CHAPTER 13 NOTES

Página 1

Firms and businesses owned by the state and controlled by the government are part of the public sector

The main concern of most public enterprises is to provide a service affordable to all the community

They are owned by the state

They are controlled by a board of directors

Managed by the board

The three groups that exercise control are ...

Government:

Appropriate minister lays down general policy and appoints the board to look after its day to day running and controls the board

Parliament:

Must approve the policies of the public corporations

Types of business organisations in the public sector

-Public Corporations

-Municipal Undertaking

Consumers:

corresponding consumer councils are set up to ensure direct consumer participation in the affairs of the nationalised industries

Finance:

Public corporations should be self financing from their profits. Retained profit is a source of finance when the corporation is profitable. But in reality, they get their finance from

-loans from the government which must be repaid with interest

-grants from the government with no interest but are obtained through taxation

-public dividend capital that is held by the government and on which the government recieves a dividend if the industry is profitable (similar to ordinary shares of a limited company)

Aims of the public sector....

Improving the quality of services they provide

Minimising costs since the government resouces are scarce and in order to maintain them costs should be minimised

Considering social costs and benefits, so meeting the interests of stakeholders rather than making profits. They take externalities into consideration.

Advantages:

Since they are not solely motivated by profit uneconomic but neccesary services will be provided

The government can implement some of its policies directly thus giving the government contorl over a large section of the economy

Employment is more secure

There are more permanent bodies than private sector firms because they are unlikely to be forved out of business by bankrupcy

Disadvantages:

Since profit is not an objective public corporations do not have any incentive to use resources efficiently

Interest made on government loans must be paid annually whether or not a profit has been made

Public corporations may be too large to be managed efficiently

If a public corporation are making losses the government puts money into the business and therefore people are confident they will not lose their jobs so they don't care

Public companies vs public corporations

Public companies refer to the public limited companies owned by shareholders, and anyone can join, they are part of the PRIVATE SECTOR

Public corporations refer to the state owned businesses so they are part of the PUBLIC SECTOR

A municipal enterprise is a business owned by a local authority

Ownership: Local authorities

Control: Local authority controls by appointing a Trading Committee made up of local councillors

Finance: provided by local habitats through local taxation and grants or loans from the central government

+Advantages: they are responsible for essential local services such as drainage, cleaning, street lighting, education and police patrol and are often used bu governments to set an example to other firms

-Disadvantages: very often, the municipal undertakings are so large it makes it difficult for the local authority to manage them efficiently, and it may be difficult to implement decisions, often restrained by the lack of funding, and may be restrained by the central government policy

PUBLIC SECTOR

CHARACTERISTICS OF A PUBLIC CORPORATION

PUBLIC SECTOR AIMS

ADVANTAGES AND DISADVANTAGES OF PUBLIC CORPORATIONS

MUNICIPAL UNDERTAKINGS