The Economics of
Nationalisation
Executive Summary
Experience suggests
that governments tend to direct a greater percentage of revenues towards
consumption leaving a smaller proportion of capital to be reinvested for future
expansion of productive capacity.
Only a small portion
of the ruling faction and an even smaller portion of the electorate can benefit
from state control of enterprises.
Unemployment and low
wage rates are an indication that there is a need for more capital, more
economic flexibility, legal transparency, and improved education and skills.
None of these requirements are advanced by nationalisation.
Why nationalisation results in
disappointment
The successful
functioning of private mining companies results in constantly increasing
efficiencies, especially because they face competition from other mining
companies. When competition is removed through nationalisation, the very
information that allows competing private mining companies to value and
allocate resources efficiently is no longer available, placing managers of
monopoly state-owned enterprises at a disadvantage.
Government, due to
its collective nature, cannot manage the entire mining industry as efficiently
as competing private mining companies. No matter how large a private company
becomes, it is not integrated into the type of politicised, collective
decision-making structure that characterises government. Although a government
can divide its operations into semiautonomous enterprises, it can never match
the drive and creativity of the private company it replaces.
As state ownership
and control in an economy increases, the information available for the
efficient management of enterprises becomes distorted and declines, as does the
ability to respond to the needs of consumers. This, in turn, results in a
decrease in the productive capacity of the economy and its ability to satisfy
the needs of consumers.
Experience suggests
that the political context of state ownership will create incentives to
preserve employment in the state-owned enterprise even when productivity
declines and the enterprise suffers losses. In the event of persistent losses
the final solution available to government is to privatise.
