How Nationalization Works

Nationalization is more common in countries that are still developing. That is because the government of these developing countries wants to own private companies that foreigners control. When nationalization happens, the original owners of the companies aren't always compensated.

Nationalization is one of the risks that foreigners have to take if they want to establish companies or industries in developing countries. This can become even riskier if the developing country has a poor economy that refuses to develop or an unstable political system. However, developed countries also practice nationalization by partnering with the owners of private companies, industries, or assets. Besides, developed countries that engage in nationalization do not practice democracy, and the leaders do not have a ruling duration.

Nationalization Example

In the United States, a reoccurring and popular example of nationalization is Medical care. Although not yet complete, the government is working towards nationalizing all forms of health care services within the country. Their goal is to ensure uniform services and standards at an affordable rate.

Nationalization vs. Privatization

Although nationalization and privatization are closely related, they are not the same. Privatization refers to the process whereby a company or asset owned by a government becomes owned by an individual or a private organization. This helps the government be more efficient while also saving money.

On the other hand, nationalization describes how the government controls a private organization, business, company, industry, or asset. In nationalization, the original owners are not compensated or sometimes are given little compensation for their organization or asset that the government has taken.

Significance of Nationalization

Nationalization has its place in policy and can be incredibly beneficial for countries who need help building an economy and providing stable services. Nationalization is also very important if a country's government is trying to regulate the economy, especially during war. For example, if a country is at war with another country, it can nationalize the other country's companies to reduce their income source.

Another critical reason for nationalization is to allow the government to stop exploiting its citizens by private companies. If a government realizes that a private organization is using its citizens, the government will try to stop it by nationalizing the company. Suppose the political relationship between one country and another is destroyed or one country doesn't have a good political relationship with another due to war and other socio-economic reasons. In that case, the country may nationalize the organization or assets of the other country.

Nationalization can also be a tool that a government can use to prevent the domination of the economy by foreign businesses or organizations. For example, if the American government decides to nationalize Chinese companies in America, this action will reduce the number of Chinese people in America. If there is competition between two or more private companies or organizations that offer the same services, the government may decide to step in by nationalizing these companies or organizations.