5 Public corporations

Question 1

Define public corporation

Answer 1

Business organisation owned and controlled by the state/government

Question 2

How is the capital needed by public corportations provided?

Answer 2

The government, mainly from tax

Question 3

Are public corporations corporated or incorporated?

Answer 3

Incorporated meaning they have a seperate legal identity

Question 4

What are the reasons for public ownership?

Answer 4

1. Avoid wasteful duplication (some industries have natural monopoly)
2. Maintain contol of strategic industries (some industries more efficient when owned by government, prevents outsiders from another country taking over)
3. Save jobs (government might take control of failed businesses that employ many people)
4. Fill the gaps left by the private sector (private sector will not make adaquate provision to meet the market’s needs)
5. Serve unprofitable regions (public corporation may be able to meet any high costs because profit is not objective)

Question 5

Define natural monopoly

Answer 5

Market where it is more efficient to have just one organisation meeting total market demand

Question 6

What are the reasons against public ownership?

Answer 6

1. Cost to goverment (public corporation can make losses that have to be met by the taxpayer)
2. Inefficiency (due to lack of competition and absense of profit as an objective, losses will be met by government)
3. Political interference (corporations are subject to policy changes every time a new government is elected)
4. Difficult to control (corporation is very large meaning it wouldn’t be as efficient)

Question 7

Define privatisation

Answer 7

The transfer of public sector resources to the private sector

Question 8

How can privatisation take place?

Answer 8

1. Sale of public corporations (selling shares in the business to anyone who wants them)
2. Deregulation (lifting legal restrictions that prevented private sector competition)
3. Contracting out (contractors given a chance to bid for services previously supplied by the private sector)
4. Sale of land and property

Question 9

Why does privatisation take place?

Answer 9

1. To generate income (the sale of state assets can generate income for government)
2. To reduce inefficiency in public sector
3. As a result of deregulation (removing legal restrictions that prevented private sector competition)
4. To reduce political interference (government cannot use these organisations for political aims)