Sesame Street. Unbiased news coverage. Train tickets to Atlanta. These are examples of programs run by government sponsored corporations. In most cases, these corporations are directed to help the public. Because of a lack of accountability, however, these organizations are also easily corrupted. Public officials can manipulate the purpose of these firms to benefit themselves rather than the people, as they are state owned and thus state controlled. State Owned Enterprises are used by nearly every nation to benefit their people, but because of their lack of accountability, they can also be grossly misused to pursue an individual’s personal agenda.
While the exact definition of a State Owned Enterprise (SOE) varies from nation to nation, they are commonly defined as a firm significantly influenced by a government through majority, if not full, ownership. In basic terms, this is just a corporation that acts on behalf of the government–most often by providing social services and necessary resources. Examples include the American passenger rail system, Amtrak, and (formerly) British Petroleum, or BP. While SOEs are generally not as profitable as their privatized counterparts, they are nearly impossible to bankrupt, as they are supported by the government.
Most often employed domestically, SOEs sacrifice profits to provide reliable services to constituents. In some cases, however, national governments will choose to create SOEs with the specific purpose of using them to influence foreign relations. In 2014, for instance, Russian President Vladimir Putin appointed close friend Gennady Timchenko as Chair of the Russian-Chinese Business Council. Through the energy market, Timchenko earned a place on Forbes’s list of billionaires as well as in Putin’s inner circle. Because of his influence on the Russian President, the Chinese government directed one of their largest SOEs, Sinopec, to make a disproportionately large number of petroleum deals with Russia, appealing to Timchenko and thus to Putin. Sinopec traded $1.3 billion in exchange for a ten percent stake in SIBUR, an oil refining company co-owned by Timchenko. Meanwhile, other ‘less important’ Sino-Russian SOE projects, such as those in the Udokan copper mines and Vankor oil fields, were pushed off for another year. Since this deal, the shares of SIBUR have proven to be much less valuable than what was guaranteed at the time of purchase.
State Owned Enterprises have the potential to contribute positively to a society, but because they are not directly accountable to citizens, they can be used for personal gain. The World Trade Organization (WTO) has yet to provide strong guidance regarding the role of SOEs in the global economy, and many countries fail to include them in their trade policies. Government officials can use these corporations as tools to pursue personal agendas, regardless of whether or not they will benefit citizens. In the example of Sinopec and SIBUR, this deal benefitted Putin more than it did China, as China has hardly experienced a strong return on investment. Instead of receiving compensation via money, however, Beijing now has a trusted friend in Putin’s circle–a relationship of questionable utility to the citizens of China or Russia. Conducting diplomacy in this way encourages government officials to think of themselves rather than the well-being of the general public. While State Owned Enterprises have the potential to benefit society, as they do through PBS and Amtrak, their lack of accountability can be exploited by corrupt government officials.