Nationalisation of Foreign-owned Property for a Public Purpose: An Economic Perspective on Appropriate Compensation

Abstract

The emergence of a large number of new states after the end of the Second World Brar was accompanied by an upsurge of national consciousness and fierce demands for 'economic independence' and for the elimination of what many saw as economic 'imperialism.' An important aspect of this was a reaction in many countries against foreign private investment, especially in the exploitation of their national natural resources. Resentment of this type of foreign control had, of course, long smouldered before the war in several countries, giving rise to popular agitations and government concern, and even to nationalisations, for example, the Mexican nationalisation of American oil interests in 1938. The United Nations Centre on Transnational Corporations reports that the nationalisation of foreign companies reached its peak in the mid-1970s with the oil crises and then declined rapidly by 1985.' It apparently saw this as a trend and argued not only that developing countries are now willing to cooperate with direct private foreign investors, but also that nationalisation will, in the future, represent a minimal risk. This conclusion must be seen as optimistic if account is taken of the fact that the year 1975 was in the middle of a severe economic crisis for many countries in the developing world, as a result of the rise in oil prices and the accompanying world recession. These countries not only had by that time to search for outside assistance, but also to turn to the IMF for help. One of the conditions of such help required them to relax their previous attitudes towards private foreign investment and to encourage the return of multinational corporations. It is by no means clear, therefore, that the postulated changes in attitudes, born partly of economic crisis, will be permanent, particularly with respect to foreign control over activities considered of vital importance to the national economy, such as exhaustible natural resources. On the contrary, the nationalisation of the commercial assets of foreigners, which has a long history, is, paradoxically, likely to revive as the fortunes of developing countries revive, and with it the controversy over appropriate compensation. The serious and divisive social and political strains that exist in many developing countries often become more severe as national incomes