Nationalization: Advantages and Disadvantages of Nationalization

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Nationalization: Advantages and Disadvantages of Nationalization


In economics, nationalization means the establishment of public ownership over the principal means of production. Nationalization implies that, on behalf of the nation, the government of the country owns and operates the productive system, and sometimes also the distributive system.

Nationalization is usually done in piecemeal. One after another, the important industries are brought under government ownership.

It is a step towards socialism which usually signifies a system in which all major productive enterprises have been nationalized.

Arguments for Nationalization

The demand for nationalization arose as a result of the excesses perpetrated by laissez-faire capitalism. The onward march of the capitalistic system of production in the 18th and the 19th centuries gave rise to a number of acute social and economic problems.

1. Inequality of wealth and income: The problem of inequality of wealth and income occupied the pride of place. In explaining root causes of this inequality, social thinkers could not but point to the defects of a system of production which was operated primarily on considerations of private profit. A system of private enterprise, it was pointed out, could run successfully only if private profits were large. Since opportunities of making large profits could be reaped only by a few, the system inevitably tended to create inequality. This original shortcoming was perpetuated and multiplied a hundredfold by the laws of property and inheritance. Thus, the system of private enterprise actuated by the profit motive came in for sharp criticism. Social reformers began to advocate the abolition, or at least partial modification of the present system. There was demand on all sides for State ownership of important industries, for appropriation of private profits by the State and for reduction of the existing inequalities.

2. Monopolistic stagnation: Gradually, other arguments were added to support the case for nationalization. As private industry lost its competitive character and developed all the symptoms of monopolistic stagnation people came to argue that individual self-interest was no longer adequate to ensure progressive increase in industrial efficiency. Monopoly was regarded as the greatest single barrier to innovation and improved methods of production. The solution of the impasse was sought in nationalization. Industries owned and managed by the State, it was argued, would never become so inefficient as those under private monopoly, since there would be no vested interests to oppose the introduction of new methods and new products. In the first flush of enthusiasm, nationalization was often regarded as synonymous with all-round increase in efficiency and industrial progress, though later experience has frequently been otherwise.

These arguments for nationalization are all based on considerations of social welfare.


The advantages of Nationalization is given below:

1. Safeguards the interests of Laborers: Nationalization also came to be regarded as holding the key to better relations between labor and management. Under private capitalism the managers are agents acting for a host of owners. They have therefore to oppose the demands of labor in every case to safeguard the owners’ interests and to keep their own position absolutely safe and clear. This would not be so under a system of nationalized industries, because the interests of the laborers would not be opposed to those of the managers. Both would act on behalf of the nation and get such rewards for their services as the nation is willing to pay.

2. Technical efficiency and lower cost of production: The managers, freed from their tutelage to the industrial overlords, would devote themselves entirely to improving technical efficiency and lowering the cost of production.

3. Cooperation and prosperity for all: The industrial world, under private capitalism, is torn as under by strife and discords. There are frequent stoppages of production or, at least, the quantity and quality of work have to suffer as a result of this bitterness. Nationalization would do away with industrial unrest and usher in a period of cooperation and prosperity for all.

4. Increased earnings of the State: Nationalization of some important industries would enable the State to earn large revenue easily and without any extra cost.

5. Control over prices of war supplies: During war, nationalization would help because the government could not be forced to pay exorbitant prices for war supplies by a handful of war profiteers.

6. Employment opportunities: In periods of unemployment, people could be given employment expanding the activities of the nationalized industries.

7. Economic and political growth: In short, nationalization would help the State to order the political and economic life of the nation more conveniently both in peace and in war. Without mastery over certain industries, at least, the government would be solely at the mercy of the economic lords. With nationalization the tables are turned and the State can dictate its own terms to those industrial magnates as are allowed to remain.


Nationalization was a slogan raised by these who were impressed by the wastes of private capitalism and wanted to introduce considerations of social welfare in the management of a nation’s economic affairs. The disadvantages of Nationalization is summarized below:

1. Lack of individual initiative: The men who shout these slogans do not always stop to consider if there can be any progress if individual initiative is stopped. Social philosophers have often pointed out that in a regime of nationalized industries, the spur of individual advancement will never be as powerful as it is today. Men will have a tendency to work in accordance with a dull routine rather than strike out a new path.

2. Lack of freedom: It is only when men can think and act freely as individuals that they can produce new ideas and make new inventions.

3. Lack of Spirit of competition: Then we must not forget that although modem industry is often dominated by monopolies, there is some rivalry among them and the spirit of competition is not entirely dead.

4. Rigid system: State ownership of industries may mean rigid routine and a dead uniformity.

5. Less intervention of public in economic affairs: Moreover, there is a danger in making the government the sole master of economic affairs. In private Capitalism the government can act as the balance-wheel; if any­thing goes wrong, we can look to the government for redress.

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