Nationalization: Consequences, Characteristics and Examples

Nationalization: Consequences, Characteristics and Examples

We explain what nationalization is and what its consequences are. In addition, its general characteristics and examples of this process.

What is Nationalization?

Nationalization, expropriation or nationalization is a process by which a national State assumes the administration of companies , goods or lands managed by individuals, adding them to the State’s patrimony . In this sense, it is the exact opposite of privatization.

Nationalization is a mechanism that usually consists of a forced purchase , in controlled terms, of the property in dispute, an action that can be carried out in more or less hostile, even violent terms. It is a common practice for governments of a nationalist nature, as well as for socialists or communists , depending on their respective ideological objectives.

When this process involves the forced acquisition of a foreign company or property , the term nationalization is often preferred.

Origin of nationalization

Origin of nationalization
The objective of all nationalization is to make the private-public.

Nationalization has its origin as a practice only from the creation of the State and therefore from the tensions and differences between public property and private property .

The objective of all nationalization is to make the private public, and especially if it is foreign private property. Such methods of direct state intervention in the economy began in the western capitalist world in 1929 , when it was in the middle of the Great Depression after the First World War .

Reasons for nationalization

The motives behind a nationalization generally serve reasons of State security , strategic policies or national macroeconomic plans, always keeping in mind the collective benefit or the protection of the common welfare. Nationalizations have also been used as retaliation or punishment for illegal or inappropriate behavior by private companies or individuals.

Nationalizable assets

Nationalizable assets
Many types of productive companies and factories are rationalizable assets. 

Practically all assets can be expropriated , from a real estate (a building, a piece of land, a service station), an entire company (banks, productive companies, factories) or a quantity of capital goods.

Consequences of nationalization

The consequences of a nationalization depend on the specific case and the type of property expropriated . For example, the nationalization of basic service companies ( electricity , electricity , etc.) gives the State greater control over the most basic aspects of life in the country, but in return they tend to bureaucratize their processes.

In general terms , the nationalizing processes are accused of damaging private assets , bureaucratizing services and allowing the entry of inefficiency and corruption, when not of establishing rates contrary to business profitability that end up reducing the effectiveness of the company.

On the other hand, the protective effect that the nationalization of some goods can have on public consumption, on the protection of national interests and even on a fairer distribution of wealth is recognized .

Nationalization procedure

Nationalization procedure
The nationalization includes a compensatory payment for the seized property.

Nationalization procedures are generally detailed in the specific legal framework of a nation , and include compensatory payment for properties seized from their former owners, according to rates and amounts that, in the best of cases, are mutually agreed. Between the parts. In theory, it is not a kind of theft by the State, but a forced purchase.

Disadvantages of nationalization

Nationalizations are always greeted with alarm by the private business sector, which understands them as a possible threat and a radical intervention by the State in the economy and business that could scare off future investments .

On the other hand, the meaning of the nationalizations that promote the enrichment of government officials (corruption) has been questioned.

Property and public companies

Property and public companies
The public property becomes the property of the State.

Once nationalized, the companies would have to continue their functions but under a public company or state company regime, which is often reflected in their rates and service costs . These types of measures are given in favor of an economic or social plan determined by the Government .

With regard to public goods, they also become the property of the State and will serve for the location, construction or operation of institutions designated by the State, whether or not their new goals have to do with those that were developed in the past.

Differences between nationalization and privatization

Differences between nationalization and privatization
Privatization sells public goods to the highest bidder. 

These are completely opposite processes: while nationalization makes private goods public (especially foreign ones), privatization makes public goods private (even to foreign clients). That is, the first is a forced purchase by the State and the other is a sale to the highest bidder by the State.

Differences between nationalization and nationalization

These are more or less synonymous terms. The only difference is that by “nationalization” it is often understood to make the nation private goods of some foreign interest, while by “nationalization” it is understood the same but of any type of goods . We can say then that nationalization is a type of nationalization.

Examples of nationalization

Examples of nationalization
In Bolivia, hydrocarbons were nationalized. 

An example of nationalization are the events that took place in 2008 in Venezuela , with respect to Banco de Venezuela SA, which was privately owned by the international group Santander Río, and was forcibly bought by the Venezuelan Government.

Another similar example occurred in Argentina when the 2012 government nationalized 51% of the shares of Repsol-YPF , a Spanish-owned hydrocarbon company.

The above content published at Collaborative Research Group is for informational and educational purposes only and has been developed by referring to reliable sources and recommendations from technology experts. We do not have any contact with official entities nor do we intend to replace the information that they emit.

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