In the Cambridge AS Economics syllabus a new topic was introduced in 2016 which looks at the areas of privatisation and nationalisation in an economy. Below are some notes on the topic and a good video on the renationalisation of British railways.

Rising fares, overcrowded trains and delayed services have led to increasing anger over how Britain’s railways are run. According to a YouGov survey last year, 60% of the British public support renationalising the railways. The main reason cited – that they want the railways to be accountable to taxpayers, rather than shareholders. This begs the question, could we see a renationalisation of Britain’s railways in the future?

Nationalisation is when a government chooses to take an industry into state ownership in order to safeguard the supply of a good or service.

Privatisation is the transfer of ownership of property or businesses from a government to a privately owned entity.

Potential Benefits of Privatisation

1. Improved Efficiency – private companies have a profit incentive to cut costs and be more efficient.
2. Lack of Political Interference – Governments are motivated by political pressures rather than sound economic and business sense.
3. Short Term view – A government many think only in terms of next election
4. Shareholders – a private firm has pressure from shareholders to perform efficiently
5. Increased Competition – more firms mean greater competition and efficiency
6. Government will raise revenue from the sale – only a one off benefit and future dividends are lost.

Potential Benefits of Nationalisation

1. Natural Monopoly – Many key industries nationalised were natural monopolies. This means the most efficient number of firms is one.

2. Externalities – Some of the nationalised industries had significant positive externalities. A government can run public transport system could invest in public transport to help improve the economic infrastructure.

3. Welfare Issues – Some industries play a key role in the welfare of consumers and citizens. Government provision means that needy groups can be looked after and provided with basic necessities.

4. Industrial Relations – Labour unions often favour nationalisation because they feel they may be better treated by the government – rather than a profit maximising monopoly.

5. Government Investment – Some industries require long-term investment to improve services over time. This long-term investment may not be profitable in the short-term, so without government intervention they may suffer from lack of long term investment.