Public Enterprises: Definition, Features, Merits & Demerits

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 Meaning of Public Enterprises

Public enterprises are business organizations that came into existence through appropriate enabling Acts of Parliament, or Decrees or Edicts in a particular country or state. They may be commercially-oriented or public service-oriented.

Public enterprises are usually created with the motivation of providing essential goods and services to the population. However, this does not mean that they always work at a loss.

In other words, in practice the State has control over the administration of said organization.

Public Enterprises
Public Enterprises

What is a Public Company?

A public company is that company whose majority shareholder is the State; therefore, it is under the decision-making power of the government and is part of the public heritage of a nation.

Although public companies are established with different specific purposes, in general they seek to produce, finance or provide essential goods and services for the nation, without the intention of making financial profit, but at the same time without neglecting the efficiency of resources.

However, there may be cases in which private companies become public, for example under processes of expropriation of private companies by the State or nationalization processes.

Public companies are important for a nation since they encourage direct competition with other sectors, thus avoiding a total monopoly of the market. Likewise, they are subject to fiscal surveillance to monitor the efficiency of their administration and guarantee priority basic satisfaction.

Features of Public Enterprises

The main characteristics of a public company or public enterprises are:

  • They are usually state owned.
  • They are established purposely to render public services.
  • Over-reliance on government subventions to survive.
  • More than 50% of the shares belong to the government, either the central government or at any of its levels of decentralization (municipality, province, regional government or other).
  • The objective of obtaining profitability is not alien to its activity. However, there will always be a higher purpose, for example, to supply electricity to the entire population of the country.
  • They are usually basic service companies such as water and sanitation, electricity, among others. But in some cases the State intervenes, for example, in strategic industries to control natural resources.
  • Another sector that the State usually enters is that of communications. The Government usually has a television or radio channel with the aim of making the population aware of the activities it carries out. Its purpose is not only propaganda, but of public interest because it is a way of announcing citizenship, for example, the launch of a vaccination program.
  • Continuing with the subject of communications, there are successful cases such as that of the BBC. This example is often cited to argue that efficient state-owned enterprises may exist.
  • The public company may or may not compete with private companies, that is, it does not always have a monopoly in the industry.
  • A private company can become public if the State decides to nationalize it. The opposite happens when there is a privatization process.

Advantages of Public Enterprises

  • They enable some socially important services to be provided such as public utilities like water, electiicity, etc. at affordable rates to the public.
  • Monopoly in the hands of the public sector is less dangerous than in the hands of the private sector.
  • Members of the public pay less for the services than they would have paid if the services were rendered by the private sector of the economy.
  • They provide employment opportunities for the people.
  • Through these enterprises, the government now supplies the services which could have been too expensive and unprofitable for private entrepreneurs to supply.

Disadvantages of Public Enterprises

  • Too much political interference in their operations is counter productive and worrisome.
  • Their large sizes with administrative problems make control difficult.
  • Corrupt practices of the officials often result in inefficient management of the enterprises.
  • Lack of preper government control often creates a lot of problems and losses for the enterprises.
  • They are establishments in which poor attitude to government work is glaringly exhibited.
  • They are inefficient, this is largely due to lack of competition.

Differences Between Private and Public Enterprises

The following points are the differences between private enterprises and public enterprises:

  • Ownership – whereas private enterprises are owned by private individuals, public enterprises are owned by the government.
  • While profit maximization is the primary goal of private enterprises this is not always the case with public enterprises.
  • Private enterprises are generally more efficiently managed than public enterprises.
  • Private enterprises are established by appropriate instruments (Memorandum of Association and Articles of Association), public enterprises are usually established by enabling Acts of Parliament or Decrees as the case may be.
  • While priyate enterprises are usually financed from private sources including the Stock Exchange, public enterprises are usually financed through public funds.
  • Control and accountability – private enterprises are controlled by Boards of Directors and managements who are accountable to shareholders. Boards of Directors of public enterprises are usually appointed and controlled by the government as well as accountable to it.