Question

Among the political risks, property seizure is a common risk for a business operating in a totalitarian nation.

Explain property seizure with examples?(100words)

Analyze the reasons why property seizure is common in totalitarian nation.(300 WORDS)

Answer 1

Governments sometimes seize the assets of companies doing business within their borders. Asset seizures fall into one of three categories: confiscation, expropriation, or nationalization. The forced transfer of assets from a company to the government without compensation is called confiscation. Usually the former owners have no legal basis for requesting compensation or the return of assets. The forced transfer of assets from a company to the government with compensation is called expropriation. The expropriating government normally determines the amount of compensation. There is no framework for legal appeal, and compensation is typically far below market value. Today, governments rarely resort to confiscation or expropriation because these acts can force companies to leave the nation and can jeopardize future investment in the country. Whereas expropriation involves one or several companies in an industry, nationalization means government takeover of an entire industry. Nationalization is more common than confiscation and expropriation. Likely candidates for nationalization include industries important to a nation's security and those that generate large revenues. In recent years, Venezuela's President Hugo Chavez nationalized that country's telephone, electricity, and oil industries and threatened to nationalize many more.

  Businesses from other countries reacted to these moves by not investing in Venezuela. In general, a government may nationalize an industry to:

1. Use subsidies to protect an industry for ideological reasons.

2. Save local jobs in an ailing industry to gain political clout.

3. Control industry profits so they cannot be transferred to low-tax-rate countries.

4. Invest in sectors, such as public utilities, that private companies cannot afford.

The extent of nationalization varies widely from country to country. Whereas the governments of Cuba, North Korea, and Vietnam control practically every industry, those of the United States and Canada own very few. Many countries, including France, Mexico, Poland, and India, try to strike a balance between government and private ownership. Property seizure is a risk in a totalitarian nation because totalitarianism is the belief that every aspect of people's lives must be controlled for a nation's political system to be effective.