November 10, 2020

PRINCIPLES OF BUSINESS BUSINESS ORGANISATION – THE PUBLIC SECTOR – Note #9

THE PUBLIC SECTOR

In every country there will be some enterprises that are owned by the state – usually central or local
government. These organisations are in the public sector and they are referred to as public corporations.
They do not often have profit as a major objective and therefore their main purpose is to provide some
form of benefit to society at the lowest possible cost.
E.g. transportation, postal services, utilities (water, light)

Features of public corporations:

● Funded mostly from grants
● Main aim is not to make profits
● Annual accounting records are sent to the Auditor General
● Managed by directors appointed by the state
● Controlled by a Minister of Government – who will appoint a board of directors to deal with the
day-to-day operations
● Has unlimited liability (the state bears its debts)

Objectives of public corporations:

● To create employment for citizens
● To provide goods or services that are needed in the country
● To keep prices affordable to all
● Profits are ploughed back into the country through infrastructural developments and other
government spending.

Nationalised industries
These are entities that have been taken over by the government from private sector organisations. In order
to nationalize an industry, the government must purchase the majority of the company’s shares. The
government then appoint a board of directors to deal with the management of the company.

Reasons for nationalizing an entity

● To save an essential enterprise that is in danger of closure e.g.
● To provide certain goods and services that would not otherwise produced efficiently by the
private sector e.g. transportation
● To protect consumers interest. Example monopolies may be formed with violate the rights of
consumers
● To offer social benefits to the citizens of the country e.g. subsidized fares for elderly, children and
disabled persons
● To ensure that profits remain in the country to be ploughed back into the economy.

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November 10, 2020
PRINCIPLES OF BUSINESS BUSINESS ORGANISATION – THE PUBLIC SECTOR – Note #9
Advantages
● The product and services offered are usually
lower in price than that of other firms
● They increase employment opportunities
● Essential services that may be very
expensive may be undertaken by the
government
● Products are standardized and uniform
● Struggling firms can be taken over by the
government
● Resources are used in ways to benefit the
community
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Disadvantages
● Where state-owned companies are
monopolies there is little choice for
consumers
● Large debts may cause a burden on taxpayers
● Some state-run enterprises suffer from gross
inefficiencies
● Politics may interfere with the running of
these businesses