A full-scale invasion of russian troops in Ukraine forced MPs to immediately make fateful and drastic decisions for the economy. On March 3, the Verkhovna Rada adopted a Law that allowed to nationalize the property of russia and its residents without any reimbursement of its value on the basis of the decision of the NSDC. On April 1, the Verkhovna Rada extended its effect to individuals and legal entities that publicly denied or supported armed aggression against Ukraine or the occupation of its territory. However, these changes still need to be signed by the President.
The first initiatives appeared quickly. Already on March 11, the National Bank of Ukraine proposed the government to nationalize the financial assets of the subsidiaries of the russian state banks Sberbank and Prominvestbank for a total amount of UAH 26 bln. The list for forced seizure, formed by the NACP, includes such enterprises as Energomashspetsstal, Lysychansk Oil Investment Company, and Gazprom Zbut Ukraine. The prospect of nationalization for reasons of social necessity also awaits Alfa-Bank, Kyivstar, and Morshynskyi Plant of Mineral Waters “Oscar.” Lviv mayor Andrii Sadovyi proposed to transfer the buildings of the Lviv Bus Plant to the state ownership, which has been owned by russians since the 1990s.
On May 10, the government at its meeting determined the institution to which such objects would be transferred. This function was assigned to the SE Natsinvestfond, headed by the former Minister of Economy Tymofii Mylovanov. Already on May 12, the Verkhovna Rada approved the Presidential Decree instructing to ensure the seizure of corporate rights and financial assets of subsidiaries of banks from the rf.
It is not the first time in history that war serves as a context for the seizure of property by the state. Nationalization may take the form of confiscation, buyout, or temporary intended use. It can be used for various reasons: from political expediency to open accusation of cooperation with the enemy. Sometimes it can even become a pretext for another armed conflict. When did countries resort to nationalization during the war, and what did come out of it?
By the time the United States joined World War I in April 1917, the importance of railroads to the federal economy had been difficult to overestimate. Two million American workers were involved in one of the largest sectors of the country’s economy, which was about 1/12 of its then volume. However, being in private hands, the railway system declined. Many competing companies were experiencing financial difficulties and at the same time were prioritizing profits for their shareholders instead of investing in tracks, trains, and stations. This led to problems with train coordination, infrastructure destruction, and poor service. In the same year, 1917, the US government established the Railway War Board to eventually resolve these issues. However, some companies refused to cooperate with the new government.
Here, the government’s patience finally ran out. In December 1917, President Woodrow Wilson signed a decree to take federal control of all railroads (except local tracks and public transportation) in accordance with the powers granted to him by the US Constitution and the Army Appropriations Act of 1916. Within months, the US Congress approved the decree, determined the order of the railroads’ work during the war, and established the United States Railroad Administration. It is worth noting that such nationalization did not provide for the appropriation of private assets by the state — it was only about their intended use. That is, they were taken into management for only a few years, and not taken away from the owners forever.
In two years, under the control of the government, much-needed repairs of tracks and stations were made, thousands of new cars and engines were ordered, and standardized classes of locomotives were introduced. Despite the expectation that private railway owners would be hostile to the nationalization and contest it in court, this did not happen. In particular, probably due to the relatively high amounts of compensation. They amounted to “the average net operating income for the three years ended June 30, 1917.” From March 1, 1920, federal control was lifted, and the railways were fully returned to their previous owners.
However, Wilson’s government went further and nationalized the telegraph and telephone networks, including Western Union and AT&T, respectively. More than a hundred years ago, both industries were considered critical to communications, but radio became especially important. This relatively new technology (the first radio broadcast took place in 1906, and the first radio factory opened in 1912) was of great importance to the US Navy, as it greatly accelerated the transmission of information to the ship on the high seas. On April 6, 1917, the United States officially joined the war on the side of the Entente, and the next day President Wilson applied the provisions of the Radio Act of 1912, which allowed its temporary nationalization during the war.
