Nationalisation

• Nationlisation advantage: Greater allocative efficiency

  • Public sector firms are more likely to be allocatively efficient focussing on service provision and the full social costs/benefits involved
  • Public sector firms work to meet the needs and wants of the public to maximise social welfare, whilst taking externalities into account in operations
  • Prices could be lower with no over/under production as resources will be allocated at the socially optimum level of output, perfectly following consumer demand, fixing any prior market failures
• Nationalisation pro : Larger economies of scale

  • Public sector firms may benefit from larger economies of scale and productive efficiency
  • Public sector firms are often natural monopolies with very high fixed costs and thus can benefit from lower average costs compared to smaller private firms
  • Allowing many private firms to provide such services will lead to a wasteful duplication of resources and thus allocative inefficiency
• Nationlisation advantage Reduced structural unemployment

  • The public sector can promote employment and skills training
  • Not pursuing profit maximisation allows for greater employment possibilities and a focus on human capital development in work
  • Productivity can be boosted whilst also making workers feel more valued and secure
• Nationlisation advantage: Control of macro-economic economy

  • The public sector can be a vehicle for macro-economic control
  • A large public sector in the economy implies a large number of public sector workers
  • Governments can counter high inflation by restraining public sector pay increases
  • Governments can alter the level of employment to correspond with different stages of the economic cycle
• Nationalisation disadvantage : Productive inefficiency 

  Public sector firms lack the incentive to minimise costs. This is because there is a lack of competitive pressure and a lack of a profit motive. Therefore these firms are unlikely to operate at the minimum point of their AC curve (unlikely to reach their MES) thus they voluntarily forgo economies of scale and are not productively efficient leading to higher prices and lower consumer surplus for consumers.
• Nationalisation disadvantage : Diseconomies of scale

  Public sector firms may suffer from diseconomies of scale. This is because as the sole provider in the market, public sector firms may become too large allowing for inefficiencies in the production process to creep in. The firm will suffer from higher average costs as it expands thus will be productively inefficient leading to higher prices and lower consumer surplus.
• Public sector firms may be complacent and wasteful in production. This is because there is a lack of a profit motive and competitive pressure. Consequently, production may take place above the average cost curve resulting in X-inefficiency and firms having to rely on subsidies, which are costly, and a wasteful use of taxpayer's money


  Nationalisation disadvantage: x-inefficiency
• Nationalisation disadvantage: Lack of Dynamic efficiency

  There is a lack of supernormal profit made in the public sector. This is because the objective of public sector firms is to satisfy the public with low prices and high output. Dynamic efficiency is unlikely implying less innovation and technology improvements keeping costs and prices higher in the long run.
• Nationalisation disadvantage: Private sector may be more efficient

  Prices may be lower and consumer surplus greater with private sector involvement. This is due to competitive pressure and a significant profit motive hence firms will strive to be as efficient as possible lowering costs to remain competitive. Allocative efficiency may be achieved with resources following consumer demand and productive efficiency achieved too with full economies of scale exploitation.
• Nationalisation disadvantage : Funded by tax payers money 

   

  Public sector provision is extremely expensive and funded through the taxpayer. There is a large  opportunity cost where this money could have been best used elsewhere where more benefit could have been derived e.g. in promoting education to reduce structural unemployment or to help manufacturing base to re-balance and diversify the economy.
• Nationalisation disadvantage : Moral hazard

  There is a greater risk of moral hazard with public sector involvement. This is because politicians or government employed managers are not directly accountable for their actions. As a consequence they are more likely to take on significant risk increasing the chance of project failure where the taxpayer pays the bill.
• Nationalisation advantage:

  • Greater allocative efficiency
  • reduced structural unemployment
  • vehicle for macro-economy
  • Economies of scale
• Nationalisation disadvantage:

  • X-inefficiency
  • Lack of dynamic efficiency
  • Diseconomies of scale
  • Moral hazard
  • funded by taxpayers
  • Productive inefficiency
  • private sector more efficient