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A decree of the French Revolution, assigning a convent to the army

Nationalization, also spelled nationalisation, is the act of taking an industry or assets into the public ownership of a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being state operated or owned by the state. 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 on behalf of the people to allow for rational allocation and operation, and rational planning or control of the economy. Many 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 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 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. 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

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.

Notable nationalizations by country

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Argentina

Australia

Bolivia

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

Canada

Channel Islands

Chile

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.[2] Only a minor amount, $1.3 million, was paid to U.S. interests before deteriorating relations ended all cooperation between the two governments.[2] 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

  • 1948-1990 All manufacturing enterprises.

Egypt

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

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.[3] 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)[3]
  • 1945 Several nationalizations in France, including most important banks and Renault.[3] 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 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

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.[4][5]

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[6]. Ireland's telephone networks were privatised in 1999.
  • 2009 On January 15, 2009, the Irish Government announced plans to nationalise Anglo Irish Bank in order to secure the bank's viability.

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

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

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 conrol of the properties.[7]
  • 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.

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.

New Zealand

  • 2001 Central government purchased the Auckland railway network from TranzRail.
  • 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 TranzRail. 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 as KiwiRail.

Pakistan

  • 1972 On January 2, 1972, 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.[8]

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.

Poland

Portugal

After the Carnation Revolution, the Junta de Salvação Nacional (temporary government) nationalized all the banking, insurance, petrol and industrial companies. Along with the telecommunications companies, which were state-owned even before the Revolution, all the nationalized companies were reprivatized.

2008: BPN - Banco Português de Negócios bank nationalised to prevent its collapse.

Romania

  • 1948 With the Decree 119 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.

Russia

  • 1998 The Yeltsin government began seizing Gazprom assets, claiming that the company owed back taxes. Privatization of Gazprom from the mid 1990's 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.

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 and many retailing enterprises.

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, in order 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.

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.[9]
  • 1992 A large part of Sweden's banking sector is nationalized.[10]

United Kingdom

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

British assets nationalised by other countries

United States

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, President Hugo Chavez ordered the nationalization of the cement industry.[26]
  • 2008 On April 9, 2008, Hugo Chavez 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.[27]
  • 2008 On August 19, 2008, Hugo Chavez 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. Chavez has been looking to nationalize the concrete and steel industries of his country to meet home building and infrastructure goals.[28]
  • 2009 On February 28, 2009, Hugo Chavez ordered the army to take over all rice processing and packaging plants. [29]

Zimbabwe

  • Zimbabwe has nationalized its food distribution infrastructure.

Other countries

See also

References

  1. ^ The Constitutional Centre of Western Australia | The Role of The High Court
  2. ^ a b Thomas, Hugh (March 1971). Cuba; the Pursuit of Freedom. New York: Harper & Row. pp. 224, p252. ISBN 0060142596.  
  3. ^ a b c Myers (1949)
  4. ^ PSU banks' policies saved India from financial blushes: Chidambaram
  5. ^ The importance of public banking
  6. ^ Eircom and State in broadband swap?
  7. ^ The Expropriation of the Petroleum Industry of Mexico in 1938
  8. ^ US Country Studies. "Zulfikar Ali Bhutto" (PHP). http://countrystudies.us/pakistan/20.htm. Retrieved 2006-11-07.  
  9. ^ A Historic Journey Luossavaara-Kiirunavaara Aktiebolag, April 2006
  10. ^ Stopping a Financial Crisis, the Swedish Way
  11. ^ BBC NEWS | Business | The lessons of nationalisation
  12. ^ http://www.historytoday.com/dt_main_allatonce.asp?gid=9859&g9859=x&g9857=x&g30026=x&g20991=x&g21010=x&g19965=x&g19963=x&amid=9859
  13. ^ SN 1825 -Nationalisation of the UK Coal Royalties, 1938 : Compensation Payments
  14. ^ http://www.uksteel.org.uk/history.htm
  15. ^ a b "What was the last nationalisation?", BBC News, 18 February 2008
  16. ^ House of Commons Hansard Written Answers for 12 Feb 2002 (pt 16)
  17. ^ BBC NEWS | Business | Northern Rock to be nationalised
  18. ^ HIGHLIGHTS-Britain nationalises Bradford & Bingley | Reuters
  19. ^ US rescue of Fannie, Freddie poses taxpayer risks
  20. ^ Diamond and Kashyap on the Recent Financial Upheavals
  21. ^ a b Baxter, Lawrence; Brown, Bill; Cox, Jim (February 27 2009), "Finally, A Bridge to Somewhere", Huffington Post, http://www.huffingtonpost.com/lawrence-baxter-bill-brown-and-james-cox/finally-a-bridge-to-somew_b_170688.html  
  22. ^ Nature of Citi stake debatable
  23. ^ Am I the Last Capitalist? Obama Falters on Rick Wagoner, GM, and the Auto Industry - Mary Kate Cary (usnews.com)
  24. ^ “If, in fact, Wagoner resigned because somebody in government said, ‘You have to resign,’ then I think we have nationalized the auto industry, at least GM, and I think that’s bad to have the government have a socialized car industry,” -Sen. Chuck Grassley (R-Iowa)
  25. ^ http://www.washingtonpost.com/wp-dyn/content/article/2009/06/01/AR2009060101480.html
  26. ^ Al Jazeera English - Americas - Chavez nationalises cement industry
  27. ^ Venezuela to nationalize steelmaker Sidor: union | Reuters
  28. ^ Venezuela Seizes Cemex - Forbes.com
  29. ^ BBC NEWS | Americas | Chavez sends army to rice plants

