Nationalisation is the transfer of business ownership from the private sector to the public sector. In other words, the government or the state takes over business enterprises from private individuals or firms. The reasons for nationalisation may vary. The government may want to control key industries such as defence or prevent domination of the economy by foreign investors. It may also want citizens, irrespective of income level, to have access to essential services at subsidised rates, e,g, electricity, gas and water.
Advantages of nationalisation
Prevention of exploitation of consumers
The government may acquire private businesses in order to ensure that products are available at affordable prices for consumers. The private sector is driven by the profit motive and prices may be out of the reach of many citizens. In addition, there may be private monopolies that reduce output and increase prices in order to make a lot of profits. This could lead to the inability of many people to afford essential goods.
Avoidance of duplication and unhealthy rivalry
The existence of many private firms supplying the same product can lead to a high level of competition resulting in a waste of valuable resources. There will be competition in terms of advertisements, promotions, research and development. The government could use the resources for other projects or areas of priority in the economy.
In addition, the absence of rivalry will allow the government to enjoy cost savings from large-scale production since it is the only producer. This can benefit the consumers in form of lower prices.
Reduces negative production externalities
Private firms rarely care about the negative effects of their activities on the people and environment unless the government intervenes. Pollution in different forms endangers the lives of the people; the government ensures its activities do not greatly harm the environment and the people by taking into account external costs in its decision-making.
The interests of workers are protected
Although workers are important stakeholders, many private businesses seek only to maximise profit for the business owners. The workers’ welfare, as a result, may be often neglected. State-owned businesses are more concerned about the welfare of the workers since they are not profit-oriented. Staff welfare packages in nationalised industries may include housing, health insurance, training, tuition reimbursement and retirement benefits.
Nationalised industries provide job opportunities, unlike private businesses that usually embark on a cost-saving method of production in order to make more profit. Private investors may embark on automation and render a lot of people redundant. But the government’s considerations go beyond just economic reasons. In addition, workers enjoy job security in government-controlled businesses.
Availability of funding
Some businesses require huge financial resources which may be difficult for private businesses to obtain. Also, they may be relatively unattractive to many private investors owing to the fact that it may take a long time to recoup their investments. Government comes in to ensure finance is regularly available for such businesses.
Nationalised businesses produce revenue that can be used to finance government expenditure. This could reduce the budget deficit and national debt.
Disadvantages of nationalisation
Absence of competition may reduce choice and quality
The absence of competition makes it difficult to offer consumers a variety of products and better quality. A nationalised business lacks the incentive to innovate in order to offer improved and better product features to the customers as they enjoy monopoly power.
Higher cost due to lack of profit motive
State-owned firms seek to promote welfare rather than profit. Therefore, there will not be a determined effort to cut costs and achieve productive efficiency. This means that products could be too expensive than what private businesses could offer. Competition among private businesses could drive down the prices of goods.
The government appoints directors of these businesses based on political considerations but not on merit. If people without relevant experience and qualifications are appointed to run a business, there will be mismanagement of resources and wastage.
Political interference in decision making
Political interference slows down decision-making as there may be a need for approval from the government. Decisions may also be ineffective because they may be based on political considerations, not purely on economic reasons.
Negative attitude of workers
Workers often lack motivation because of government ownership. Their negative attitude to work reduces productivity and may be costly for the business.
They may find it difficult to lay off redundant workers which increases their labour costs. This makes it difficult to reduce losses and continued dependence on the government for financial support. Continuous support for a loss-making venture is bad for taxpayers who may be subjected to higher taxation.