At the beginning of February 2010 the ANCYL president, Julius Malema announced that the ANCYL committee had created an inclusive angle on the nationalisation of the mines. He further called on government to modify the Minerals Act to include a clause that would force all mining companies to enter into co-operation with the state before they are granted mining licences.

Malema's actions have raised concerns amongst private companies; there are debates - locally and internationally - about nationalisation. Entrepreneurs are more interested on the concept of nationalisation, its benefits, and its drawbacks. Therefore, we are providing you with a brief summary on nationalisation.

What is nationalisation? 

Nationalisation is the act of taking over privately owned industries and services by the government. It is carried through for the purpose of social and economic balance and is generally, though not always, used as a principle of the Communist or Socialist theory of society.

Nationalisation began after World War II when the Eastern European Communist states nationalised all industries and agriculture. From 1945 to 1951, Great Britain ??"which was not Communist - nationalised a number of main industries, including coal, steel, and transportation. This practice is very common amongst communist countries where private ownership is opposed. Economic Expert (2010) signifies key benefits and drawbacks for private entrepreneurs:

Key benefits

• Nationalisation can help remove extreme imbalances of capital.
• Nationalisation reduces the ability of non-governmental organisations to challenge or influence a democratically elected government's power.
• By creating a publicly accountable control, nationalisation eliminates wasteful competition and transaction costs (e.g. instead of three companies producing the same thing resulting in duplication and inefficiency, one nationally-owned company can make the same product).
• A profitable nationalised industry contributes with its profits directly to the common wealth of the whole country, rather than to the wealth of a division of its population.
• Nationalised industries are guaranteed against bankruptcy and so can borrow money at lower interest rates to reflect the lower risk to the lender.
• Employees may be more inclined to view their work positively if it is directed by a management appointed by a government that they have a say in electing, rather than a management representing a shareholding minority.

Drawbacks

• Nationalisation may create government dominance in a sector that might otherwise be stimulated by competition.
• If the government is unable or reluctant to create a competitive nationalized industry, it will be forced to spend more and more tax revenue on that specific industry, at least until such industry improves.
• The government may be inefficient in running production, trading, or service operations; misallocating labour and capital, with consequent reductions in the standard of living and economic growth.
• Groups may object violently to losing their private assets, particularly in cases where the financial compensation, if any, paid to the former owners of a nationalised industry is less than the actual or perceived 'going rate'.
• Accountability to the market (i.e., consumer choices) may be reduced and there may be no alternative sources - and no catalysts for alternative sources - of goods or services that had better meet consumer preferences.
• Nationalised industries may be prone to interference from politicians for political or populist reasons. The industry may be over-staffed in order to reduce unemployment; it may be forced to conduct transactions or actions in certain areas in order to win local votes; it may be forced to manipulate its prices in order to control inflation, for example. (Of course, some of these measures may be considered positive rather than negative). Cited: Economic Experts, 2010.

Sources:

• Economicexpert
• Wikipedia
• Encyclopedia

Updated: 12 April 2010

 by Zanele Matshotyana