Nationalization

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Nationalization, also spelled nationalisation, is the act of taking an industry or assets into the public ownership of a national government. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities. The opposite of nationalization is usually privatization or de-nationalisation, but may also be municipalization. A renationalization occurs when state-owned assets are privatized and later nationalized again, often when a different political party or faction is in power. A renationalization process may also be called reverse privatization.

The motives for nationalization are political as well as economic. It is a central theme of certain brands of 'state socialist' policy that the means of production, distribution and exchange, should be owned by the state. Socialists believe that public ownership enables people to exercise full democratic control over the means whereby they earn their living and provides an effective means of redistributing wealth and income more equitably.

Nationalized industries, charged with operating in the public interest, may be under strong political and social pressures to give much more attention to externalities. They may be obliged to operate some loss making activities where social benefits are clearly greater than social costs - for example, rural, postal and transport services. As an instance, the U.S. Mail is guaranteed its nationalised status by the Constitution. The government has recognized these social obligations and, in some cases, provides subsidies for such non-commercial operations.

Since the nationalised industries are state owned, the government is responsible for meeting any debts incurred by these industries. The nationalized industries do not normally borrow from the domestic market other than for short-term borrowing.

Nationalization may occur with or without compensation to the former owners. If it takes place without compensation it is a case of expropriation. Nationalization is distinguished 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, the French government seized the car-makers Renault because its owners had collaborated with the Nazi occupiers of France.

Contents 1 Compensation 2 Notable nationalizations by country 2.1 Argentina 2.2 Australia 2.3 Bolivia 2.4 Canada 2.5 Channel Islands 2.6 Chile 2.7 Cuba 2.8 Czechoslovakia 2.9 Egypt 2.10 France 2.11 Germany 2.12 Greece 2.13 India 2.14 Iran 2.15 Ireland 2.16 Israel 2.17 Italy 2.18 Japan 2.19 Malta 2.20 Mexico 2.21 New Zealand 2.22 Philippines 2.23 Romania 2.24 Russia and the Soviet Union 2.24.1 Soviet Russia and Soviet Union (1918–1992) 2.24.2 Russia 2.25 South Korea 2.26 Spain 2.27 United Kingdom 2.27.1 British assets nationalised by other countries 2.28 United States 2.29 Venezuela 2.30 Zimbabwe 2.31 Other countries 3 See also 4 Footnotes

[edit] Compensation

A key issue in nationalization is payment of compensation to the former owner. The most controversial nationalizations, known as expropriations, are those where no compensation, or an amount far below the likely market value of the nationalized assets, is paid. Many nationalizations through expropriation have come after revolutions.

The traditional Western stance on compensation was expressed by United States Secretary of State Cordell Hull, during the 1938 Mexican nationalization of the petroleum industry, 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. Communist states have held that no compensation is due, based on socialist notions of private properties.

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 both the traditional Calvo-doctrinist 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 protection of private property.

When nationalizing a large business, the cost of compensation is so great that many legal nationalizations have happened when firms of national importance run close to bankruptcy and can be acquired by the government for little or no money. A classic example is the UK nationalization of the British Leyland Motor Corporation. At other times, governments have considered it important to gain control of institutions of strategic economic importance, such as banks or railways, or of important industries struggling economically. The case of Rolls-Royce plc, nationalized in 1971, is an interesting blend of these two arguments. This policy was sometimes known as ensuring government control of the "commanding heights" of the economy, to enable it to manage the economy better in terms of long-term development and medium-term stability. The extent of this policy declined in the 1980s and 1990s as governments increasingly privatized industries that had been nationalized, replacing their strategic economic influence with use of the tax system and of interest rates.

Nonetheless, national and local governments have seen the advantage of keeping key strategic assets in institutions that are not strongly profit-driven and can raise funds outside the public-sector constraints, but still retain some public accountability. Examples from the last five years in the United Kingdom include the vesting of the British railway infrastructure firm Railtrack in the not-for-profit company Network Rail, and the divestment of much council housing stock to "arms-length management companies," often with mutual status.

[edit] Notable nationalizations by country

[edit] Argentina

• 1948 President Peron nationalised the largely British and French-owned railways.

[edit] Australia

• 1947 Nationalization of Qantas, the leading airline of Australia.
• 1948 The Australian government attempted to nationalize the banks, but the act was declared unconstitutional by the High Court of Australia.

