Nationalization

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Nationalization (or nationalisation) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. [1] Nationalization usually refers to private assets or to assets owned by lower levels of government (such as municipalities) being transferred to the state.[ citation needed ] Nationalization contrasts with privatization and with demutualization.[ citation needed ] When previously nationalized assets are privatized and subsequently returned to public ownership at a later stage, they are said to have undergone renationalization. Industries often subject to nationalization include the commanding heights of the economy - telecommunications, electric power, fossil fuels, railways, airlines, iron ore, media, postal services, banks, and water - though, in many jurisdictions, many such entities have no history of private ownership.

Contents

Nationalization may occur with or without compensation to the former owners. Nationalization is distinguished[ by whom? ] 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, in 1945 the French government seized the car-maker Renault because its owners had collaborated with the 1940-1944 Nazi occupiers of France. [2]

Economists can distinguish between nationalization and socialization, which refers to the process of restructuring the economic framework, organizational structure, and institutions of an economy on a socialist basis. By contrast, nationalization does not necessarily imply social ownership and the restructuring of the economic system. By itself, nationalization has nothing to do with socialism - historically, states have carried out nationalizations for various different purposes under a wide variety of different political systems and economic systems. [3]

Compensation

Since nationalized industries are state owned, the government is responsible for meeting any debts. The nationalized industries do not normally borrow from the domestic market other than for short-term borrowing. If they are profitable, the profit is often used to finance other state services, such as social programs and government research, which can help lower the tax burden.

The traditional Western stance on compensation was expressed by United States Secretary of State Cordell Hull during the Mexican nationalization of the petroleum industry in 1938, saying 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.

Socialist states have held that no compensation is due, based on the view that private ownership over socialized assets is illegitimate, exploitative, or a hindrance to further economic development.

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 the traditional Calvo-doctrinal 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 the protection of private property.

In the United States, the Fifth Amendment requires just compensation if private property is taken for public use.

Political support

Nationalization was one of the major mechanisms advocated by reformist socialists and social democrats for gradually transitioning to socialism. In this context, the goals of nationalization were to dispossess large capitalists, redirect the profits of industry to the public purse, and establish some form of workers' self-management as a precursor to the establishment of a socialist economic system. [4]

In the United Kingdom after the Second World War, nationalization gained support by the Labour party and some social democratic parties throughout Western Europe. Although sometimes undertaken as part of a strategy to build socialism, more commonly nationalization was also undertaken and used to protect and develop industries perceived as being vital to the nation's competitiveness (such as aerospace and shipbuilding), or to protect jobs in certain industries.

A re-nationalization occurs when state-owned assets are privatized and later nationalized again, often when a different political party or faction is in power. A re-nationalization process may also be called "reverse privatization". Nationalization has been used to refer to either direct state-ownership and management of an enterprise or to a government acquiring a large controlling share of a publicly listed corporation.[ citation needed ]

According to research by Paasha Mahdavi, leaders who consider nationalization face a dilemma: "nationalize and reap immediate gains while risking future prosperity, or maintain private operations, thereby passing on revenue windfalls but securing long-term fiscal streams." [5] He argues that leaders "nationalize extractive resources to extend the duration of their power" by using "this increased capital to secure political support." [5]

Economic analysis

Nationalization can have positive and negative effects. [6] A 2018 Stanford study of Chinese firms found their state-owned enterprises (SOEs) to be significantly more productive. [7] In 2019 research based on studies from Greenwich University found that the nationalization of key services such as water, bus, railways and broadband could save £13bn every year. [8]

Conversely, an assessment from the Institute for Fiscal Studies found that it would add at least £150bn to the national debt and make it harder for the country to hit its climate change targets. This analysis was based on the assumption that the Government would have to pay the market rate for these industries. [9]

Expropriation

Expropriation is the seizure of private property by a public agency for a purpose deemed to be in the public interest. It may also be used as a penalty for criminal proceedings. [10] Unlike eminent domain, expropriation may also refer to the taking of private property by a private entity authorized by a government to take property in certain situations.

Due to political risks that are involved when countries engage in international business it is important to understand the expropriation risks and laws within each of the countries that business is conducted in order to understand the risks as an investor in that country. [11]

Marxist theory

The term appears as "expropriation of expropriators (ruling classes)" in Marxist theory, and also as the slogan "Loot the looted!" ("грабь награбленное"), which was very popular during the Russian October Revolution. [12] The term is also used to describe nationalization campaigns by communist states, such as dekulakization and collectivization in the USSR. [13]

The term expropriation is found by late Marx writings, specifically in “Karl Marx: A letter to Otechestvenye Zapiski” to describe the process of turning agrarian/rural peasants into wage laborers/proletarians if the Russian country is to become a capitalist nation like that of the Western European nations.

