a post by Taz Chaponda in the PFM (Public Financial Management) Blog from the IMF (International Monetary Fund)
The problems associated with state-owned enterprises (SOEs) are well known. They are very costly to run, few of them make profits, or if they do, they tend not to pay dividends on a consistent basis. This problem is more applicable to developing countries and emerging markets than to advanced economies. In the latter, deregulation has sharply reduced the number of SOEs and improved their performance. But in emerging markets, SOEs are still pervasive and their failure can result in huge economic and fiscal costs. Given these risks, why do governments continue to keep them?
To understand the ubiquitous nature of SOEs, it is necessary to go back in history to when governments set up dedicated entities to provide services that were viewed as having some “public good” characteristics, or where natural monopolies existed. It was argued, that certain essential services could not be left to the private sector as it would not supply these services reliably to everyone that needed access (think of public utilities). Another argument was to promote industrialization by investing in strategic sectors through SOEs. Economies in East Asia led the way in this respect.
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