third form, the government buys part of the stock in an ordinary corporation, and private investors own the rest.
Advantages and disadvantages.
Nationalized industries have some advantages over private industries. A nationalized industry can provide vital products or services to the public that would not be profitable for private industry to provide. The government can encourage a nationalized industry to invest and expand during an economic recession (slowdown). Nationalized industries can also develop weak parts of the economy and help hold down prices during periods of inflation.
Supporters of nationalization say that–in certain industries–a nationalized corporation can provide more efficient service than private industries. Such industries include electric and gas utilities and telephone companies. Supporters also say that government is too weak unless it has some control over vital industries.
Nationalization has some disadvantages. Many nationalized industries do not make a profit. As a result, the government uses money from taxes to subsidize (help pay for) them. Critics of nationalization charge that a lack of competition causes nationalized industries to become inefficient. They say government subsidies keep unprofitable industries alive even though the industries are no longer useful. Opponents also fear that too much power is concentrated in a government if it controls vital industries.
