9 PUBLIC CORPORATIONS AND PRIVATISATION

LEARNING OBJECTIVES
▪ the ownership, control and the objectives of public corporations
▪ privatisation

Public corporations are businesses that are owned and controlled by the state/government.

CHARACTERISTICS OF PUBLIC COPORATIONS

1) State owned
Public corporations are owned by the government. The government chooses the people
who run the organisations.

2) Created by law
A public corporation is created by an Act of Parliament, where the powers and duties are
specifically given.

3) Incorporation
Public corporations are incorporated businesses. That means they have a separate legal
identity.

4) State funded
The government provides the capital needed by public corporations through tax, assets
and liabilities.

5) Provide public services

Without the aim of profits, public corporations provide essential public services like
transport and power.

6) Public accountability
Public corporations have to produce annual reports that are submitted to the government
minister in charge.

REASONS FOR THE PUBLIC OWNERSHIP OF BUSINESSES

There are very clear reasons why the private sector operates and its aims. There are areas that
the private sector doesn’t look into, therefore the public ownership of businesses.

1) Avoiding wasteful duplication

Under private sector there can be more investment for the same purpose which leads to
the duplication of resources and as the resources are scarce, ultimately it is a waste.
Ex: Sri Lanka has 6 telecommunication companies but we can use one firm because
it's a waste of resources.

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 it's a waste of resources.

2) Maintaining control of strategic industries

There are some industries that are strategically needed to be under the government for
the well-being of the country.
Ex: energy and water

3) Saving jobs
Private sector employees only a few and very essential labour only, which can create
unemployment in the country. In contrary, the public sector aims to provide more job
opportunities with public sector business.

4) Filling the gaps left by the private sector

Private sector probably looks into areas where the highest possible profit is gained and
there by leaves a margin in to be filled by public sector / government.
Ex: Education

5) Serve unprofitable regions

Once again the private sector driven by profits caters only the regions which will create
better revenue, and thus forget some regions totally. The public sector therefore caters
the neglected regions.
Ex: C.T.B busses running on remote areas

REASONS AGAINST THE PUBLIC OWNERSHIP OF BUSINESSES

1) Cost to government
Generally the public corporations are making losses due to high expenses and low
incomes. Additionally the way of operation leads to high costs therefore it eventually
becomes a burden on the tax payers.

2) Inefficiency
Public corporations are often criticised for their low productivity and inefficiency.

3) Difficult to control
Generally the public sector employees huge amounts of people and a vast amount of
physical resources which lead to a point where it's difficult to manage and control.

PRIVATISATION
The process of transferring public sector resources to the private sector is called privatisation.
Privatisation can take a number of forms:
1) Sale of public corporations
By selling the shares of a public corporation to a private sector, privatisation can take
place.

2) Deregulation
Removing legal restrictions that prevent private sector competition.

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 3) Contracting out
Contractors are given a chance to provide a service that was previously supplied by the
public sector

4) The sale of land and property

The government sells the land and the property to the private sector.

WHY DOES PRIVATISATION TAKE PLACE?

1) To generate income
The sale of state assets generates income for the government. Very large amounts of
money have been raised by these sales.

2) To reduce inefficiency in the public sector

Many of public sector organisations lack encouragement to make profit because whatever
the funds the funds needed are provided by the government creating high inefficiency. To
settle the problem, the assets are sold to the private sector.

3) As a result of deregulation
Existing firms were privatised so that new firms could be encouraged to join the market.

4) To reduce political interference

When too much political interference creeps in to the public sector organisations, they go
in different directions so the public sector assets are to be sold.

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