State-owned enterprises in the modern economy: the objectives and determinants of efficiency

Abstract

This article aims to identify the conditions under which state-owned enterprises can be beneficial to a modern capitalist economy. These enterprises face two major issues: multiple financial and non-financial objectives and their assessment; and rent-seeking by politicians. The analysis is based on a critical review of the contemporary literature and on empirical research into state ownership. The fundamental preconditions for efficiency and innovation of state-owned enterprises, and their positive impact on economic growth, are high quality state institutions and good ownership policy. Absent that and rent-seeking by politicians will inevitably lead to a decline in efficiency.

Keywords

• efficiency
• state-owned enterprises
• ownership policy
• state institutions
• rent-seeking