nationalization

nationalization

[nash-uh-nl-ahyz, nash-nuh-lahyz]
nationalization, acquisition and operation by a country of business enterprises formerly owned and operated by private individuals or corporations. State or local authorities have traditionally taken private property for such public purposes as the construction of roads, dams, or public buildings. Known as the right of eminent domain, this process is usually accompanied by the payment of compensation. By contrast, the concept of nationalization is a 20th cent. development that differs from eminent domain in motive and degree; it is done for the purpose of social and economic equality and is usually, although not always, applied as a principle of communistic or socialistic theories of society. The Communist states of Eastern Europe nationalized all industry and agriculture in the period following World War II. Under the Labour government of the period 1945 to 1951, Great Britain nationalized a number of important industries, including coal, steel, and transportation. In non-Communist countries it has been common practice to compensate the owners of nationalized properties, at least in part; however, in the Communist countries, where private ownership is opposed in principle, there usually has not been such compensation. Nationalization of foreign properties has occurred, especially in developing nations, where there is resentment of foreign control of major industries. Instances include Mexico's seizure of oil properties owned by U.S. corporations (1938), Iran's nationalization of the Anglo-Iranian Oil Company (1951), the nationalization of the Suez Canal Company (1956) by Egypt, and Chile's nationalization of its foreign-owned copper-mining industry (1971). Such expropriations raise complex problems of international law. In some cases disputes over nationalization are settled by adjudication, with the expropriated parties obtaining compensation for their former properties, if only in part. In other instances, where no compensation is offered, severe strain in international relations may arise. The International Court of Justice ruled (1952) in the Anglo-Iranian Oil Company dispute that a concession made by a state to a foreign corporation is not an international agreement and is subject to the law of the conceding state—meaning that investors must assume the risk of nationalization in the country in which they invest, and developing nations have held that nationalization is a right implied by the UN Charter.

Privatization, the reverse process, has become widespread, however, with socialism's loss of credibility. Great Britain sold off many of its public companies, such as British Telecom; France sold 65 state-owned companies in 1988; and the collapse of Communist dictatorships in E Europe and the former Soviet Union has inspired large-scale privatization in some of the nations in that region, in some instances after distributing government shares to the public. Housing has also been privatized on a large scale in Britain, and privatization has been proposed for public housing in the United States. Developing nations, too, have begun to privatize. In the United States, the term has also been broadly applied to the contracting out of the management of public schools, prisons, airports, sanitation services, and a variety of other government-owned institutions, especially at the state and local levels.

See J. Margolis, ed., Public Economics (1969); G. L. Reid and K. Allen, Nationalized Industries (1970); T. Prosser, Nationalized Industries (1986); E. D. Sclar, You Don't Always Get What You Pay For (2000).

Nationalization, also spelled nationalisation, is the act of taking an industry or assets into the public ownership of a national government. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities. The opposite of nationalization is usually privatization or de-nationalisation, 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.

The motives for nationalization are political as well as economic. It is a central theme of certain brands of 'state socialist' policy that the means of production, distribution and exchange, should be owned by the state on behalf of the people. Socialists believe that public ownership enables people to exercise full democratic control over the means whereby they earn their living and provides an effective means of redistributing wealth and income more equitably.

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.

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.

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.

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. Communist states have held that no compensation is due, based on socialist notions of private properties.

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

  • 1948 President Peron nationalised the largely British and French-owned railways.
  • 2005 Postal service renationalised.
  • 2006 Water supply renationalised.
  • 2008 Aerolineas Argentinas, airline, renationalised.

Australia

Bolivia

  • 2006 On May 1 2006, newly elected Bolivian leader Evo Morales announces plans to nationalize the country's natural gas industry; foreign-based companies are given six months to renegotiate their existing contracts.

Canada

Channel Islands

Chile

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. Only a minor amount, $1.3 million, was paid to U.S. interests before deteriorating relations ended all cooperation between the two governments. 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

  • 1948 All manufacturing enterprises.

Egypt

France

Nationalisation 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. A second wave followed under Francois Mitterrand in the early 1980s but much of his work was reversed by Jacques Chirac.

  • 1938 Societe Nationale des Chemins de Fer Francais (SNCF) (originally a 51% State holding, increased to 100% in 1982)
  • 1945 Several nationalizations in France, including most important banks and Renault. The firm was seized for Louis Renault's alleged collaboration with Nazi Germany, although this condemnation was without judgement and after his death, making this case remarkable and rare. A later judgement (1949) admitted that Renault's plant never collaborated. Renault was successful but unprofitable whilst nationalised and remains successful today, after having been privatized in 1996.
  • 1946 Charbonnages de France, Electricite de France (EdF), Gaz de France (GdF)
  • 1982 The Paris business of M&A advisory firm Rothschild was nationalized and renamed.

