Nationalization is a potential threat to be considered when a U.S. company commits its capital resources to a foreign country. The U.S. company under these circumstances always becomes subject to the full panoply of the laws of the host country, leaving the company open to the possibility that the host country may take the company's investment without paying full compensation. The investing company therefore must always understand the possibility of political risk and how it can be avoided. Investors typically are concerned about nationalization in socialist or Third World countries where there has been a history of nationalization for political reasons, but nationalization is not limited to those countries and may also be undertaken directly or indirectly by developed and industrialized nations when they are faced with some circumstance that prompts them to see a threat and meet it in this fashion.
There is a conflict in the law between Traditional Theory and Modern Traditional Theory on this point. The classical doctrine on the issue was developed in Europe from the seventeenth through the nineteenth centuries as the European states were becoming exporters. The doctrine was very protective of foreign investment. The taking of foreign property was completely prohibited, and the state that did take property had to make complete restitution to the foreign investor. Courts went to great lengths to assure that this was carried through. The traditional doctrine in its most extreme form afforded the foreign investor more protection than was given to the local investor:
The local investor was subject to expropriation by the sovereign, whereas traditional theory purported to exempt the foreign investor from such concerns. This made some sense in the context of the pre-twentieth-century international system where citizens of the advanced mercantile or industrial countries were considered to be wholly immune from the judicial p...