Hi
I notice that British reporters on the US economy tend to use the term 'nationalise industries" when referring to the Trump Administration DPA (Defence Production Act), whereas American reporters use the term “federalise industries”. There is a difference, but are those differences meaningless to British reporters? Did Roosevelt nationalise or federalise gold in the 1930s?
I look forward to your feedback?
‘Federalise’ isn’t something terribly meaningful to British viewers, as we don’t have a federal system. But we know what nationalise means.
You say there’s a difference, but I couldn’t tell you what that is. At the risk of broadcasting my own ignorance, would you mind explaining for me?
I don’t think either term is being used very precisely.
Most of the time when people talk about “nationalizing an industry,” they are referring to a government removing private ownership of an establishment — the converse is privatizing an industry, in which government ownership is sold to private investors.
The authorities in the Defense Production Act really don’t have to do with government becoming the owner of an industry or company. It pertains to the authority to direct industry to build a certain thing needed for national security purposes. So the company might be told they have to go build a jillion ventilators or whatever, and they first have to sell them to the government instead of on the market, but the management of the company remains in place and they continue to be a profit-making institution. The Defense Production Act also provides for government to pay various costs of changing production.
That’s it in a nutshell. The semantics of nationalize/federalize do not seem to be particularly relevant.
Thanks Ravenman. That’s probably the case. I’ve done more research on this question and it does seem that the terms are interchangeable these days. The DPA certainly does not allow government ownership unlike past British nationalisation of steel, aerospace and shipbuilding in the 1970s.
If the company has to listen to the government, why does it make a difference who “owns” it?
The Defense Production Act contemplates transitory needs for goods - as in, the government can direct the production of PPE during this crisis, but when that is over, it isn’t like the government is going to force 3M, GM, or whomever to produce PPE for the indefinite future. Other than that, depending on the activities of the company, it’s other divisions probably continue to function normally outside of government influence.
It’s sort of like a policeman commandeers someone’s car during a pursuit, it isn’t like the owner no longer owns a car at all. If the car was nationalized, oh yes, that car is no longer his.
Companies always have to “listen to the government”; even in normal times they must tailor their activities so as to comply with planning laws, environmental protection measures, product safety laws, employment laws and a host of other measures controlling or restricting economic activity of all kinds.
At a time of national need this degree of control may be increased - instead of saying “you must not produce X product which fail the safety standards” the government goes further and says “you must produce Y product (and sell it to us)”.
That’s a big difference. But it’s a much bigger difference again if the government says “we are compulsorily buying all your stock. We now get to hire and fire the directors of this company, and dividends are payable to us”. And only the latter is (what I understand as) “nationalisation”.
My definition agrees with UDS’s definition.
Has the US federal government ever nationalised a business in that sense?
The federal and provincial governments in Canada have done so many times.
The profits still go to the owners of the company. They may not like being told to make ventilators instead of their normal widgets, but they make money off the sale of the ventilators.
In a nationalised industry, all profits go to the government that nationalised it. In Canada, we call them “Crown corporations” since the Crown now owns all shares in them.
Exactly. And, as I understand it, under the Defense Production Act, the federal government does, in fact, pay the company for the goods that the company was ordered to manufacture.
As an example of a voluntary nationalisation in Canada, the federal government recently bought a pipeline company from Kinder Morgan for about $4 billion. The federal government now owns all the shares in the pipeline company, which had been a wholly-owned subsidiary of Kinder Morgan.
That’s not a distinction from nationalisation, though. If the government takes, say, railway companies or airlines into public ownership, government officials don’t typically get to ride for free in trains and planes; the government still buys tickets like everyone else.
Yes, but when the railroads are nationalized, if there is a profit it goes to the government.
Yes, but the only examples I know of are railroads. The best known of them is Conrail, but also a couple Alaskan railroads. During WWI, all railroads were temporarily nationalized. None of these examples are still owned by the US government.
Maybe - the agency that operates NYC subways and buses at one point or another acquired two privately owned subway companies , a number of privately owned bus companies, and two commuter railroads which were originally privately owned. The employees used to get free passes ( not sure if they still do ) and in some divisions, the spouses and children did as well. But the former owners didn’t get any profits and that’s how the Defense Production Act is different from nationalisation - if the federal government orders 3M to make N95 masks, 3M is going to get the profits. It won’t be one government agency paying another government agency ( which actually happens)