Nikolai Bukharin had criticised the term 'nationalisation', preferring the term 'statisation' instead. [14]

See also

Related Research Articles

In economics, a free market is a system in which the prices for goods and services are self-regulated by buyers and sellers negotiating in an open market. In a free market, the laws and forces of supply and demand are free from any intervention by a government or other authority, and from all forms of economic privilege, monopolies and artificial scarcities. Proponents of the concept of free market contrast it with a regulated market in which a government intervenes in supply and demand through various methods such as tariffs used to restrict trade and to protect the local economy. In an idealized free-market economy, also called a liberal market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy.

Socialism is a political, social, and economic philosophy encompassing a range of economic and social systems characterised by social ownership of the means of production. It includes the political theories and movements associated with such systems. Social ownership can be public, collective, cooperative, or of equity. While no single definition encapsulates the many types of socialism, social ownership is the one common element. The types of socialism vary based on the role of markets and planning in resource allocation, on the structure of management in organizations, and socialists disagree on whether government, particularly existing government, is the correct vehicle for change.

State capitalism is an economic system in which the state undertakes business and commercial economic activity and where the means of production are organized and managed as state-owned enterprises, or where there is otherwise a dominance of corporatized government agencies or of public companies such as publicly listed corporations in which the state has controlling shares. Marxist literature defines state capitalism as a social system combining capitalism with ownership or control by a state. By this definition, a state capitalist country is one where the government controls the economy and essentially acts like a single huge corporation, extracting surplus value from the workforce in order to invest it in further production. This designation applies regardless of the political aims of the state, even if the state is nominally socialist. Many scholars agree that the economy of the Soviet Union and of the Eastern Bloc countries modeled after it, including Maoist China, were state capitalist systems, and that the current economy of China also constitutes a form of state capitalism.

Anti-capitalism Political ideology and movement opposed to capitalism

Anti-capitalism is a political ideology and movement encompassing a variety of attitudes and ideas that oppose capitalism. In this sense, anti-capitalists are those who wish to replace capitalism with another type of economic system, usually some form of socialism.

A market economy is an economic system in which the decisions regarding investment, production and distribution are guided by the price signals created by the forces of supply and demand. The major characteristic of a market economy is the existence of factor markets that play a dominant role in the allocation of capital and the factors of production.

A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, free markets with state interventionism, or private enterprise with public enterprise. While there is no single definition of a mixed economy, one definition is about a mixture of markets with state interventionism, referring specifically to a capitalist market economy with strong regulatory oversight and extensive interventions into markets. Another is that of an active collaboration of capitalist and socialist visions. Yet another definition is apolitical in nature, strictly referring to an economy containing a mixture of private enterprise with public enterprise. Alternatively, a mixed economy can refer to a reformist transitionary phase to a socialist economy that allows a substantial role for private enterprise and contracting within a dominant economic framework of public ownership. This can extend to a Soviet-type planned economy that has been reformed to incorporate a greater role for markets in the allocation of factors of production.

Private property Legal designation of the ownership of property by non-governmental legal entities

Private property is a legal designation for the ownership of property by non-governmental legal entities. Private property is distinguishable from public property, which is owned by a state entity, and from collective or cooperative property, which is owned by a group of non-governmental entities. The distinction between private and personal property varies depending on political philosophy, with socialist perspectives making a hard distinction between the two, while others blend the two together. As a legal concept, private property is defined and enforced by a country's political system.

State ownership

State ownership, also called government ownership and public ownership, is the ownership of an industry, asset, or enterprise by the state or a public body representing a community as opposed to an individual or private party. Public ownership specifically refers to industries selling goods and services to consumers and differs from public goods and government services financed out of a government's general budget. Public ownership can take place at the national, regional, local, or municipal levels of government; or can refer to non-governmental public ownership vested in autonomous public enterprises. Public ownership is one of the three major forms of property ownership, differentiated from private, collective/cooperative, and common ownership.

The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of China. The system is based on the predominance of public ownership and state-owned enterprises within a market economy. The term "socialist market economy" was introduced by Jiang Zemin during the 14th National Congress of the Communist Party of China in 1992 to describe the goal of China's economic reforms. Originating in the Chinese economic reforms initiated in 1978 that integrated China into the global market economy, the socialist market economy represents a preliminary or "primary stage" of developing socialism. Many Western commentators describe the system as a form of state capitalism.

