Cambridge International as and a level Economics Ebook

Nationalisation and privatisation
Nationalisation 
is the process by which governments 
take a private business into public ownership. In the UK, 
the period 1947–51 saw the extensive nationalisation of 
transport, fuel, power and the iron and steel industries. 
Some manufacturing businesses – such as shipbuilding, 
aerospace, vehicle production and sugar beet processing – 
followed this trend. Many countries in the world have 
nationalised their railways, airlines, mining, electricity 
and water industries as well as, more recently, banks and 
fi nancial services.
Nationalisation: 
when governments take over a private 
sector business and transfer it to the public sector.
KEY TERM
The case for nationalisation
Th
ere are some very relevant economic arguments to 
support nationalisation. Th
ese include:
■
It makes sense for certain strategic services and activities 
to be in the hands of the public sector. This is particularly 
true of railways, bus services, airports and electrical and 
water supplies.
■
There is also a long-standing socialist view that such 
services are for the benefit of the public and should 
therefore be in the public sector.
■
There is little sense in duplicating certain services like 
railways and water supplies, largely because of the high 
costs of establishing that provision.
■
Any profits made will be returned to the business and 
reinvested for the benefit of the public.
■
Employees feel a sense of ownership and work hard to 
ensure financial viability.
■
Nationalised industries will be more likely to provide 
loss-making services for social reasons.
Th
ese are powerful arguments that have been accepted 
and applied in many economies. Nationalisation takes 
the activity outside the market mechanism. Decisions on 
prices, the scale of operation and investment are taken by 
bodies set up by, and responsible to, governments.
Nationalisation in Pakistan has been eventful. In 
1972, the government nationalised all major metal 
industries, heavy engineering, electrical goods, vehicle 
manufacturing, petrochemicals, cement and public utilities 
in a major change of economic policy. Banks, insurance, 
food and cotton processing followed two years later. It 
is commonly believed that this sudden and extensive 
programme had an adverse eff ect on business investment, 
both by local entrepreneurs and outside companies. 
Privatisation followed earlier this century. In 2011, 
however, due to ailing fi nances, steel, railways and the 
national airline, PIA, were nationalised. Elsewhere, as 
in the UK banking system, governments have had no 
alternative other than nationalisation as a response to the 
US-induced global fi nancial crisis from 2008.