Bibliography

On banks nationalization

  • La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, Government Ownership of Banks, The Journal of Finance, vol. 57, No. 1 (Feb. 2002), 265-301.

External links


1911 encyclopedia

Up to date as of January 14, 2010

From LoveToKnow 1911

"NATIONALIZATION. - The fact that" Nationalization "had become in 1916-21 one of the burning political questions of the day is unfortunate as regards arriving at a clear appraisal of its principles, for, from the outset, it is difficult for a writer to avoid a certain bias in approaching its discussion. Yet Nationalization of some services and industries has been an accomplished fact for many years, without giving rise to any political controversy. In its narrow sense, Nationalization means taking over the ownership and control of an industry or service by the community, as opposed to ownership and control for the benefit of a person or a certain number of persons, be it in their individual capacity, or in corporate form in the shape of a company. The most familiar example of such a nationalized service in Great Britain and, indeed, practically every country is the Post Office.

The word Nationalization is, however, generally used to denote the principle of Public Ownership (to employ the much better term used throughout N. America) as opposed to that of private enterprise. For instance, in 1908, the three separate dock companies (one of them already an amalgamation of several companies) which owned and operated those undertakings in and around London were bought out, and ownership and management vested in a composite body known as the Port of London Authority, the Board of which is constituted as follows: seventeen members are elected by the payers of the dock dues; one by the wharfingers; four are selected by the Government (one representing Labour); two by the Corporation of the City of London, and two by the London County Council (one of them representing Labour). Strictly speaking, it would not be correct to say the Docks of London were" nationalized,"for the taxpayers and ratepayers of Northumberland, for instance, are not in any way directly concerned with the undertaking, but the exploitation or the carrying on of the enterprise of the Docks of London has been converted from a number of private undertakings directed to the earning of profits for a certain number of proprietors, into a public undertaking the primary function of which is to render to the town of London, and the region dependent thereon, services connected with the provision of dock accommodation and of the things accessory thereto. This is not really Nationalization, but it embodies the principle meant by ninety-nine people out of every hundred who use the word, viz.: Public Ownership, be such ownership vested in a national authority, a municipal body or an ad hoc authority like the Mersey Docks and Harbour Board or the Metropolitan Water Board. It is, therefore, with this interpretation of Nationalization that we shall deal in this article.

Table of contents

Relation to Socialism-

A word must be said as to the relationship of Nationalization to Socialism. The two are by no means identical and although the nationalization of the means of production, distribution and exchange has long been a Socialist shibboleth, many modern Socialists oppose Nationalization as being merely" State Capitalism,"a form of industry, they say, in which the workers might still be exploited for the benefit of those who control the national machine - probably the same governing classes as we now possess. The truth of the matter is that, although Nationalization is not Socialism, it is the most suitable economic machine whereby the aims of Socialism can be carried out, because, by eliminating the private entrepreneur and converting him into a rentier in receipt of fixed interest instead of being a participator in the profits, it removes one of the conflicting factors in industry, namely the owner, and reduces these factors to two, viz. the community in its dual capacity of owner and consumer, and all the workers in that industry.