Criticism of socialism is any critique of socialist models of economic organization and their feasibility as well as the political and social implications of adopting such a system. Some critiques are not directed toward socialism as a system, but rather toward the socialist movement, parties or existing states. Some critics consider socialism to be a purely theoretical concept that should be criticized on theoretical grounds while others hold that certain historical examples exist and that they can be criticized on practical grounds. Because there are many models of socialism, most critiques are focused on a specific type of socialism and the experience of Soviet-type economies that may not apply to all forms of socialism as different models of socialism conflict with each other over questions of property ownership, economic coordination and how socialism is to be achieved. Critics of specific models of socialism might be advocates of a different type of socialism.

The social dividend is the return on the capital assets and natural resources owned by society in a socialist economy. The concept notably appears as a key characteristic of market socialism, where it takes the form of a dividend payment to each citizen derived from the property income generated by publicly owned enterprises, representing the individual's share of the capital and natural resources owned by society.

Production for use is a phrase referring to the principle of economic organization and production taken as a defining criterion for a socialist economy. It is held in contrast to production for profit. This criterion is used to distinguish socialism from capitalism, and was one of the fundamental defining characteristics of socialism initially shared by Marxian socialists, evolutionary socialists, social anarchists and Christian socialists.

Nationalisation in Pakistan Pakistani economic policies

The Nationalisation process in Pakistan was a policy measure programme in the economic history of Pakistan, first introduced, promulgated and implemented by Prime Minister Zulfikar Ali Bhutto and the Pakistan Peoples Party to lay the foundation of socialist economics reforms to improve the growth of national economy of Pakistan. Since the 1950s, the country had undergone a speedy industrialisation and became an industrial paradise in Asia. But, as time progressed, the labour trade unions and labour-working class had increasingly strained relations with the industrial business oligarch class, having neglected to improve working conditions and failing to provide a healthy and safe environment for the workers in these industrial industries.

State socialism is a political and economic ideology within the socialist movement advocating state ownership of the means of production, either as a temporary measure or as a characteristic of socialism in the transition from the capitalist to the socialist mode of production or communist society. Aside from anarchists and other libertarian socialists, there was confidence amongst socialists in the concept of state socialism as being the most effective form of socialism. Some early social democrats in the late 19th century and early 20th century such as the Fabians claimed that British society was already mostly socialist and that the economy was significantly socialist through government-run enterprises created by conservative and liberal governments which could be run for the interests of the people through their representatives' influence, an argument reinvoked by some socialists in post-war Britain. State socialism went into decline starting in the 1970s, with the discovery of stagflation during the 1970s energy crisis, the rise of neoliberalism and later with the fall of state socialist regimes in the Eastern Bloc during the Revolutions of 1989 and the fall of the Soviet Union.

In Karl Marx's critique of political economy and subsequent Marxian analyses, the capitalist mode of production refers to the systems of organizing production and distribution within capitalist societies. Private money-making in various forms preceded the development of the capitalist mode of production as such. The capitalist mode of production proper, based on wage-labour and private ownership of the means of production and on industrial technology, began to grow rapidly in Western Europe from the Industrial Revolution, later extending to most of the world.

Socialist mode of production

The socialist mode of production, also referred to as the communist mode of production, the lower-stage of communism or simply socialism as Karl Marx and Friedrich Engels used the terms communism and socialism interchangeably, is a specific historical phase of economic development and its corresponding set of social relations that emerge from capitalism in the schema of historical materialism within Marxist theory. The Marxist definition of socialism is that of an economic transition. In this transition, the sole criterion for production is use-value, therefore the law of value no longer directs economic activity. Marxist production for use is coordinated through conscious economic planning. Distribution of products is based on the principle of "to each according to his contribution". The social relations of socialism are characterized by the proletariat effectively controlling the means of production, either through cooperative enterprises or by public ownership or private artisanal tools and self-management. Surplus value goes to the working class and hence society as a whole.

Social ownership is the appropriation of the surplus product produced by the means of production by a society or community as a whole, and is the defining characteristic of a socialist economic system. It can take the form of state ownership, common ownership, employee ownership, cooperative ownership, and citizen ownership of equity. Traditionally, social ownership implied that capital and factor markets would cease to exist under the assumption that market exchanges within the production process would be made redundant if capital goods were owned and integrated by a single entity or network of entities representing society. but the articulation of models of market socialism where factor markets are utilized for allocating capital goods between socially owned enterprises broadened the definition to include autonomous entities within a market economy. Social ownership of the means of production is the common defining characteristic of all the various forms of socialism.

