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{{short description|Legal entity controlled by a government to undertake commercial activities}}
{{redirect|Crown corporation|Crown corporations in Canada, its provinces and its territories|Crown corporations of Canada}}
{{redirect|Public sector undertaking|the Indian equivalent|Public sector undertakings in India}}
{{about|enterprises owned by the state or a state entity|publicly-traded companies|Public company|}}
{{expert needed|1=economics|ex2=finance & investment|ex3=business|ex4=law|reason=Subscription probably needed to access much of the research, and familiarity with the technical diction common in reliable sources would be a major asset|talk=I see a pattern|date=July 2018}}
{{Business administration}}

A '''state-owned enterprise''' ('''SOE''') or '''government-owned enterprise''' ('''GOE''') is a [[business enterprise]] where the government or state has significant control through full, majority, or significant minority ownership.<ref>{{cite web|title=State-Owned Enterprises Catalysts for public value creation?|url=https://www.pwc.com/gx/en/psrc/publications/assets/pwc-state-owned-enterprise-psrc.pdf|website=PwC|access-date=16 January 2018}}</ref> Defining characteristics of SOEs are their distinct legal form and operation in commercial affairs and activities. While they may also have [[public policy]] objectives (e.g., a state [[railway company]] may aim to make transportation more accessible), SOEs should be differentiated from government agencies or state entities established to pursue purely non-financial objectives.<ref>Profiles of Existing Government Corporations, pp. 1–16</ref>

==Terminology==
The terminology around the term state-owned enterprise is murky. All three words in the term are challenged and subject to interpretation. First, it is debatable what the term "state" implies (e.g., it is unclear whether [[municipally owned corporation]]s and enterprises held by regional public bodies are considered state-owned). Next, it is contestable under what circumstances a SOE qualifies as "owned" by a state (SOEs can be fully owned or partially owned; it is difficult to determine categorically what level of [[state ownership]] would qualify an entity to be considered as state-owned since governments can also own regular [[stock]], without implying any special interference). Finally, the term "enterprise" is challenged, as it implies statutes in private law which may not always be present, and so the term "corporations" is frequently used instead.<ref name="TavaresCamoes">{{cite journal|last=António F. Tavares and Pedro J. Camões (2007)|year=2007|title=Local service delivery choices in Portugal: A political transaction costs network|journal=Local Government Studies|volume=33|issue=4|pages=535–553|doi=10.1080/03003930701417544|s2cid=154709321}}</ref><ref name=Voornetal>{{cite journal|last=Voorn, Bart, Marieke L. Van Genugten, and Sandra Van Thiel (2017)|title=The efficiency and effectiveness of municipally owned corporations: A systematic review|journal=Local Government Studies|volume=43|issue=5|pages=820–841|doi=10.1080/03003930.2017.1319360|year=2017|hdl=2066/176125|doi-access=free}}</ref>

Thus, SOEs are known under many other terms: state-owned company, state-owned entity, state enterprise, publicly owned corporation, government business enterprise, government-owned company, government-owned corporation, [[#Government-sponsored enterprises|government-sponsored enterprise]], commercial government agency, state-privatised industry public sector undertaking, or parastatal, among others. In the [[Commonwealth realms]], particularly in Australia, Canada, New Zealand, and the United Kingdom, country-wide SOEs often use the term "Crown corporation", or "[[Crown entity]]", as cabinet ministers ([[Ministers of the Crown]]) often control the shares in them.

The term "government-linked company" (GLC) is sometimes used to refer to [[corporation|corporate entities]] that may be private or public (listed on a stock exchange) where an existing [[government]] owns a stake using a [[holding company]]. The two main definitions of GLCs are dependent on the proportion of the corporate entity a government owns. One definition purports that a company is classified as a GLC if a government owns an effective controlling interest (more than 50%), while the second definition suggests that any corporate entity that has a government as a shareholder is a GLC.

