What does nationalisation mean, anyway?
James Kwak and Simon Johnson, over at the Baseline Scenario, posted a thoughtful analysis on what nationalisation means for American banks under a perverse economic climate. It’s definitely worth a read, for those who are tracking the latest developments in the Obama administration’s plan to save the financial industry. For too long, Americans have subscribed to the right-wing strawman notion of what nationalisation meant, for good reason too, by historical precedent:
Government ownership of banks or any other company can go badly wrong. Anyone growing up in the United Kingdom during the 1960s and 1970s experienced first-hand the problems that occur when the government runs major industrial and infrastructure companies – particularly when they have powerful unions. Margaret Thatcher came to power in 1979 in part because the state-run parts of the U.K. economy were not doing well, and the wave of deregulation that she started (and the financial boom it triggered) was a reaction to that context.
Similarly, people working in Eastern Europe and the former Soviet Union in the 1990s got a close-up view of wasteful and unproductive state ownership at work. Privatization was not handled well in some situations, particularly when it led to the emergence of powerful oligarchs. But the state had been a dreadful owner in almost every respect – quality of service in stores, productivity in manufacturing companies, resource management in oil and gas companies, and massive pollution by energy and transportation systems.
All of these nationalized industries had something in common. When companies did badly, the losses were borne by the state. As a result, there was little incentive for company managers to improve their performance. Some years they would get lucky and even make a profit – but at those moments, most of the benefits would go to the insiders, in higher wages, bigger perks and the like.
Earlier on, in a series of articles written as an introductory guide to the financial crisis, James also clarified what exactly nationalisation entailed. It seems that even though America isn’t as centre-right as the right-wing media likes to claim, the prevalent economic discourse in the country utilises the language of the right.
I saw this interesting PDF document in the comments to that post explaining the origins of the Nordic banking crises of the 1990s which affected the countries of Norway, Finland and Sweden respectively. Like the current crisis consuming the American banks, they originated due to real estate bubbles, feverish speculation and loosening of credit loan standards spurred by deregulation.