Introduction
A state-owned enterprise (SOE) is a commercial enterprise owned either fully or partially by the government or state. They are also known as publicly owned corporation, or state-owned company/ corporation. These enterprises are normally created as part of a national economic development policy. China is home to some of the world’s largest SOEs which play an important role in the Chinese economy while they make up a significant portion of the world’s total enterprise assets.
Reasons Why State-Owned Enterprises Were Created
• To promote economic development: SOEs may be used to pursue economic policies other than free market operating principles and therefore can be considered as a tool of public intervention.
• To foster industrialisation/infrastructure development: SOEs are also often used as a way to develop certain industries, such as infrastructure (roads, power grids, etc) which may not necessarily be able attract private investment.
• To generate returns: It is also assumed that SOEs may provide an avenue for the government to generate a return on their investment by engaging in profitable business practices, such as listing their company on stock exchanges.
• To provide political support: SOEs can also be used as a way for governments to maintain control over strategic industries and increase the social visibility of their activities.
Effect of State-Owned Enterprises on the Economy
• Impact on economic growth and employment: SOEs may have a positive or negative effect on economic growth. For instance, they can provide a stable source of employment, which can be beneficial for the economy. On the other hand, these enterprises can also exert an influence on the economic and political decisions of the government, which may be negative.
• Affordability: SOEs, due to the fact that they are subsidized by the government and have access to a wealth of resources, can often be more affordable than the private sector. This could potentially lead to an unequal playing field, as private companies may be unable to compete with the government-subsidized prices.
Conclusion
State-owned enterprises play an important role in the economies of many countries around the world, providing stability and helping to foster economic growth. However, as with any form of government intervention in the market, there are both positive and negative impacts associated with SOEs. It is up to the governments to ensure that these enterprises are regulated in order to prevent any negative impacts that they may have on the economy.
