State ownership, also called public ownership or government 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 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 of ownership that can b ...

property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, re ...

, 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 national government of a country or

state State most commonly refers to: * State (polity), a centralized political organization that regulates law and society within a territory **Sovereign state, a sovereign polity in international law, commonly referred to as a country **Nation state, a ...

, or a

public body A statutory corporation is a government entity created as a statutory body by statute. Their precise nature varies by jurisdiction, but they are corporations owned by a government or controlled by national or sub-national government to the (in ...

representing a community, as opposed to an

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

or private party. Public ownership specifically refers to industries selling goods and services to consumers and differs from

public good In economics, a public good (also referred to as a social good or collective good)Oakland, W. H. (1987). Theory of public goods. In Handbook of public economics (Vol. 2, pp. 485–535). Elsevier. is a commodity, product or service that is bo ...

s 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 areas, zones, lands or territories, are portions of the Earth's surface that are broadly divided by physical characteristics (physical geography), human impact characteristics (human geography), and ...

local Local may refer to: Geography and transportation * Local (train), a train serving local traffic demand * Local, Missouri, a community in the United States Arts, entertainment, and media * ''Local'' (comics), a limited series comic book by Bria ...

, 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 gov ...

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

public enterprise 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 aim to generate profit for the government, prevent private sector monopolies, provide goo ...

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

collective A collective is a group of entities that share or are motivated by at least one common issue or interest or work together to achieve a common objective. Collectives can differ from cooperatives in that they are not necessarily focused upon an e ...

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

, 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. The major characteristic of a market ...

economies, state-owned assets are often managed and operated as

joint-stock corporation A joint-stock company (JSC) is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholder ...

s with a government owning all or a controlling stake of the company's

shares In financial markets, a share (sometimes referred to as stock or equity) is a unit of equity ownership in the capital stock of a corporation. It can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Sha ...

. This form is often referred to as a

state-owned enterprise 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 aim to generate profit for the government, prevent private sector monopolies, provide goo ...

. A state-owned enterprise might variously operate as a

Nonprofit corporation A nonprofit corporation is any legal entity which has been incorporated under the law of its jurisdiction for purposes other than making profits for its owners or shareholders. Depending on the laws of the jurisdiction, a nonprofit corporation ma ...

, 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 an ...

. 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. The post-''perestroika'' analysis of the system of the Soviet econ ...

, 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, ...

, 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 contrasts with p ...

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 p ...

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 use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...

market or

mixed economy A mixed economy is an economic system that includes both elements associated with capitalism, such as private businesses, and with socialism, such as nationalized government services. More specifically, a mixed economy may be variously de ...

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

or because the government is promoting

economic development In economics, economic development (or 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 object ...

and

industrialization Industrialisation (British English, UK) American and British English spelling differences, or industrialization (American English, US) is the period of social and economic change that transforms a human group from an agrarian society into an i ...

. 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 and ) is a market in which one person or company is the only supplier of a particular good or service. A monopoly is characterized by a lack of economic competition to produce a particular thing, a lack of viable sub ...

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

privatization Privatization (rendered 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 w ...

State capitalist State capitalism is an economic system in which the state undertakes business and commercial economic activity and where the means of production are nationalized as state-owned enterprises (including the processes of capital accumulation, ce ...

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

Relation to socialism

Public ownership of the

means of production In political philosophy, the means of production refers to the generally necessary assets and resources that enable a society to engage in production. While the exact resources encompassed in the term may vary, it is widely agreed to include the ...

is a subset of

social ownership Social ownership is a type of property where an asset is recognized to be in the possession of society as a whole rather than individual members or groups within it. Social ownership of the means of production is the defining characteristic of ...

, which is the defining characteristic of a

socialist Socialism is an economic ideology, economic and political philosophy encompassing diverse Economic system, economic and social systems characterised by social ownership of the means of production, as opposed to private ownership. It describes ...

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

political Politics () is the set of activities that are associated with decision-making, making decisions in social group, groups, or other forms of power (social and political), power relations among individuals, such as the distribution of Social sta ...

and

economic system An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within an economy. It includes the combination of the various institutions, agencies, entities, decision-making proces ...

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 Surplus product () is a concept theorised by Karl Marx in his critique of political economy. Roughly speaking, it is the extra goods produced above the amount needed for a community of workers to survive at its current standard of living. Marx f ...

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 natural resources and capital assets 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 ea ...

, 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-managed economy, ...

. 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 ...

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 In social science and economics, public interest is "the welfare or well-being of the general public" and society. While it has earlier philosophical roots and is considered to be at the core of democratic theories of government, often paired ...

, 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 ...

. State ownership was recognized by

Friedrich Engels Friedrich Engels ( ;"Engels"
''Random House Webster's Unabridged Dictionary''.capital accumulation Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form ...

and structure of wage labor. Engels argued that state ownership of commercial industry would represent the final stage of capitalism, consisting of ownership and management of large-scale production and manufacture by the state. Within the United Kingdom, public ownership is mostly associated with the Labour Party (a

centre-left Centre-left politics is the range of left-wing political ideologies that lean closer to the political centre. Ideologies commonly associated with it include social democracy, social liberalism, progressivism, and green politics. Ideas commo ...

democratic socialist Democratic socialism is a left-wing economic and 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-mana ...

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 British Labour Party. The original clause, adopted in 1918, called for common ownership of industry, and proved controversial in later years; Hugh Gaitskel ...

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

Fabian Society The Fabian Society () is a History of the socialist movement in the United Kingdom, British socialist organisation whose purpose is to advance the principles of social democracy and democratic socialism via gradualist and reformist effort in ...

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 ...

Public property

There is a distinction to be made between state ownership and public property. 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 owned by the population of a state which are mostly 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, pavements, public squares, parks, and beaches are typically considered public space. To a limited extent, government buildings which are open to the public, su ...

Criticism

neoclassical economic theory Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a goo ...

, 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. In the Hart-Shleifer-Vishny model it is assumed that all parties have the same information, while Schmitz (2023) has studied an extension of their analysis allowing for

asymmetric information In contract theory, mechanism design, and economics, an information asymmetry is a situation where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which can sometimes c ...

. 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

Public property

Criticism

See also

References

Further reading