All Significance is Local: Meet the NSE


Recently, the Economist published a series of excellent articles on the growth, variety, and shortcomings of state-owned enterprises (SOEs). Given the source, it's no surprise that the critiques played strongly on the idea that government preferences and policies skewed the direction of the animal spirits behind capitalism and yielded a suboptimal result. 

Feeling somewhat cognitively dyslexic that day, I played with the term SOE and quickly came up with another – EOS – the enterprise-owned state. This seemed overreaching – countries can't be "owned" by companies (yet). However, there is an intermediate-level idea, regulatory capture, that makes a fairly convincing case that companies can at least exert controlling influence over *parts* of countries (agencies, boards, commissions and other regulators).

So if states can own companies and companies can own parts of states, there is likely a meta-category that includes both forms of businesses. I call them NSEs, or Nationally Significant Enterprises.

All state-owned enterprises are NSEs by default. This is tautologic; if a state bothers to own something, its function must be significant to that state. Hence the linkage between formal state power or influence (e.g., via diplomacy) and the business aims of the SOE makes perfect sense.  

But the NSE form also includes companies in which governments don't own shares, but upon whom they depend in some way. In Canada, every successive technology industry "champion" becomes an NSE.  Remember the angst displayed by the Government of Canada about the fate of Nortel? That will pale before the angst they're going to display within a few months when RIM fails.  

Or when Air Canada reaches gridlock – again – with its unions and seeks help – again – from the federal government? (I did research for my MPA 15 years ago that showed governments disproportionately gave bailouts to companies that were dominant in their communities and were highly visible in the media. Not much has changed.)

In the US, Boeing is the archetypal NSE. Boeing has managed to enlist the highest level members of the US government in promoting their aircraft to foreign purchasers.  When Cabinet Secretaries make sales calls to foreign governments, it's clear that something bigger than promoting exports is at work.

And there is: each foreign sale of a Boeing jetliner offsets that company's fixed costs – and, in effect, reduces the cost of each subsequent military aircraft purchased by the US government. Of course jobs are created in the US, but most US companies sell overseas unaided by senior government officials.

Given the response of governments worldwide to the 2008 financial crisis, many banks are also NSEs. They have an implicit claim on government resources, whether in the form of cash, regulation, or influence.   

Or interference. In 2006, the US Congress erected roadblocks to prevent the sale of port management services in six US seaports to a SOE owned by the government of the United Arab Emirates (this was the so-called Dubai Ports World controversy).

None of this might matter to the average CEO who is just trying to keep his/her company afloat. But it does give some insight into whose supplications for government help get heeded, and why. More needs to be done to characterize the NSE, but it seems to have some instantly visible traits:

  • Importance to some policy aim of government, whether that is employment, infrastructure delivery, or security.
  • Highly visible, and ideally (from the company's perspective) associated with some aspect of national pride or achievement.
  • Takes advantage of the fact that the permanent campaign present in many democracies means that incipient failure of a company with the above two traits is instantly defined by media as a failure of an incumbent government.

I suspect that it is difficult to become a nationally significant enterprise.  In competitive markets, this should be virtually impossible. However, Google has existed for only 14 years, and one could imagine the furore if a Chinese company – SOE or private – launched an acquisition bid. 


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