What is nationalization?

Nationalization occurs when the state, i.e., the national government, takes ownership of a private company, industry, or private assets.

Although the term typically refers to private assets, it can also refer to assets owned by low levels of government (local government).

Industries that are most commonly nationalized include: banking, natural resources, energy, communications, and transport.

The Cambridge Dictionary has the following definition of nationalization:
“The process of a government taking control of a business or industry.”

Nationalization and reformist socialists

Nationalizing big industries was one of the main beliefs that reformist socialists advocated to transition from capitalism to socialism (an ideology called state socialism). In today’s definition, capitalism refers to capital (means of production) being owned privately.

Nationalization can occur either because a socialist government decides that the state should own certain companies, or to save strategic collapsing businesses, as happened with many banks during the 2008 financial crisis.

In state socialism, governments dispossess large capitalists in an attempt to drive profits to the public.

Emerging and developing economies

Nationalization is currently common in developing countries that experience frequent leadership and regime changes. In this context, nationalization is a way for politicians to gain more economic power.

Privatization is the opposite of nationalization. It is the process of spinning off government-owned companies into the private business sector.

In the United States, nationalization is quite rare. The last time the US nationalized an industry was following the September 11th national disaster in 2001, when the government took over and controlled airport security.

There are some people who argue that the US government takeover of failing companies, such as GM and AIG, is nationalization. However, although the US did bailout these companies, the government exerts little to no control over them.

Let’s have a look at some of the pros and cons of nationalization:

Pros

  • Stabilizes Key Industries
  • Protects Jobs
  • Equal Access
  • Strategic Planning
  • Public Interest
  • Control of Natural Resources
  • Reduces Inequality
  • Eliminates Monopolies (sometimes)
  • Infrastructure Investment

Cons of Nationalization:

  • Efficiency Concerns
  • Political Influence
  • Cost to Taxpayers
  • Bureaucracy
  • Innovation Stifling
  • Fiscal Burden
  • Barriers to Entry
  • Global Trade Implications
  • Corruption Risks

Nationalization – What is the verdict?

  • United Kingdom

The nationalization of industries following the Second World War helped rebuild the country’s economy.

However, by the 1970s, most state-owned enterprises were struggling with inefficiency and major losses. The British taxpayer resented having to subsidize so many state-owned companies.

Many of them were privatized in the 1980s.

  • Latin America

Several nationalizations took place during the 20th and 21st centuries. The intention was to assert national sovereignty and control over the countries’ national resources.

Results have been mixed.

In Venezuela, nationalization has been a total disaster. However, Bolivia’s nationalization of the hydrocarbons industry in 2006 was initially seen as a success. The industry continued to thrive, and the government had more revenue, some of which it spent on social programs and reducing poverty. Bolivia’s president, Evo Morales, was also in a stronger position post-nationalization to renegotiate terms with multinational corporations, which benefited the country.

Mexico, under President Lázaro Cárdenas, nationalized the oil industry in 1938 and established PEMEX, a state-owned company. The results initially were good. However, over time, the company became inefficient and suffered from serious corruption.

  • Scandinavia

Scandinavian countries nationalized some industries but also allowed the private sector to participate. This policy is often cited as a factor in their high standards of living.

  • The verdict

It seems that initially, nationalization can help a country’s economy, especially if it is a developing or emerging one that is at risk of being over-exploited by giant multinationals.

However, except for Scandinavia, these state-owned companies eventually become inefficient and prone to growing corruption.

Nationalization has been a controversial subject for over a century and is likely to remain so for the foreseeable future.

Compound phrases

With the word ‘Nationalization,’ we can make many compound phrases. Let’s have a look at some of them:

  • Nationalization process

The sequence of steps or actions a government takes to take control of private assets.

  • Nationalization policy

The set of rules or the plan that outlines how and why nationalization should take place.

  • Forced nationalization

Implies that the government takes control without the consent of the private entity, i.e., a confiscation.

Partial nationalization

Where the government takes control of only a part of the company or industry.

  • Full nationalization

The complete takeover of an entire industry or company by the state.

  • Nationalization program

A broader scheme or initiative that involves nationalizing a sector or several sectors.

  • Nationalization wave

A period in which many industries or assets are nationalized, often seen in times of political upheaval or economic reform.

  • Nationalization debate

The public or political discourse surrounding the merits and drawbacks of nationalization.

  • Post-nationalization

The period or effects following a nationalization effort.

  • Anti-nationalization

Opposition to nationalization efforts, typically by political factions or private enterprises.

  • Nationalization compensation

The remuneration or payment given to the former owners of nationalized assets.

  • Pre-nationalization

The conditions or period before an asset or industry is nationalized.

  • Nationalization clause

A provision in a contract or law that allows for nationalization under certain conditions.

  • Economic nationalization

The takeover of economic entities or assets, as opposed to cultural or social nationalization.

  • Nationalization movement

A political movement or trend advocating for the transfer of private assets into public ownership.

Other languages

Below you can see the word ‘Nationalization’ translated into various languages:

  • Spanish: Nacionalización
  • Hindi: राष्ट्रीयकरण
  • French: Nationalisation
  • Arabic: تأميم
  • Bengali: জাতীয়করণ
  • Russian: Национализация
  • Portuguese: Nacionalização
  • Indonesian: Nasionalisasi
  • Urdu: قومی کاری
  • German: Verstaatlichung
  • Japanese: 国有化
  • Swahili: Unyakuzi
  • Marathi: राष्ट्रीयकरण
  • Telugu: జాతీయకరణ
  • Turkish: Millileştirme
  • Korean: 국유화
  • Tamil: தேசியமயமாக்கல்
  • Vietnamese: Quốc hữu hóa
  • Italian: Nazionalizzazione
  • Gujarati: રાષ્ટ્રીયકરણ
  • Farsi: ملی شدن
  • Bhojpuri: राष्ट्रीयकरण
  • Hakka: 国家化
  • Mandarin Chinese: 国有化
  • Cantonese Chinese: 國有化
  • Jin Chinese: 國有化 (This term may vary regionally, and Jin Chinese speakers might use the standard Mandarin term.)
  • Southern Min: 國有化 (This term may also be based on the Mandarin term, as specific Southern Min terms can vary.)
  • Kannada: ರಾಷ್ಟ್ರೀಯಕರಣ

Video – What Nationalization?

This video, from our sister channel in YouTube – Marketing Business Network, explains what a ‘Nationalization’ is using simple and easy-to-understand language and examples.