In most countries, economic activity as a whole has two fundamental pillars: private initiative and state participation . As a general rule, there is a certain balance between one sector and another. However, in some political circumstances, it is proposed that the state assume a greater role, and when this happens, nationalization is referred to.
State control of private companies is known as nationalization or nationalization
In the socialist tradition and in some nationalist regimes, measures were put in place for the state to control certain sectors of the economy.
Nationalization is based on a fundamental idea: the general interests of a society cannot be in the hands of the private sectors. Those who promote nationalization claim that some economic sectors have a strategic value for a nation as a whole and, consequently, it is not acceptable for them to be in the hands of the particular interests of shareholders and investors.
As a general rule, private companies that end up being state-owned are those that are related to services that affect national interests: the energy sector , banking services, infrastructure, mining, tourism, communications, etc.
State ownership of production goods was put into operation under communist regimes throughout the 20th century. The final balance of nationalization has been negative, since the public sector does not manage resources effectively and is also unable to satisfy the needs of consumers.
The failure of public management in large sectors of the economy is due to a set of causes.
- – First, it generates a monopoly regime and this circumstance prevents business competition (in a competitive market, prices tend to fall and this circumstance favorably affects consumers).
- – Second, state control discourages technological innovation and private initiatives.
- – Thirdly, nationalizations put a brake on foreign investment.
The reverse side of nationalization
When ownership of a public service passes into private hands, privatization takes place. The need to privatize a sector of the economy is based on two fundamental reasons: to increase the economy’s competitiveness and to promote the reduction of the public sector in order to reduce the public debt.