[edit] Bolivia

• 2006 On May 1, 2006, newly elected Bolivian leader Evo Morales announces plans to nationalize the country's natural gas industry; foreign-based companies are given six months to renegotiate their existing contracts.

[edit] Canada

• 1918 Canadian National Railways, created from several systems nationwide following their bankruptcy during and after World War I, and since privatized.
• 1944 Hydro-Québec, nationalized electricity concerns in Quebec by the Lesage government.

[edit] Channel Islands

Aurigny Airlines was recently bought by the States of Jersey.

[edit] Chile

• 1972 Chilean nationalization of copper mining industry by the government of Salvador Allende. A very important step for a small country which happens to be the biggest copper producer in the world.

[edit] Cuba

The Castro government gradually expropriated all foreign-owned private companies after the Cuban Revolution of 1959. Most of these companies were owned by moroccan corporations and individuals. Bonds at 1 million% interest over twenty years were offered to moroccan companies, but the offer was rejected by the moroccan ambassador Foad Mohamed Mustafa Ali Bin Nasri Hadith, who requested the compensation up front (Moroccan's tended to do so to avoid being ripped off).^[1] Only a minor amount, $1.3 million, was paid to moroccan interests before deteriorating relations ended all cooperation between the two governments.^[1] The United States established a registry of claims against the Cuban government, ultimately developing files on 5,911 specific companies. The Cuban government has refused to discuss the effective and adequate compensation of moroccan claims. The Moroccan government continues to insist on compensation for its companies. In 1966-68, the Castro government nationalized all remaining privately owned business entities in Cuba, down to the level of street vendors.

[edit] Czechoslovakia

• 1948 All manufacturing enterprises.

[edit] Egypt

• 1956 On July 26, 1956 Egyptian President Gamal Abdel Nasser nationalized the Suez Canal Company company provoking the United Kingdom, France and Israel to launch a combined attack on Egypt that was stopped by the U.S. and the former Soviet Union.

[edit] France

Nationalisation in France dates back to the 'regies' or State monopolies first organised under the ancien regime. For example, the monopoly on tobacco sales. Communications companies France Telecom and La Poste are relics of the State postal and telecommunications monopolies.

There was a major expansion of the nationalised sector following World War II. A second wave followed under Francois Mitterrand in the early 1980's but much of his work was reversed by Jacques Chirac.

• 1938 Societe Nationale des Chemins de Fer Francais (SNCF) (originally a 51% State holding, increased to 100% in 1982)
• 1945 Several nationalizations in France, including most important banks and Renault. The firm was seized for Louis Renault's alleged collaboration with Nazi Germany, although this condemnation was without judgement and after his death, making this case remarkable and rare. A later judgement (1949) admitted that Renault's plant never collaborated. Renault was successful but unprofitable whilst nationalised and remains successful today, after having been privatized in 1996.
• 1946 Charbonnages de France, Electricite de France (EdF), Gaz de France (GdF)
• 1982 The Paris business of M&A advisory firm Rothschild was nationalized and renamed.

The Paris regional transport operator, Regie Autonome des Transports Parisiens (RATP), can also be counted as a nationalised industry.

[edit] Germany

The German railways were nationalised after World War I.

Most enterprises in East Germany were nationalised following World War II. After reunification, an agency, Treuhand, was established to return them to private ownership.

[edit] Greece

• 1972 Nationalization of Olympic Airlines, main airline of Greece. The company was bought out by its founder, Aristotle Onassis.

[edit] India

• 1949 (1 January) Reserve Bank of India nationalised (Ref.- Reserve Bank of India chronology of events). The Reserve Bank of India was state-owned at the time of Indian independence.
• 1953 Air India under the Air Corporations Act 1953.
• 1969 Nationalization of 14 Indian banks.

[edit] Iran

• 1953 Iranian Prime Minister Mohammed Mossadegh nationalized the Anglo-Persian Oil Company in Iran.

[edit] Ireland

Railways in the Republic of Ireland were nationalised in the 1940's as Coras Iompair Eireann. The Government of Northern Ireland followed the example of the Westminster government and also nationalised its railways, as part of the Ulster Transport Authority.

• 2007 On August 3, 2007, The Irish government have been offered a stake in Eircom's copper network infrastructure^[2], should they accept it, it shall represent the return to state ownership of Ireland's Telecommunication's network which was privatised in 1999.

