What Is Nationalization?
Let me explain to you what nationalization really means. It's when a government steps in and takes control of a company or an entire industry, and this usually happens without paying the owners for the value of what they're losing, including future income. You see this action when a nation wants to consolidate its power, or there's resentment toward foreign owners controlling key parts of the local economy, or even to keep failing industries afloat.
Key Takeaways
- Nationalization is the process of taking privately-controlled companies, industries, or assets and putting them under the control of the government.
- Nationalization often happens in developing countries and can reflect a nation's desire to control assets or to assert its dominance over foreign-owned industries.
- Often, the companies or assets are taken over and little to no compensation is provided to the previous owners.
- Nationalization is different from privatization, in which government-run companies are moved into the private business sector.
Understanding Nationalization
I want you to understand that nationalization is more common in developing countries. On the flip side, privatization—where government operations shift to private hands—happens more in developed ones. For companies operating abroad, nationalization is a major risk because it could mean losing significant assets without any payout. This risk grows in places with shaky political leadership or economies that are stagnant or shrinking. The main result is that revenues go straight to the government's coffers instead of private operators who might send profits overseas with no local benefit.
Nationalization and Oil
Consider the oil industry, which has faced nationalization for decades. It started with Mexico in 1938, when they took assets from foreign producers like Royal Dutch and Standard Oil, leading to the creation of PEMEX, now one of the world's biggest oil producers. Then there's Iran in 1951, nationalizing Anglo-Iranian's assets, which threw their economy into chaos; Britain came back as a 50% partner a few years later, and the company became British Petroleum in 1954. More recently, in 2007, Venezuela seized Exxon Mobil’s Cerro Negro Project and other assets. Exxon sought $16.6 billion in compensation but got only about 10% of that from a World Bank panel in 2014.
Nationalization in the United States
In the United States, we've seen nationalization in a technical sense, often as bailouts where the government takes a controlling interest. Take the 2008 bailout of AIG or General Motors in 2009—these were forms of nationalization, but the government didn't exert much control. There was also the 1984 nationalization of the failing Continental Illinois Bank and Trust, which was sold to Bank of America in 1994. Most US nationalizations are temporary, but exceptions exist. Amtrak came under government ownership in 1971 after several railroads failed. And after the 9/11 attacks in 2001, airport security was nationalized under the Transportation Security Administration (TSA).
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