It is the elimination of this private profit-making incentive which, in the minds of the advocates of Nationalization, is one of the principal arguments in its favour, and, in the minds of its opponents, is the chief argument against it. Nationalize industry, say the latter, and you do away with the desire of personal gain which is the dominant human motive leading to improvement, invention and efficiency; you stereotype existing conditions, you do away with competition and all the benefits arising therefrom, and you get wasteful management from a horde of Government officials who ride on the backs of the tax-payers.

Against this, the advocates of Nationalization urge that private enterprise, precisely because its dominant motive is personal gain, often fails to render the service that is its ostensible justification; it leads to adulteration, misdescription, and all sorts of chicanery, and while competition has its undoubted value as a stimulus to invention and new methods, our present system of industry does, of itself, run to amalgamations, absorptions and price agreements resulting in the abolition of real competition with its attendant advantages, so that we arrive at much the same result as if we had Nationalization, in the shape of monopoly, open or concealed, but with the profits arising from the elimination of real competition and the economies resulting from monopoly and unification going into the pockets of a small section of the community instead of being spread over the whole nation, either in the shape of a better or cheaper service, or both; and that, even if our present imperfect Governments result in too many officials, it is no worse for the community that a certain number of persons (officials) with their families should be enjoying a decent livelihood out of the industry than that a number of other persons (entrepreneurs and large shareholders) should derive fortunes from the same industry. Further, they allege that no system of private enterprise combined with Government regulation (the usual suggestion for meeting a tendency towards monopoly) will be satisfactory, as it results in just that multiplicity of officials of the most uneconomic nature, in that they do not produce anything, that is the bugbear of State control.

It is not for us to determine here which view is right; and the former, the anti-nationalization view, is certainly that expressed most frequently in the columns of the Press. Be this as it may, it is an undoubted fact that throughout the whole world - in the United Kingdom as well as elsewhere - the principle of public ownership, unpopular as it appeared to be in many quarters, was in 1921 steadily gaining ground, and it may be useful if we consider some of the developments in this direction and endeavour to find some guiding principles which account for its growth.

Factors making for Public Ownership. - Prominent among these is the fear of combination among suppliers of services leading up to a monopoly, open or concealed, which," human nature being what it is,"inevitably results, sooner or later, in excessive prices being charged to the consumer. When this occurs, or tends to occur, in the case of a service vital to most sections of the community, a Government, however hostile its individual members may be to further extensions of public ownership, finds itself compelled to make a public service of it. It may itself assume a monopoly of such service, as in the case of Italy and Uruguay, both of which countries, early in the present century, had nationalized life insurance and made of it a national monopoly; more frequently, however, a Government in such circumstances starts a State-owned and operated service in competition with existing services, with the view of setting a standard of services and conditions and preventing prices from mounting beyond a reasonable basis. Coming under this head are the Commonwealth of Australia shipping line, the New Zealand and Queensland State Insurance Departments, the hundreds of publicly owned grain elevators that are to be found throughout Canada, and, in the United Kingdom, the Imperial Cable Service.

The Commonwealth Government line of steamers (see also Shipping) was started by the purchase in 1919 by the Australian Prime Minister (Mr. Hughes) of the Strath Line of 13 steamships, and some other vessels. The Australian Government gave it to be understood that it established the line as a means to a special end, viz. the protection of the Australian shippers and public from possible adverse results of recent amalgamations of private shipping interests, and not with any idea of driving the shipping companies out of the field. One of the abuses against which the institution of a State-owned mercantile fleet was aimed was the rebate system adopted by some of the big shipping lines, whereby shippers who forwarded goods by any line outside the combine had to pay higher freights, these being charged in the first instance and a rebate allowed only, provided that the said line received all their cargo. In an official circular issued by the Manager of the Commonwealth Government line of steamers appeared the following passages:" It is not the wish of the Commonwealth Government Line to originate a rate war. The freights charged are those current in the Australian trade at the time of shipment. Equal rates are quoted to all shippers, large or small, private firms or Government Departments, and in the event of a reduction taking place while a steamer is loading all shippers will benefit by it alike.

