The South African Civil Society Information Service

To Nationalize or Not

By Saliem Fakir · 17 Jul 2009

Julius Malema may have been asked to put the cat amongst the pigeons to test the national waters on the question of the nationalisation of our mines and the general role of a more interventionist state in the national economy.

Since then, there has been a lot of rhetoric going to and fro. Some arguing that nationalisation will lead to disinvestment and job losses. 

Fingers have been pointed at the state's incapacity to manage some of its own prized state enterprises, such as the SABC, SAA, the Land Bank, Denel and others in an effort to demonstrate that the state has no competency in managing a nationalised asset.

There is some truth in this. But does it suggest that there's no merit in the idea of nationalisation?  

Most recently private players have also been found wanting. 

Think of all the investigations by the Competition Commission into price-fixing of bread, the accusations that banks are over-charging, recent revelations about SASOL's dirty business dealings and then the whole saga around food costs and the role of retailers.

Where the public sector seems inapt at managing state assets the private sector seems very apt at using market advantage to squeeze every rand out of the South African consumer.

If there is bad faith, than we should look at both ends of the public and private spectrum. There is nothing sacrosanct about both the private and the public. It all depends on how they perform in promoting the general wellbeing and social progress.

Failures are possible on account of the actions of both. Inefficiencies and waste are not limited to public institutions only.

Economic progress is also not an evolutionary path, as if one set of policies should be so unchangeable that we may endanger something preordained. Circumstances change, so the need for policy reform.

In the 1870s Germany realised this when it woke from a period of economic liberalism, boom and then bust to the state then having to take a more interventionist role within the economy. Germany had to save itself. Ideology had to give way to reality.

Germany became distinctly and assertively state corporatist in its outlook. It maintained a market economy. It is just that it involved, this time round, greater state intervention.

German laws were changed and state cartels were allowed to flourish. Cartels served political and military ends and they dominated the heavy industries and chemical sector. Most importantly, they were important sources of intelligence on how the economy worked, which was fed back to the state.

Germany moved from free trade to protectionist policies, this, despite Bismarck being a free trader initially. Germany did other things. It changed from a competitive ethos to a co-operative ethos and corporative self-help was replaced by organized self-help.

In other words, it changed the culture of economic relations between different economic participants. It made the market subservient to the national interest. The introduction of cartels was an attempt to tame the ruinous effects of unregulated competition. The German government sought to bring order where market anarchy prevailed.

In essence, German's current economic system has pretty much remained intact since reforms were introduced from 1873 onwards. Dr. O.M. Hartwich of the Centre for Independent Studies, a leading public policy think-tank in Australia and New Zealand writes:

"Although Germany had been practising a variant of a market economy, it had never had a purely liberal economic order. Even where liberal reforms had been implemented in Germany, the stimulus usually came from above, that is from the political and bureaucratic elite."

Returning to the discussion back home. In all these spurts of back and forth heckling, there is rarely a sober discussion about whether nationalisation can be helpful or not. There are also other elements missing from the conversation.

What is missing from this debate is that nationalisation may just as well replace private capitalism for state capitalism.

Without clear developmental goals attached to the state’s involvement in the economy, we may well be no better or even worse off than the free hand given to the private sector.

State accumulation versus private accumulation as an end in itself may or may not always be a good thing. It all depends on who the beneficiaries are.

The South African debate is also truncated from what is happening in the international context. Ian Bremmer writing in the May/June 2009 issue of Foreign Affairs provided a fascinating appraisal of state involvement in national economies. He noted four key periods over the last 40 years that are worth mentioning.  

The first followed the OPEC oil crisis. Most countries that had the resource understood its strategic value and nationalised their oil wealth. They were reacting to predatory attempts at acquiring a national resource by foreign states and companies. It simply became a matter of national economic survival to nationalise these assets.  About 70% of the world's oil is now nationalised.

