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Nationalisation

 

Nationalisation

Not to be confused with Naturalization.

Nationalization (British/Commonwealth spelling nationalisation) is the process of taking a private industry or private assets into public ownership by a national government or state.[1] Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being transferred to the public sector to be operated and owned by the state. The opposite of nationalization is usually privatization or de-nationalization, but may also be municipalization. Industries that are usually subject to nationalization include transport, communications, energy, banking and natural resources.

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. 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 nominally private, publicly listed corporation.

Nationalization was one of the major means advocated by reformist socialists for transitioning from capitalism to socialism. Socialist ideologies that favor nationalization are typically called state socialism. In this context, the goals of nationalization were to dispossess large capitalists and redirect the profits of industry to the public purse, as a precursor to the long-term goals of establishing worker-management and reorganizing production toward use.[2]

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 United States Postal Service 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. However, if they are profitable, the profit is often used as a means to finance other state services, such as social programs and government research — which can help lower the tax burden.

Nationalization may occur with or without compensation to the former owners. 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, in 1945 the French government seized the car-makers Renault because its owners had collaborated with the Nazi occupiers of France.[3]

Compensation

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. Socialist states have held that no compensation is due, based on the view that the former owners acquired ownership through exploitation, or that private ownership over socialized assets is illegitimate and exploitative of employees.

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.

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

Ideological support

In the United Kingdom after the second world war, nationalization gained support by the Labour party and some social democratic parties throughout Europe.

Notable nationalizations by country

Argentina

Australia

Bolivia

Most Bolivian utilities were nationally owned before being privatized in 1994.

  • 2006 On May 1, 2006, newly elected Bolivian president Evo Morales announced plans to nationalize the country's natural gas industry; foreign-based companies were given six months to renegotiate their existing contracts.
  • 2008 On May 1, 2008, the nationalization of Bolivia's leading telecommunications company Entel was completed, previously having been owned by Telecom Italia.[5]
  • 2010 On May 1, 2010, the government nationalized the country's main hydroelectric plant, thereby assuming control over most of Bolivia's electrical generation and end-user sales.[5]
  • 2012 On May 1, 2012, the Morales government nationalized power grid operator Transportadora de Electricidad (TDE), until then 99.94% owned by Red Eléctrica de España. TDE owns and runs 73% of the power lines in Bolivia.[5]

Canada

Channel Islands

  • 2003 Aurigny Air Services was bought by the States of Guernsey to keep precious routes from the island to London.

Chile

Croatia

On the break-up of Yugoslavia, The HDZ government nationalized private agricultural property and rezoned it under the guise of forest statesmanship, when their publicly professed agenda was to only complete the nationalization of the communists. Much of this land is in the process of being reinstated and the model rethought.

Cuba

The Castro government gradually expropriated all foreign-owned private companies after the Cuban Revolution of 1959. Most of these companies were owned by U.S. corporations and individuals. Bonds at 4.5% interest over twenty years were offered to U.S. companies, but the offer was rejected by U.S. ambassador Philip Bonsal, who requested the compensation up front.[6] Only a minor amount, $1.3 million, was paid to U.S. interests before deteriorating relations ended all cooperation between the two governments.[6] 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 U.S. claims. The United States government continues to insist on compensation for U.S. companies. In 1966-68, the Castro government nationalized all remaining privately owned business entities in Cuba, down to the level of street vendors.

Czechoslovakia

  • 1945 Large manufacturing enterprises.
  • 1948 All manufacturing enterprises.

Egypt

France

Nationalization in France dates back to the 'regies' or state monopolies first organized under the Ancien Régime, 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.[7] A second wave followed in 1982.

  • 1938 Societe Nationale des Chemins de Fer Francais (SNCF) (originally a 51% State holding, increased to 100% in 1982)[7]
  • 1945 Several nationalizations in France, including most important banks and Renault.[7] 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 A large part of the banking sector and industries of strategic importance to the state, especially in electronics and communications, were nationalized under the new president François Mitterrand and the PS-led government. Many of those companies were privatized again after 1986.

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

Germany

The German railways were nationalised after World War I. Partial privatisation of Deutsche Bahn is currently underway, as of 2008.

Most enterprises in East Germany were nationalised following World War II. After reunification, an agency, Treuhand, was established to return them to private ownership. However, due to structural and economic problems inherent in the previous regime, many of these had to be liquidated.

  • 2008 Renationalization of the "Bundesdruckerei" (Federal Print Office), which had been privatized in 2001.