"A cash discount of 5 per cent. off the net freight is given to shippers on payment of accounts. No primage is charged and no deferred rebate granted.. .. In the event of shippers taking advantage of the services of this Line, and being penalized therefor by the confiscation of accrued rebates by any Line through which they have shipped previously, the Commonwealth Government Line is prepared to guarantee them against such loss, if they will sign the annexed undertaking to give the Line the first offer of their future business." The Commonwealth Government actively continued the development of its shipping business, by the construction of 18 new steamers, with the result that in 1921 it had a fleet aggregating 444,000 tons.

The point that the principal aim of a State-owned competitive undertaking was to protect the public from overcharge, was brought out by the Lieutenant-Governor of Queensland at the opening of the Queensland Parliament in August 1920 when, referring to the State Insurance Department, he said: "While not intended to be revenue-producing, this office has since its inception shown a profit averaging over £60,000 per annum, and has at the same time saved many thousands of pounds to the insuring public.. .. Through the State entering into competition with fire insurance companies reductions in premiums ranging from 25 per cent. to 33 per cent. have been effected in favour of policy holders, which means approximately a saving of £20,000 to those who pay fire insurance premiums." In the case of the Imp rial cable which links the United Kingdom with Canada, West Indies and Australasia, the chief factor in building up a State-owned system was the value for political and defensive purposes of having a cable wholly under British control, and in its advertisements the Post Office boasted that "the Imperial Cable is Government owned and is the only Atlantic cable under purely British control." While the rates charged for ordinary telegrams were the same as for those sent by other Atlantic routes, the official advertisements stated: "It is the only Atlantic route on which the deferred service at reduced rates has been restored. A deferred telegram to Montreal and other places in Eastern Canada costs 4d. a word: to Jamaica Is. 3d. a word: to New Zealand Is. 4d. a word: to Australia Is. 6d. a word." Here we have the case of a nationalized service affording more facilities than its privately owned competitor.

Another motive for the provision by the State of a service hitherto performed by private enterprise is that of protecting persons against the dishonesty of individuals in the shape of malversation of trust funds. As in many similar directions, New Zealand was the pioneer in appointing a public trustee, but in 1908, despite active hostility on the part of the legal profession, such an office was opened in the United Kingdom.

Its purpose was described in the official pamphlet published by the Public Trustee Office as follows: "The Public Trustee Act, 1906, was passed with the express object of enabling the public to guard against the risks and inconveniences incidental to the employment of private individuals in trust matters, and it substitutes for them a trustee who will never die, never leave the country, and never become incapacitated, and whose responsibility is guaranteed by the Consolidated Fund of the United Kingdom." Extensive use was made of this nationalized service, which exists in competition with professional people and companies performing the same functions (see Public Trustee).

Yet another circumstance which drives State or municipal authorities into public ownership is the fact that certain public needs exist which are not filled by private enterprise on account of their not fulfilling the first condition of private enterprise, viz. profit. It is this incentive, rather than those already referred to as governing Australia's action in acquiring shipping, that caused Britain, the United States and Canada during the war to build and operate State-owned merchant fleets. With the disappearance of the emergency created by the war, the British Government rapidly disposed of its merchant ships to private owners, and its action in this respect was in 1921 apparently being followed by the United States Government.

For the same reason as that already mentioned, viz. the failure of private enterprise to supply the need, the national authority has in many countries had to arrange for the construction of houses and to let them at uneconomic rents.

Sometimes a Government finds itself compelled to nationalize an undertaking by reason of the fact that a privately owned concern of public utility fails financially and, if the State did not take it over, would become derelict. From this cause the Canadian Government has of late years found itself constrained to become the owner of the greater part of the railroads in the Dominion, the only other railroad owner of importance (but of very great importance) being the Canadian Pacific Railway Company. It requires no great stretch of imagination to picture the same development with the railways of the United Kingdom.

A perhaps less meritorious motive that causes many Governments to nationalize a service or industry is that of acquiring revenue thereby. When this occurs, the State undertaking is invariably made a monopoly, and is as much a means of indirect taxation as it is a business undertaking. Nationalized services of this description have hitherto been much rarer in the United Kingdom, as compared with other countries, although they are common enough in India and the British Crown Colonies. In India the working and sale of salt, in the Straits Settlements the sale of tin, and in many countries the manufacture and sale of tobacco in every shape and form are State monopolies, from which large profits are made or derived.

