Privatization VS Nationalization

Nationalization is the process 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 transferred to the public sector to be operated
by or owned by the state. The opposite of nationalization is usually 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 or working class to allow for rational allocation of output, consolidation of
resources, 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 distributing output to benefit the public at large, and a means for providing
public finance.
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.
Since the nationalized 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 nationalization 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.
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. Much nationalization through expropriation have
come after revolutions.
When nationalizing a large business, the cost of compensation is so great that much legal nationalization
have happened when firms of national importance run close to bankruptcy and can be acquired by the
government for little or no money.
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.

Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or

public service from the public sector (the state or government) to the private sector (businesses that
operate for a private profit) or to private non-profit organizations. In a broader sense, privatization refers
to transfer of any government function to the private sector - including governmental functions like
revenue collection and law enforcement.
Literature reviews find that in competitive industries with well-informed consumers, privatization
consistently improves efficiency. Such efficiency gains mean a one-off increase in GDP, but through
improved incentives to innovate and reduce costs also tend to raise the rate of economic growth. The type
of industries to which this generally applies includes manufacturing and retailing. Although typically
there are social costs associated with these efficiency gains, many economists argue that these can be
dealt with by appropriate government support through redistribution and perhaps retraining.
In sectors that are natural monopolies or public services (such as, say, passenger rail in the United States),
the results of privatization are much more mixed, as a private monopoly behaves much the same as a
public one in liberal economic theory. The government is actually seen as a more natural provider of
public goods and services. However, the efficiency of an existing public sector operation can be put into
question requiring changes to be made. Changes may include, inter alia, the imposition of related reforms
such as greater transparency and accountability of management, an improved cost-benefit analysis,
improved internal controls, regulatory systems, and better financing, rather than privatization itself.