The act of turning a part of government bureaucracy into a SOE is called [[corporatization]].<ref name=GrossiReichard>{{cite journal|last=Grossi, Giuseppe, and Reichard, C. (2008)|title=Municipal corporatization in Germany and Italy|journal=Public Management Review|volume=10|issue=5|pages=597–617|doi=10.1080/14719030802264275|year=2008|s2cid=153354582}}</ref><ref name="Ferryetal">{{cite journal|title=New development: Corporatization of local authorities in England in the wake of austerity 2010–2016|journal = Public Money & Management|volume = 38|issue = 6|pages = 477–480|last=Ferry, Laurence, Rhys Andrews, Chris Skelcher, and Piotr Wegorowski (2018)|doi=10.1080/09540962.2018.1486629|year = 2018|s2cid = 158266874|url = http://dro.dur.ac.uk/24492/1/24492.pdf}}</ref><ref name="Voornetal18">{{cite journal|title=Debate: Corporatization as more than a recent crisis-driven development|journal = Public Money & Management|volume = 38|issue = 7|pages = 481–482|last=Voorn, Bart, Sandra Van Thiel, and Marieke van Genugten (2018)|doi=10.1080/09540962.2018.1527533|year = 2018|s2cid = 158097385}}</ref>

== Use ==
=== Economic reasons ===
==== Natural monopolies ====
SOEs are common with [[natural monopoly|natural monopolies]], because they allow capturing [[economies of scale]] while they can simultaneously achieve a public objective. For that reason, SOEs primarily operate in the domain of infrastructure (e.g. railway companies), strategic goods and services (e.g. postal services, arms manufacturing and procurement), natural resources and energy (e.g. nuclear facilities, alternative energy delivery), politically sensitive business, broadcasting, banking, [[demerit good]]s (e.g. [[alcoholic beverage]]s), and [[merit good]]s (healthcare).

==== Infant industries ====
SOEs can also help foster industries that are "considered economically desirable and that would otherwise not be developed through private investments".<ref name=Kowalskietal>{{cite journal|author=Kowalski, P., Büge, M., Sztajerowska, M. and Egeland, M. (2013)|title=State-Owned Enterprises: Trade Effects and Policy Implications |url=http://baobab.uc3m.es/monet/monnet/IMG/pdf/5k4869ckqk7l_1_.pdf|journal=OECD Trade Policy Papers |number=147}}</ref> When nascent or 'infant' industries have difficulty getting investments from the private sector (perhaps because the good that is being produced requires very risky investments, when patenting is difficult, or when [[spillover effect]]s exist), the government can help these industries get on the market with positive economic effects. However, the government cannot necessarily predict which industries would qualify as such 'infant industries', and so the extent to which this is a viable argument for SOEs is debated.<ref name=Baldwin>{{cite web|author=Baldwin, R. E. |year=1969|title=The case against infant-industry tariff protection |url=http://mcadams.posc.mu.edu/econ/Baldwin,%2520Case%2520Against%2520Infant%2520Industry.pdf |publisher=Journal of political economy |volume=77 |issue=3 |pages=295–305}}</ref>

=== Political reasons ===
SOEs are also frequently employed in areas where the government wants to levy [[user fee|user fees]], but finds it politically difficult to introduce new taxation. Next, SOEs can be used to improve efficiency of public service delivery or as a step towards (partial) privatization or hybridization. SOEs can also be a means to alleviate fiscal stress, as SOEs may not count towards states' budgets.

