Cambridge Notes, Past Papers, Revision Questions

Mixed Economic System – Nationalisation

Definition

Nationalisation is the process by which a government takes ownership and control of private enterprises or assets, converting them into public (state‑owned) entities.

Why Governments Nationalise

To protect strategic industries (e.g., utilities, transport, defence).

To correct market failures such as monopolies or under‑investment.

To ensure that essential services are provided affordably.

To redistribute wealth and promote social welfare.

Advantages of Nationalisation

Advantage	Explanation
Ensures universal access	State ownership can guarantee that essential services (water, electricity, health) are available to all citizens, regardless of profit motives.
Control over strategic sectors	Governments can safeguard national security and economic stability by directing key industries.
Reduces profit‑driven price rises	Public enterprises are not required to maximise profit, so prices can be kept lower for consumers.
Redistribution of surplus	Profits generated can be reinvested in public services or used to fund social programmes.
Corrects market failures	State intervention can address externalities, information asymmetry, and monopolistic behaviour.

Disadvantages of Nationalisation

Disadvantage	Explanation
Potential inefficiency	Without competition, state‑run firms may lack incentives to cut costs or innovate.
Fiscal burden	Compensating former owners and covering operating losses can strain public finances.
Political interference	Decisions may be driven by short‑term political goals rather than economic efficiency.
Reduced consumer choice	Nationalisation can limit the variety of products and services available.
Risk of corruption	Large public enterprises can become venues for patronage and mismanagement.

Evaluation – When is Nationalisation Most Appropriate?

When the industry provides a public good or essential service that the private sector fails to supply adequately.

When there is a natural monopoly and regulation is insufficient to protect consumers.

When strategic considerations (security, sovereignty) outweigh profit motives.

When the government has the capacity to manage the enterprise efficiently and transparently.

Suggested diagram: Flowchart showing the decision‑making process for nationalising an industry (criteria → analysis → decision → outcomes).

Key Points to Remember

Nationalisation transfers ownership from private to public hands.

It aims to correct market failures and ensure equitable access.

Advantages centre on social welfare and strategic control; disadvantages focus on efficiency, cost, and political risks.

The success of nationalisation depends on effective management, clear objectives, and accountability mechanisms.

Definitions, advantages and disadvantages of nationalisation