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Lesson Note

Subject: Economics

Topic: Nationalisation of Industries

Lesson Objectives: by the end of the lesson the learners should be able to;

  1. Define the term nationalisation;
  2. State the reasons for nationalisation;
  3. State the disadvantages of nationalisation.
  4. Define the terms commercialisation, privatization and joint ventures.
  5. State the reasons for commercialization and privatization.
  6. State the advantages and disadvantages of commercialization and privatization.
  7. Identify the disadvantages of commercialization and privatization.
  8. State the ways by which government can participate in a joint venture.

Nationalisation

Nationalisation is a deliberate policy by which government takes over the control and ownership of private enterprises due to economic, political, social or strategic reasons. In other words, nationalisation is the process by which the government takes over the ownership and management of an industry from private control, by bringing it under its exclusive control. Enterprises are brought under state control and ownership as a result of economic, political, social and strategic reasons. Nationalised industries exist to provide services; they are not profit oriented.

Reasons for Nationalisation

i. For strategic reasons: Government can take over the ownership and control of an enterprise for strategic reasons like security, defence and politics.
ii. To prevent exploitation: Nationalisation of enterprises can take place in order to prevent Monopolistic exploitation of the citizens.
iii. Political reason: Break in diplomatically relations between two countries can necessitate nationalisation. Political differences can encourage retaliatory measures being taken against each other, e.g America and Iraq at the instance of the Gulf War.
iv. To avoid foreign dominance of the economy: Government can also take over some companies in order to prevent dominance of the economy by foreigners.
v. Need for large capital: For an industry to perform effectively and efficiently, it may need large capital which can only be provided by the government.
vi. To prevent wasteful competition: In order to prevent wasteful competition among companies, especially service companies, government can come in and take over ownership and management of such companies.
Advantages of nationalisation
i. Helps to check exploitation: Nationalisation of an industry helps to check exploitation by foreign businessmen.
ii. Ensures steady supply of essential services: It ensures the provision and steady supply of essential services.
iii. Elimination of waste: Nationalisation helps to prevent and eliminate wasteful competition.
iv. Encourages efficient use of resources: It encourages more efficient use of economic resources.
v. Protection of strategic industries: It helps to protect and develop key strategic industries which cannot be left in private hands.
vi. Elimination of monopoly: Another advantage is that it eliminates monopoly by private businessmen.

Disadvantages of Nationalisation

i. Prevention of private initiatives: Private initiatives can be destroyed when government takes over all or few industries.
ii. Low productivity and inefficiency: Lack of competition can encourage low productivity and inefficiency.
iii. Consumers can be exploited: By nationalising an enterprise, government may arrogate to itself Monopolistic power which can be used to exploit the consumers, e.g N.E.P.A
iv. Corruption and mismanagement: Most nationalised industries are not efficiently managed because of corruption and ineptitude.
v. Resources can be misallocated: The resources of the country can be misallocated as a result of political interference.

Commercialisation And Privatisation of Industries

Commercialisation is a policy geared towards making state-owned enterprises to become more efficient and profit-oriented. The policy makes it possible for public enterprises to become more viable and effective.
Privatisation on the other hand is a policy designed to enable individuals and private or corporate organisations take over the ownership and control of government businesses such as public companies and corporations.

Reasons for commercialisation and Privatisation of Industries

i. Efficient management: Commercialisation and Privatisation help to develop good and efficient management of enterprises.
ii. Participation of private individuals: They also assist individuals to participate in economic activities through ownership of enterprise.
iii. To generate more revenue: They assist the government to generate more revenue.
iv. Autonomy of enterprises: It helps to provide autonomy for the enterprises.
v. Removal of unproductive enterprises: They also assist to remove or disinvest from unproductive enterprises in the economy.

Advantages of Commercialisation and Privatisation

i. Reduction in public expenditure: Commercialisation and Privatisation help in reducing public expenditure on enterprises that are not viable.
ii. It promotes efficiency: It helps to promote efficiency in production.
iii. Generation of more revenue: Both policies equally help to boost the production of revenue for the government.
iv. Emergence of innovation: The existence of competition in the industries assists in the emergence of innovation.
v. Better choice by consumers: Both policies do assist the consumers to have a wide range of choice where there are abundant products.

Disadvantages of Commercialisation and Privatisation

i. Poor standard of living: Commercialisation and Privatisation lead to poor standard of living of the people due to a shift in interest from pure service delivery to profit maximisation.
ii. High cost of products: These policies are aimed at profit maximisation hence they are usually associated with high cost of products or goods.
iii. Reduction in employment: Many workers are usually laid off when industries are commercialised or privatised.
iv. Uneven distribution of income: Income is often unevenly distributed as few individuals are now in control of the industries.
v. Loss of consumers’ welfare scheme: Under Commercialisation and privatisation, consumers’ welfare are not catered for.

Joint Ventures

Joint ventures refer to those businesses in which private investors and governments are in partnership.
In other words, these are ventures which are set up by government in collaboration with private firms. One of the major purposes of setting up a joint venture is to combine some of the advantages of government and private ownership and reduce the problems of complete government or private ownership. It also eliminates the inefficiency associated with public corporations.
Government can participate in joint venture with private firms in various ways. Some of the ways include:
i. Acquisition of part of the ownership of an already existing company.
ii. Government may provide a larger portion of the capital required to set up such a venture.
iii. Government may provide the basic infrastructure e.g electricity, water, telephone services etc.
iv. Government may purchase a larger portion of the shares of the joint ventures.
Joint ventures are common in car assemblies, cement manufacturing, mineral exploration and production etc.

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Take a quick test for this lesson

  1. What is nationalisation?
  2. State the reasons for nationalisation.
  3. State the disadvantages of nationalisation.
  4. Define the terms commercialisation, privatization and joint ventures.
  5. State the reasons for commercialization and privatization.
  6. State the advantages and disadvantages of commercialization and privatization.
  7. Identify the disadvantages of commercialization and privatization.
  8. State the ways by which government can participate in a joint venture.

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