I am afraid of a new spate of nationalization which may spread in the Western world in the coming years. I started studying economics in the nineteen seventies when nationalization was top on the policy agenda of a number of countries led by left wing governments around the world including Europe and Malta when banks and public utilities were being nationalized with the pretext of retaining earnings in the country and raising government revenues, safeguarding natural resources and boosting employment. These were being done under the shadow of socialist ideological thinking with the state becoming the biggest employer in the country. The result of this strategy has been disastrous as nationalization and consequently protectionism scares foreign investors, hampers external trade and lowers growth rates in these countries.
Argentina’s recent decision to re-nationalize the oil company Repsol YPF with the declared aim of securing energy supplies to the country has reignited fear throughout the business world that nationalization might be coming back to the agenda. This was further accentuated by the statement made by French President Francois Hollande demanding guarantees for the permanent employment of workers in an ArcelorMittal steel plant in France or faces the threat of nationalization. Left wing parties are clamoring for state intervention where the private sector faces difficulties due to the global economic slowdown. We have seen this in state interventions in the banking sector in the USA and the United Kingdom during the first wave of the financial crisis in 2008 and 2009.
The dangers of nationalization are multi-fold. Nationalisation threatens economic growth as it intervenes directly on market forces. Even if it is not today ideologically triggered, as it was in the nineteen seventies in France and also in Malta, it creates misallocation of resources and inefficiencies. It definitely scares foreign direct investment when global business opportunities are today the guarantee of economic growth. It strengthens the “dependency syndrome” which is so much feared in small economies, where the mentality is that of joining the public service or state industries to have a guaranteed job for life. Governments use state enterprise to employ otherwise unemployable people in their industries and these industries turn out to be “employment agencies” for the political party in government.
What is needed for economic growth and increased employment opportunities is indeed the opposite. Encourage the private sector and open the doors wide open to foreign direct investment. The best management of industry and services, including public utilities, is found in private initiative and enterprise which thrives on meritocracy and accountability. The logic behind any enterprise is that it operates because of the unhampered forces of demand and supply. It is in the private sector’s interest to satisfy consumers, to provide a quality service to compete with other companies, to employ and retain the best people, to reinvest in research and innovation if it believes that there is market opportunity and prospects. There is no alternative to private enterprise and market forces.
Joseph FX Zahra