State ownership, also called government ownership and public ownership, is the ownership of an

industry Industry may refer to: Economics * Industry (economics), a generally categorized branch of economic activity * Industry (manufacturing), a specific branch of economic activity, typically in factories with machinery * The wider industrial sector ...

asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...

, or

enterprise Enterprise (or the archaic spelling Enterprize) may refer to: Business and economics Brands and enterprises * Enterprise GP Holdings, an energy holding company * Enterprise plc, a UK civil engineering and maintenance company * Enterpris ...

by the

state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States * ''Our S ...

or a public body representing a community, as opposed to an

individual An individual is that which exists as a distinct entity. Individuality (or self-hood) is the state or quality of being an individual; particularly (in the case of humans) of being a person unique from other people and possessing one's own Maslow ...

or private party. Public ownership specifically refers to industries selling goods and services to consumers and differs from public goods and government services financed out of a government's general budget. Public ownership can take place at the

national National may refer to: Common uses * Nation or country ** Nationality – a ''national'' is a person who is subject to a nation, regardless of whether the person has full rights as a citizen Places in the United States * National, Maryland, c ...

regional In geography, regions, otherwise referred to as zones, lands or territories, are areas that are broadly divided by physical characteristics (physical geography), human impact characteristics (human geography), and the interaction of humanity and t ...

local Local may refer to: Geography and transportation * Local (train), a train serving local traffic demand * Local, Missouri, a community in the United States * Local government, a form of public administration, usually the lowest tier of administrat ...

, or

municipal A municipality is usually a single administrative division having corporate status and powers of self-government or jurisdiction as granted by national and regional laws to which it is subordinate. The term ''municipality'' may also mean the go ...

levels of government; or can refer to non-governmental public ownership vested in autonomous

public enterprise A state-owned enterprise (SOE) is a government entity which is established or nationalised by the ''national government'' or ''provincial government'' by an executive order or an act of legislation in order to earn profit for the government ...

s. Public ownership is one of the three major forms of property ownership, differentiated from private, collective/

cooperative A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-control ...

, and

common ownership Common ownership refers to holding the assets of an organization, enterprise or community indivisibly rather than in the names of the individual members or groups of members as common property. Forms of common ownership exist in every economi ...

. In

market-based A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers are ...

economies, state-owned assets are often managed and operated as joint-stock corporations with a government owning all or a controlling stake of the company's shares. This form is often referred to as a

state-owned enterprise A state-owned enterprise (SOE) is a Government, government entity which is established or nationalised by the ''national government'' or ''provincial government'' by an executive order or an act of legislation in order to earn Profit (econom ...

. A state-owned enterprise might variously operate as a

not-for-profit corporation A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...

, as it may not be required to generate a profit; as a commercial enterprise in competitive sectors; or as a

natural monopoly A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming adv ...

. Governments may also use the profitable entities they own to support the general budget. The creation of a state-owned enterprise from other forms of public property is called

corporatization Corporatization is the process of transforming and restructuring state assets, government agencies, public organizations, or municipal organizations into corporations. It involves the adoption and application of business management practices and ...

. In

Soviet-type economies Soviet-type economic planning (STP) is the specific model of centralized planning employed by Marxist–Leninist socialist states modeled on the economy of the Soviet Union (USSR). The post-''perestroika'' analysis of the system of the Soviet e ...

, state property was the dominant form of industry as property. The state held a monopoly on land and natural resources, and enterprises operated under the legal framework of a nominally

planned economy A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, part ...

, and thus according to different criteria than enterprises in market and mixed economies.

Nationalization Nationalization (nationalisation in British English) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization usually refers to pri ...

is a process of transferring private or municipal assets to a central government or state entity.

Municipalization Municipalization is the transfer of private entities, assets, service providers, or corporations to public ownership by a municipality, including (but not limited to) a city, county, or public utility district ownership. The transfer may be from pr ...

is the process of transferring private or state assets to a municipal government.

