Process
Status Items Output None Questions None Claims None Highlights Done See section below
Highlights
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Governments frequently resort to operating their own enterprises only when the private sector fails.
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For advocates of public ownership, this is a little unfortunate as it means that SOEs are disproportionately concentrated in extremely challenging business situations, meaning that losing money is more likely than not, which then gives rhetorical fuel to those who are ideologically opposed to public enterprise.
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when governments do run SOEs in highly lucrative sectors, like oil and gas, they tend to be cash cows and the knock against them is just that they are playing on easy mode.
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Unlike private businesses, SOEs can decide that a particular enterprise serves a social or policy purpose that justifies a negative cash flow.
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The best framework I’ve seen for state ownership comes from Norway. There, the government has placed each of its sixty-nine SOEs into one of two categories.
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first category is “companies where the state’s goal is the highest possible return over time in a sustainable manner.” These are generally cash cow SOEs concentrated in natural resource and natural monopoly sectors.
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second category is “companies for which the state’s goal is … the most efficient possible attainment of public policy goals.” This category is quite diverse and includes companies dedicated to ensuring universal access to things like arts and transportation even when doing so is money-losing in certain areas.
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Norway also outlines the specific public policy goal and special framework for each category-two company, which then allows it to effectively evaluate whether the SOE is achieving its public policy goal in the most efficient way.
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it should be aiming to have the best cash flow outcome that is compatible with the achievement of the public policy purpose.
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Clearly defined goals and purposes do not guarantee SOE success. But the lack of them more or less guarantees failure.