Nationalization has been at the heart of economics and has been studied by various economists in the world. Nationalization is a legal process of confiscating organization, firm or an industry by the federal government for numerous reasons. The most dreadful part is experienced by the former owners as government barely compensates their loss in the entire scenario of cutting down their ownership from the root.
Even the potential income is not rewarded as ‘nationalization’ snatches the whole infrastructure with new policies and leadership accordingly. This practice comes into action when a country enters the developing stage and a need for regime changing becomes mandatory.
Effect of Nationalization:
Moreover, some economists have observed that ‘nationalization’ harbors the unsuccessful companies and business units in building economic stability. It is worth mentioning that the opposite of ‘nationalization’ is ‘privatization’, it’s when government-owned institutes and organization are legally privatized to open doors for employment opportunities and better results.
Advantages of Nationalization
It would be appropriate to state that through nationalization, we can control monopolies and illegality in the market, as it helps in overcoming economic powers from double-crossers in the business field, failing to deliver what the company had expected from them. The government takes charge and invests money to enliven the prosperity of the industries as well as companies and safeguards the property.
Benefit from Economies of Scale
Nationalization benefit from economies of scale (Bigger is better) which means that the prices to consumers is relatively lower than if we had a number of small firms.
Monopoly Environment
A monopoly owned, run and controlled by the government will stop the consumers being exploited.
Industries Controlled by Government
The government can manage the economy by controlling the important industries. The government can invest money and make their service more efficient.
Profitable for people
Companies owned and run by the people for the people take social costs (pollution etc.) into account and the profit goes back to the people.
Disadvantages of Nationalization
It has been observed that in various countries, the corruption excessively increased as ‘nationalization’ occurred through the hands of government officials. The production level went drastically down and this raised questions in the minds of the economists. Therefore, it completely depends on the legitimacy of the government workers as well as federal services to propel industries and nationalized companies to another level. It is worth mentioning that in ‘Asia’, many industries were labeled as ‘sick industries’ as the production level fell excessively with major loss.
Low performance
When the ownership is in public sector, the employs do not work for profit and do not there performance and efficiency of the employs remains poor.
Lack of competition
Competition is necessary for development and increasing the production. Nationalization has decreased the spirit of competition.
Favoritism
The management of nationalize will provide jobs to there favored persons because the political leaders have influence upon the state authorities.