Greece

  • 1974 Nationalization of Olympic Airlines, main airline of Greece. Its founder, Aristotle Onassis, sold all his shares to the Greek state.
  • 2011 Proton Bank is effectively nationalized in the midst of the Greek financial crisis

Iceland

India

The nationalised banks were credited by some, including Home minister P. Chidambaram, to have helped the Indian economy withstand the global financial crisis of 2007-2009.[8][9]

Iran

Ireland

Railways in the Republic of Ireland were nationalised in the 1940s as Coras Iompair Eireann.

  • 2007 On August 3, 2007, the Irish government were offered a stake in Eircom's copper network infrastructure.[10] Ireland's telephone networks were privatised in 1999.
  • 2009 On January 16, 2009, the Irish Government nationalised Anglo Irish Bank to secure the bank's viability.[11]
  • 2010 Irish state owned bank Anglo Irish Bank is to take majority control of one of Ireland's largest companies QUINN group bringing it under Public ownership.[12]

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.

Italy

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

The regime of Benito Mussolini extended nationalisation, creating the Istituto per la Ricostruzione Industriale (IRI) as a State holding company for struggling firms, including the car maker Alfa Romeo. A parallel body, Ente Nazionale Idrocarburi (Eni) was set up to manage State oil and gas interests.

Japan

Lithuania

In 2011 Snoras bank was nationalized by Lithuanian government.

Latvia

In 2008 Parex Bank was nationalized by Latvian government.

Malta

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

Mexico

  • 1938 The Expropriation of the Petroleum Industry of Mexico: President Lázaro Cárdenas issued a decree that the petroleum companies were in rebellion against the government of Mexico and under the powers granted him under the Expropriation Act passed by the Congress of Mexico in late 1936 expropriated them. March 19, 1938, union personnel took control of the properties.[13]
  • 1982 The nationalization of the Mexican banking system made by President José López Portillo in response to the debt crisis. Under the Carlos Salinas de Gortari presidency (1988–1994) the nationalized banks were privatized very rapidly between 1991 and 1992 to Mexican family groups privatized.[14]

The Netherlands

  • 2008 The Dutch State nationalizes the Dutch activities of Belgian-Dutch banking and insurance company Fortis, which had come in solvability problems due to the international financial crisis.
  • 2013 The Dutch SNS Bank is nationalized by the Dutch State. It had been in trouble for more than a year, not able to find a private investor. On Febuari 1st 2013, Jeroen Dijselbloem (Dutch minister of Finance) declares SNS nationalized.

New Zealand

  • 2001 Central government purchased the Auckland railway network from Tranz Rail.
  • 2003 The Labour Government of New Zealand took an 80% stake in near-bankrupt national air carrier Air New Zealand in exchange for a large financial infusion.
  • 2004 The rest of the country's rail network is purchased from Toll New Zealand, formerly known as Tranz Rail. A new state owned enterprise, ONTRACK, was established to maintain the rail infrastructure.
  • 2008 The rolling stock of Toll New Zealand was purchased by central government, bringing the rail system under total state ownership and renamed KiwiRail.

Pakistan

  • 1972: On January 2, 1972, Prime minister Zulfiqar Ali Bhutto, after the fall of East Pakistan, announced the nationalisation of all major industries, including iron and steel, heavy engineering, heavy electricals, petrochemicals, cement and public utilities except textiles industry and lands.[15]

Philippines

During the dictatorship of Ferdinand Marcos, important companies such as Philippine Long Distance Telephone Company (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 National Power Corporation (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 owned and controlled corporation Napocor, are in the process of privatization.

Poland

Portugal

  • 1974 In the years following the Carnation Revolution, the Junta de Salvação Nacional and Provisional Governments nationalized all the banking, insurance, petrol and industrial companies. Among those companies were Companhia União Fabril (CUF), the assets of the Champalimaud family and SONAE. Along with the telecommunications companies, which were state-owned even before the Revolution, many of the nationalized companies were reprivatized in the 1980s and 1990s. In the agricultural sector, according to government estimates, about 900,000 hectares (2,200,000 acres) of agricultural land were occupied between April 1974 and December 1975 in the name of land reform; about 32% of the occupations were ruled illegal. In January 1976, the government pledged to restore the illegally occupied land to its owners, and in 1977, it promulgated the Land Reform Review Law. Restoration of illegally occupied land began in 1978.[18][19]

Romania

  • 1948 With the Decree 119 of June 11, 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.
  • 1950 With the Decree 92 of April 19, 1950, a huge number of private houses and lands are confiscated.

