State-owned enterprise facts for kids
A state-owned enterprise (SOE) is a business that belongs mostly to the government. Governments create or take over these businesses for several reasons. They might want to make money for the country, control important services, or offer products and services at lower prices. SOEs also help deliver goods to faraway places or carry out government plans. The government usually owns more than half of these businesses. In some countries, they are also called public sector undertakings. SOEs have their own legal structure and aim to make money while also helping the public. For example, a state railway company might want to make travel easier for everyone and earn money for the government.
What are SOEs?
The name "state-owned enterprise" can sometimes be a bit confusing. Each part of the name can be understood in different ways.
What "State" Means
It's not always clear what "state" means. Does it include businesses owned by cities or local governments? Or just those owned by the national government?
What "Owned" Means
It's also tricky to say when a business is truly "owned" by the state. Some SOEs are fully owned by the government. Others are only partly owned. It's hard to decide how much ownership makes a business "state-owned." Governments can also own regular shares in companies without controlling them.
What "Enterprise" Means
The word "enterprise" usually means a private business. But SOEs are different because they are linked to the government. So, people often use words like "corporation" instead of "enterprise."
Other Names for SOEs
Because of these confusions, SOEs have many other names. These include:
- State-owned company
- Publicly owned corporation
- Government business enterprise
- Government-owned company
- Government-sponsored enterprise
- Parastatal
In countries like Canada and the United Kingdom, national SOEs are often called "Crown corporations." This is because government ministers, called "Ministers of the Crown," often control their shares.
Sometimes, you might hear the term "government-linked company" (GLC). This refers to companies where the government owns some shares through a holding company. A company is often called a GLC if the government owns more than 50% of it. Some people also say any company with a government as a shareholder is a GLC.
When a part of the government becomes an SOE, it's called corporatization.
Why Governments Use SOEs
Governments use SOEs for different reasons, both economic and political.
Economic Reasons
Natural Monopolies
SOEs are often used for "natural monopolies." These are services where it makes sense for only one company to provide them, like railway systems. This is because one large company can do it more cheaply than many small ones. SOEs can run these services and still help the public. This is why SOEs often handle things like:
- Railways
- Postal services
- Making weapons
- Natural resources and energy (like nuclear power)
- Banking
- Broadcasting
- Water services
Helping New Industries
SOEs can also help new industries grow. Sometimes, private companies don't want to invest in very new or risky industries. This might be because it's hard to make money from them at first. The government can step in with an SOE to help these "infant industries" get started. This can be good for the economy. However, it's hard for governments to know which new industries will succeed. So, people often debate if this is a good reason for SOEs.
Political Reasons
Governments might use SOEs when they want to charge fees for a service but don't want to create new taxes. SOEs can also make public services more efficient. They can even be a step towards selling off parts of the business to private companies later. Also, SOEs might not count towards a country's official budget, which can help with financial stress.
How SOEs Work
SOEs work differently from regular government offices and private businesses.
Compared to Government Offices
SOEs can be better than regular government offices because politicians might have less direct control over them. This can make them more efficient. However, it can also mean less public oversight. It can be harder and more costly to manage an independent SOE than a government department. Studies show that SOEs are usually more efficient than government offices. But this benefit lessens when services become very technical or have fewer clear public goals.
Compared to Private Businesses
Compared to a regular private business, SOEs are often expected to be less efficient. This is because political decisions can sometimes get in the way. However, unlike private companies that focus only on making money, SOEs are more likely to focus on what the government wants to achieve for the public.
SOEs Around the World
SOEs are found in many countries, but their role and history can be very different.
SOEs in Europe
After World War II, many countries in Europe took over private businesses. This was called "nationalization." Governments, both left and right-wing, felt they needed to control key industries to rebuild their economies. It became normal for governments to control natural monopolies like:
- Telephones
- Electricity
- Oil and gas
- Railways
- Airlines
- Media
- Postal services
- Banks
- Water
Many large companies were also nationalized or created by governments. Examples include British Steel Corporation and Statoil.
In Finland, state-run businesses are special. They manage their own money but cannot go bankrupt. The government is responsible for their debts. Their shares are not sold, and they need government approval for loans.
In Belarus, SOEs are a big part of the economy. About 70% of all jobs are in state-owned or state-controlled businesses. This helps Belarus have a high employment rate and stable jobs.
SOEs in OPEC Countries
Most countries in OPEC (Organization of the Petroleum Exporting Countries) own the oil companies in their land. For example, the Saudi Arabian government bought Saudi Aramco in 1988. The Saudi government also owns Saudi Arabian Airlines and a large part of SABIC, a big chemical company.
SOEs in China
China has more SOEs than any other country. They are managed by the State-owned Asset Supervision and Administration Commission (SASAC). China's SOEs often run public services, extract resources, or work in defense.
As of 2017, China's SOEs are very important. They help the government by:
- Bringing in money through taxes and profits.
- Providing jobs in cities.
- Keeping prices low for important goods.
- Directing money to specific industries and technologies.
- Helping poorer areas of the country.
- Helping the government respond to natural disasters and financial problems.
China's SOEs are also building many new seaports around the world. Many of these projects are part of the "Belt and Road Initiative."
SOEs in India
In India, government businesses are known as Public Sector Undertakings (PSUs).
See also
- Corporatism
- Dirigisme
- List of government-owned airlines
- List of government-owned companies
- Nationalization
- Public bodies
- Public ownership
- Quango
- State capitalism
- Statutory body
- Volkseigener Betrieb
