nationalization

See nationalize.

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▪ economic policy

      alteration or assumption of control or ownership of private property by the state. It is historically a more recent development than and differs in motive and degree from “expropriation” or “eminent domain,” which is the right of government to take property for particular public purposes (such as the construction of roads, reservoirs, or hospitals), normally accompanied by the payment of compensation. Nationalization has often accompanied the implementation of communist or socialist theories of government, as was the case in the transfer of industrial, banking, and insurance enterprises to the state in Russia after 1918 and the nationalization of the coal, electricity, gas, and transport industries in the United Kingdom and France between 1945 and 1950. More recently, a further impetus has been resentment of foreign control over industries upon which the state may be largely dependent, as in the nationalization of the oil industries in Mexico in 1938 and Iran in 1951, and in the nationalization of foreign businesses in Cuba in 1960. A third motive for recent nationalizations may be the belief in some developing countries that state control of various industrial operations is at least temporarily necessary because of the lack of a developed capital market or supply of entrepreneurs in the domestic private sector.

      Nationalization may occur through the transfer of a company's assets to the state or through the transfer of the share capital, leaving the company in existence to carry on its business under state control. Questions of international law normally arise only when the property is owned either by aliens or by companies in which aliens have a large shareholding interest. As a result of a number of diplomatic episodes and international arbitrations, it is acknowledged that isolated seizures of alien private property are lawful only if accompanied by the payment of fair compensation. Whether these precedents apply with equal force to large-scale nationalization has not yet been settled by any international tribunal.

      States whose nationals tend to be investors are placing increasing reliance upon specific treaty clauses providing for the protection of investments. The United States, in particular, since the end of World War II has entered into such treaties, coupled with clauses conferring compulsory jurisdiction upon the International Court of Justice. Insurance against nationalization is also offered by the U.S. government.

      Nationalization cases with particularly far-reaching consequences are those involving waterways and other transport passes. The nationalization of the Suez Canal Company in 1956 by Egypt is said to have resulted in the invasion of the canal zone by the French and British (coinciding with the invasion of the Sinai Peninsula by the Israelis), whose oil supplies depended in large measure upon access to the canal.

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