Russia

  • 1998 The Yeltsin government began seizing Gazprom assets, claiming that the company owed back taxes. Privatization of Gazprom from the mid-1990s had been reduced to 38.37% with the intention of achieving full privatization. However, the stake of the Russian Government in Gazprom has since been increased to 50% with Vladimir Putin's plan to increase the stake to a controlling position. Gazprom is also buying up both Russian and other international utility companies.
  • 2013 The Russian space industry is being renationalized. The government created a new corporation—United Rocket and Space Corporation—in August 2013 because of a string of recent rocket launch failures. According to Russian Deputy Prime Minister Dmitry Rogozin, "The failure-prone space sector is so troubled that it needs state supervision to overcome its problems."[20] The October 2013 plan calls for re-nationalization of the space industry, with sweeping reforms including a new unified command structure and reducing redundant capabilities. [21]

Saudi Arabia

South Korea

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

Soviet Union

  • 1918 All manufacturing enterprises, many retailing enterprises, any private enterprises, the whole bank system, agrarian sector, others. Later the government of Lenin introduced the New Economic Policy that shifted the country somewhat towards market economics until the end of the revolutionary period and Stalin's acquisition of power.

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.

Sri Lanka

  • 1958 The Government nationalised Bus transport (creating the Ceylon Transport Board). The Colombo Port was also nationalised the same year.
  • 1961 The local subsidiaries of the foreign owned petroleum companies, Caltex, Esso and Shell had formed a cartel, to break which they were nationalised. The Insurance companies and the Bank of Ceylon were also nationalised in the same year.
  • 1971 Graphite mines nationalised.
  • 1972 Locally owned Tea and Rubber plantations were nationalised under the Land Reform law.
  • 1975 Sterling plantation companies (owned by British plantation companies) were nationalised.
  • 2009 Seylan Bank nationalised to prevent its collapse.
  • 2011 Sri Lanka's Expropriation Act was passed by the Cabinet. The government will take over "underperforming or underutilized assets of 37 enterprises".[22]

Sweden

  • 1939-1948 Nationalisation of most of the private Railway companies.
  • 1957 The mining company LKAB is nationalized. The state had owned 50% of the corporation's shares, with options to buy the remainder, since 1907.[23]
  • 1992 A large part of Sweden's banking sector is nationalized.[24]

Tanzania

The Arusha Declaration was proclaimed in 1967 by the Tanzanian President Julius Nyerere which aimed to achieve self-reliance through nationalising key sectors of the economy such as banks, large industries and plantations were therefore nationalised. This failed, worsening Tanzania's economic problems until foreign aid and liberalisation took effect in the 1980s and 1990s.[25]

United Kingdom

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

Nationalization was a key feature of the first post World War II Labour government in the United Kingdom, from 1945 to 1951 under Clement Attlee. The coal and steel industries were just two of many industries or services to be nationalised, while the formation of the National Health Service in 1948 entitled everyone in the United Kingdom to free healthcare. The subsequent Conservative governments led by Winston Churchill, Anthony Eden, Harold Macmillan, Alec Douglas-Home and Edward Heath allowed practically all of the nationalized industries and services to remain in public ownership, as did subsequent Labour prime ministers Harold Wilson and James Callaghan. However, the election victory of Margaret Thatcher's Conservatives in 1979 saw the vast majority of nationalized industries, services and utilities privatized within a decade. The Labour Party in opposition, led by Michael Foot and later Neil Kinnock, initially opposed privatization, but the party's commitment to nationalization had been abandoned by the time it swept back into government with a landslide in the 1997 election under Tony Blair.[35] However, in February 2008, Blair's successor Gordon Brown nationalized the failing Northern Rock bank in the first stages of the credit crunch which subsequently sparked a severe recession.[36] The much larger Royal Bank of Scotland and Halifax Bank of Scotland were part nationalized for the same reason in October of that year. After nearly four years in public ownership, Northern Rock was finally sold to Virgin Money and Royal Bank of Scotland agreed a branch sale to the Santander Group in November 2011. However, Royal Bank of Scotland and Lloyds remain in public ownership five years later and in November 2012 the Public Accounts Committee warned that it could be many years before the banks are sold and the £66billion so far invested in these banks may never be recovered.[37]