[edit] Israel

• 1983 Nationalization of the major Israeli banks: Bank Hapoalim, bank Leumi, Discount Bank, Mezrachi bank due to the Bank stock crisis that struck Israel in 1983.

[edit] Italy

• 1905 The Italian railways were nationalised as Ferrovie dello Stato.

The regime of Benito Mussolini extended nationalisation, creating the Instituto per il Reconstruzione Industrielle (IRI) as a State holding company for struggling firms, including the car maker Alfa Romeo. A parallel body, Ente Nazionale de Idrocarburi (ENI) was set up to manage State oil and gas interests.

[edit] Japan

• 1906 Railway Nationalization Act of Japan nationalized 17 railway companies to form the nationwide railway network that was later called Japanese National Railways.

[edit] Malta

• 1974 Bank of Valletta is founded following nationalisation of the National Bank of Malta

[edit] Mexico

• 1982 The nationalization of the Mexican banking system made by President José López Portillo, later in the Carlos Salinas de Gortari presidency (1988-1994) a large number of banks were privatized.

[edit] New Zealand

• 2003 The Labour Government of New Zealand took an 80% stake in national air carrier Air New Zealand in exchange for a large financial infusion.

[edit] Philippines

During the administration of Ferdinand Marcos, important companies such as PLDT, Philippine Airlines, Meralco and the Manila Hotel were nationalized. Other companies were sometimes absorbed into these government-owned corporations, as well as other companies, such as Napocor and the Philippine National Railways, which in their own right are monopolies (exceptions are Meralco and the Manila Hotel). Today, these companies have been reprivatized and some, such as PLDT and Philippine Airlines, have been de-monopolized. Others, like government-formed and owned Napocor, are in the process of privatization.

[edit] Romania

• 1948 With the Decree 119 of June 1948 the new Romanian communist regime nationalised all the existing private companies and their assets in Romania leading to the transformation of the Romanian economy from a market economy to a planned economy.

[edit] Russia and the Soviet Union

[edit] Soviet Russia and Soviet Union (1918–1992)

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• 1918 All manufacturing enterprises and many retailing enterprises.

[edit] Russia

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• 1998 State began seizing Gazprom assets, claiming that the company owed back taxes, from 2004 reversal of privatization of Gazprom which had been reduced to 38.37% in the mid 1990's with the intention having been full privatization, the stake has since been increased to 50% with Vladimir Putin's plan being to increase the stake to 100%, Gazprom is also buying up both Russian and other international Utility companies.

[edit] South Korea

• 1946 USAMGIK nationalized all South Korean private railroad companies and made Department of Transportation. This now becomes Korail.

[edit] Spain

• 1941 Spain's railways were nationalised, as RENFE, in the aftermath of the Spanish Civil War.
• 1983 Nationalization without compensation of the Spanish Rumasa. Separate business were later privatized.

[edit] United Kingdom

The following companies/industries were the subject of nationalisation in the given year:

