1.5 Flashcards
Public corporations explanation.
In most countries around the world, some business activities are
undertaken by governmental organisations. They are not owned by
individuals.
● In many countries, public services such as health care, transport and
education, are provided by public corporations.
● In other countries, some commercial activities such as banking, oil
production and energy, are also provided by governmental organisations.
Public corporations
Some common features of public corporations:
● State owned
○ Owned by the government. The government also appoints people to run the organization
and its policies.
● Created by law
○ Are created by an act or parliament. The powers and duties of each organisation are
clearly specified in the act.
● Incorporation
○ These corporations have a separate legal identity. They can sue, be sued and enter into
contracts under their own name.
public corporations
Public corporations
Some common features of public corporations
● State-funded
○ Government provides the capital needed by public corporations. This money comes
mainly from taxes.
● Provide public services
○ Most of them (not all) do not aim to make a profit. Theis main objective is to provide a
public service.
● Public accountability
○ Have to produce annual reports
reasons for public ownership of a business
Some of the main reasons for public ownership:
● Avoid wasteful duplication
○ In some industries, a natural monopoly exists. It’s more efficient in certain industries
(such as rail transport and public utilities that need a large infrastructure) to have just one
business providing a service to the whole market.
● Maintain control of strategic industries
○ If the provision of a particular service is vital to the well-being of the nation, it is
considered desirable for the government to maintain control so that a reliable supply and
quality can be guaranteed.
● Save jobs
○ Governments may take control of certain companies to preserve its jobs.
Reasons FOR the public ownership of Businesses
Some of the main reasons for public ownership:
● Fill the gaps left by the private sector
○ If the private sector does not manage to adequately provide the market’s needs, the
government can fill that gap. An example of this is public and private schools.
● Serve unprofitable regions
○ In some markets, the private sector does not deliver important services to unprofitable
regions. Public corporations should ensure that all the nation has access to, at the least,
the basic human necessities.
Reasons against the public ownership of businesses
It is argued by some that the government should not run businesses. Some
potential drawbacks of public corporations are:
● Cost to government
○ Sometimes public corporations make losses, and the money used to subsidise these
public corporations cannot be used for other attractive alternatives.
● Inefficiency
○ Public corporations are often criticised for their low productivity and inefficiency.
Reasons against the public ownership of businesses
It is argued by some that the government should not run businesses. Some
potential drawbacks of public corporations are:
● Political interference
○ Different governments have different views about the way public corporations should
operate. Corporation are subject to policy changes every time a new government is
elected.
● Difficult to control
○ Some public corporations are very large. This might complicate the coordination and
running of the business.
Privatization
● The process of transferring public sector resources to the private
sector is called privatisation. Privatisation can take a number of forms:
○ Sale of public corporations
○ Deregulation
■ Lifting legal restrictions that prevented private sector competition
○ Contracting out
■ Contractors are given the chance to bid for services previously supplied
by the public sector
○ The sale of land and property
