Almost all countries, except agrarian societies, have both a private and public sector of the economy. Unlike businesses in the private sector, public sector business organizations are more concerned with social objectives than profit objectives.
Definition of public sector organizations
Public sector businesses, called public corporations, are organizations set up by law to run services or industries on behalf of the government. They are owned or controlled by the government (the state) which makes all decisions. They have separate legal identity from their owners, which is the government, so they can sue or be sued, the same as incorporated bodies in private sector of the economy.
Why public corporations exist?
Public corporations exist in order to provide essential services to the public which are not fully provided by businesses in the private sector.
The government also aims to prevent exploitation of customers and to avoid duplication of resources.
By owning and controlling the public sector business organizations, the government can also protect jobs, create employment and maintain key industries such as electricity supply, natural resources or national transportation links.
The main features of public corporations
Most countries throughout the world have public corporations or public-sector enterprises to some extent.
Public corporations are owned and controlled by the state.
Public-sector organizations do not often have profit as a major objective, but to serve all the citizens in the country. In many countries they have social objectives to provide a service to the public and meet the needs of the less well-off in the population.
Sources of finance come mainly from TAXation.
Management is appointed by and accountable to a government minister.
The services of public businesses are often provided to the population free of charge, or at a very low price.
How does central government work with local authorities?
Public business organizations provide goods and services to the public at national and local levels. Local authority services are funded from central government grants as well as some independent funding.
One of the main reasons why local authorities provide public goods on their respective territories is that the local community is best served by those most sympathetic to its needs. Communication problems that local communities would have with the central government are avoided as it deals better with local government.
It is important to remember that local government is accountable to local community to get elected.
Examples of state-owned business organizations
In many countries, the publicly-owned TV and radio stations have the quality of public-service programmes as well as informing the public about important events as their main priority.
State-owned airlines such as Pakistan International Airlines or China Airlines have safety as a priority. While state-owned energy companies such as Brunei National Petroleum Company have the provision of uninterrupted oil supplies to large manufacturing businesses as a main goal.
The emergency services and public utilities such as water, gas and electricity are also provided by companies from the public sector.
Other examples include public companies providing Public Goods and services such as national defense, police and road transportation as well as Merit Goods such as education and healthcare services.
Public Goods are characterized as:
a.) Non-Rivalry Goods – Consumption of the good by one individual does not reduce the amount available for others.
b.) Non-Excludability – Impossible to exclude others from benefiting from their use.
Merit Goods mean that, if the individual is left to decide whether or not to pay for these goods, some would choose not to or may not be able to.
Advantages of public-sector business organizations
1. Provide products to benefit the society. They are established and managed with social objectives in mind rather than operating solely with profit objectives.
2. Can make a loss in the short-term. Very often public corporation will be making a loss, yet their services might still be kept operating, if the benefit to the whole society is great enough, such as national defense.
3. Availability and stability of finance. Public corporations have stable sources of financing which is mainly from the central government.
Disadvantages of public-sector business organizations
1. Slow and inefficient. Large state-owned corporations have tendency towards inefficiency due to lack of strict profit targets and market competition. Subsidies from government to maintain a public corporation can also encourage inefficiencies among its managers and workers.
2. Decisions based on political decisions rather than efficiency. Government may often interfere in business decisions for strictly political reasons, such as to produce more military equipment, or stop trading with ‘unfriendly’ countries.
State-owned organization are not public limited companies
Public limited companies (PLCs) are being owned by shareholders in the private sector of the economy.
Public companies are owned by the state (usually central or local government) and are in the public sector of the economy.
