Question

Find a current example of a country that is undergoing 1) privatization of a formerly nationalized industry and a country that is undergoing 2) nationalization of a formerly privatized industry. What are the reasons for the change? Do you agree with the underlying policies? Why?

Answer 1

Answer: Privatization can refer to the act of transferring ownership of specified property or business operations from a government organization to a privately owned entity, as well as the transition of ownership from a publicly traded, or owned, company to a privately owned company. For a company to be considered privately owned, it cannot secure funding through public trades on a stock exchange. After reaching all-time high levels in 1990s, privatisation in OECD countries remained at high levels in the beginning of the 21st century. State assets worth close to USD 500 billion were sold in the 8 years from 2000 to 2007. At the same time, it appears that we have entered a “new privatisation landscape”. The block sales of individual enterprises already in competitive sectors are, in most countries, a thing of the past. Continued privatisation has taken place in more complex sectors such as the network industries, where companies are too large and too heavily regulated to be swiftly transferred.

Example of countries that are undergoing privatization of a formerly nationalized industry are Central and Eastern Europe . Behind the overall trends in privatisation since 2000 there are several driving forces. One of these is the fact that the large privatisation programmes of the formerly communist countries in Central and Eastern Europe are either nearing completion or, at least, entering into a more mature phase. The privatisation data reviewed were dominated by the transition process of these economies, but five years on these countries no longer figure prominently. In fact, among them only Hungary has undertaken large privatisation transactions since 2005.

REASONS OF PRIVATISATION

Recent years have, however, seen a number of “hard nut” privatisation cases, in which governments were caught between the fiscal burdens of subsidising financially unviable SOEs and, at the same time, strong public and employee resistance to either a restructuring or sell-off of the enterprise. Often the outcome was to let the SOE operate until it was essentially bankrupt. At this point, when the financial distress of the enterprise had become obvious to all involved, a strategic (in some cases foreign) investor was invited to buy a significant stake in the SOE for a limited sum and ensure the continued operation of the enterprise, or acquire some of the most valuable elements of its value chain. The efforts to privatise Alitalia and Olympic Airways in 2008 arguably fall in this category.

Yes, the underlying policies taken were the best option as In “the new privatisation landscape” privatisation may increasingly imply a partial opening of SOEs? capital to outside investors with purposes such as raising the efficiency of an essentially government-controlled entity by subjecting it to the rigours of stock market listing and enhancing its financial flexibility by opening new alleys for raising fresh capital. A further illustration of this point may be the fact that, while the recovery in stock prices led to a jump in privatisation activity in the years up to 2005, the continued increases in 2006 and 2007 did mostly not lead to additional secondary offerings despite the fact that most of the governments concerned had “plenty left to sell”.

(2) Nationalization is the process of transforming private assets into public assets by bringing them under the public ownership of a national government or state.^[1] Nationalization usually refers to private assets or assets owned by lower levels of government, such municipalities, being transferred to the state. Industries that are usually subject to nationalization include transport, communications, energy, banking and natural resources. Nationalization may occur with or without compensation to the former owners. Example of a country that is undergoing nationalization of a formerly privatized industry is Bolivia.

• 2006 On May 1, 2006, newly elected Bolivian president Evo Morales announced plans to nationalize the country's natural gas industry; foreign-based companies were given six months to renegotiate their existing contracts.
• 2008 On May 1, 2008, the nationalization of Bolivia's leading telecommunications company Entelwas completed, previously having been owned by Telecom Italia.
• 2010 On May 1, 2010, the government nationalized the country's main hydroelectric plant, thereby assuming control over most of Bolivia's electrical generation and end-user sales.
• 2012 On May 1, 2012, the Morales government nationalized power grid operator Transportadora de Electricidad (TDE), until then 99.94% owned by Red Eléctrica de España. TDE owns and runs 73% of the power lines in Bolivia.

Nationalization was one of the major mechanisms advocated by reformist socialists and social democrats for gradually transitioning to socialism. In this context, the goals of nationalization were to dispossess large capitalists, redirect the profits of industry to the public purse and establish some form of workers' self-management as a precursor to the establishment of a socialist economic system. Reasons and policies behind naionalisation were that since nationalized industries are state owned, the government is responsible for meeting any debts. The nationalized industries do not normally borrow from the domestic market other than for short-term borrowing. If they are profitable, the profit is often used to finance other state services, such as social programs and government research, which can help lower the tax burden.