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Nationalization

Updated on August 4, 2022 , 2476 views

What is Nationalization?

Nationalization meaning is defined as the action taken by the state government to take ownership of private companies. Here, the government does not compensate for the losses the company has to endure as the state seizes all the assets and belongings of the company. In other words, nationalization happens when the state acquires a corporation without paying for the resources and total assets it has seized.

Nationalization isn’t seen as a kind practice. The investors rather consider it a theft since they are the ones to lose all the assets and resources without getting compensation.

Nationalization

However, the main reason why government seizes the corporations is that they want to control the high prices of the products and services the company sells. Another reason the state can take control of the corporation is to control the high expenses associated with the production, advertisement, and transportation of the products. In fact, it is seen as a way for the government to get power. The other common reasons for nationalizations are:

  • To gain power over the company
  • To support the local businesses by seizing the companies owned and operated by foreigners
  • To control the unusual expenses

Privatization and Nationalization

Privatization is the opposite of nationalization. The former focuses on giving power to the private industries. Privatization occurs when the private company takes control of the government-owned business or a public company. This mainly happens when the company does not have adequate resources and access to the technology to run the business.

Privatization is quite common in developed countries. One of the major disadvantages of establishing your business in a foreign country is the risk of nationalization. That’s because the government has the right to seize any number of assets, resources, and even the entire corporation without compensating the owner and investors. The risk is higher in nations with unstable or inappropriate political powers.

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Examples of Nationalization

When the state decided to nationalize a corporation, all the revenues and assets of the company will be seized by the government. A common example of nationalization is the oil industry. Many oil companies that were established in the international countries were seized by the local government in the past. For instance, Mexico took control over the oil companies that were established by the foreigners. The country seized all the assets of these foreign oil firms and launched PEMEX, which became one of the leading oil producers and suppliers in the world.

Many international corporations in the United States have been seized by the American government. The states nationalized AIG in 2008. A year later, they nationalized General Motor Companies. However, the government exercised only a little power over these organizations. While many countries nationalize international companies and other local businesses to gain power, some nations use this approach to control rising Inflation due to the expensive production and transportation processes. The amount of control the states enjoy after nationalization can vary depending on the size of the corporation.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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