Layers of Nationalisation and the knowledge problem

Private ownership of property provides a public service that cannot be matched by government-owned property. The ability of a private owner to realise the benefits related to good stewardship of his property encourages greater thought and care in the employment of that property. In the course of making any exchange, whether of land, machinery, services, consumer goods, or one’s labour, people discover information about the relative availability of resources and the values that other people place on those resources. This is why freedom of exchange is so important.

Government, by its very nature and the source of its purchasing power, must necessarily operate differently from a business. Collective decision processes and the powers of taxation and appropriation create a relationship to resource acquisition that is very different from the voluntary trade relationships in business. Although governments have the power to command resources, businesses are better able to elicit information on consumers’ needs and have an incentive to respond quickly to those needs.

This is essential to our understanding of why nationalisation generally results in disappointment. It also helps us understand why the effects of nationalisation become worse as greater parts of an economy are nationalised, whether by direct ownership or by government regulation and control of commercial activities.

AUTHOR Dr Richard J. Grant is Professor of Finance & Economics at Lipscomb University in Nashville, Tennessee, and is Publications Editor at the Free Market Foundation. This article is an excerpt from the book Nationalisation published by the FMF and may be published without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

FMF Policy Bulletin / 6 March 2012