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.

  • 2008 Renationalization of the Bundesdruckerei (Federal Print Office), which had been privatized in 2001.

Greece

India

Iran

Ireland

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

  • 2007 On August 3 2007, the Irish government were offered a stake in Eircom's copper network infrastructure. Ireland's telephone networks were privatised in 1999.

Israel

  • 1983 Nationalization of the major Israeli banks: Bank Hapoalim, bank Leumi, Discount Bank, Mezrachi bank due to the Bank stock crisis that struck Israel in 1983.

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

Malta

Mexico

The Netherlands

  • 2008 The Dutch State nationalizes the Dutch activities of Belgian-Dutch banking and insurance company Fortis, which had come in solvability problems due to the international financial crisis.

New Zealand

  • 2001 Central government purchased the Auckland railway network from TranzRail.
  • 2003 The Labour Government of New Zealand took an 80% stake in near-bankrupt national air carrier Air New Zealand in exchange for a large financial infusion.
  • 2004 The rest of the country's rail network is purchased from Toll New Zealand, formerly known as TranzRail. A new state owned enterprise, ONTRACK, was established to maintain the rail infrastructure.
  • 2008 The rolling stock of Toll New Zealand was purchased by central government, bringing the rail system under total state ownership and renamed as KiwiRail.

Pakistan

  • 1972 On January 2, 1972, Zulfiqar Ali Bhutto, after the fall of East Pakistan, announced the nationalisation of all major industries, including iron and steel, heavy engineering, heavy electricals, petrochemicals, cement and public utilities.

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.

Portugal

After the Carnation Revolution, the Junta de Salvação Nacional (temporary government) nationalized all the banking, ensurance, petrol and industries companies. Along with the telecommunications companies, which were state-owned even before the Revolution, all the nacionalized companies were reprivatized.

Romania

  • 1948 With the Decree 119 of June 1948 the new Romanian communist regime nationalised all the existing private companies and their assets in Romania leading to the transformation of the Romanian economy from a market economy to a planned economy.

Russia and the Soviet Union

Soviet Russia and Soviet Union (1918–1992)

  • 1918 All manufacturing enterprises and many retailing enterprises.

Russia

  • 1998 The Yeltsin government began seizing Gazprom assets, claiming that the company owed back taxes. Privatization of Gazprom from the mid 1990's had been reduced to 38.37% with the intention of achieving full privatization. However, the stake of the Russian Government in Gazprom has since been increased to 50% with Vladimir Putin's plan to increase the stake to a controlling position. Gazprom is also buying up both Russian and other international Utility companies.

South Korea

  • 1946 USAMGIK nationalized all South Korean private railroad companies and made Department of Transportation. This now becomes Korail.

Spain

  • 1941 Spain's railways were nationalised, as RENFE, in the aftermath of the Spanish Civil War.
  • 1983 Nationalization without compensation of the Spanish Rumasa. Separate business were later privatized.

United Kingdom

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

British assets nationalised by other countries

  • 1940s Argentine railways
  • 1953 British Petroleum's Iranian assets by their government (actually a nationalisation of part of a part-nationalised company)
  • 1956 The Egyptian Government nationalised the Suez Canal, owned by the Suez Canal Company which was part owned by the British State.

United States

Venezuela

  • 2007 On May 1 2007, Venezuela stripped the world's biggest oil companies of operational control over massive Orinoco Belt crude projects, a controversial component in President Hugo Chavez's nationalization drive.
  • 2008 On April 3 2008, President Hugo Chavez ordered the nationalization of the cement industry.
  • 2008 On April 9 2008, Hugo Chavez ordered the nationalization of Venezuelan steel mill Sidor, in which Luxembourg-based Ternium currently holds a 60% stake. Sidor employees and the Government hold a 20% stake respectively.
  • 2008 On August 19 2008, Hugo Chavez ordered the take-over of a cement plant owned and operated by Cemex, an international cement producer. While shares of Cemex fell on the New York Stock Exchange, the cement plant comprises only about 5% of the company's business, and is not expected to adversely affect the company's ability to produce in other markets. Chavez has been looking to nationalize the concrete and steel industries of his country to meet home building and infrastructure goals.

Zimbabwe

Zimbabwe has nationalized its food distribution infrastructure.

Other countries

See also

References

Footnotes

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