Nationalisation is bad for consumers, workers, the poor and democracy

Nationalisation destabilises a society and economy, reduces investment, entrepreneurial innovation and economic growth, and has negative consequences for the majority of the population, including the poor. It sends a message to inhabitants and outside investors that private property is not safe. Nationalisation destroys jobs and the profitability of enterprises and is a crime against the general populace. It is bad for consumers, workers, the poor and democracy.

Nationalisation occurs when private property is transferred to government, a process that constitutes implementing an element of socialism or communism; government ownership and control of all property and the means of production. Taking of private property from its legitimate owners always involves the use of force.

Politicians promoting forcible nationalisation attempt to justify doing so in the name of the poor but if the poor were their real concern these politicians would support the opposite of nationalisation. They would promote denationalising of state-owned enterprises and land holdings of the state, as the Czech Republic and other former Soviet Union countries did, by transferring ownership of these assets to the people, giving preference to the poor.

Nationalisation is anti-consumer
Consumers in a free nation decide which providers of goods and services prosper. The negative effects of government usurpation of the right of shoppers to determine the nature, quality and prices of goods stocked by stores would be demonstrated most vividly if supermarkets and their suppliers were nationalised. Government-appointed managers, compelled to follow the dictates of their political bosses, cannot consider the wishes of consumers. What results is lack of choice, quality, convenience, and alternatives. Shortages arise in the items that are most in demand, and service levels deteriorate.

Hedrick Smith, in his book The Russians (1975), wrote about the long queues in shops. “The accepted norm,” he said, “is that the Soviet woman daily spends two hours in line, seven days a week, daily going through double the gauntlet that the American housewife undergoes at her supermarket once, maybe twice a week. I noted in the Soviet press that Russians spend 30 billion man-hours in line annually to make purchases.” Shopping in socialist Russia was starkly different to shopping in America because of the differences in the structure of their economies. In free enterprise America, consumers are sovereign and people in private firms are prepared to risk capital and take part in vigorous competition to serve them. In socialist Russia, it was the politicians and government officials who were sovereign, as in all socialist economies which are unavoidably authoritarian.

Nationalisation is anti-worker
In a free economy employers compete for the services of workers. Workers therefore are able to improve their working conditions and incomes. Freedom House, in its 2010 report, reveals that workers’ rights are most repressed in communist-oriented countries. Increased government domination brings with it a tendency towards authoritarian rule.

Even if nationalisation is intended to be confined to a certain sector of the economy, this cannot be of comfort to the workers in the targeted sectors. It also should not be good news to workers in other sectors because, predictably, it signals less overall investment in the economy and lower growth. Wage increases are totally dependent on increased investment, the efficiency of the operations of firms, and higher economic growth, so nationalisation can do nothing other than prove to be anti-worker and reduce wages.

Nationalisation is anti-democratic
No democratic government seizes the assets of its investors. If the SA government were to take such an undemocratic step, it would destroy the country’s good record and standing in the world.
In its report, Free Labour in A Hostile World, Freedom House said, “From South Africa to South Korea, Chile to the Czech Republic, the democracy and workers‘ rights movements have been closely linked. This relationship was well understood by fascist, communist, and authoritarian dictators who feared the strength of democratic trade unionists.”

Workers’ rights are more likely to be recognised in countries where there is greater freedom and respect for democratic principles, including the rule of law. In their own interest, workers should defend democracy and the rule of law.

Open competition is best for all
Rather than consider nationalisation, SA should look at growing the economy by improving its Ease of Doing Business ranking on the World Bank’s index. This requires the removal of barriers to entry into economic activity, such as unnecessary licences, permits, and prohibitions, including those that prevent private firms from competing on a level playing field with state-owned enterprises.

Consider the probable effect if we had open competition with no statutory protection for state-owned and controlled enterprises. Eskom, Transnet, Denel, the Airports Company (ACSA), South African Airways (SAA), South African Forestry Company (SAFCOL), Telkom, the SA Post Office, and all the other state-owned and controlled enterprises would have to rely solely on their ability to compete effectively for the business of consumers.

Poor service or excessively high prices charged by public enterprises would immediately attract alternative providers to meet the unsatisfied needs of consumers. Open entry for foreign firms would make the market even more competitive and the benefits to consumers even greater. In an open economy, consumers have an array of choices, better services, and lower prices. There are also more employment opportunities. By removing the barriers to entry conditions for consumers, the unemployed and the poor would be greatly improved.

Government neutrality in the economy
If government were totally neutral in the economy, resources would be utilised to serve the best interests of citizens as consumers and would not be diverted to political uses. Such a neutral government would concentrate its attention on providing the best possible environment for the achievement of high economic growth. Personal choice, protected property rights and freedom of exchange are key ingredients of such an environment.

An important characteristic of the highest growth economies is that government involvement is limited. Taxes are low as a percentage of GDP, regulation and interference in business are minimised, and most importantly, government does not own enterprises. As long as there are no barriers to entry, and open competition prevails, the ownership and control of businesses would gravitate to those who are most efficient at supplying the goods and services consumers want.

The satisfaction of citizens as freely choosing consumers should be government’s primary objective, whether they want education, housing, medical care, material goods, services, safety or the right to pursue happiness in a manner of their own choosing.

Source: Eustace Davie is a director of the Free Market Foundation. This article may be republished 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 Feature Article / 28 September 2010