Services having to do primarily with the health and wellbeing of the whole community show a decided tendency towards public ownership. The sewerage systems of most countries are in the hands of public authorities, and in several departments of activity relating to the health and wellbeing of the community, one can see in operation throughout the world the transition stage from private to public ownership, both systems working side by side, but with an invariable tendency on the part of the publicly owned service to grow, not merely by the establishment of additional institutions, but by the absorption of privately owned undertakings. This process is steadily in operation in England in connexion with such services as asylums, hospitals, cemeteries and water-works, whilst education is rapidly being transformed from a private into a publicly owned industry. The growth of these public services is not confined in England to the provision of services imposed upon municipal authorities by law; for example, municipally owned lunatic asylums now make provision for private paying patients, and are made use of to an increasing extent, so that the private asylum is gradually dying out.

Another class of undertaking which is becoming more and more publicly owned is the service which is essential to the whole community or at least to most sections thereof. First and foremost comes the transmission of correspondence through the post-office, the most familiar form of nationalized undertaking. When one bears in mind the fact that the nationalized British post-office is the largest multiple shop concern in that country, having a branch in every village, it can readily be seen that such a network of Government shops lends itself most easily to an extension of duties. How convenient such a network of Government shops may be to meet a sudden emergency is shown by the duties placed upon the post-office at short or no notice during the war. When it was decided to collect from the nation magazines and books for distribution to the troops at the various fronts, it sufficed merely to notify the public that it could hand such publications over the counter at any post-office. In their capacity of Government shops, the post-offices of the United Kingdom, within 1908-21, had taken on additional work involved by the following new services: Payment of Old Age Pensions.

Payment of Army and Navy Allowances.

Sale and Encashment of Saving Certificates.

Sale of Government Loan Bonds.

Sale of National Health and Unemployment Stamps.

Sale of Entertainment Stamps.

Sale of Income Tax Stamps.

Nor are these new services all side-lines of small account; in hundreds of offices the actual sale of health and unemployment insurance stamps exceed the sale of postage stamps. With the increased tendency towards social legislation, there is little doubt that the services performed by means of the comprehensive post-office organization in every country will inevitably be extended still further. In the United Kingdom the Union of Post Office Workers had for some time before 1921 been carrying on an agitation for the provision of new facilities for the public which are in operation in other countries, such as the introduction of the postal cheque and transfer system, dispatch of parcels on the cash-on-delivery system, the collection of bills and subscriptions, etc. This agitation is worth noting by students of Nationalization, as indicative of fields of activity for trade unions composed of workers in a nationalized undertaking, additional to those concerned merely with their own betterment.

There are, however, other services which, being essential to all or most sections of the community, are gradually coming to be recognized as due to be transferred from the realm of private profit-making to that of public service. In most countries railway and canal transport are regarded as naturally falling within this category, and not a year passes without numerous water, gas and electricity undertakings in all parts of the world being transferred from companies to municipal bodies.

In the working out of the problem that has for some time been engaging the attention of engineers, of the most economical large-scale production and distribution of energy or power, the trend has been inevitably towards public ownership. The largest generator and distributor of hydro-electric power in the world was, in 1921, the Hydro-Electric Power Commission of Ontario, a publicly owned body formed on a cooperative basis by city and rural municipalities, through which the province of Ontario generated through hydro-electric energy over 95% of the total consumption of power within its borders from all sources. The Australian Government Morwell Power scheme will supply electricity to the greater part of Victoria, and in Sweden and Switzerland the respective Governments are developing electricity from water-power on a very large scale. In fact, throughout the world, almost all the great developments in this direction were in 1921 being carried out by, or on behalf of, Governments or municipal authorities, or combinations of both.

At first sight it might appear possible to draw a line of demarcation between these services which naturally fall within the sphere of public ownership and those which belong to the realm of private enterprise; but this is not so simple as it looks. It is easy to say that the community should carry on non-profitmaking undertakings like the roads, sewers and public conveniences, leaving all other services, out of which profits can be made, to private enterprise, which, with the aforesaid profit-making incentive, is likely to give more facilities and be more receptive to new ideas. But it is only custom which makes us regard the provision of a drainage system, the collection of refuse, etc., as a non-profit-making service. In Rosario, the second most populous city in the Argentine Republic, and in Valparaiso, the second largest city of Chile, the drains belong to, and are operated by, the Rosario Drainage Company, and the Valparaiso (Chile) Drainage Company, respectively, both English companies. In Paris and Brussels limited companies make the business of supplying public conveniences pay handsomely.

