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Explain the reasons for the failure of State Owned Enterprises (SOEs).

      

Explain the reasons for the failure of State Owned Enterprises (SOEs).

  

Answers


Abdullahi
1. Conflicting social, economic and political objectives

Government controls managerial freedom causing conflict between government and the management of the enterprise. Politicians may claim the firms are not run well and there is much interference.

2. Unexperienced management

Sometimes those who are appointed to run the enterprises/institutions have political dreams but not necessarily the competence to run the institutions effectively.

3. Failure to establish effective means for monitoring the performance of SOEs. Since the objectives are vaguely defined, the monitoring mechanisms are not properly established. This leads to mix results and faulty evaluation of performance if any.

4. Ineffective capital structure

There is no financial discipline in public sector. Due to government backing, mangers sometimes have more incentives to perform (reluctant)

5. Political interference

There is a tendency of politicians to interfere with public enterprises and sometimes the government is ready to bail out financially trouble firms.

6. To control an accountability is not efficient

7. There is misuse of monopoly power

8. Financial arrangement

In the public sector, bank borrowing is not subjected to vigorous evaluation. SOEs emphasis on social and economic promotions but not on financial gains.
The pricing of goods or services are under the government control.


Dullayo answered the question on May 15, 2018 at 12:08


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