Eventually, the Federal Government, relying on the Trading with the Enemy Act of 1917, confiscated the private property of individuals associated with Germany and nationalized German enterprises in the United States to offset military spending. The most famous of these was Merck & Co, a subsidiary of the German pharmaceutical corporation E. Merck. In 1919, after the end of the war, the company was acquired at an open auction by a consortium led by the former owners, provided that they were to separate completely from their German parent company. The new-old owners fulfilled this condition and since then, two separate companies called Merck KGaA and Merck & Co. have been operating all over the world.
The Renault Group is the national pride of the French industry and, in fact, one of the country’s key brands, recognized worldwide. Nevertheless, the name of the founder of the automobile company — Louis Renault — does not cause excessive piety with the French. After all, he was never forgiven for cooperating with the Nazi occupiers during World War II.
The fate of France at the beginning of the war was not only tragic, but also shameful. The Third Reich captured one of the largest countries in Europe in less than 6 weeks. Louis Renault did not want to lose his factories, so he decided to supply the Germans with spare parts. De facto, the company’s management was taken over by representatives of Germany — the founder was left with only a nominal position. However, this did not save the factories from bombing: in 1942, Allied Aviation destroyed much of Renault’s production — only 10% survived. A few weeks after the liberation of Paris, the former inventor himself approached the French authorities to discuss the future. However, he was arrested, declared a traitor, and thrown behind bars, where he died almost immediately.
In January 1945, by decision of the Provisional Government of the French Republic, all Renault factories were posthumously expropriated and officially nationalized into the state-owned enterprise Régie Nationale des Usines Renault (Renault National Council). By the way, this was the only case of such a seizure of business in post-war France. The nationalization was carried out neither with a compensation, nor with a lawsuit, which would most likely recognize Louis Renault as guilty.
The subsequent fate of the factories was quite successful. According to the American magazine TIME in 1981, Renault became the fourth-largest automaker in the world after General Motors, Ford, and Fiat. The company’s annual profit amounted to USD 160 mln. This is particularly impressive compared to the situation of the main private competitor — Peugeot SA, which had losses that year amounting to USD 349 mln. Despite nationalization, the principles of running a company as a private enterprise have not changed. The French government provided only about 10% of the funding, but did not interfere in decisions — such as which car model to develop.
In 1990, Renault became a joint-stock company with state capital, but the car giant was partially privatized only in July 1996. Meanwhile, the state remained the minority owner with a 15% stake, which it increased in 2015 to 19.7%. That is, the government is still partially involved in governance.
The United Kingdom
On July 5, 1945, the British Labour Party, led by Clement Attlee, won the parliamentary election, removing Winston Churchill, the popular World War II hero, as prime minister. For the first time in its history, the party won an absolute majority in parliament and carte blanche for reforms. However, such a political triumph came with a bitter pill: representatives of the Labour Party were forced to inherit the most pressing economic and social problems of the United Kingdom.
Much of the pre-war housing stock was damaged or destroyed by bombing, and new construction or repairs were scarce. The production of some industries, such as aircraft, was much larger than necessary. At the same time, the railways and coal mines operated on critically obsolete equipment and were in a terrible state. A large-scale reorientation program was needed to return wartime production facilities to a peaceful course.
Thus, during 1945-1951, the Labour government nationalized the Bank of England, aviation, telecommunications, railways, as well as coal, metallurgy, and energy companies with compensation to the former owners. At the same time, government officials implemented a program of social reforms: they overturned anti-union laws and expanded housing construction. In July 1948, a single social insurance system was introduced, and a law on national health care was passed, introducing free medical care.
In 1951, the Conservatives, led by Churchill, returned to power, but no large-scale privatization took place. The so-called post-war consensus was popular in post-war British political circles. It tolerated and encouraged a large share of the state in the economy, strict regulation of prices, high taxes and building a welfare state. State intervention in the economy has played a positive role in rebuilding the country, but its redundancy has gradually set a “time bomb” for decades to come. High inflation, low-quality services, and the ubiquity of trade unions have long been part of the nation’s life.