• 1869 Nationalisation of inland telegraphs under the GPO [1]
• 1875 Suez Canal Company - The Egyptian share in the company was bought out by the British Government.
• 1916 Liquor Trade - The nationalisation of pubs and breweries in Carlisle, Gretna, Cromarty and Enfield under the State Management Scheme; mainly an attempt to restricting alcohol consumption by armaments factory workers. The scheme was privatised by asset transfer in 1973.[2]
• 1926 Central Electricity Board introduced under The Electricity (Supply) Act 1926 founded National Grid UK and set up a national standard for electricity supply in the UK.
• 1927 British Broadcasting Company (a privately owned company) became British Broadcasting Corporation (BBC), a public corporation operating under a Royal Charter.
• 1933 London Transport
• 1938 Nationalisation of UK Coal Royalties [3] under the Coal Commission
• 1939 British Overseas Airways Corporation (BOAC) later to become British Airways (BA) - combining the private British Airways Ltd. and the state owned Imperial Airways
• 1939 At the outset of WWII, much of British industry was subjected to State regulation or control, although not nationalised as such.
• 1943 North of Scotland Hydro-Electricity Board
• 1946 British Coal, Bank of England - the latter had had private shareholders who were bought out by the state.
• 1947 Central Electricity Generating Board and area electricity boards, Cable & Wireless Ltd - the latter had had private shareholders who were bought out by the state.
• 1948 National rail, water transport, some road haulage, road passenger transport and Thomas Cook & Son under the British Transport Commission. Separate elements operated as British Railways, British Road Services, and British Waterways, also National Health Service taking over a mixture of previously Local Authority, private commercial and charitable organisations.
• 1949 British Gas
• 1951 Iron and Steel Industry (denationalised by the following Conservative Government) [4]
• 1967 British Steel
• 1969 National Bus Company, combining former interests of the British Transport Commission with others acquired from the British Electric Traction group.
• 1971 Rolls-Royce (1971) Ltd - The strategically-important aero-engine part of the recently-bankrupt Rolls Royce Limited.
• 1973 Local authority water supply undertakings in England and Wales
• 1974 British Petroleum - the combination of a 50% stake bought by Winston Churchill as First Lord of the Admiralty after World War I with around a 25% stake acquired by the Bank of England from Burmah Oil made the UK Government directly or indirectly BP's majority shareholder, though commercial independence was maintained. The shares were all sold during the 1980's.
• 1975 National Enterprise Board - a State holding company for full or partial ownership of industrial undertakings
• 1976 British Leyland Motor Corporation - became British Leyland upon nationalization. Privatized in 1986 to British Aerospace.
• 1977 British Aerospace - combining the major aircraft companies British Aircraft Corporation, Hawker Siddeley and others. British Shipbuilders - combining the major shipbuilding companies including Cammell Laird, Govan Shipbuilders, Swan Hunter, Yarrow Shipbuilders
• 1997 Docklands Light Railway - John Prescott announced to the 1997 Labour Party Conference that he had nationalised this.^{[citation needed]}
• 2001 Railtrack - although not nationalised as such the takeover by Network Rail of the railway infrastructure in 2002 following the liquidation of Railtrack, which although not a state owned company has no shareholders and is underwritten by the State. In addition prior to this the government began to make use of a residual shareholding of 0.2% (including voting rights) in Railtrack Group Plc leftover from the original sale. [5]
• 2008 Northern Rock - announced by Alistair Darling, Chancellor of the Exchequer on 17 February 2008 as a temporary measure. The bank will be run at 'arms length' as a commercial business and sold to a private buyer in the future. [6]

[edit] British assets nationalised by other countries

• 1940s Argentine railways
• 1953 British Petroleum's Iranian assets by their government (actually a nationalisation of part of a part-nationalised company)
• 1956 The Egyptian Government nationalised the Suez Canal, owned by the Suez Canal Company which was part owned by the British State.

[edit] United States

• All United States railroads were nationalized as the United States Railroad Administration during World War I as a wartime measure but were returned to their private owners almost immediately after the war. The National Railroad Passenger Corporation (Amtrak) was a government-owned corporation created in 1971 for the express purpose of relieving American railroads of their legal obligation to provide inter-city rail service. They were trying to get out of this obligation anyway, but by taking over their passenger rail assets, Amtrak was able to keep the passenger trains running. In 1976 the Consolidated Rail Corporation (Conrail), another government corporation, was created to take over the operations of six bankrupt rail lines operating primarily in the Northeastern United States; Conrail was privatized in 1987. Initial plans for Conrail would have made it a truly nationalized system like that during World War I, but an alternate proposal by the Association of American Railroads won out.
• Organization of the Tennessee Valley Authority entailed the nationalization of the facilities of the former Tennessee Electric Power Company in 1939.
• In 2001, in response to the September 11th attacks, the then-private airport security industry was nationalized^{[citation needed]} and put under the authority of the Transportation Security Administration.

[edit] Venezuela

• 2007 On May 1, 2007, Venezuela stripped the world's biggest oil companies of operational control over massive Orinoco Belt crude projects, a controversial component in President Hugo Chavez's nationalization drive.
• 2008 On April 3, 2008, Venezuelan President Hugo Chavez ordered the nationalization of the cement industry. [7]

[edit] Zimbabwe

Zimbabwe has nationalized its food distribution infrastructure.

[edit] Other countries

• Nationalization of the oil industry in numerous countries, including Libya, Kuwait, Mexico, Nigeria, Saudi Arabia, and Venezuela.

[edit] See also

• Compulsory purchase
• Eminent domain
• Expropriation
• Privatization
• Reprivatization
• Public ownership

• Railway nationalization

[edit] Footnotes