Every modern society has to determine how much power will be held by the government and how much will be ceded to the private sector. In most countries, the government controls some businesses and industries while letting private companies operate in others. There are times, however, when a national government decides to take control of a company or industry that was previously privately owned. This type of sudden government takeover is called nationalization.
Nationalization refers to the process by which a national government seizes control of a private company or its assets. While it occurs in nations of varying economic clout, it is most common in developing nations where outside investment is especially concentrated. Once the government has nationalized a business or industry, it is free to operate the venture however it chooses. The entity passes from the private to the public sector, and the dispossessed former owners are left with nothing to show for their former holdings.
Nationalization has been a common tactic for over a century. Oil companies are especially prone to nationalization as developing countries look to manage their most valuable natural resource. Mexico nationalized its oil industry in 1938, and Iran followed suit in 1951. Once the nationalization process was complete, these countries’ governments had direct control over domestic oil production.
While nationalization is commonly associated with the developing world, the United States has implemented de facto nationalization projects of its own. Airport security was nationalized under the Transportation Security Administration (TSA) in the wake of the September 11 terrorist attacks, and the government effectively took over several major companies during the 2008 economic crisis.
There are three principal reasons why a government chooses to nationalize a company or industry. Sometimes, the government simply wishes to consolidate its power. In other cases, the country is seeking to eliminate a perceived excess of power in the hands of foreign commercial interests. Finally, nationalization can serve as a last-gasp measure to keep a delicate industry or business from failing. Some nationalization projects are motivated by a combination of these factors.
Nationalizing companies and industries is often a controversial topic. When developing countries nationalize key industries, the former owners of prosperous companies usually feel cheated. In many cases, these owners are foreigners whose home countries support their cause. This dynamic can lead to political blowback on an international scale.
Experts also differ in their assessments of nationalization. Some policymakers, especially in developing countries, think the government needs to control certain resources to prevent excessive exploitation from outsiders. Others contend that nationalization creates an unfriendly business climate that scares away potential investors.
In more developed countries where nationalization often takes the form of “bailouts,” economists also disagree about the best response to failing companies. When a massive private institution is on the verge of collapse, the government must decide whether it’s in the nation’s best interests to step in and take control. Some think it’s imperative to prevent the chaos that a total failure would bring, while others say it’s best to let a failing company suffer the consequences of poor decisions. Each case, of course, is extremely complex and must be judged on an individual basis.
Nationalization has become a major topic again in the wake of the novel coronavirus pandemic. With shutdowns and supply chain issues wreaking havoc on the global economy, countries are asking whether they should step in and nationalize flailing private institutions. In Italy, the government took a bold step by nationalizing its largest airline. French officials have considered taking similar actions to protect struggling businesses, and even Germany, where nationalization is generally scorned, has admitted that such drastic measures could be necessary.
The public health crisis has also inspired calls for the nationalization of hospitals in the United States. While such a massive undertaking doesn’t seem imminent, the fact the discussion is even taking place demonstrates the effect the pandemic has had on public discourse. Nationalization often presents itself as an option when countries find themselves in a crisis, and the coronavirus pandemic has certainly fomented crises around the world.
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