5: Public Corporations

Features of Public Corporations:

State-owned corporations: the government appoints the people who run the organisations. The government is also responsible for its policies
Created by law: they are created by an act of parliament. The powers and duties of each organisation are specified clearly in the act
Incorporation: They are incorporated businesses. They have a separate legal identity. They can sue, be sued and enter into contracts under their own name
State-funded: the government provides capital needed. The money mainly comes from taxes. All the assets and liabilities belong to the state but they can also borrow money and are free to re-use revenue from sale of any goods and services
Provide public services: do not aim to make profit. Their main objective is to provide a public service
Public accountability: they have to produce annual reports which are submitted to the government minister in charge of the corporation. They are accountable to tax-payers. Money made is reinvested or handed over to the government.

Reasons for the public ownership of businesses:

Avoid wasteful duplication: natural monopoly exists. It is more efficient to have just one business providing a service for the whole market
Maintain control of strategic industries: considered desirable for the government to maintain control so that a reliable supply and quality can be guaranteed. Prevents ‘outsiders’ from exploiting the nation.
Save jobs: businesses have been taken in public ownership to save jobs. It may take control of private businesses with large employment if they fail
Fill the gaps left by private sector: offers free sources like education for those who can not pay to private sector
Serve unprofitable regions: delivers important services to unprofitable areas. Is prepared to face the costs because profit is not a key objective.

Reasons against the public ownership of businesses:

Costs to government: If losses get bigger, and more frequent, taxpayers might object to financial burden.
Inefficiency: lack of efficiency is blamed on the lack of competitors and the absence of profit as an objective which reduces productivity
Political interference: corporations are subject to policy changes every time a new government is elected
Difficult to control: difficult to coordinate different parts of the business and run it effectively due to the large number of workers and different operational locations and huge quantities of physical assets.

Privatisation:

The process of transferring public sector resources to the private sector. Can take many types of forms:

Sale of public corporations: selling shares in the business to any one that wants them, in some cases it is over a period of time
Deregulation: this involves lifting legal restrictions that prevented private sector competition
Contracting out: contractors are given a chance to bid for services previously supplied by the public sector
The sale of land and property

Why does privatisation take place?

To generate income: the sale of state assets generates income for the government
To reduce inefficiency in the public sector: in the private sector they would have to cut costs, improve services and return profit for shareholders which would make them more accountable and productive
As a result of deregulation: legal barriers were removed that allowed new businesses in some markets and existing firms were privatised so new firms are encouraged to join the market
To reduce political interference: the government could not use these organisations for political aims.