nationalization vs privatization

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  • 8/10/2019 Nationalization vs Privatization

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    Privatization VS Nationalization

    Nationalizationis 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. any socialists believe that public ownership

    enables people to exercise full democratic control over the means whereby they earn their living andprovides 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 andtransport services.

    "ince 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. #owever, 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 thetax 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. "ome nationalization take place when a

    government seizes property ac$uired illegally. %or example, the %rench government seized the car!makers&enault because its owners had collaborated with the Nazi occupiers of %rance.

    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. uch nationalization through expropriation have

    come after revolutions.

    (hen 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 ac$uired by thegovernment 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.

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    Privatizationis 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 thatoperate 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.

    +iterature reviews find that in competitive industries with well!informed consumers, privatization

    consistently improves efficiency. "uch efficiency gains mean a one!off increase in -, 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. lthough 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 /nited "tates*,

    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. #owever, the efficiency of an existing public sector operation can be put into$uestion re$uiring changes to be made. 0hanges may include, inter alia, the imposition of related reformssuch as greater transparency and accountability of management, an improved cost!benefit analysis,

    improved internal controls, regulatory systems, and better financing, rather than privatization itself.