Balancing Commercial and Non-Commercial Priorities of State-Owned Enterprises

The overarching question for the government owners of state-owned enterprises (SOEs) is why these companies need to be owned by the state. The OECD Guidelines on Corporate Governance of State-Owned Enterprises provides a “blueprint” for the corporatisation and commercialisation of such enterprises, but it may be assumed that the reason for continued state ownership is that they are expected to act differently from private companies. A relatively clear case occurs when SOEs are established with the purpose of pursuing mostly non-commercial activities. In many cases, their activities might otherwise be carried out by government institutions the SOE incorporation has been chosen mostly on efficiency grounds.A number of other rationales for public ownership of enterprises have been offered, including: (i) monopolies in sectors where competition and market regulation is not deemed feasible or efficient (ii) market incumbency, for instance in sectors where competition has been introduced but a state-owned operator remains responsible for public service obligations (iii) imperfect contracts, where those public service obligations that SOEs are charged with are too complex or malleable to be laid down in service contracts (iv) industrial policy or development strategies, where SOEs are being used to overcome obstacles to growth or correct market imperfections...      