Could the government nationalise ASX companies?
There’s no doubt that the coronavirus situation has (and will continue to) put enormous strain on the Australian economy and the businesses within it. Many ASX shares (particularly those in the travel and tourism sectors) have seen their share prices cut in half or worse over just the last month as efforts to contain the virus take their toll.
For some businesses, there is no visible light at the end of the tunnel yet. Qantas Airways Limited (ASX: QAN), for example, has grounded most of its fleet and will suspend all of its international flights from late March. It had to stand down two-thirds of its workforce as a result this week.
But what if this situation drags on longer than expected. Will the government have to step in and nationalise some ASX companies?
What is nationalisation?
Nationalisation is a term not often thrown around these days. It refers to a government taking a company off the market and assuming ownership. It’s the opposite of privatisation, which is far more prevalent in this modern age.
Although almost unprecedented in Australia, the US has seen some nationalisation moves in recent history. During the GFC, the US government took control of several companies that were in danger of going under. Mortgage suppliers Fannie May and Freddie Mac are two examples, along with famous car maker General Motors.
So it’s not an unprecedented move. After all, Qantas as well as Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), Telstra Corporation Ltd (ASX: TLS) and Medibank Private Ltd (ASX: MPL) all used to be government-owned businesses before they were each privatised.
Surely, it wouldn’t be too hard for the government to ‘flick the switch’ back and once more take the reigns?
Could the government nationalise ASX shares?
Well, it’s a very drastic move to make for one. General Motors, Fannie May and Freddie Mac were only nationalised (and briefly so) because they were ‘too big to fail’. Letting these companies go bankrupt would have almost certainly tipped the US into a Depression during the GFC. Taxpayers generally aren’t too comfortable with the government using their dollars to invest in companies.
But if it came down to the wire for Qantas, anything could happen. Qantas (like GM for the USA) is something of a symbol of national pride in Australia, and it’s very possible that if it was a choice between bankruptcy and nationalisation, the government would save the Flying Kangaroo.
According to reporting in the Australian Financial Review, Prime Minister Scott Morrison has ruled it out (at least for now), stating:
“We have no plans along those lines. What we are seeking to do in a number of cases where we have provided great assistance to private companies to support important supply production in Australia”.
But I think it could be interesting to watch this space!
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Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.