Another argument might be that, as water, gas, electricity and tramway services cannot be carried on without disturbance to the publicly owned roads and bridges, it is natural that these undertakings should be owned by the same authority as is responsible for the roads. This might explain the fact that, gradually, such undertakings are becoming nationalized or municipalized, but one is constrained to ask why the roads and bridges themselves should be publicly owned; they were not always so, and practically every municipality now makes a monetary loss on bridges which at one time, under private enterprise, produced good profits to their owners.

Many people would agree that services directly connected with the health of the community should be carried on as public undertakings without regard to profit, e.g. isolation and general hospitals, ambulance services, sewers, extinction of fires and saving of lives in connection therewith. But here again it is difficult to draw a definite line of demarcation. If sewers are vital to the health of a city, so also is a supply of pure milk; and the extension of public ownership along this direction is shown by the fact that the town of Sheffield, since November 1918, has municipalized its milk supply, and its example was in 1921 likely to be followed by other British cities.

State Leases

There is an intermediate form of Nationalization or public ownership which to a considerable extent bridges the gulf between those who consider that all services and industries vital to the community should be carried on by the community, and those who consider that Nationalization or public ownership leads to wasteful and bureaucratic methods and the disappearance of enterprise. This via media lies in the direction of the State or municipality owning an undertaking, but leasing it to a company under a concession for a fixed term of years, on a profitsharing basis. The State or municipality, as representing the community, has control or a deciding voice in matters of principle, conditions of labour, etc., whilst the concessionaire company has the customary incentive to commercial efficiency. At the end of the concession the State or municipality is free to take over a complete service that has been organized on a commercial basis, or to grant a fresh concession. This system is becoming increasingly popular throughout the world, and appears preferable to the composite bodies, composed of municipalities and joint-stock companies, hitherto favoured in England.

Nationalization of Industries

Detailed nationalization schemes for three separate industries in Great Britain had already been published by 1921, covering mines, railways and land respectively. That for mines was prepared in 1919 on behalf of the Miners' Federation of Great Britain, that for railways was prepared on behalf of the Railway Nationalization Society, and that for land was based upon an original draft made by the present writer for the Land Nationalization Society. The three schemes approximate more nearly to one another than might have been anticipated, having regard to the difference between the three services of coal mining, railway transport, and land ownership. Each provides for administration by a national council, appointed as to part by the Government and part by the workers engaged in the industry, with a Cabinet Minister at the head.

The miners' nationalization scheme (which covers coal and ironstone, shale, fire clay and limestone, but excludes sandstone, granite, slate, chalk, building clay, gravel and sand) provides for a National Mining Council consisting of a President and 20 members, 10 of whom are to be appointed by the Government, and 10 by the Miners' Federation.

The railway scheme provides for a National Transport Council consisting of the Minister for Transport, 3 persons nominated respectively by the Minister for Transport, the Board of Trade and the Treasury, and 3 representatives of the railway workers selected by the Transport Ministry from a panel of not less than 12 persons nominated annually for that purpose by the several committees of the 20 principal trade unions of which the membership is drawn wholly or in great part from persons engaged in the services of transport. This more complex method of providing for representatives of the workers in a nationalized transport system is due to the fact that, whilst practically all the workers in and about coal-mines are members of units making up the Miners' Federation of Great Britain, workers on the railways alone, apart from other branches of transport, are spread over a large number of trade unions. It will be further noticed that while the miners' scheme imposes upon the Minister for Mines ten members of the council definitely selected by the Miners' Federation, the railway scheme gives the Transport Minister some latitude of choice, by giving him powers of selection from a panel. This scheme not merely overcomes the difficulty of having to deal with a number of trade unions, but also enables the Minister to select as colleagues those on the panel with whom he considers he can best work, or who seem the most suitable.

In the case of land ownership - a totally distinct matter from the working of the land - there is no large body of workers which may justly claim representation on the management, and here representation of the various sectional interests has been aimed at by providing that the National Land Council should consist of the Minister for Lands; three members appointed by him, the Ministry of Health and the Ministry of Food respectively; one appointed by the Minister for Lands from a panel of not less than three persons nominated for the purpose by representatives of Farmers' Unions and Chambers of Agriculture; one appointed by the Minister from a panel of not less than three persons nominated by Associations of Smallholders and Allotment holders; and one appointed by the Minister from a panel of not less than three persons nominated by Agricultural Labourers' Unions.

