Is it possible for state-owned companies to operate efficiently and productively?

There is one complaint about state-controlled companies that they are inefficient and unproductive as they lack incentives to make profits. Many of these state-controlled companies have monopolistic power in their fields, as they have the monopolistic power, they will have their business activities anyway so they do not need to work very hard to gain more market shares or get revenues.

However, this is not entirely true as the management and the ownership still separate in state-controlled companies. The ownership of these state-controlled companies belongs to the state government; however, the management is still in the hands of individuals. Individuals are working for the best of their interests, if their earnings and incomes are related to their performances, they will have the incentives to boost their companies’ revenues and profits when their performances are tied to the companies’ revenues and profits. Under such circumstance, it is not fair to say that state-controlled companies do not have incentives to grow. From the company’s side of view, it may not have the need to further expand the business; however, from the individuals’ points of view, they have the incentives to boost their earnings via expanding their business. This is a type of conflict of interest, but it is a healthy type of conflict of interest.

In addition, as the companies are in the control of the state government, and the state government is making decisions based on the target of maximising the total social benefits, the companies are also working to maximise the social benefits. Therefore, if the government sets the goal of increasing social benefits and ties the goal to the managers’ wages, the managers will also work to increase the social benefits. Therefore, state-controlled companies may be able to effectively increase social benefits and reduce social costs, as unlike private companies, they do not only consider maximising their own private benefits, they also respond to the state government decisions and increase social benefits.

I think that the major problem of state-controlled companies is that they try to represent governments. Once they try to represent the government, it causes lots of problems, as they no long just have the monopolistic power, but also have legislation and ruling power, at least create such impression for other players in their fields or even companies and individuals out of their fields. Under such circumstance, any attempts of trying to be more advanced could be blocked by these state-controlled companies when they represent the state government. When such phenomenon occurs, there is hardly any further development in the sectors, as state-controlled governments try to boost their performances by blocking development that could lead to competition rather than developing their own businesses and technologies.

To conclude, I think state-controlled companies can operate effectively and productively as their management and working groups have incentives to work hard and improve their efficiency and productivity if their wages are directly relevant to their performance, and they can also work for the social benefits which is a big advantage compared with private companies; however, when they try to represent their owner, the state government, it causes big problems and could lead to blocking development from their competitors. Therefore, I think when state-controlled companies only follow the directions planned the state government but do not represent the state government, state-controlled companies are beneficial to our society.