1.5: Public corporations

features of public corporations

* state owned
* created by law
* state-funded
* provide public services
* public accountability

features of public corporations - state owned

owned by the government and managed by a board of directors

features of public corporations - created by law

created by an act of parliament with powers and duties specified

features of public corporations - incorporation

have a separate legal identity from owners

features of public corporations - state-funded

* government provides capital funded through tax
* all assets and liabilities belong to the state
* corporations can borrow money

features of public corporations - provide public services

most aim for a profit but their main objective is to provide a public service

features of public corporations - public accountability

* produce annual reports submitted to the government
* accountable to tax-payers
* profit is either reinvested or handed over to the government

can public corporations be owned by a private sector

yes

reasons for public ownership

* avoids wasteful duplication
* maintains control of strategic industries
* saves jobs
* fills gaps left by private sector
* serves unprofitable regions

how does public ownership avoid wasteful duplication

a natural monoploy exists in some industries meaning it’s more efficient to have just one business providing a service for the market to avoid a waste of resources

how does public ownership maintain control of strategic industries

industries vital to the nation’s security should be owned by the government to avoid exploitation or abuse to guarantee a reliable supply and quality

how does public ownership save jobs

businesses with public ownership saves jobs and a business can carry on trading even in loss to prevent mass unemployments

how does public ownership fill the gaps left by private sector

public corporations fulfill the market’s needs that the private sector may not be able to provide

how does public ownership serve unprofitable regions

a public corporation meets the requirements that a private sector business may not as it wouldn’t want to deliver services to unprofitable regions

reasons against the public ownership of businesses

* cost to government
* inefficiency
* political interference
* difficult to control

reasons against the public ownership of businesses - cost to government

* losses from the public corporations have to be met by taxpayers who may object to financial burden if losses get bigger and frequent
* any money used to subsidise public corporations cannot be used for more attractive alternatives

reasons against the public ownership of businesses - inefficiency

* criticised for their low productivity and inefficiency
* cause: lack of competition, absence of profit as an objective, losses met by government

reasons against the public ownership of businesses - political interference

* suffer due to government interference
* occur because different governments have different views about the operations
* subject to policy changes

reasons against the public ownership of businesses - difficult to control

some are very large and across a wide geographical area might make it difficult to coordinate different parts of the business

forms of privatisation

* sale of public corporations
* deregulation
* contracting out
* sale of land and property

sale of public corporations

selling business shares and parts of the business over time

deregulation

lifting legal restrictions that prevent private sector competition

contracting out

local services ‘contracted out’ to private sector businesses are given a chance to bid for services previously supplies by the public sector

reasons for privatisation of government-owned resources

* generates income
* reduces inefficiency in the public sector - public corporations lack the incentive to make a profit and so have improved services, cut costs and returned profit for shareholders
* result of deregulation - removal of legal barriers allow new businesses in the market as new firms are encouraged to join
* reduce political interference - governments don’t use private sector businesses for personal aims