Nationalisation & privatisation

What is nationalisation?

The process of taking privately-controlled companies, industries, or assets and putting them under the control of the governmen

What are the aims of nationalisation?

To guarantee the production of key economic goods. 

To correct market failure (monopoly power). 

Exploit Economies of Scale

Why should key industries be nationalised?

Maintain market’s supply during demand deficit

To enable supply production of goods essential to the welfare of a state economy; British Rail (supply side benefits)

Prevent dependency on foreign countries; Russian oil

What determines if key industry?

Necessity good; water

Factor of production; steel

Argument for why we might not nationalise key industries?

Market failure occurring due to it being inefficient in free market.

What causes market failure?

Degree of monopoly power

Why should gov’t nationalise monopoly?

Private monopoly will under allocate due to pricing power.

Gov lack profit incentive so will be allocatively efficient.

Another benefit for nationalisation?

Ability to use EOS

Bc of high output, lowers AC, Lower AC leads to productive efficiency

However to EOS?

If high MES with limited demand nationalised EOS, dont make sense bc can’t have high output with the low demand

If theres 0 EOS, then will lead to DES, as there’s which lead to inefficiency, higher average costs and higher prices.

What type of monopolies should be nationalised?

Ones with natural high B/E as you can’t increase contestability

Disadvantages to nationalisation?

little incentive for productive efficiency; over hire

substantial economies of scale are not present, then nationalisation can lead to diseconomies of scale.

moral hazard

short sighted; aim for political gain/ wins

Counter to disadvantages?

Lack profit incentive; win’t pass on higher costs