A state-owned enterprise (SOE) is a business entity created or owned by a national or local government, either through an executive order or legislation.
SOEs have a distinct legal structure, with financial and developmental goals, like making services more accessible while earning profit (such as a state railway).
First, it is debatable what the term "state" implies (e.g., it is unclear whether municipally owned corporations and enterprises held by regional public bodies are considered state-owned).
Hart, Shleifer, and Vishny (1997) have developed the leading application of the incomplete contract theory to the issue of state-owned enterprises.
Hoppe and Schmitz (2010) have extended this theory in order to allow for a richer set of governance structures, including different forms of public-private partnerships.
[12] SOEs are common with natural monopolies, because they allow capturing economies of scale while they can simultaneously achieve a public objective.
[citation needed] SOEs can also help foster industries that are "considered economically desirable and that would otherwise not be developed through private investments".
[14] SOEs are also frequently employed in areas where the government wants to levy user fees, but finds it politically difficult to introduce new taxation.
[citation needed] Compared to government bureaucracy, state owned enterprises might be beneficial because they reduce politicians' influence over the service.
Evidence suggests that existing SOEs are typically more efficient than government bureaucracy, but that this benefit diminishes as services get more technical and have less overt public objectives.
[16] China's state-owned enterprises generally own and operate public services, resource extraction or defense.
[citation needed] China's SOEs perform functions such as: contributing to central and local governments revenues through dividends and taxes, supporting urban employment, keeping key input prices low, channeling capital towards targeted industries and technologies, supporting sub-national redistribution to poorer interior and western provinces, and aiding the state's response to natural disasters, financial crises and social instability.
Governments in Western Europe, both left and right of centre, saw state intervention as necessary to rebuild economies shattered by war.
Typical sectors included telephones, electric power, fossil fuels, iron ore, railways, airlines, media, postal services, banks, and water.