British assets nationalised by other countries

United States

  • 1917: All U.S. railroads were nationalized as the Railroad Administration during World War I as a wartime measure. The United States Railroad Administration was returned to private ownership in 1920.
  • 1939: Organization of the Tennessee Valley Authority entailed the nationalization of the facilities of the former Tennessee Electric Power Company.
  • 1971: The National Railroad Passenger Corporation (Amtrak) is a government-owned corporation created in 1971 for the express purpose of relieving American railroads of their legal obligation to provide inter-city passenger rail service. The (primarily) freight railroads had petitioned to abandon passenger service repeatedly in the decades leading up to Amtrak's formation.
  • 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 Northeast; 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.
  • 1980s: Resolution Trust Corporation seized control of hundreds of failed Savings & Loans.
  • 2001: In response to the September 11 attacks, the then-private airport security industry was nationalized and put under the authority of the Transportation Security Administration.
  • 2008: Some economists consider the U.S. government's takeover of the Federal Home Loan Mortgage Corporation and Federal National Mortgage Association to have been nationalization (or renationalization).[38][39] The conservatorship model used with Fannie Mae and Freddie Mac is looser and more temporary than nationalization.[40]
  • 2009: Some economists consider the U.S. government's actions through the Troubled Asset Relief Program with regards to Citigroup to have been a partial nationalization.[41] Proposal was made that banks like Citigroup be brought under a conservatorship model similar to Fannie Mae and Freddie Mac, that some of their "good assets" be dropped into newly created "good bank" subsidiaries (presumably under new management), and the remaining "bad assets" be left to be managed under the supervision of a conservatorship structure.[40] The U.S. government's actions with regard to General Motors in replacing the CEO with a government approved CEO is likewise being considered as nationalization.[42][43] On June 1, 2009, General Motors filed for bankruptcy, with the United States investing up to $50 billion and taking 60% ownership in the company. President Obama stated that the nationalization was temporary, saying, "We are acting as reluctant shareholders because that is the only way to help GM succeed"[44]

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 Chávez's nationalization drive.
  • 2008 On April 3, 2008, President Hugo Chávez ordered the nationalization of the cement industry.[45]
  • 2008 On April 9, 2008, Hugo Chávez ordered the nationalization of Venezuelan steel mill Sidor, in which Luxembourg-based Ternium currently holds a 60% stake. Sidor employees and the Government hold a 20% stake respectively.[46]
  • 2008 On August 19, 2008, Hugo Chávez ordered the take-over of a cement plant owned and operated by Cemex, an international cement producer. While shares of Cemex fell on the New York Stock Exchange, the cement plant comprises only about 5% of the company's business, and is not expected to adversely affect the company's ability to produce in other markets. Chávez has been looking to nationalize the concrete and steel industries of his country to meet home building and infrastructure goals.[47]
  • 2009 On February 28, 2009, Hugo Chávez ordered the army to take over all rice processing and packaging plants.[48]
  • 2010 On January 20, 2010, Hugo Chávez signed an ordinance to nationalize six supermarkets in Venezuela under the system of retail stores of a French company because of increasing price and speculation hoarding illicit.[49]
  • 2010 On June 24, 2010, Venezuela announced the intention to nationalize oil drilling rigs belonging to the U.S. company Helmerich & Payne.[50]
  • 2010 On October 25, 2010, Chávez announced that the government was nationalizing two U.S.-owned Owens-Illinois glass-manufacturing plants.[51]
  • 2010 On October 31, 2010, Venezuelan President Hugo Chávez said his government will take over the Sidetur steel manufacturing plant. Sidetur is owned by Vivencia, which had two mineral plants appropriated by the government in 2008.[51]

Vietnam

  • According to the Constitution of the Socialist Republic of Vietnam in 1980, the land ownership of farmers completely disappeared, the State owned land across the country and people have the right to temporary use of land, as a slow result of the Land reform in North Vietnam from 1953 to 1956.[52][53]
  • After the Fall of Saigon in 1975, the government nationalized nearly all the property of the "landlords" and "comprador" in South Vietnam, property of the church and of the government of South Vietnam. All private enterprise was nationalized without compensation down to the street vendors, however "shadow companies" continued to operate.

Zimbabwe

  • Zimbabwe has nationalized its food distribution infrastructure.

Other countries

See also

References

Bibliography

On banks nationalization

  • Dougherty, Carter, Stopping a Financial Crisis, the Swedish Way, The New York Times," September 23, 2008.
  • Hilferding, Rudolf (1981) ISBN 978-0-7100-0618-9
  • The Journal of Finance, vol. 57, No. 1 (February 2002), 265-301.
  • Monthly Review 28 September 2008
  • Lohr, Steve, From Japan's Slump in 1990s, Lessons for U.S., The New York Times, February 9, 2008.
  • Maxfield, Sylvia, The International Political Economy of Bank Nationalization: Mexico in Comparative Perspective, Latin American Research Review, Vol. 27, No. 1 (1992), pp. 75–103.
  • Myers, Margaret G., Political Science Quarterly, Vol. 64, No. 2 (June 1949), pp. 189–210.
  • Political / Nationalization risk resources directory [www.ipoliticalrisk.com]

External links

  • The importance of public banking - article on Indian public sector banks
  • Dollars & Sense magazine, January/February 2009
  • The Corporate Governance of Banks - a concise discussion of concepts and evidence
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