Is the state a stable or unstable owner?

The state has a huge number of different kinds of assets and a large number of asset managers. When managing its assets according to the interests of society, the state has to balance between pursuing yield and many other targets.

The state’s role as an owner is unique. Even if the state’s money chest were in need of filling, the state does not have to sell its assets under normal conditions because it needs money – it also has a good opportunity to receive credit. In this respect, the state is an extremely stable owner.

The state has a large number of assets of different kinds. Another special characteristic is that there are a large number of actors looking after the owner’s interests. These actors have very different backgrounds, obligations dictated by their duties, and priorities regarding objectives. The operations of the state may therefore sometimes seem unstable or unpredictable.

The preceding Government tried to influence the stability of ownership: its aim was for the state to be a more agile owner. With its slogan “tase töihin” (“put the balance sheet to work”), the Government meant that stability can also mean inefficient management of finances and that assets should be put to productive use. The present Government is also struggling with the same questions: should assets be divested and should investments in the future be made, and what kind of use of assets can be considered investing?

Because of the challenges caused by the diversity of assets and their owners, it is important to have common guidelines for the management of the state assets. Certain issues related to assets are regulated by legislation. In addition, the Government issues ownership policy guidelines, and ministries steer the asset management. There are also international standards on good asset management practices.

However, large organisations typically face problems in following the guidelines. Typical basic questions are whether people are aware of the guidelines, whether they know how to apply them, and whether the guidelines are applicable to assets of a special kind. Very often the owner’s representative has other main duties than asset management, and these other duties take the owner’s time and interest.

A good yield is not always enough for the state

It is typical for the state assets that their yield is only one target among many others – often more important ones. In this case, it is necessary to compromise the yield.

The state does not own forests only because of wood production, but it also takes into account its recreational values, nature, and even employment impacts. Roads do not yield anything as such – in fact, they are an expense item in the budget – but they are needed for a well-functioning infrastructure. Buildings must be constructed and renovated even in remote parts of the country, because this is necessary for Finland’s defensive capability.

Even the state’s holdings in listed companies have other targets in addition to providing yield. As regards energy companies, the state wants to maintain a controlling interest in them. In the case of industrial enterprises, in turn, the state’s strategy is to have anchor shareholdings in them, i.e. the state wants to keep a significant holding in them to ensure that the Finnish perspective will continue to be a key factor in their operations.

It is often difficult to reconcile yield with other targets, and it is possible that there is no optimal solution. Moreover, the optimum is not constant but varies over time. For the past 30 years, the weight of yield may have been growing, and operations have been turned into unincorporated state enterprises and further into corporations. In addition to this trend, the optimum is affected by political trends and changes in valuations. For example, forest assets and their value and yield, are today seen in a different light than before.

The problems related to the reconciliation between the yield target and other targets can also be seen in two state-owned enterprises that have been in the public eye, Posti (the leading postal and logistics service company in Finland) and Veikkaus (a Finnish gaming company). These companies are also otherwise good examples of the difficulties involved in state ownership.

The postal service in Finland has been owned by the state for several hundred years. Delivering letters to the door is one of the services the state provides to its citizens. Unfortunately, these operations are no longer profitable in all parts of the country. Posti has been assigned the universal service obligation: Posti has to deliver post everywhere in Finland. In principle, it is possible to pay subsidies to the service provider for this obligation. However, Posti has provided its universal service by subsidising it with revenues it earns from fairly normal market activities. It may come as a surprise to many people that the universal service visible to citizens generates less than five per cent of Posti’s revenues. Regardless of this, Posti is mainly seen as a public actor.

On the other hand, most people hardly regard the operations of Veikkaus as a public service. The service could nowadays be provided by a large number of competitors in the market. Veikkaus is a monopoly burdened with an interesting dilemma: it should provide a good yield and, at the same time, prevent the harmful effects of its operations. Theoretically, a monopoly as such should lead to lower production than what is optimal. (As an aside, it is worth considering whether this is also true in gambling or, say, in the retail of spirits, which is also a government monopoly in Finland. At least it would be an interesting research topic.) In any case, Veikkaus has been considered to be too much focused on pursuing yield, while the prevention of harmful effects has been left in the background. Some kind of a change may now be about to take place, and in future the target may be a lower yield.

There is probably no one-size-fits-all solution to the challenges resulting from the diversity of the state assets. Nevertheless, it is good to follow the principles related to the management of the state assets and to avoid exceptional solutions.

It is important to keep in mind that the state assets are not only about providing yield. The state assets and holdings have many different targets. On the other hand, it should also be remembered that a great deal of money is tied to the assets. Regardless of how important a target is, it is also necessary to keep in mind the actual assets, i.e. that the assets can provide yield and that the loss of yield is a genuine loss. The weight of yield and other targets may vary with time, but sufficiently stable and predictable operations always lead to a better result.