In all three schemes provision is made for local or district councils, to which the National Council may delegate such powers as it thinks fit. The constitution of these district councils is analogous to that of the national councils, the proportion of workers' representation being the same, and in the case of the mines, provision is made also for the formation of councils for the separate pits. Members of all the councils are to receive such remuneration as the National Council, with the consent of the Treasury, may determine. The miners' scheme allows for the formation of a council to represent the interests of consumers, but such council has no executive powers and is purely advisory. In the case of the transport and land schemes no such provision is made, it being assumed that the members of the council nominated by the Government do, ipso facto, represent the general community, which in this case constitutes the consumer. Another nationalization scheme for the coal industry was sketched by Mr. Justice Sankey, the Chairman of the Coal Industries Commission, 1919. This scheme provides for national ownership and, like the miners' scheme, aims at avoiding too bureaucratic a management by handing over the administration to district councils. While, however, the miners' scheme makes the National Mining Council of which the Minister of Mines is a member, the supreme authority, the Sankey scheme leaves the Minister of Mines in supreme control, with the obligation to consult the standing committee of the Mining Council on certain questions. Whereas the composition of the joint bodies in the miners' scheme is dual, representation being divided between the Government and the miners, in the Sankey scheme, it is tripartite, one-third representing the workers, one-third the consumers and one-third the technical and commercial side of the industry; the Government is not represented at all on this body, but, as stated, the Minister of Mines is not obliged to carry out recommendations of the National Mining Council, although that body is to meet regularly "for the purpose of superintending the operation of District Mining Councils." All three schemes provide for compensation to the owners for the properties to be nationalized, and for payment to be made in Government stock bearing the rate of interest current at the time on that existing Government stock which most nearly approximates in length of time and conditions to the stock contemplated under the scheme. That is to say, if British Government 5% War Loan is quoted at a price at which it yields 51%, the stock issued in payment of the properties taken by the State is to be on the basis of 51% at par, it being immaterial from this point of view, whether in payment of a property worth boo, the owner receives boo of 52% stock or f rto of 5% stock. In deciding the amount to be paid for each property acquired, there arises the thorny question of the basis of value and compensation. The miners' scheme provides for the appointment of ten commissioners for this special purpose, three of them to be nominated by the Miners' Federation and three of them by the owners' organization, the Mining Association. If a majority of commissioners cannot agree as to the purchase price of any property, the chairman (appointed by the Government) shall have power to determine the value. A coal-mine is to be valued on the average actual annual number of tons actually raised during the five years prior to August 4 1914, due regard being paid to the actual gross and net profits during that period and to the amount set aside for depreciation, renewals or development, to the probable life of the mine, and to the condition in which it is. Where a mine has not been fully developed, the amount which would be raised under full development without any increase of capital expenditure is to be taken as the average annual number of tons. The scheme, however, fixes a maximum purchase price, viz.: - Per ton s. d.

When Ioo,000 tons or less have been raised per annum on the average during such five preceding years, a capital sum equal to one such year's output at. ... 12 0 When more than Ioo,000 tons have been raised per annum on the average during such five preceding years, a capital sum equal to one such year's output at. ... Io 0 In the case of the railway nationalization scheme, the purchase price is to be a sum equal to the mean between the highest and lowest officially quoted price of each stock during the first 12 of the 18 months preceding the introduction of the bill, the idea of a buffer of six months being to prevent prices being forced up on the basis of stock quotations being made known.

In a Railway Nationalization bill issued in 1921 by two of the trade unions representing the railway workers, and sponsored by the Labour party, the price to be paid differs from that contemplated in the Railway Nationalization Society's scheme, on which the Labour party bill was largely based, in that the mean quotation of each stock during the year 1913 shall be taken as the basis, but shall be "subject to a reduction relative to the amount by which securities generally have depreciated in value in consequence of the war." This agrees with the policy under which the three Government Committees appointed to report upon State control of the Drink Trade unanimously recommended state purchase on the following basis: "The profits to be so capitalized must be pre-war profits, and the effect of war conditions on profits whether favourable or the reverse, must be excluded." The draft railway nationalization bill referred to suggests that this reduction on the 1913 stock exchange value should be in the neighbourhood of 30%, even that being less than the fall that has occurred on other investment stocks of the same description.

