Chapter (5) : Public Corporations

Chapter(5)
Public corporations
• Public corporations
• Business organizations owned and controlled by the state/ government
Features of public corporations

Government/state own
Capital introduced by government it comes from taxes
Parliament act
Feature of public corporations
• State owned:
• Government owns
• Government appoints the people who run the organizations(BOD etc)
• Government responsible for the set policies
• Crated by law:
• Are created by an act of parliament
• The power and duties are specified clearly
• Incorporation
• Incorporated businesses(separate legal entity)
• Can sue or be sued and enter into contracts under their own name
• State funded:
• The government provides the capital needed
• money comes mainly from tax
• All assets and liabilities belong to the state
• Can borrow money and free to reuse revenue from sales
• (government own according to parliament act, incorporated businesses, capital provided by government
but it comes from taxes, therefore, assets and liab of Public corporation are owned by public, if business
can expand by borrowing money or reuse from revenue)
• Provide public services
• Most (not all) public corporations do not to make a profit
• Main objective is to provide a public service
• eg: National broadcasting , health care, air transport
• Public accountability
• have to produce annual reports which are submitted to the government minister
• Accountable to public
• If a public corporation makes a profit, the money will either be reinvested in the
business or handed over the government
Reasons for the public ownership of
businesses
• Avoid wasteful duplication
• A natural monopoly exists
• This means it is more efficient to have just one business providing a service
for the whole market
• Eg; rail transport and public utilities where a large infrastructure is needed
• It would be a waste resources if two or more water companies built the own
system of pipes to distribute to households
• ( Avoid waste ----- by government ) eg , transport, utilities ( If allow to private

companies, there may be waste resource for country )
businesses
• Maintain control of strategic industries
• It may better for industries that are vital to the nation’s security
• Eg energy production and water supplies
• Because it would prevent outsiders from another countries taking them over
and exploiting the nation
• Protect strategic industries taking them from outsider (other countries)

• Such as energy protection, water , etc
businesses
• Save jobs
• In some cases, businesses have been taken into public ownership to save jobs
• A government might take control of a failing private sector business if It
employs very large numbers of people for preventing mass unemployment
• For employing large number of people to save job / prevent high employment
businesses
•
• Fill the gaps left by the private sector
• In some markets, the private sector will not make an adequate provision to
meet market’s needs
• Eg it is desirable that everyone gets an education because it benefits society
as a whole, but the private sector would only provide school places for those
who are prepared to pay
• Private companies can not pay services that has no profit for them but
government organization might fill he gaps left by private sector business) eg.
Education, electricity
businesses
• Serve unprofitable regions
• in some markets, the private sector would not deliver important services to
unprofitable region
• Eg providing electricity to a remote far many miles away from the main power
lines , but the public corporation may be prepared to meet this cost because
profit is not a key objective
Reasons against the public ownership of
business
• Some businesses should not be run government because public
ownership has some drawbacks
• Cost to government
• A number of public corporations make losses
• These losses have to be met by the taxpayers and if losses get bigger, and
more frequent, they might object to the financial burden . Also any money
used to subsidise public corporation cannot be used for more attractive
alternatives
• If successive lost might be financial burden because cannot use fond from
taxes
business
• Inefficiency
• Low productivity and inefficiency
• lack of competition, the absence of profit as an objective and lack of business
knowledge, lack of motivation in workers
business
• political interference
• Different governments have different views about the way public corporations
should operate
• As a result, corporations are subject to policy changes every time a new
government is elected
• Difficult to control
• Some corporations are very large and spread across a wide geographical area
and own huge quantities of physical assets and many thousands of workers
are employed
• This might make it difficult to coordinate different parts of the business and
run effectively
Privatisation
• In UK, rail transport ,water provision, electricity generation and
distribution and telecommunications have been transferred to the
private sectors
• The process of transferring public sector resources to the private
sector is called privatisation
Privatisation
• Privatisation can take a number of forms
• Sales of public corporation
popular way to transferring business activity from the public to the private
sector
one way of doing this is to sell shares to any one
in some cases, sold off parts of state owned businesses over a period of
time
Privatisation
• Privatisation can take a number of forms
• Deregulation
• Reduce legal restriction
• Example, UK deregulation of communication market has allowed companies
• Contracting out
• Contract out to private sector businesses (eg, school meals, hospital cleaning)
• The sales of land and property
• Sale of council owned properties to the tenants
( from the public corporation to public ltd company by selling share sold of part of state
owned, reduce strict regulation, contract out of private sectors, sale land and property to
private business )
Why does privatisation take place?
• To generate income: the sales of state assets generates income for the
government
• To reduce inefficiency in the public sector: many public corporations lacked
the incentive to make a profit and often make losses. In private sector, they
would have to cut costs , improve services and return profit to shareholders.
They would also more accountable
• As a result of deregulation : because legal barriers were removed, new firms
could be encouraged to join the market
• To reduce political interference: in private sector, the government could not
use for political aims . They would be free to choose their own investment
levels, price , product ranges and growth rates
• Infrastructure : basic systems and structures that a country or
organization needs in order to work properly
• Subsidise: paying part of the costs ( often by the government in

business)
• Privatisation : transfer of public sector resources to the private sector

Chapter (5) : Public Corporations

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Chapter(5)

Features of public corporations

• ( Avoid waste ----- by government ) eg , transport, utilities ( If allow to private

• Protect strategic industries taking them from outsider (other countries)

• Subsidise: paying part of the costs ( often by the government in

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