State-owned enterprise

A state-owned enterprise is a commercial enterprise owned by a government entity in a

capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, priva ...

market or

mixed economy A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economi ...

. Reasons for state ownership of commercial enterprises are that the enterprise in question is a

or because the government is promoting

economic development In the economics study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and o ...

and

industrialization Industrialisation ( alternatively spelled industrialization) is the period of social and economic change that transforms a human group from an agrarian society into an industrial society. This involves an extensive re-organisation of an econo ...

. State-owned enterprises may or may not be expected to operate in a broadly commercial manner and may or may not have

monopolies A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...

in their areas of activity. The transformation of public entities and government agencies into government-owned corporations is sometimes a precursor to

privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...

State capitalist State capitalism is an economic system in which the state undertakes business and commercial (i.e. for-profit) economic activity and where the means of production are nationalized as state-owned enterprises (including the processes of capital ac ...

economies are capitalist market economies that have high degrees of government-owned businesses.

Relation to socialism

Public ownership of the

means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...

is a subset of

social ownership Social ownership is the appropriation of the surplus product, produced by the means of production, or the wealth that comes from it, to society as a whole. It is the defining characteristic of a socialist economic system. It can take the form o ...

, which is the defining characteristic of a

socialist Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the e ...

economy. However, state ownership and nationalization by themselves are not socialist, as they can exist under a wide variety of different

political Politics (from , ) is the set of activities that are associated with making decisions in groups, or other forms of power relations among individuals, such as the distribution of resources or status. The branch of social science that studies ...

and

economic system An economic system, or economic order, is a system of Production (economics), production, resource allocation and Distribution (economics), distribution of goods and services within a society or a given geographic area. It includes the combinati ...

s for a variety of different reasons. State ownership by itself does not imply social ownership where income rights belong to society as a whole. As such, state ownership is only one possible expression of public ownership, which itself is one variation of the broader concept of social ownership. In the context of socialism, public ownership implies that the surplus product generated by publicly owned assets accrues to all of society in the form of a

social dividend The social dividend is the return on the capital assets and natural resources owned by society in a socialist economy. The concept notably appears as a key characteristic of market socialism, where it takes the form of a dividend payment to each ...

, as opposed to a distinct class of private capital owners. There is a wide variety of organizational forms for state-run industry, ranging from specialized technocratic management to direct

workers' self-management Workers' self-management, also referred to as labor management and organizational self-management, is a form of organizational management based on self-directed work processes on the part of an organization's workforce. Self-management is a def ...

. In traditional conceptions of non-market socialism, public ownership is a tool to consolidate the means of production as a precursor to the establishment of

economic planning Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources b ...

for the allocation of resources between organizations, as required by government or by the state. State ownership is advocated as a form of social ownership for practical concerns, with the state being seen as the obvious candidate for owning and operating the means of production. Proponents assume that the state, as the representative of the

public interest The public interest is "the welfare or well-being of the general public" and society. Overview Economist Lok Sang Ho in his ''Public Policy and the Public Interest'' argues that the public interest must be assessed impartially and, therefore ...

, would manage resources and production for the benefit of the public. As a form of social ownership, state ownership may be contrasted with cooperatives and common ownership. Socialist theories and political ideologies that favor state ownership of the means of production may be labelled

state socialism State socialism is a political and economic ideology within the socialist movement that advocates state ownership of the means of production. This is intended either as a temporary measure, or as a characteristic of socialism in the transition fr ...