== Effects ==
=== Compared to government bureaucracy ===
Compared to government bureaucracy, state owned enterprises might be beneficial because they reduce politicians' influence over the service.<ref name=ShleiferVishny94>{{cite journal|last=Shleifer, Andrei, and Robert W. Vishny (1994)|title=Politicians and firms|journal=The Quarterly Journal of Economics|volume=109|issue=4|pages=995–1025|url=https://academic.oup.com/qje/article-abstract/109/4/995/1866508?redirectedFrom=fulltext|doi=10.2307/2118354|jstor=2118354|year=1994}}</ref><ref name=ShleiferVishny97>{{cite journal|last=Shleifer, Andrei, and Robert W. Vishny (1997)|title=A survey of corporate governance|journal=The Quarterly Journal of Economics|volume=109|issue=4|pages=995–1025|url=https://academic.oup.com/qje/article-abstract/109/4/995/1866508?redirectedFrom=fulltext|doi=10.2307/2118354|jstor=2118354|year=1994}}</ref> Conversely, they might be detrimental because they reduce oversight and increase [[transaction costs]] (such as monitoring costs, i.e., it is more difficult and costly to govern and regulate an autonomous SOE than it is the public bureaucracy). Evidence suggests that existing SOEs are typically more efficient than government bureaucracy, but that this benefit diminishes as services get more technical and have less overt public objectives.<ref name=Voornetal />

=== Compared to regular enterprises ===
Compared to a regular enterprise, state-owned enterprises are typically expected to be less efficient due to political interference, but unlike profit-driven enterprises they are more likely to focus on public objectives.<ref name=ShleiferVishny97 />

== Around the world ==
{{main|List of government-owned companies}}
In [[Eastern Europe]] and [[Western Europe]], there was a massive [[nationalization]] throughout the 20th century, especially after [[World War II]]. In [[Eastern Bloc]], countries adopted very similar policies and models to the USSR. Governments in Western Europe, both left and right of centre, saw state intervention as necessary to rebuild economies shattered by war.<ref>{{cite news|newspaper=[[The Economist]] |date= 4 January 2014|title= All Men Are Created Unequal |quotation=Quote: «The wars and depressions between 1914 and 1950 dragged the wealthy back to earth. Wars brought physical destruction of capital, nationalisation, taxation and inflation» |url= https://www.economist.com/news/finance-and-economics/21592635-revisiting-old-argument-about-impact-capitalism-all-men-are-created |access-date=27 September 2015}}</ref> Government control over [[natural monopoly|natural monopolies]] like [[Industry (economics)|industry]] was the norm. Typical sectors included [[telecommunications company|telephones]], [[electrical power industry|electric power]], [[fossil fuels]], [[railway company|railways]], [[airline]]s, [[state media|media]], [[mail|postal services]], [[bank]]s, and [[Water industry|water]]. Many large industrial corporations were also nationalized or created as government corporations, including, among many others: [[British Steel Corporation]], [[Statoil]] and [[Irish Sugar]].<ref name=":0">Starting in the late 1970s and accelerating through the 1980s and 1990s many of these corporations were [[privatization|privatized]], though many still remain wholly or partially owned by the respective governments.</ref>

A state-run enterprise may operate differently from an ordinary limited liability corporation. For example, in Finland, state-run enterprises (''liikelaitos'') are governed by a separate laws. Even though responsible for their own finances, they cannot be declared [[bankrupt]]; the state answers for the liabilities. Stocks of the corporation are not sold and loans have to be government-approved, as they are government liabilities.

In most [[OPEC]] countries, the governments own the oil companies operating on their soil. A notable example is the [[Saudi Arabia|Saudi Arabian]] [[national oil company]], [[Saudi Aramco]], which the Saudi government bought in 1988, changing its name from Arabian American Oil Company to Saudi Arabian Oil Company. The Saudi government also owns and operates [[Saudia|Saudi Arabian Airlines]], and owns 70% of [[SABIC]] as well as many other companies.{{Citation needed|date=July 2018}}

In the EU directives were issued, and signed into law in member countries, that railways should be split into branches. So where everything from infrastructure to running the trains had been in one company (often owned by the local state or other authorities), now the various activities were to be separated into independent companies. A major motivation was to more easily enable free access to run trains in the various countries, and thereby increase competition and offer lower fees.

