Nationalization

Nationalization, the taking over of private sector businesses by the public sector. The process is usually compulsory, and under international law a fair price (compensation) should be paid to the owner(s) of the private sector business that is being nationalized. In the past this has not stopped assets being seized by governments of the country in which they are located. Similarly, it has not stopped those whose assets have been nationalized from claiming that the compensation they have received is not fair.

A policy of nationalization is pursued because a government believes that it is in the national interest for at least certain economic activities to be controlled by the state. The spread of Communist rule after the Russian revolution and throughout the rest of Eastern Europe after World War II resulted in large-scale nationalization as a command economy was adopted in all countries that fell under the control of the Union of Soviet Socialist Republics (USSR). Other Communist-controlled countries as far apart as China and Cuba also adopted the principle of common ownership (or state control). In China land redistribution began in 1946 and by 1956 the process of wholesale nationalization was complete. In Cuba all foreign interests were nationalized in 1960.

The end of World War II also saw the growth of nationalization in Western Europe. In the 1945 general election in Great Britain the people rejected the Conservative party led by Winston Churchill, the hugely admired wartime leader, in favour of change. Under Clause IV of its constitution (drawn up in 1918) the newly elected Labour party under Clement Attlee was committed “to secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange and the best obtainable system of popular administration and control of each industry and service”. Thus, nationalization was a key plank of government policy. In 1946, the Bank of England, the coal industry and most hospitals were nationalized. In 1947 transport and electricity were brought under state control. Gas was nationalized in 1948 and iron and steel in 1949. After the Conservatives were returned to power, the iron and steel industry was denationalized in 1953, only to be renationalized by a new Labour government under Harold Wilson in 1967. Ten years later, under James Callaghan, Labour nationalized the aircraft and shipbuilding industries.

A similar shift from the private sector to the public sector took place during the post-war years in countries such as France and Italy. Further afield, governments resorted to nationalization in order to recover from foreign interests control over assets on their own territory. In 1956 Gamal Abdel Nasser, Egypt's new leader, nationalized the Suez Canal, thus provoking an invasion by British and French forces and their later ignominious withdrawal following a lack of support for their action from other countries, notably the United States.

By the end of the 1970s, however, the appeal of public ownership was fading. State-controlled industries were widely seen to be cumbersome and inefficiently run. Nowhere was this more true than in Communist-controlled countries. During the 1980s, led by Great Britain's Prime Minister Margaret Thatcher, a fashion developed for privatization, the selling off of state-controlled operations to the private sector. The collapse of communism throughout Eastern Europe at the end of the 1980s accelerated the process. The resulting shift from the public sector to the private sector is proving as remarkable as the earlier shift from the private sector to the public sector. All countries will of course continue to maintain a public sector but, for the foreseeable future at least, few, if any, will put the nationalization of further economic activities on their agenda. In Great Britain, the Labour party even did what had previously been unthinkable and in 1995 replaced Clause IV with a new text which did not commit the party to nationalization as a matter of policy.