Business Activity and

Influences on Businesses

Chapter 5 Public Corporations

 Getting started
• Some business activity is undertaken by government-controlled organizations
• They have different objectives
• Health care, transport, education, banking, oil production, energy are provided
by public corporations
Features of Public Corporations
Business organizations wholly owned and controlled by the state/local government. The government
make decisions about what to produce and how much to charge consumers. Some goods and services
are provided free of charge to consumers.
• State owned: Public corporation is owned by government, but it is run by the BOD appointed by
government. Government is responsible for the corporation’s policies and objectives (product, price,
etc.)
• Created by law: Power and duties of each organization are specified in Act. Its functions are defined
by law.
• Incorporation: Public corporations are incorporated and have separate legal identity. Thus, they can
sue, be sued and enter into contracts under its own name.
• State-funded: Government provided the capital needed through the tax paid by the public.
• Provide public services: most do not aim to make profit; their main objective is to provide public
services.
• Public accountability: Public corporations have to produce annual reports and submitted to
government minister; accountable to taxpayers/public. Profits will be reinvested in the business or
handed over to government.
Examples of Public Corporations in
Myanmar
• Myanmar Oil and Gas Enterprise (MOGE)
• Myanmar Pharmaceutical Industry Enterprise (MPIE)
• Myanmar National Airlines (MNA)
• Myanmar Gem Enterprise (MGE)
• Myanmar Timber Enterprise (MTE)
• Myanmar Post (MP)
• Myanmar Railways (MR)
 Reasons for the Public Ownership of Business (advantages)
• Avoid wasteful duplication: The government ownership is essential for the industry in which it is more
efficient to have just one business to provide a service for the whole market because it needs large
infrastructure (natural monopoly); for examples two set of railway lines are not needed to a certain town.
• Maintain control of strategic industries: Government should take control for industries that are vital to
the nation’s security and vital to the well-being of the nations to prevent outsiders taking them over and
exploiting the nation. By doing so, it can guarantee reliable supply and quality of services for the public.
Energy, defense, water supply electrical power, health, education, TV and radio broadcasting are examples
of such industries.
• Save jobs: Government should take control of a failing private sector business if it employs a large number
of people to prevent mass unemployment. (Nationalization)
• Fill the gaps left by the private sector: the private sector will not make an adequate provision to meet the
market’s need; In education sector, private sector would only provide to those who can pay it. Thus,
government should take part to fill the gaps by the private sector.
• Serve unprofitable regions: the private sector would not provide service for unprofitable region like
providing electricity for remote area. In case of broadcasting, important news and programs can still made
available to the public.
 Reasons against the public ownership of business
• Cost to government: a number of corporations make losses; these losses have to be met
by the tax payer. If losses get bigger, and more frequent, tax payers might object to the
financial burden. Money used to subsidize these public corporations cannot be used for
more attractive alternatives.
• Low productivity and Inefficiency: There is no closed competition to the public
corporations. Profit motive is not powerful as in private-sector. Their losses are backed up
the government. There is a lack of incentive to increase consumer choices and increase
efficiency. (railway industry is example)
• Political interferences: Different governments have different views and thus the public
organization is subject to policy changes every time a new government is elected.
Government can use the business for political reasons. (Create more jobs just before
election)
• Difficult to control: a number of public corporations are very large and employed many
thousands of workers, have wide geographical areas, huge quantities of assets. Thus it is
difficult to co-ordinate different parts of the business so that effectiveness is not achieved.
Privatization
• Privatization is the process of transferring public sector resources to the
private sector is called privatization. (selling public sector businesses to
private sector businesses)
• Forms of privatization
• Sale of public corporation (popular way of transferring business activity
from the public to the private sector)
• Deregulation (lifting legal restrictions that prevented private sector
competition)
• Contracting out (contractors are given a chance to bid for services
previously supplied by the public sector)
• The sale of land and property (with generous discounts)
Privatization
• Why does privatization take places?
• To cut costs and reduce the burden on tax payers, an increasing range of services is
now being privatized in many countries.
• To generate income (from sales of state assets)
• To reduce inefficiency in the public sector (public sector organizations
have no incentives to make a profit and often made losses; private sector
tries to cut cost, improve services and return profits for shareholders)
• To reduce political interference (in the private sector, the government
could not use the business organizations for political aims; they would be
free to choice their own investment levels, prices, product ranges and
growth rates, for example.)
• As a result of deregulation (legal barriers were removed that allowed new
businesses)
 Test your understanding
An industry where efficiency is improved if there is just one operator is which of the
following?
A. Segmented industry C. Natural Monopoly
B. Saturated industry D. Oligopoly

Which of the following is a feature of a public corporation?

A. It is owned by the board of directors
B. It is funded by the government
C. It aims to maximize profit
D. It is not accountable to any one
 Test your understanding
The transfer of public sector resources to the private sector is called what?
A. Nationalization C. Segmentation
B. Rationalization D. Privatization

Which of the following is a reason against the public ownership of businesses?

A. Public corporations may be too large and difficult to control
B. Public organizations cannot raise enough funding
C. The government cannot employ businesspeople
D. Public corporations cannot employ overseas employees