State Owned Enterprises or Public enterprises have to walk a fine line when balancing economic, social and other objectives. As such, and perhaps even more so than their private sector counterparts, they need to find a way to remain financially sustainable (and where appropriate commercially competitive), while creating value for citizens and society.
Accordingly, SOEs should not be purely evaluated on financial results (profit and loss statement of the enterprise), but on how they contribute to societal value creation, taking an integrated and holistic view. In fact, a pure profit and loss focus in the short term may risk the achievement of wider goals and even contribute to social value deterioration. A recent report by UNU-IHDP and UNEP highlights this well. It evaluated the “inclusive wealth” of countries, which is the sum of three kinds of assets: manufactured capital (e.g. roads, machinery, buildings); human capital (people’s health and skills); and natural capital (e.g. forests and fossil fuels). The report revealed that even though global GDP rose by 50% between 1992 and 2010, inclusive wealth increased by only 6%.
Equally, it needs to be recognized that state ownership can destroy value as well if best practices in ownership and management are not applied: in this respect, of most concern are issues of corruption, bribery and inefficiency. Looking at this the other way, P&L losses may in fact reflect investments which lead to value creation e.g. in infrastructure leading to the attraction and growth of private sector businesses. But I strongly believe that government ownership can have some advantages e.g. furthering social outcomes, providing physical infrastructure, and creating stability in times of crisis.
The starting point is to define public value and quantify impacts. For instance, SOEs may have a strategic role in driving growth that is socially, financially and environmentally sustainable – good growth.
As major players in our economy, SOEs can also play a major role in driving improvements in quality e.g. by requiring an increase in the standards of goods and services being provided by the small – and medium-sized enterprises (SMEs) which may comprise their supply chains. This can not only encourage SMEs to be more economically competitive, but can also provide other social benefits such as safer, more reliable products for citizens, environmental compliance, and skills development or enhancement. So by looking beyond profit and loss considerations at their broader impact on society with respect to wealth creation, growth, job creation and wellbeing, SOEs can potentially create value and deliver outcomes that benefit societal goals such as healthy living.
Defining public and societal value should in turn involve citizens and other stakeholders, providing guidance and input on the role of the public sector and government ownership. Government as SOEs owner should have a good understanding of how tradeoffs should be made when there are competing sources of value, and should also consider not just the present needs of society, but also the longer-term public good, including the needs of generations to come. This means a focus on sustainable outcomes by considering the following questions: are we creating or consuming a legacy? Are the decisions being made today contributing to the wellbeing of future generations, or are they satisfying immediate needs at the expense of the future? The future needs to be treated as an asset with government and SOEs prioritizing efforts such that today’s citizens are being taken care of, while retaining a view to long term sustainability.
This sustainable approach to public value creation necessitates the involvement and contribution of all in the ‘penta helix’ of stakeholders in society – private sector, public sector, not-for-profit organizations, academia and citizens. SOEs can play a part in catalyzing the co-creating collaborations needed between these various stakeholders.