state enterprise

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A firm founded on the initiative of the state and run by it. A state enterprise is likely to exist when there are activities which would be socially beneficial but are not attractive to private entrepreneurs, or activities which would be profitable but involve natural monopolies. An example of the first category would be factories to employ disabled people; of the second, provision of essential public services such as sewers. The drawback with state enterprise is that as an owner the state provides a too soft budget constraint, and that the running of state enterprises is liable to capture by their management and workers, who run the business for their own benefit rather than that of the public. In the UK many state enterprises have been privatized, subsidized where necessary, and regulated.

Subjects: Economics.

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