Nationalisation

Question 1

State + explain the micro effects of nationalisation.

Answer 1

• Solve Market Failures: through monopoly power - get allocative efficiency outcomes - lower P, higher Q, greater choice. Due to state having objective of maximising social welfare.
• Greater Economies of Scale: one dominant state run firm can benefit from EoS - especially if it’s a natural monopoly market.
• Skills, Training, Productivity: state isn’t a profit maximising employer - might focus more on training workers, boosting productivity, improving skills of workers.

Question 2

State + explain the macro effects of nationalisation.

Answer 2

• Government Finances: hit to government finances - cost of running the state run company - worsening budget deficit - national debt rising.
• Employment: greater employment - may employ more workers than in a privatised industry.
• Inefficiency + Inflation: because there’s no profit motive - may be higher P - link to higher inflation, if see nationalisation across a large number of industries in economy.
• Dynamic Inefficiency: lack of dynamic efficiency due to firms not being profit motivated - may hold back on reinvest + dynamic efficiency - thus restraining LR economic growth + LRAS increases.