. State ownership was recognized by

Friedrich Engels Friedrich Engels ( ,"Engels"
'' Labour Party (a

centre-left Centre-left politics lean to the left on the left–right political spectrum but are closer to the centre than other left-wing politics. Those on the centre-left believe in working within the established systems to improve social justice. The c ...

democratic socialist Democratic socialism is a left-wing political philosophy that supports political democracy and some form of a socially owned economy, with a particular emphasis on economic democracy, workplace democracy, and workers' self-management within ...

party), specifically due to the creation of

Clause IV Clause IV is part of the Labour Party Rule Book, which sets out the aims and values of the (UK) Labour Party. The original clause, adopted in 1918, called for common ownership of industry, and proved controversial in later years; Hugh Gaitskell a ...

of the "Labour Party Manifesto" in 1918. "Clause IV" was written by

Fabian Society The Fabian Society is a British socialist organisation whose purpose is to advance the principles of social democracy and democratic socialism via gradualist and reformist effort in democracies, rather than by revolutionary overthrow. The Fa ...

member

Sidney Webb Sidney James Webb, 1st Baron Passfield, (13 July 1859 – 13 October 1947) was a British socialist, economist and reformer, who co-founded the London School of Economics. He was an early member of the Fabian Society in 1884, joining, like Geo ...

User rights

When ownership of a resource is vested in the state, or any branch of the state such as a

local authority Local government is a generic term for the lowest tiers of public administration within a particular sovereign state. This particular usage of the word government refers specifically to a level of administration that is both geographically-loca ...

, individual use "rights" are based on the state's management policies, though these rights are not

property rights The right to property, or the right to own property (cf. ownership) is often classified as a human right for natural persons regarding their possessions. A general recognition of a right to private property is found more rarely and is typically ...

as they are not transmissible. For example, if a family is allocated an apartment that is state owned, it will have been granted a

tenancy A leasehold estate is an ownership of a temporary right to hold land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor or landlord. Although a tenant does hold rights to real property, a l ...

of the apartment, which may be lifelong or inheritable, but the management and control rights are held by various

government department Ministry or department (also less commonly used secretariat, office, or directorate) are designations used by first-level executive bodies in the machinery of governments that manage a specific sector of public administration." Энцикло� ...

Public property

There is a distinction to be made between state ownership and

public property Public property is property that is dedicated to public use. The term may be used either to describe the use to which the property is put, or to describe the character of its ownership (owned collectively by the population of a state). This is in ...

. The former may refer to assets operated by a specific state institution or branch of government, used exclusively by that branch, such as a research laboratory. The latter refers to assets and resources that are available to the entire public for use, such as a public park (see

public space A public space is a place that is open and accessible to the general public. Roads (including the pavement), public squares, parks, and beaches are typically considered public space. To a limited extent, government buildings which are open to ...

Criticism

In neoclassical economic theory, the desirability of state ownership has been studied using

contract theory From a legal point of view, a contract is an institutional arrangement for the way in which resources flow, which defines the various relationships between the parties to a transaction or limits the rights and obligations of the parties. From an ...

. According to the property rights approach based on incomplete contracting (developed by Oliver Hart and his co-authors), ownership matters because it determines what happens in contingencies that were not considered in prevailing contracts. The work by Hart, Shleifer and Vishny (1997) is the leading application of the property rights approach to the question whether state ownership or private ownership is desirable. In their model, the government and a private firm can invest to improve the quality of a public good and to reduce its production costs. It turns out that private ownership results in strong incentives to reduce costs, but it may also lead to poor quality. Hence, depending on the available investment technologies, there are situations in which state ownership is better. The Hart-Shleifer-Vishny theory has been extended in many directions. For instance, some authors have also considered mixed forms of private ownership and state ownership. Moreover, the Hart-Shleifer-Vishny model assumes that the private party derives no utility from provision of the public good. Besley and Ghatak (2001) have shown that if the private party (a non-governmental organization) cares about the public good, then the party with the larger valuation of the public good should always be the owner, regardless of the parties' investment technologies. More recently, some authors have shown that the investment technology also matters in the Besley-Ghatak framework if an investing party is indispensable or if there are bargaining frictions between the government and the private party.

State-owned enterprise

Relation to socialism

User rights

Public property

Criticism

See also

References

Further reading