== Economic theory ==
In economic theory, the question of whether a firm should be owned by the state or by the private sector is studied in the theory of [[incomplete contracts]] that was developed by [[Oliver Hart (economist)|Oliver Hart]] and his co-authors.<ref>{{Cite journal|last=Hart|first=Oliver|date=2017|title=Incomplete Contracts and Control|journal=American Economic Review|language=en|volume=107|issue=7|pages=1731–1752|doi=10.1257/aer.107.7.1731|issn=0002-8282}}</ref> In a world in which complete contracts were feasible, ownership would not matter because the same incentive structure that prevails under one ownership structure could be replicated under the other ownership structure. Hart, Shleifer, and Vishny (1997) have developed the leading application of the incomplete contract theory to the issue of state-owned enterprises.<ref>{{Cite journal|last1=Hart|first1=O.|last2=Shleifer|first2=A.|last3=Vishny|first3=R. W.|date=1997|title=The Proper Scope of Government: Theory and an Application to Prisons|journal=The Quarterly Journal of Economics|language=en|volume=112|issue=4|pages=1127–1161|doi=10.1162/003355300555448|issn=0033-5533|url=http://nrs.harvard.edu/urn-3:HUL.InstRepos:30727607|citeseerx=10.1.1.318.7133|s2cid=16270301}}</ref> These authors compare a situation in which the government is in control of a firm to a situation in which a private manager is in control. The manager can invest to come up with cost-reducing and quality-enhancing innovations. The government and the manager bargain over the implementation of the innovations. If the negotiations fail, the owner can decide about the implementation. It turns out that when cost-reducing innovations do not harm quality significantly, then private firms are to be preferred. Yet, when cost-reductions may strongly reduce quality, state-owned enterprises are superior. Hoppe and Schmitz (2010) have extended this theory in order to allow for a richer set of governance structures, including different forms of [[Public–private partnership|public-private partnerships]].<ref>{{Cite journal|last1=Hoppe|first1=Eva I.|last2=Schmitz|first2=Patrick W.|date=2010|title=Public versus private ownership: Quantity contracts and the allocation of investment tasks|journal=Journal of Public Economics|volume=94|issue=3–4|pages=258–268|doi=10.1016/j.jpubeco.2009.11.009|issn=0047-2727}}</ref>

== See also ==
{{portal|Companies}}
{{columns-list|
* [[Corporatism]]
* [[Dirigisme]]
* [[List of government-owned airlines]]
* [[List of government-owned companies]]
* [[Nationalization]]
* [[Public bodies]]
* [[Public ownership]]
* [[Quango]]
* [[State capitalism]]
* [[Statutory body]]
* [[Volkseigener Betrieb]]}}

== References ==

=== Citations ===
{{Reflist|30em}}

=== Sources ===
* {{citation |title = Profiles of Existing Government Corporations—A Study Prepared by the U.S. General Accounting Office for the Committee on Government Operations |date=1988 |id = GAO/AFMD-89-43FS Document: H402-4 |location= Washington, DC |publisher = U.S. Government Printing Office |url = http://www.gao.gov/assets/90/88616.pdf|page = 301}}. [http://www.yumpu.com/en/document/view/6535622/profiles-of-existing-government-corporations-us-government- Alternate location:]
* {{citation |title=Malaysia GLC OpenDay 2015 |url=http://www.glcopenday.com.my/exhibitors.html |url-status=dead |archive-url=https://web.archive.org/web/20151025042213/http://www.glcopenday.com.my/exhibitors.html |archive-date=2015-10-25 }}.

== Further reading ==
{{Library resources box}}

* [http://www.egwald.ca/economics/econpage.php3 The Public Firm with Managerial Incentives] by Elmer G. Wiens.

{{State-owned enterprises by country|North America}}
{{State-owned enterprises by country|South America}}
{{State-owned enterprises by country|Europe}}
{{State-owned enterprises by country|Africa}}
{{State-owned enterprises by country|Asia}}
{{State-owned enterprises by country|Oceania}}
{{Authority control}}

[[Category:Government-owned companies|*]]
[[Category:Types of business entity]]

State-owned enterprise - Revision history

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