Nationalization is the process by which the State assumes the administration of a company, group or economic sector, previously managed by private administrators.

Nationalization is the opposite of privatization. In other words, while privatization is the process by which a public company passes into private hands, nationalization is the process by which a private company, a group of companies or an economic sector, becomes public management. In other words, some economists define the process as a nationalization of the means of production. A very common practice in governments of socialist, nationalist and communist ideology.

The socialist, communist thought, conceives the socialization of the means of production. As defined by Karl Marx, the objective being to collectivize and socialize the means of production, the means of production must be collectively owned.

In this sense, capitalism and liberalism have been against this practice.

Difference between privatization and nationalization

Nationalization is the opposite concept to privatization. In other words, we are talking about two concepts that, precisely, show both sides of the coin.

Thus, privatization, as we mentioned earlier, is the process by which a public company, through sale or transfer, becomes part of a private company. Being able to be acquired individually, too.

While, on the other hand, nationalization is the process that transforms the ownership of a private company that is absorbed by the State. In this sense, the company becomes part of the State.

Advantages and disadvantages of nationalization

Nationalizing or nationalizing a company has a number of advantages, as well as drawbacks.

Nationalizing a company can represent avoiding bankruptcy. However, from other points of view, nationalization entails a series of disadvantages that may even incur the loss of freedom by consumers.

Thus, the disadvantages of nationalizing a company could be:

  • Possibility of creating a monopoly.
  • Loss of power by consumers.
  • Deterioration of foreign investment.
  • Loss of competition.
  • Possibility of prices being increased.
  • Loss of innovation capacity.
  • Disincentive for private initiative.
  • It could generate debt for the state.

On the other hand, among the advantages:

  • It is the State that responds first of all.
  • The company and the sector are protected.
  • You can control inflation and prices.
  • Responsibility is guaranteed by the state.
  • The bankruptcy of companies could be avoided.
  • Higher income for the State.

Many economists regard corporate protection as a mistake. In this sense, the loss of competition discourages innovation.

Examples of nationalization

In countries like Spain, where the system is mixed, this practice has been used on certain occasions.

At the time of the Great Recession of 2008, after the difficult situation that the savings bank fabric in the country was going through, the Government came to a rescue. Together with the European Union, the Government of Spain injected public capital into savings banks, becoming the property of the State.

It also happened in 1941 with the railway transport company RENFE. This public company was acquired by the State and managed, since then, by it.

In many countries, such as France or some Latin American countries, nationalization is a process that has occurred on several occasions.

Tags:  banking Commerce economic-dictionary 

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