Lesson 10  

Nationalisation & Privatisation

Privatisation of major government assets has featured prominently in recent national and international news.  In Australia’s case it involves argument over the disposal of the Federal government’s remaining 51% of the shares in Telstra.  Internationally it concerns the proposed sale of the Japanese Post Office, including its huge savings bank, the Giro [estimated net worth $3.2 trillion], which has apparently been the major issue in the current Japanese national elections.


In general terms, nationalisation is the act of taking property previously owned by individuals or other legal entities such as companies or municipalities into the ownership of the state.  Conversely privatisation is the act of transferring property previously owned by the state into the ownership of individuals or other legal entities.  In the case of a transfer to a municipality this is sometimes referred to as municipalisation.

The concept of property and its ownership can thus be seen as being at the core of both nationalisation and privatisation.  Whilst most people probably regard the concept of property as basic and privatisation and nationalisation as being fundamentally opposed, those who do not accept the validity of the concept of property itself, such as some socialists and anarchists, disagree.  They see little if any difference between claims of government or private ownership.

Monopolisation and nationalisation are closely linked.  Monopolisation, in a sense, is a form of nationalisation.  This is so regardless of whether the state conducts the resulting monopoly or permits private individuals to conduct it.  Rights are a form of property.  What has been nationalised or taken away in such case is the former right of others to conduct a competing enterprise within the sphere of what has been monopolised.


During most of the C20, nationalisation was a favoured and much-used governmental policy, contributing significantly to the general growth in the size of governments throughout the world.  The reasons for such nationalisation, not necessarily economic, were many and varied.

Reduce Inequality;  Major wealth producing assets, such as the ownership of vast landholdings, mineral deposits or water rights are capable of creating great inequalities of wealth.  This is particularly so if the asset can be seen as a natural monopoly.  Nationalisation enables this wealth to be earned and distributed for the good of all.

Stability and Security;  Industries and services considered essential such as utilities, hospitals etc should be exempt from commercial vagaries and their continued ongoing existence and operation ensured.  Since governments do not have to make a profit they are less likely to go out of business at short notice.

Economic Size & Efficiency;  By combining small private enterprises into a large, possibly monopolistic organisation, economies of scale can be achieved and a more competitive organisation created. Eg the recurring suggestion that the international sale and marketing function of Australian mineral and other primary producers should be conducted by a single governmental organisation to prevent local producers being played off against each other by overseas buyers.    

Government Power & Control;  Nationalisation or the threat thereof prevents non-government organisations becoming large or powerful enough to dominate or threaten governments.  Control of certain key industries such as post and communications, policing, defence and the media can be crucial in ensuring governments are unchallenged or remain in power. Eg Nationalisation of early postal services enabled governments to monitor and censor communications.

Commanding the Heights of the Economy;  Post WW2 the influence of Keynesian economists fostered the idea that the major or dominant industries of an economy should be in the hands of the government the better to enable it to direct, manage and control the macroeconomy.

Substitute for Welfare;  When major industries particularly those employing large numbers become bankrupt there is often a demand that the industry concerned should be taken over by the government.  Effectively this can be seen as an alternative to government welfare.

Nationalism;  Decolonisation of many former colonies left their major industries in many instances in the control of nationals of the former colonial power or other foreigners.  National pride demanded in many instances that this should cease as part of the assumption of local sovereignty.  That this reaction is not confined to former third world colonies can be observed in the reaction of the US government to the recent mooted takeover by a Chinese company of a major American oil company


In the last decades of the C20 the pendulum swung decisively away from nationalisation towards privatisation.   Again the reasons, not necessarily economic, were many and varied.

Create or Increase Competition;  Competition is the driving force of innovation and efficiency.  Government ownership of an industry inhibits or precludes competition.  This is particularly so if the government owned industry enjoys a monopoly but occurs even where competition is permitted.  This is because the government owned industry does not have to make a profit to stay in business and even if nominally in competition with private competitors enjoys various advantages which the private competitor cannot match, such as access to cheaper finance.  Eg  Whilst the ABC dominates serious radio it is difficult if not impossible for alternative sources to compete since the ABC is in effect giving away what private competitors would have to charge for.

Less Political Opprobrium;  over time the popular expectations of nationalised industries become unrealistic with people expecting more and more for less and less.  Shortfalls in income can require increased taxes to pay for them.  Poor performance and price increases cause political opprobrium which can be more easily deflected onto new private owners.  Politically it is easier to make reductions in staff numbers if such reductions are effected by private employers.


Comparisons are frequently made as to whether there has been an improvement in changes made by nationalisation or privatisation.  Regardless such comparisons are often of limited or no value since the comparisons are made from a partisan viewpoint or are based on different criteria.  Whilst it may be easy to determine if ones own position has improved or worsened, such viewpoints often fail to consider what likely would have been the result if the change had not been made.    


                   David Sharp

                        September 2005


Return to the Home Page