Nationalisation – two questions not one

Venezuela has just nationalised the local arm of a US bottling company. It shouldn’t be long before this example hits the political spehere in South Africa and enters our own debate on nationalisation.

The debate really has (or needs to have) two quite distinct elements:

  1. Are nationally owned / publicly managed companies and industries better for South Africa and South Africans?
  2. If assets are nationalised, what payment is made to the original owners?

Many South Africans focus mostly on the last point – fearing appropriation of assets without payment, or with only token payment. I’m hoping this isn’t the idea being out forward by the nationalisation supporters.

  • It goes directly against some hefty provisions in our Constitution around property rights (where forced sale at a reasonable price is more palatable)
  • It would completely throw international investors and providers of capital, both indirect and direct investment.
  • A large portion of South Africans (not large enough) have some form of pension savings, which is invested primarily in local listed companies. Any loss of value to public shareholders will hurt a much wider range of South Africans than those with private trading accounts. ┬áThis point is often missed, especially when it comes to labour/capital debates, Black Economic Empowerment and taxes.

I haven’t heard the forced appropriate idea being proposed actually.

The first point is the real economic debate – are public or privately owned and run companies better for overall economic health? ┬áThe answer here is less clear. A balanced view (ok, my view) is this:

  • Privately run companies are not perfect and the free market doesn’t actually always automatically allocate capital efficiently.
  • Government run companies have track records around the world of being worse.
  • Some goods and services are better provided by government due to economic factors such as externalities, where public goods are involved, where long-term horizons are needed, where balance sheet constraints limit private players, where insufficient services would otherwise be provided to a portion of the population etc.

One danger to this debate is that Venzuela has shown economic improvements since socialst governments took power. That has everything to do with high oil prices and probably nothing (or less) to do with socialist policies, but that won’t stop the Noisemakers.