State-owned enterprise

A state-owned enterprise, often called an SOE, is a business entity owned by a government. A central or local government can create these through specific laws or executive orders. In most cases, the government holds either full or majority ownership of the company. These organizations are unique because they have two different goals. They aim to earn a profit for the government, but they also work to meet social or developmental needs. For example, a state railway might focus on making travel affordable for everyone while still trying to earn money.

There are several ways these businesses function. Some are fully owned by the state, while others are only partially owned. In some places, like Canada, they are called Crown corporations. In New Zealand, they are known as Crown entities. In Malaysia, the term government-linked company (GLC) is often used. A GLC can be a private company where the government has bought a large stake. If the government owns more than 50% of the company, it is said to have a controlling interest. The process of turning a government department into a business is called corporatization.

Economists study why a government might choose to own a business instead of letting private companies do it. One reason involves what is called a natural monopoly. This happens when a single large company can provide a service more efficiently than many small ones. Because of this, SOEs often manage infrastructure like railways or electric power. They also handle strategic goods like postal services, arms manufacturing, or energy resources. By controlling these, the government can ensure that essential services reach everyone, even in remote areas.

Governments also use SOEs to support "infant industries." These are new or young industries that might be too risky for private investors. Private companies might avoid these industries because they require large amounts of money or have uncertain outcomes. An SOE can provide the necessary investment to help these new sectors grow. Once the industry is stable, it can contribute more to the economy. However, experts debate how well governments can predict which industries will actually succeed.

Comparing SOEs to other organizations reveals different strengths and weaknesses. Compared to a standard government bureaucracy, an SOE might be more efficient. This is because they often have more independence from politicians. However, they can also be harder to monitor, which increases the cost of regulation. When compared to private companies, SOEs are often seen as less efficient. This is sometimes due to political interference in their business decisions. Yet, unlike private firms that focus mostly on profit, SOEs prioritize government policies and social needs.

Different countries have used SOEs to change their economies in massive ways. During the Meiji era, Japan used state intervention to build modern industries like railways. In the 20th century, many European nations used nationalization to rebuild after World War II. This involved the government taking control of sectors like telephones, banks, and water services. While many of these were later sold to private owners through privatization, some still remain under state control. In the Eastern Bloc during the 20th century, many countries followed models similar to the USSR.

Today, SOEs play a huge role in the global economy. China has more state-owned enterprises than any other country. These companies help the government by paying taxes, supporting jobs, and helping during natural disasters. China's SOEs are also leaders in building seaports through the Belt and Road Initiative. In the Middle East, many OPEC countries own the oil companies on their land. For example, the Saudi government owns Saudi Aramco, which it renamed from the Arabian American Oil Company in 1988.

Other nations also see significant success from these entities. In Africa, Ethiopian Airlines is the largest and most profitable airline on the continent. In the Philippines, the Landbank of the Philippines was the most profitable SOE for the 2024 financial year. This shows how these businesses can be major contributors to a nation's wealth. Whether they are managing energy, transport, or finance, state-owned enterprises remain a powerful tool for shaping how a society functions.