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What is Nationalization?

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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 15 July 2014
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When a private industry or a business held at a city or state level is taken over by the national government, this is called nationalization. There are numerous examples of nationalization in the history of most countries, and some industries that people would immediately recognize as nationalized. For example the US Postal Service is a nationalized industry, run completely by the US government. Any financial losses of this industry are the losses of the government, and its people, and any financial gains would profit the US government.

There is a strong pull to always consider nationalization as a construct of socialism. It is true that socialist governments may control or nationalize the majority of industries, and they may do so whether or not these industries and their private owners are happy about it. On the other hand, sometimes nationalization is supported by people or political groups that would define themselves a strongly anti-socialist and pro-capitalist. For instance, President George W. Bush’s decision to nationalize the airport security industries after the attacks on 11 September 2001 was viewed as a method for streamlining and improving quality control on security checks at airports. Few people felt this decision represented a threat to capitalism.

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Numerous reasons can exist as to why a central government would choose to or be forced to nationalize an industry. In the previous example, the main goal was quality control and increased security. Sometimes an industry will fail without nationalization, as proved the case with the American automobile industry and few large banks in the late 2000s. The US actions taken to support these failing entities was not total or complete nationalization, and the goal remains to quickly hand these organizations back to private control, which is called denationalization or privatization.

In countries that are predominantly capitalist in orientation, there are still usually some nationalized businesses. These could include public schools, health services, postal services, military services, and others. Decision to nationalize other businesses may be based on unusual circumstances, like economic failure or times of war. Most governments must pay private owners of an entity a great deal of money in order to ask them to give over control to the government. It is usually not profitable to do this, and a government may only step in if the need is great or if the price is cheap.

The fear of what nationalization is comes in when a government takes over an industry without permission or leave from its private owners, or by coercing private owners through various means to give up their ownership. Certainly, violent overthrows of countries may mean that dictators take over and nationalize any existent privately owned companies. This would be different than socialism, which posits that the people and not a small group of owners, control the means of production. Those who have no rights in a dictator-led country cannot be said to control its nationalized industries.

Seizing assets and companies, and especially getting control of any profitable resources grants power and may prove a source of funding to keep that power. However, nationalization means that a government must support any failing industries too, and even most dictators would hesitate to instantly nationalize every privately owned business. Instead, those that usually come under national control are the ones that are most profitable, and this typically means industries that have valuable resources like oil.

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Discuss this Article

jessiwan
Post 5

I am very interested in the idea of nationalization, not for financial/economic reasons, but for something else completely different: I think that nationalized industries will in theory be slightly more accountable to the citizens of a country. Another reason is, people will be able to become a partial owner of an industry that has been nationalized, simply by virtue of being a citizen of a country. They wouldn't need to have had a lot of capital saved up and to have started a business, which is very risky and not for everyone. This, I believe, would give the average people an opportunity a chance to become rich in a way that would not have been possible in any Western country, where privatizing of industries seems to be the trend.

I am very excited about this topic, except I am keenly aware that I haven't thought about it as thoroughly as this topic deserves. People are very welcome to ask me questions as to force me to clarify my position.

SteamLouis
Post 4

@alisha-- Not that I know of. The government becomes fully responsible for losses and debts once it nationalizes.

I think it has to do with banks being owned by corporations and corporate law protects shareholders. Unless new laws are made, the government is always going to have to pay up.

But I don't agree with nationalization to save failing businesses. I kind of see it like Darwin's theory, the strongest should stay and the weakest should go. If a bank is failing, let it. There are other banks to take its place. Isn't this more logical than using tax payer money to force something to run when it's clearly not?

discographer
Post 3

Is it possible for nationalization to take place without the government being burdened with the losses entirely?

For example, if the government does nationalize a bank that is not doing well and pays the shareholders of the bank to do so, are the shareholders still responsible for at least part of the losses?

Nationalization seems like a good idea to save failing banks and companies. But it's unfair that the government has to spend so much out of its pocket.

burcidi
Post 2

I'm from Eastern Europe and recently in my country, the postal service was privatized and most of it is now owned by private companies from different neighboring countries.

This really bothers me. I would not want all the industries in my country to be nationalized, and we can't allow that anyway as the European Union also promotes privatization. But I think that there are some services and industries that are meant to be controlled by the government. Like the postal services and military.

It has nothing to do with socialism or capitalism for me. I don't like that another country has a say in how I run the postal services in my country.

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