The land nationalization scheme puts forward two alternative bases for purchase, viz.: (a) Twenty times the rateable value of the property as existing at Dec. 31 1918, and, where no rateable value exists, the value put upon the property by the land valuation of 1910; or (b) The value put upon the property by the valuation of 1910, and in any cases where such valuation shall not have been completed, it shall be valued on precisely analogous lines so as to make the value the same as if it had been fixed under the 1910 valuation.

In the case of the land being let on lease, the compensation is to be divided between the landowner and the leaseholder in proportions determined by an ad hoc tribunal.

The Government stocks to be issued in payment of the properties nationalized are all redeemable at par - in the case of the railway and land schemes by means of a sinking fund of 5%, sufficient to redeem the entire loan within approximately so years, while in the case of the miners' scheme, no statutory sinking fund is provided, but net profits are to be applied to that purpose. Each scheme provides for the drawing up of separate accounts, showing fully the results of the year's operations, to be submitted annually to Parliament and there discussed.

Management

There is no doubt that the principal problem in connection with Nationalization or Public Ownership lies in the direction of efficient management. The traditions of British Government Departments, which have been concerned primarily with the administration of legislative enactments and not with the management of trading concerns, is not conducive to efficiency as the business man understands it. This, however, applies more to national than to local government officials, the latter being in closer contact with the people for whom they act, and being more accustomed to act in an executive capacity. Mr. Justice Sankey in his Coal Industry Commission Report (Cmd 210), dated June 20 1919, wrote:- "The Civil Servant has not been trained to run an industry, but the war has demonstrated the potentiality of the existence of a new class of men (whether already in the service of the State or not) who are just as keen to serve the State as they are to serve a private employer and who have been shown to possess the qualities of courage in taking initiative necessary for the running of an industry.

" Hitherto, State management of industries has on balance failed to prove itself free from serious short-comings, but these shortcomings are largely due to the neglect of the State to train those who are to be called on for knowledge and ability in management.

"The experience of the last few years has, however, shown that it is not really difficult for the British nation to provide a class of administrative officers who combine the strongest sense of public duty with the greatest energy and capacity for initiative. Those who have this kind of training appear to be capable in a high degree of assuming responsibility and also of getting on with the men whom they have to direct." The need for a wider training and the creation of a new type of Government official to carry on publicly owned undertakings is now fully realized, and the newer universities and such institutions as the London School of Economics are turning out men and women suitably equipped in a technical sense to carry on such services as will be taken over by the community. Moreover, as each service is taken over, so is the existing staff who, themselves, naturally carry on to a great extent the traditions of the service whilst under ordinary commercial management.

In conclusion, it may be said that the immediate future trend of Nationalization or Public Ownership would appear to be in the direction of internal services of public utility or health, rather than industries calling for trading abroad, and while all prophecy is dangerous, a survey of world tendencies leads to the conclusion that those industries which will gradually come to be publicly owned, be it nationally or municipally, will be found among the following: transport, insurance, banking, coal and oil, electricity and power generally, housing, liquor trade, tobacco. Where such a service or industry has a large foreign trade, e.g. coal, it may well be that the State will grant a concession to a company to carry on that particular department of the industry on a profitsharing basis. Of the continued growth of the principle of public ownership there can be little doubt.

AuTIIoRITIEs

The three nationalization bills for Mines, Railways and Land are printed in extenso in The Case for Nationalisation, by A. Emil Davies (Allen & Unwin, 1920). See also the same author's The State in Business, 2nd edition (Bell, 1920), and the Nationalisation of Railways (Black, 1908), the Problem of Nationalisation by Lord Haldane (Allen & Unwin, 1921), Land Nationalisation - The Key to Social Reconstruction, by A. Emil Davies and Dorothy Evans (Parsons, 1921), Municipal Ownership, by Carl D. Thompson (B. W. Huebsch, New York, 1917). Nationalisation of Industries: a Criticism, by Lord Emmott (Unwin, 1920), Where and Why Public Ownership has Failed, by Yves Guyot (Macmillan, 1914), The Nationalisation Peril, by G. E. Raine (Butterworth, 1920). (A. E. D.)


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Simple English

Nationalization is when a business is owned and run by the government. If the government stops owning the business and it becomes controlled by citizens, this is called privatization.


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