State-Owned Enterprises

A state-owned enterprise (SOE) is a business owned or controlled by a national government. SOEs are a common instrument of government economic policy in both developed and developing countries, although concerns about their costs and performance relative to private firms have led to a worldwide privatization trend since the 1980s. Typically, SOEs have been prominent in transportation, communication, and energy production and distribution, and common in capital-intensive industries including mining and the manufacturing of chemicals, metals, machinery, and transportation equipment. In some countries, SOEs are also found in virtually any other sector of the economy, including banking and finance, trade, consumer industries, construction, and agriculture.

As stated above, an SOE is a business owned or controlled by a national government. SOEs differ from private firms in a variety of ways. They tend to have a variety of objectives, sometimes of a conflicting or contradictory nature. Making a profit is usually one stated objective, but may or may not be the primary one. SOEs are supposed to offer social returns, meaning special benefits to the state's population, and be held accountable by the public through its elected or self-proclaimed representatives. At the same time, SOEs are generally expected to be financially viable and produce goods or services at prices related to their costs, and are thus different from ordinary government services and administration. Their business-like nature also differentiates them from state-owned producers in purely communist regimes without a legitimate private sector.

State ownership of an SOE may be complete or partial, and a company may be considered an SOE even when the government does not own a majority share of the company, as long as the state's minority position is enough to make political intervention possible. From a legal point of view, an SOE maybe classified as a government agency subject to general public law, a public corporation (a separate legal entity subject to special statute), a state company subject to private law, or a listed firm with shares owned fully or in part by the government. The three latter organizational forms imply an increasing degree of autonomy from political and bureaucratic interference, but in practice autonomy also tends to depend on a variety of other factors, and especially on the company's financial status.

Historical Origins

The history of government-owned business operations goes back to antiquity, but SOEs as we know them today became widespread between the 1930s and the 1960s. Before that time, SOEs could be found in sectors with natural monopolies, meaning unlimited economies of scale (utilities, infrastructure), or in areas of strategic importance (heavy industry, weapons). With the collapse of international capitalism in the 1930s, however, state ownership and management of enterprises became increasingly popular as a political response to economic challenges. SOEs could eventually be found operating in a wide variety of economic activities, often because decision makers believed that state ownership would lead to more efficient and fair use of resources.

In industrialized countries, SOEs were seen as a solution to market failure and a way to promote long-term growth while limiting vulnerability to short-term business cycles. They were also intended as instruments of social engineering, with the hope of redistributing wealth and power, making business democratically accountable, securing employment, and improving industrial relations. In some cases, the creation of SOEs through nationalization also served to rescue mature industries, thus forestalling social unrest.

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