The second period came just after the crash of the Berlin wall and a wave of liberal economics policies forced some emerging economies to re-look at some of their strategic assets and industries.

Some went the route of nationalisation in order to protect their economies from privatization and foreign takeover accompanied by partial liberalisation.

The third period followed the Asia crisis. Sovereign Wealth Funds (SWFs) gained ascendancy. SWFs are realised from trade surpluses from exports or windfall revenue from the sale of oil and gas mainly in emerging economies.

These SWFs are designed to manage financial risk from financial market and currency volatility. The creation of SWFs show a penchant distrust for the false belief that a liberalised market will tend to equilibrium by themselves and states need no protection from their boomerang effects.

Clearly, SWF owners did not wait for this hypothesis to be proven correct. They acted prudently and did the right thing in not trusting irrational beliefs in the mystical powers of the market.

If anything, the dismal performance of the market to reach equilibrium has forced the very originators of the thesis and experiment to go back on the market and seek to rein it in. 

This marks Bremmer’s forth phase of growing state intervention -- state intervention from within the home of liberal economics like the US and the UK. The US government has just taken over General Motors and the UK nationalised some of its banks.

Nationalisation as a concept without depth comes across as too blunt and crude. It certainly has to be nuanced if the debate is to win ground. State ownership and intervention can take different forms.

Even the Venezuelan government, when it nationalised its national oil company had to rely on some private sector skills to support some aspects of the company’s oil production.

The Venezuelan government re-negotiated contracts, changed incentive schemes for management and created a strong focus between oil income and national development priorities.  Most importantly, when it fired 19 000 of its workers who went on a strike, it brought in skills from Brazil’s Petrobus to restart the national oil company and work with those workers who were loyal to the state.

A US Congressional committee will be hearing soon from the Korean government on the nationalisation of its health care system. A debate that still remains a hot issue in this country. 

When have we ever had a US style hearing on a foreign success story to give us new perspectives?

All we are told flatly, by free marketers, is that it won’t work because private health care is just better. The US is considering health care reform precisely for the very reasons the Koreans did it and the reasons why we want to do it: ensuring universal health care, bringing health care costs down, expanding coverage and access, and improving quality.

Since the Koreans introduced the National Health Insurance Corporation in 1989, integrating both private and public health care plans ensured universal coverage. The result is that costs have come down.  So have infant mortality rates. 

There are several factors that could influence the reasons to nationalize strategic assets and justify greater state involvement in the national economy:

1) When certain aspects of the market economy are dominated by monopoly tendencies and the national loyalty of private companies to the countries citizens and the future of the economy are wavering.

2) When there is too much foreign and private control over energy, food, health services, and water security that they threaten national sovereignty, as lack of access to basic needs and services can lead to civic strife and subsequent social unrest.

3) High inequalities may require that certain state assets be managed by the state to ensure redistribution of services and wealth.

4) When private enterprise fails to run a national asset efficiently, which is what is happening to Britain’s national rail system and some of its banks, state control just becomes a necessity.

5) When jobs are at risk, state control may be necessary. France did this to Fiat in the 1990s. When the private sector could not prove itself apt at saving jobs, the state intervened, taking over only to re-privatize when it became feasible.

6) Nationally owned companies may be better at dealing with state-to-state relations and deal making with foreign governments over use or ownership of their national assets.

7) Certain types of new industry may require state enterprises to develop the programme because private companies are too risk averse.

There are often more good reasons for nationalisation and state intervention than not. As many as there are for when not to. 

However, some things need to be settled soon.

The State will have to resolve aspersions of doubt where the State has not been mindful and has allowed key existing national assets to deteriorate because of mismanagement, squandering of resources, corruption and sheer management incompetence.

The State will have to demonstrate that nationalisation delivers social dividends and that its sole existence is not to be profit competitive only and have wealth transfer from the private market elite to state elites.

Finally, the State can't run a nationalised programme nor can the State undertake competent intervention without an army of well trained, experienced and educated bureaucrats.

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