Unit 1 - Business Activity and Influences on Business (Public corporations)

Question 1

Features of Public Corporations

Answer 1

• State-Owned: Government appoints people who run the organisation (Board of Directors) and is responsible for the corporations policies
• Created by law: by an Act of Parliament where powers and duties of each organisation are specified in the Act
• Incorporation: have a separate legal identity which means they can sue and be sued
• State funded: Government provides the capital but can also generate sales/revenue which can be reused
• Provide public services: most, but not all do not aim to make a profit, the main objective is to provide a general service
• Public Accountability: produce annual reports which are submitted to the Government Minister responsible for the organisation, but ultimately they are accountable to taxpayers/the public. If they make a profit the money will be re-invested in the business or handed over to the government.

Nature and Number of Public Corporations varies in each country around the world.

Question 2

Reasons for Public Ownership of Businesses

Answer 2

Main reasons for public ownership:
- Avoid wasteful duplication
- Maintain control of strategic Industries
- Save jobs
- Fill the gaps left by the Private Sector
- Serve unprofitable regions

Question 3

Avoid wasteful duplication

Answer 3

Natural Monopolies exist in some industries - this means it is more efficient to have one business providing a service for the whole market to avoid waste.

Question 4

Maintain Control of Strategic Industries

Answer 4

It is argues that industries that are vital to the Nations security should be owned by the Government to avoid outside companies and countries buying them and exploiting them.
These corporations need to have reliable supply and quality so should be Government owned.

Question 5

Save jobs

Answer 5

A government may take control of a failing business to protect jobs and prevents mass unemployment.

Question 6

Fill the gaps left by the Private Sector

Answer 6

In some markets the private sector will not make adequate provision to benefit the public.

Question 7

Serve unprofitable regions

Answer 7

In some markets the private sector will not deliver important services to unprofitable regions, however a public corporation may be prepared to meet the cost because profit is not an objective.

Question 8

Reasons against the public ownership of businesses

Answer 8

• Cost to the Government
• Inefficiency
• Political Interference
• Difficult to Control

Question 9

Cost to the Government

Answer 9

A number of Public Corporations make losses which need to be covered by taxpayers. Money which is used to subsidise some corporations cannot be used elsewhere.

Question 10

Inefficiency

Answer 10

Often criticised for low productivity and inefficiency due to lack of competition, absence of profit as an objective and the knowledge they cannot go bust because the government will keep giving them money to run.

Question 11

Political Interference

Answer 11

Often suffer owing to government interference - subject to policy changes every time a new government is elected.

Question 12

Difficult to Control

Answer 12

Can be large and employ many thousands of workers spread across a wide geographical area and own huge assets - may be difficult to run parts of the business efficiently. Managing the organisation can be very challenging.