Socialist economics comprises the economic theories, practices and norms of hypothetical and existing socialist economic systems. A socialist economic system is characterized by social ownership and operation of the means of production that may take the form of autonomous cooperatives or direct public ownership wherein production is carried out directly for use rather than for profit. Socialist systems that utilize markets for allocating capital goods and factors of production among economic units are designated market socialism. When planning is utilized, the economic system is designated as a socialist planned economy. Non-market forms of socialism usually include a system of accounting based on calculation-in-kind to value resources and goods.

A socialist state, socialist republic, or socialist country, sometimes referred to as a workers' state or workers' republic, is a sovereign state constitutionally dedicated to the establishment of socialism. The term communist state is often used synonymously in the West specifically when referring to one-party socialist states governed by Marxist–Leninist communist parties, despite these countries being officially socialist states in the process of building socialism. These countries never describe themselves as communist nor as having implemented a communist society. Additionally, a number of countries that are multi-party capitalist states make references to socialism in their constitutions, in most cases alluding to the building of a socialist society, naming socialism, claiming to be a socialist state, or including the term people's republic or socialist republic in their country's full name, although this does not necessarily reflect the structure and development paths of these countries' political and economic systems. Currently, these countries include Algeria, Bangladesh, Guyana, India, Nepal, Nicaragua, Portugal, Sri Lanka and Tanzania.

References

  1. "Definition of NATIONALIZATION". merriam-webster.com. nationalize [...] 2 : to invest control or ownership of in the national government[.]
  2. Chrisafis, Angelique (December 14, 2011). "Renault descendants demand payout for state confiscation". The Guardian. London.
  3. Alistair, Mason; Pyper, Hugh (21 December 2000). Hastings, Adrian (ed.). The Oxford Companion to Christian Thought . Oxford University Press. p.  677. ISBN   978-0198600244 . Retrieved 8 December 2019. At the heart of its vision has been social or common ownership of the means of production. Common ownership and democratic control of these was far more central to the thought of the early socialists than state control or nationalization, which developed later. [...] Nationalization in itself has nothing particularly to do with socialism and has existed under non-socialist and anti-socialist regimes. Kautsky in 1891 pointed out that a 'co-operative commonwealth' could not be the result of the 'general nationalization of all industries' unless there was a change in 'the character of the state'[.]
  4. The Economics of Feasible Socialism Revisited, by Nove, Alexander. 1991. (P.176): "Nationalisation arouses no enthusiasm, in the minds of most socialists and anti-socialists. It would probably be agreed that hopes which reposed on nationalisation have been disappointed. Conservatives hold that this is due to defects inherent in nationalisation, that private enterprise based on private ownership is inherently superior. (Mrs Thatcher’s government tried to ensure that this was so by preventing essential investments and ordering the nationalized industries to sell off their more successful undertakings.)...The original notion was that nationalization would achieve three objectives. One was to dispossess the big capitalists. The second was to divert the profits from private appropriation to the public purse. Thirdly, the nationalized sector would serve the public good rather than try to make private profits...To these objectives some (but not all) would add some sort of workers' control, the accountability of management to employees."
  5. 1 2 Mahdavi, Paasha (2020). "Power grab: political survival through extractive resource nationalization". Cambridge University Press. Retrieved 2020-03-12.
  6. "Nationalization | economic policy".
  7. https://kingcenter.stanford.edu/sites/default/files/publications/1037wp.pdf
  8. Ellis, Mark (2019-11-24). "Nationalisation of public services could save £13billion every year". mirror. Retrieved 2020-01-06.
  9. PoliticsHome.com (2019-12-03). "Labour nationalisations 'would cost tens of billions and risk years of disruption', claims IFS". PoliticsHome.com. Retrieved 2020-01-06.
  10. Caves, R. W. (2004). Encyclopedia of the City. Routledge. p. 251.
  11. Flynn, Chris. Avoiding Expropriation and Managing Political Risk in Emerging Market. Lexology. p. 1.
  12. Orlando Figes, A People's Tragedy: Russian Revolution, 1996, ISBN   0-7126-7327-X.
  13. Richard Pipes Property and Freedom, Vintage Books, A division of Random House, Inc., New York, 1999, ISBN   0-375-70447-7, page 214.
  14. Economy of transition period, Chapter Seven 'The latter term, indeed, certainly is not perfect. First, it mixes "nation" ("whole") with the state, i.e. the ruling class. Second, it has shade of national states epoch. We keep it because it is absolutely rooted, though there are no logical grounds for its existence.'