This situation lasted until the mass denationalization, which began only with the coming to power of the government of Margaret Thatcher in 1979. First, the share of state ownership in such large companies as British Aerospace (defense and aerospace industry) and Cable & Wireless (telecommunications) was reduced. Over the next few years, these companies have completely passed into the hands of private owners, along with Jaguar, British Telecom, Britoil and British Gas, British Steel, British Petroleum, Rolls-Royce, and British Airways. During the 11 years of the Iron Lady’s rule, the government sold assets totaling GBP 34 bln (USD 100 bln in 2014 prices). According to one of Thatcher’s associates, John Moore, privatization also had a significant cultural impact, as it showed that it could not only save individual industries and the entire disaster economy, but also change society’s attitude to economic responsibility and free entrepreneurship.
Until the middle of the 19th century, in order to reach the waters of the Indian Ocean, European ships had to circumnavigate the African continent from the south or, if possible, transport cargo by land. The Suez Canal, which connects the Mediterranean and the Red Sea via Egypt, was completed by French engineers in 1869. Together with the American transcontinental railway, it significantly reduced trade routes and the cost of goods.
Egypt received a real treasure, but did not have time to get rich on it. In 1875, due to foreign debts, the Viceroy of Egypt, Isma’il Pasha, was forced to sell a share of the canal that belonged to his state in the Suez Canal Company. 44% of the shares passed into the possession of the United Kingdom for almost GBP 4 mln or GBP 401 mln in 2019 equivalent. For the next 80 years, the company remained under the control of a British-French company, and the Convention of Constantinople in 1888 allowed the canal to be used freely by ships of all countries and declared it a neutral zone under British protection.
In the 1950s, Egypt’s relations with the West cooled markedly due to the loyalty of the then leadership to the USSR and the socialist bloc. In response, the United States and the United Kingdom refused to fund the Aswan Dam project. Egypt’s response was decisive and radical: on July 26, 1956, then-President Gamal Abdel Nasser announced the nationalization of the Suez Canal Company and stated that the proceeds from the movement of ships would be used to implement economic development projects. All its governing bodies were dissolved, and property, rights, and obligations became the property of the newly formed Suez Canal Authority. And although the president assured that the company’s shareholders and founders would receive compensation, and Egypt would continue to comply with provisions of the 1888 convention, it was impossible to stop the wheels of the war.
The hot phase of the conflict between Egypt and Anglo-Franco-Israeli troops lasted 9 days in the fall of 1956. Coalition forces occupied the Suez Canal for a week, and President Nasser ordered the canal completely blocked, deliberately sinking 40 ships. The Suez Crisis was resolved only when the UN General Assembly intervened and deployed peacekeepers to the conflict zone. Despite the actual military victory of the three states, they were defeated in terms of politics and diplomacy. In April 1958, they were forced to recognize the nationalization of the canal and agree to compensate the company’s shareholders in negotiations in Rome.
In 1962, Egypt repaid the last payments to shareholders and employees of the Suez Canal Company and finally took control of the canal. The company itself changed the scope of its activities after a series of mergers with French municipal enterprises and is now known as Engie SA and operates in the field of renewable energy, nuclear energy, natural gas and oil. Instead, SCA still manages and maintains Suez. The state-owned enterprise is very profitable: according to the data of 2020-2021, the annual income of the Administration is about USD 6 bln, and 18,000-20,000 vessels pass through the canal during the year.
As history shows, the forcible seizure of property by the state is often a logical and forced step, and in the short distance it fully justifies itself. However, it is important to understand how this property will be used in the future. As we can see, in particular from the British experience, over time, a large number of nationalized assets overburden the national budget and reduce the efficiency of management. This encourages the government to corporatize businesses and sell them in stages. It is obvious that over time, privatization will play a key role in the post-war reconstruction of Ukraine and will become one of the main sources of investments, including foreign ones. After all, to keep thousands of state-owned enterprises as a corrupt feeder, Ukraine’s bloodless economy will simply fail. So, the sooner the state starts privatizing nationalized russian assets, the better.
This material was prepared with the support of the Swedish International Development Cooperation Agency (SIDA). The views expressed by the authors in it do not necessarily reflect the views of SIDA or the Government of the Kingdom of Sweden.